The Middle East and North Africa (MENA)region is one of the richest in the world in terms ofnatural resources. It holds more than 60 percent of theworld's proven oil reserves, mostly located in the Gulfregion, and nearly half of global gas reserves. Notsurprisingly, oil represents close to 85 percent of themerchandise exports of the region, making it highlysusceptible to fluctuations in international prices. A longstrand of economic literature suggests that such dependencemay hurt a country's growth prospects and job creationby reducing the scope for economic diversification.Aforthcoming WB publication investigates how MENA canovercome this challenge and encourage greater economicdiversification. The study examines the pattern ofstructural transformation in MENA and explores the role ofnatural resources and macroeconomic policies in driving thecurrent (limited) diversification outcomes. The authorsexplore analytical questions, such as: (i) the impact of thereal exchange rate on manufacturing and tradable servicescompetitiveness in MENA; (ii) the role of fiscal policy insupporting diversification; (iii) how 'weak links'(input sectors with low productivity) play a critical rolein explaining the concentration of economic activities, inaddition to the classical Dutch disease effect; and (iv) theimpact of macroeconomic factors on the drive for regionalintegration. The main findings are summarized in this quicknote. The study highlights that the negative effect of rentsis compounded by the negative impact of policy andregulatory restrictions on entry, and of business conduct onthe development of services sectors.
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