shaping markets in the Middle East and North Africa
Limitations on competition and an emphasis on spatially distortive territorial development policies in the Middle East and North Africa have created a high fiscal burden with limited results. At the city level, the new-city orientation of several of the region’s governments has resulted in the development of many expensive and unpro-ductive new cities and zones at the expense of enabling existing centers of growth to thrive.
A mainstay of Egypt’s overarching devel-opment vision for several centuries—and now part of the “Egypt Vision 2030”
strategy—has been a model whereby Egypt leverages its desert land to create new cities for growth (Sims 2015). An analysis of the government’s fiscal year 2015–16 budget by a nongovernmental organization, 10 Tooba Collective, found that about 30 percent of the nation’s built environment budget was allocated to new cities and zones (which host about 2 percent of the nation’s popula-tion), and about 29 percent of the budget was allocated to existing cities and towns (which host roughly 98 percent of the
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2. Basic health, education, and related human capital improvements 4. Skill development, worker training, wage subsidies
6. Subsidies and other incentives to capital
FiGURE 4 .12 Jordanian current public expenditures, by spatial category, 2018
Source: “Summary of Functional Classifications for Estimated Public Expenditures According to Functional Divisions and Groups for the Fiscal Year 2018,” Law No. (1) for the Year 2018, General Budget Law for the Fiscal Year 2018, Hashemite Kingdom of Jordan.
Note: Chart excludes spatial categories 1, 3, 5, 7, and 8 because their value is less than 1 percent.
nation’s population) (Sims 2015). Although it is not possible to access GDP data for new cities and zones in Egypt, an analysis of 23 new cities established between 1979 and 2000 found that despite a projected popula-tion of over 20 million Egyptians, the 2006 population was 783,103, representing less than 4 percent of projected population.
Several new cities were completely unoccu-pied several decades after their development (Sims 2015).
Although the vast majority of the desert zones and cities have been underoccupied or unoccupied, the government of Egypt has announced a scaling-up of its new zone and city development over the past half decade.
The Industrial Development Authority, which is responsible for most zones in Egypt, announced in 2017 that it would assign 60 million square meters of industrial zone space between 2017 and 2020 (Sims 2015). It had assigned 11 million square meters during 2006–15 and another 11 mil-lion square meters in 2016. In April 2017, the M inister of Trade and I ndustry announced the establishment of new zones in all seven governorates of Upper Egypt, one of the country’s most lagging regions.
Meanwhile, the occupancy rates of existing zones is low: t he average i n Qena Governorate was 14 percent in 2016, and the average in Sohag Governorate was 34 percent (World Bank 2016). In addition, over the past four years, the Ministry of Housing announced 12 new cities (Sims 2015).
At the within-country level, most Middle East and North Africa countries offer con-siderable investment incentives to firms that locate in high-priority regions identified by governments. Those incentives cost govern-ments and deliver limited numbers of jobs in lagging regions. In Tunisia, the priority of a territory is negatively associated with its development level and is viewed as ter-ritorial affirmative action—a subsidy for firms to create jobs in regions that other-wise have an undersupply. In some cases,
those incentives could be perceived as both a means of showing attention to regions in relative need and also perhaps as a way of shifting competition away from economic hubs that are home to firms that govern-ments want to protect from competition. In Tunisia, firms benefiting from those incen-tives have located in a band parallel to the western coastline in the zones bordering leading areas and distant from the areas of weak economic activity. Worse yet, many of the success cases—foreign and domestic firms, notably Benetton, that relocated to Tunisia’s lagging regions to benefit from those incentives—closed their operations as soon as their subsidies expired (World Bank 2018c).
As with new cities and zones, several of the region’s governments are expanding their use of incentives and transfers for investments in lagging regions, with few changes to their approach despite evidence of limited results. In Tunisia after the Jasmine Revolution, the government revised the Investment Incentive Code, which gov-erns regional subsidies, to further distin-guish between degree of need, and it increased its allocation of subsidies. Also, in response to the worsening conditions in lag-ging regions after the Jasmine Revolution, the government increased the volume of financing it assigned to the Regional Development Program—a transfer program established several decades ago to support regional development.
At the cross-country level, many govern-ments’ concerns about undermining their local firms—and thus the insiders support-ing their administrations—have led them to maintain barriers to trade and hence also the barriers to increasing revenues from greater international market access. The low level of international trade observed in the Middle East and North Africa relative to comparator regions affects overall eco-nomic development and spatial develop-ment in two ways: First, it reduces the demand for production and for the further
development of the system of cities in the region’s countries. Second, some border areas that would otherwise be thriving are relatively depressed or preoccupied with informal activity because of the hard for-mal borders they face.
