How to unlock new growth markets in the Middle East and North Africa

At a time when the outlook for the global economy is at its weakest since 1990, recent research from World Economic Forum (WEF) identifies new trends that outline key growth markets that can reinvigorate economic growth in the service of society. Interestingly, WEF's report on the Markets of Tomorrow finds that 35% of companies surveyed perceive the lack of initiative from the public sector as a growth obstacle in new markets.

The Middle East and North Africa (MENA) has a strong record of government leadership in the economy. In 2022, state-backed Sovereign Wealth Funds invested $89 billion in industrial sectors, infrastructure development and technology with the purpose of aligning economic opportunity with societal needs.

So, with the global balance of public/private involvement in the economy starting to tilt in the direction of some of the countries in the Middle East, what are the key opportunities and roadblocks that the region faces to create new markets that are adapted to its population’s needs? And, how can industrial policy be shaped in the region to adapt to a fast-evolving global context?

WEF has recently underlined ten technologies that are of strategic importance in driving growth, see Figure 1.

These co-related to ten strategic sectors across the global economy that will require upscaled cooperation and investment, see Figure 2. In MENA, high-income economies are found to be shaped by AI and ICT technologies. Meanwhile, lower-and middle-income countries’ markets are found to be shaped by financial and trade-enabling technologies.

For instance, Artificial Intelligence (AI) was identified as a key driver of growth in the United Arab Emirates (UAE) and Saudi Arabia. In both countries, AI was seen as a favourable catalyst for unlocking opportunities, with almost 36% and 31% of respondents respectively highlighting it as a strategic priority. Both governments have already been the investor-of-first-resort across the sector. Saudi Arabia’s Public Investment Fund (PIF), for instance, recently announced an investment of $776 million in a joint venture with China’s SenseTime to develop an artificial intelligence ecosystem in the Kingdom. Saudi Arabia is also ranked 2^nd in terms of awareness on Stanford’s Artificial Intelligence Index Report.

Investments in this sector are, therefore, likely to reap large benefits and propel growth. This is evidenced by PwC highlighting that increased investments in AI can generate up to $320 billion by 2030 for the region, with the UAE and Saudi Arabia benefitting the most with a 13.6% and 12.4% contribution to GDP respectively.

Meanwhile, Healthtech was identified by respondents as another valuable technology with more than one-third of respondents in Egypt (34.7%) and Qatar (36.5%) identifying it as a strategic priority. Across MENA, the sector has been the fastest in terms of growth, toppling Fintech. As it stands, as a market Healthtech in the region is worth more than $1.5 billion, a remarkable twenty-two-fold increase in value since 2016. With a growing population, continued investments and government backing, growth opportunities will be unlocked through job creation, automation and improvement of livelihoods. This is also why we have seen the likes of Qatar Investment Authority (QIA) increasing its exposure to healthcare to $5.8 billion, with local and international investments to boost technology integration across the sector.

It’s worth noting that new market opportunities will not always be shaped by frontier technologies. In Bahrain, 43.7% of respondents underlined, for example, how Financial Services and capital market technologies are likely to be the drivers of growth for the region’s oldest financial hub. Meanwhile, in Jordan, 30% of respondents highlighted how Supply Chain and Transport opportunities are critical for the country.

Elsewhere in the region, countries will also need to continue investing in key industrial sectors parallel to frontier technologies to ensure economic diversification and to complement new market opportunities. Manufacturing, for example, still represents an untapped opportunity in MENA, compromising only 12% of the region’s GDP in 2020. Governments are putting themselves ahead of the curve and driving investments in the sector to fill global market needs, while relying on advanced technologies.

In Oman, for example, manufacturing investments grew by 65.6% compared to 2021, surpassing $19.5 billion, with substantive backing from the government into key industries that support the population’s livelihood and well-being. In Morocco, the government is leading an effort to invest $180 million with five automotive cable suppliers as it pushes to meet the growing demand from electric vehicle makers, the same strategy is underway in Egypt. All positive signals for key industries and sectors.

Energy remains a critical sector, but it will take a new direction. None of the surveyed economies, for instance, identified power storage and generation technology as a driver of growth in the region. However, in the long run, as governments continue to commit to sustainable transformation, more and more investments will flow into the sector accelerating the creation of new economic opportunities. Positive indications in that direction have already been recorded with giants such as Aramco announcing the creation of a $1.5 billion Sustainability Fund and Qatar funding RWE’s $6.8 billion green energy deal in the US. Governments across the Maghrib are also prioritising this sector as a long-term priority. Tunisia is offering investment opportunities in renewable energy worth $1.60 billion over the next two years, signalling the extensive growth prospects ahead.

Much progress has been achieved on several fronts in the region when it comes to technology adoption and sectoral development. New market growth opportunities, however, will not be realised without a mature ecosystem. Out of ten bottlenecks identified by WEF’s research, see Figure 3, skills and talent, clear market standards and the lack of public sector initiative are likely to have the greatest impact on the region’s future growth trajectory.

An IMF study in 2022 underscored that the skills deficiency in MENA is at a staggering 70%, putting the region at risk of technological disruption and rising unemployment. Meanwhile, although investment into R&D has increased, MENA lags when it comes to research spending, as a percentage of GDP it's falling below global averages. With a young and fastly growing population, this is the greatest risk the region faces today and it needs to be addressed to pave the way for new growth opportunities.

Government reform of market standards coupled with good governance will be extremely critical in unlocking growth opportunities. The World Bank in its latest update underlined how transparency and accountability can help drive growth in the region. With a large deal of disparity across MENA markets, the opportunity cost is tremendous. In 2020, Deloitte, based on World Bank analysis, underlined that on average, a 1% higher score on regulatory quality can generate approximately $250-500 million of higher annual FDI inflows for an economy. Governments should, therefore, focus on establishing clear standards backed by strong institutions to propel economic activity and attract new players – local and international, while integrating the private sector.

Regional cooperation will also be vital. Currently, regional cooperation in MENA is somehow uneven and fragmented and has mainly focused on geopolitics and security. To truly drive growth, governments in MENA must look inward and focus on forming more concrete economic blocks, sharing knowledge and leveraging each other’s strengths to unleash the region’s true potential.

As the division of responsibilities between the public and private sector is being redefined globally in the context of a more active state, the MENA region has an opportunity to be ahead of the curve in terms of a proactive economic policy. For the past few years, several governments have attempted to crowd in the private sector by taking a stake in strategic projects to decrease risks to investors. Making sure that the private sector is a co-pilot on this journey, and not simply a passenger, could provide the region with a significant competitive advantage as the next version of globalisation takes shape.

For this purpose, the World Economic Forum is working closely with interested countries - such as the UAE and Saudi Arabia - to establish markets-of-tomorrow accelerators that bring together public- and private-sector stakeholders to reimagine and nurture growth ecosystems through technology, innovation and best-in-class policy practices.