As governments in the Middle East and North Africa (MENA) region – and across the globe – seek to address the profound health, economic and social effects of the COVID-19 pandemic, many have prioritised attracting and retaining investment as key to supporting the recovery. Indeed, improving the investment climate has long been a priority for the region’s governments, recognising the developmental benefits that foreign direct investment (FDI) can bring – from job creation, to productivity, to green growth. To this end, many MENA governments have advanced meaningful reforms in the past decade, including easing entry of foreign business and streamlining regulations for investors. Despite these developments, MENA governments overall have been less successful than other emerging and developing economies at leveraging investment to advance sustainable development.

Middle East and North Africa Investment Policy Perspectives(MENA IPP) highlights the considerable progress in investment policy reforms made by governments in the region over the past decade. This reform momentum needs to be sustained and deepened so that the benefits of investment can be shared with society at large, particularly given the global health and economic upheaval provoked by the Covid-19 pandemic. The publication takes stock of investment policy trends and reforms in Algeria, Egypt, Jordan, Lebanon, Libya, Morocco, the Palestinian Authority, and Tunisia, drawing out common challenges and offering suggestions for reform priorities. It considers several dimensions of the policy framework that affect the investment climate, and places strong emphasis on how investment can help governments to improve the lives of their citizens. The report serves as a point of reference for policymakers as they continue their work to attract investment that advances inclusive and sustainable development.

Harnessing the benefits of investment for sustainable development in the Middle East and North Africa (MENA) is more imperative than ever. The health and economic crises precipitated by the Covid-19 pandemic have added to already pressing socio-economic challenges in the region. Global foreign direct investment (FDI) flows fell by 50% in the first half of 2020 compared to the preceding six months, and the OECD predicts world economic output to contract by 4.2% in 2020. The effect on MENA economies could be even greater. FDI inflows to the region declined sharply in 2020, and forecasts suggest a significant economic contraction ahead, with sharp increases to already high unemployment and poverty, as well a rising risk of macro-economic, political and social instability.

Middle East and North African governments have advanced notable reforms to improve the investment environment in the past decade. But further efforts are required to leverage investment to advance inclusive and sustainable development, and support recovery from the economic crisis provoked by the global pandemic. This chapter provides an overview of liberalisation reforms and investment climate constraints in the region, drawing out common challenges shared by the eight diverse economies. It offers an overarching reform agenda based on the main findings and policy considerations of MENA Investment Policy Perspectives.

This chapter reviews trends in foreign investment in the eight MENA focus economies, including top investing partners and which countries and sectors attract the most greenfield investment. The chapter also explores the development benefits of FDI in the region, including the impact of investment on productivity, jobs, skills, gender equality and carbon footprint, based on the OECD FDI Qualities Indicators.

Regulatory predictability and certainty are essential to create sound and enabling investment environments. In a significant effort to mitigate their reputational risks as investment host states, MENA countries have embarked on a major drive to modernise and strengthen the regulatory corpus framing investment and business activities, and investment legislation has gained central importance in their regulatory reform agendas. This chapter gives an overview of the recent wave of legal amendments and looks at the commonalities and variations in the content and structure of MENA domestic legislative frameworks. It identifies patterns in their reform processes and provides policy considerations to further advance on the regulatory modernisation path.

This chapter provides an overview of the main regulatory restrictions to foreign investment in the MENA focus economies, drawing on the OECD FDI Regulatory Restrictiveness Index (the Index). The Index gauges the level of restrictiveness of an economy’s statutory measures on FDI in over 70 countries worldwide and in 22 sectors. Despite important reforms, MENA economies are on average more restrictive than other regions, potentially limiting FDI inflows and economy-wide productivity gains. This can have implications for MENA economies’ stated objectives of economic diversification and participation in global value chains.

The eight MENA economies covered in this report have entered into a significant number of international investment agreements and experienced a rise in investor-state investment dispute cases in the last decade. This chapter takes stock of these developments. It highlights the need to consider and engage in reforms with a focus on the revision of investment treaty policy, clarifications of legal provisions and implementation of dispute avoidance measures and mechanisms.

This chapter provides an inventory of practices among Investment Promotion Agencies (IPAs) in eight MENA economies, allowing practitioners and policy makers to benchmark their institutions against those from other countries in and outside the region. The chapter addresses IPA’s institutional environments, mandates, strategic priorities, and core investment promotion and facilitation activities. It also provides insights on investment promotion and facilitation practices at the sub-national level across the region.

MENA governments widely use tax and financial incentives to attract investment and direct it into certain sectors, activities and locations. This chapter presents original research mapping investment incentives granted in the eight MENA focus economies, including the types of instruments used and the extent to which they target certain sectors, activities and locations. It also explores the level of discretion involved in granting incentives. The results reflect tax and financial incentives detailed in national tax codes, investment laws, and in publicly-available documents published by investment promotion agencies, ministries of finance and economic zones. The chapter also draws on discussions with practitioners from investment promotion agencies and finance ministries in the region.

This chapter describes trends in MENA economies’ participation in global value chains and provides measures of supply chain linkages between multinationals established in the region and domestic SMEs. It gives an overview of relevant policies and programmes in the eight MENA economies to enable SME linkages with foreign firms in global value chains. The chapter also sheds light on policy priorities and discusses policy options for MENA governments to support business relationships with higher sustainable development impacts.

This chapter examines the current context of infrastructure investment in the MENA region with a focus on transport, ICT and energy sectors. It reviews the challenges of infrastructure development and provides an overview of recent reforms to boost infrastructure investment and financing, including through public-private partnerships. It also provides policy considerations to address the legal and institutional frameworks for investment in infrastructure.

Promoting and enabling responsible business conduct (RBC) is key to attract and retain quality investment and ensure that business activity contributes to broader value creation and sustainable development. This chapter reflects on achievements and challenges in MENA economies in promoting and enabling RBC.

This chapter explores how the adoption and promotion of anti-corruption and integrity measures by MENA governments and the private sector can contribute to more sustainable investment, and in turn inclusive economic development. It reviews the link between corruption, integrity and investment and analyses corruption risks and occurrence across the investment process. To advance the integrity agenda, MENA governments should enhance the connection between investment and anti-corruption frameworks and strategies at the domestic level and rely further on international conventions and instruments on anti-corruption. The private sector also has a central role to play in the fight against corruption.

Fragility and crises are pervasive elements in some parts of the MENA region, weakening the potential of some countries to attract investment. This chapter discusses how the different dimensions of fragility affect investment in the focus economies, and outlines policy considerations to overcome challenges in attracting and retaining FDI. It presents the main drivers of fragility and explores their complex relationship with FDI. While fragility and crises may discourage investors, FDI is a crucial source of growth and financing to strengthen resilience in fragile scenarios.