Despite the limited impact of their primary territorial development interven-tions, several of the region’s governments continue to take the same approach to ter-ritorial development for several reasons.
First, despite limited economic returns to their spatial bets, some groups receive them. Investors that receive no-cost or low-cost access to land that will appreciate in value benefit from new city and zone poli-cies. Likewise, investors that benefit from generous locational subsidies have an inter-est in sustained and even augmented subsi-dies linked to their location choices.
Regarding international trade, there will be strong support for regional integration when local elites, especially the business com mu n it y, see oppor t u n ities f rom enhanced trade and interaction. There will be little support, or outright obstruction-ism, if they benefit from the status quo (Malik and Awadallah 2013). Even though fragmentation of regional markets means that companies forgo benefits from scale and agglomeration, in many countries, they gain from high levels of monopoly power in their domestic markets. As long as market entry is restricted and political patronage serves incumbents, there will not be a siz-able constituency for greater openness.
A high degree of state ownership; resource rents that reduce reform pressures; and rents from licensing, quotas, contracts, or preferential access to land further reduce efficiency and international competitive-ness (Diwan, Keefer, and Schiffbauer 2015;
Gatti et al. 2013). It will thus be difficult to initiate greater regional integration and related reforms without finding ways to
overcome the resistance from influential rent-seeking beneficiaries of the status quo.
Since these cases represent situations of concentrated winners and diffuse losers, the pressure on governments to sustain these interventions is high.
Second, it can be easier to start fresh than to fix an existing challenge. In the case of desert development policies in Egypt, Saudi Arabia, the United Arab Emirates, and others, decision makers advocate for developing new cities and zones as a way of navigating around rather than working through constraints to growth. They pitch new city and zone development as ways to develop new cen-ters of growth that are unfettered by poor planning and informal development.
Third, concrete information is scarce on the relative successes and failures of territo-rial development policies in the region. In general, it is difficult to accurately quantify the impact of different territorial develop-ment policies. In the Middle East and North Africa context, this methodological challenge is exacerbated by the paucity of data and accurate information about the costs, bene-fits, and trade-offs of various development interventions.
Fourth, there is always hope. Some territo-rial development experiments in the region have succeeded—such as Dubai, Tangier, and Marrakesh—which have inspired decision makers elsewhere to attempt to replicate their successes. What separates the success stories from the larger number of relative failures are natural geography advantages (as in Dubai and Tangier); a focus on reinforcing market demand and organically and contiguously expanding development; up-front efforts to make the business environment extremely welcoming; and coordinated efforts and high-level vision and support to deliver these projects. Few of the territorial efforts have met these requirements.
TABLE 4A .1 Disaggregation of government expenditure for comparator countries, by spatial category a. Spain
Spatial category
Share of public expenditure (%)
1. Broad-based governance and institutional reforms 45
2. Basic health, education, and related human capital improvements 42
3. Provision of basic public services 5
4. Skill development, worker training, wage subsidies 5
5. Physical infrastructure for connectivity and to support local production 1
6. Subsidies and other incentives to capital 1
7. Growth poles, industrial districts, other location subsidies 0
8. Public sector industrialization and industrial location regulations 0.2 b. South Africa
Spatial category
Share of public expenditure (%)
1. Broad-based governance and institutional reforms 59
2. Basic health, education, and related human capital improvements 22
3. Provision of basic public services 11
4. Skill development, worker training, wage subsidies 1
5. Physical infrastructure for connectivity and to support local production 4
6. Subsidies and other incentives to capital 3
7. Growth poles, industrial districts, other location subsidies 0
8. Public sector industrialization and industrial location regulations 2
c. Hungary and Poland
Spatial category
Hungary (share of public expenditure, %)
Poland (share of public expenditure, %)
1. Broad-based governance and institutional reforms 24 15
2. Basic health, education, and related human capital improvements 58 69
3. Provision of basic public services 5 8
4. Skill development, worker training, wage subsidies 3 2
5. Physical infrastructure for connectivity and to support local production 8 4
6. Subsidies and other incentives to capital 2 1
7. Growth poles, industrial districts, other location subsidies 0 0
8. Public sector industrialization and industrial location regulations 0.4 0.2 Source: Government Finance Statistics (GFS) database 2015, International Monetary Fund.