Public Disclosure Authorized Promoting a New Economy for the Middle East Public Disclosure Authorized and North Africa Editors: Rabah Arezki Ferid Belhaj Public Disclosure Authorized Parmesh Shah Public Disclosure Authorized Promoting a New Economy for the Middle East and North Africa Editors: Rabah Arezki Ferid Belhaj Parmesh Shah © 2019 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org This work is a product of the staff of The World Bank with external contributions. The findings, in- terpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. 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TABLE OF CONTENTS SECTION ONE THE OVERVIEW 1 BUILDING A BIG AND MEANINGFUL INSTITUTION: CAREEM 3 When the Middle East ride-hailing service Careen was set up, it had a powerful mission state- ment: Simplify and improve the lives of people and build an awesome institution that inspires. It has created jobs, increased mobility and even changed lives. We’ve not only built a large ride-hailing business, but a large internet business with access to a broad swath of the popula- tion. Entrepreneurs can plug into the Careem platform to facilitate startups. Mudassir Sheikha VENTURE CAPITAL FINDS THE MIDDLE EAST AND NORTH AFRICA 7 Strong projected growth, an improving regulatory environment, and a population that is more than 40 percent under age 25 has made the Middle East and North Africa (MENA) an increasing- ly attractive destination for venture capital investment. Investments are heavily concentrated in the top markets, though. The United Arab Emirates attracted 70 per cent of funds invested in MENA countries in 2017. Issa Aghabi and Mohamed Abdel Jelil FINANCING THE NEW ECONOMY IN THE MIDDLE EAST AND NORTH AFRICA 11 The e-commerce market has been growing rapidly in the past few years in the Middle East and North Africa, in large part the result of the development of capital markets and access to ear- ly-stage financing options. These include friends and family, angel investors, and places that fos- ter startups such as accelerators and incubators. However, the region still suffers from a financ- ing gap for more mature businesses. Xavier Reille and François de Soyres HOW TO CULTIVATE HIGH-TECH ENTREPRENEURSHIP 17 The Catalyst for Resources and Education to Advance Tech Entrepreneurship Ecosystem seeks to integrate the components, resources, and human capital needed to cultivate high-tech entrepre- neurship leveraged by broadband—or iTechpreneurship. It relies on five pillars: education and professional development, mentor and resource networks, innovation capital, policy and cultur- al support, and broadband and digital platforms. Kamran Elahian iii PROMOTING A NEW ECONOMY FOR THE MIDDLE EAST AND NORTH AFRICA SECTION TWO FINANCE AND REGULATION 23 REMOVING REGULATORY BARRIERS TO COMPETITION AND INNOVATION 25 Despite much potential, the Middle East and North Africa lags other parts of the world in adop- tion of digital technology and services. Countries in which markets are open and regulatory frameworks promote competition are also those with higher digital adoption. Regulations can contribute to a more favorable environment for innovation and entrepreneurship. And regula- tions can be assessed as to whether they restrict market forces, competition and innovation. Federica Maiorano FOSTERING THE DIGITAL ECONOMY IN THE MIDDLE EAST AND NORTH AFRICA 29 An expanding digital economy offers the hope of economic growth that enhances both the earning possibilities of individuals and overall welfare. Policy measures should aim at putting an adequate physical infrastructure in place, as well as providing an institutional environment that is conducive to a flourishing digital economy. The success of the digital economy depends on public institutions such as regulators, competition watchdogs, and the courts. Martin Peitz TRANSFORMING INDIA INTO A DIGITALLY EMPOWERED SOCIETY 33 The development and proliferation of information and communication technologies have changed the way government-to-citizen and business-to-consumer services are delivered. The Digital India program seeks to make digital infrastructure a utility for all citizens so they can re- ceive governance and services on demand. Countries in the Middle East and North Africa can benefit from the Indian approach. R. S. Sharma THE AFRICAN FINANCIAL DEVELOPMENT GAP: THE BRIGHT AND THE DARK 39 There is a strong link between financial sector development and economic development, sug- gesting that finance matters to economic performance. This link provides a strong case for es- tablishing a well-functioning financial sector in both sub-Saharan Africa and the Middle East and North Africa. At the heart of the financial sector development agenda should be empowerment of private initiatives. Lemma W. Senbet SECTION THREE EDUCATION, SCIENCE, AND INNOVATION 45 HUMAN CAPITAL DEVELOPMENT AND TECHNOLOGICAL INNOVATION 47 Technology innovation plays a crucial role in the economic prosperity of nations, driving higher productivity and creating new jobs in all sectors of the economy. While developed nations have taken the lead in driving technology innovation, there is great promise and potential for coun- tries in the Middle East and North Africa to actively embrace this phenomenon. To achieve eco- nomic prosperity through technology innovation, developing nations must address education. Lesly Goh YOUNG PEOPLE NEED OPPORTUNITIES 53 The Middle East and North Africa (MENA) has the world’s youngest demographic. But youth un- employment is among the highest in the world, in large part because young people lack the skills employers need. Education for Employment provides unemployed youth in the MENA region with the skills and opportunities they need to build careers and helps companies find the talent they need to grow and create more jobs. Salvatore Nigro iv TABLE OF CONTENTS RADICAL IDEAS TO SCALE YOUTH CONFIDENCE AND INNOVATION 57 Scaling confidence and creating innovation ecosystems are crucial to fighting poverty and stim- ulating economic growth. Yet, in many countries education, telecommunication, import, and im- migration policies impede these goals. There are six ideas that governments everywhere should embrace to resolve this conflict between aspiration and policies that would improve their innova- tion environments, create more innovators, and scale confidence. Sean Blagsvedt AN ARAB SCIENCE SPRING 63 The Middle East once was a hub of scientific thought, but over the centuries its importance has declined. The region must become more self-reliant in the area of science, technology and in- novation. Fortunately science education has been growing strongly in Middle East countries. Unfortunately, the link between local universities and industry, crucial to technological develop- ment, is weak to non-existent in these countries Mussaad M. Al-Razouki SECTION FOUR DIGITAL AGRICULTURE 69 TRANSFORMING MECHANIZATION ACROSS THE DEVELOPING WORLD 71 Agriculture’s potential is largely untapped in the Middle East and North Africa (MENA). Increasing access to mechanization will enhance productivity and improve the livelihoods of the small- and mid-sized farmers who nearly all of the agricultural population. Hello Tractor is an ag-tech com- pany that connects tractor owners and smallholder farmers in sub-Saharan Africa through a farm-equipment-sharing application. Its experience is applicable to the MENA region. Van Jones and Sarah McGraw USING ARTIFICIAL INTELLIGENCE TECHNOLOGIES TO FIGHT PLANT DISEASES 75 Much of the global harvest is lost to plant diseases and pests—threatening the survival of sub- sistence farmers in many countries. Often, farmers lack the knowledge to detect and treat plant damages. Plantix, a mobile crop advisory app. can diagnose plant diseases, pest damages, and nutrient deficiencies affecting crops and offer treatment measures. Users can participate in an online community to discuss plant health issues and access local weather reports. Simone Strey FACTS FROM SPACE THAT FEED THE WORLD 79 To feed the world in 2050 both crop output per hectare and crop output per cubic meter of wa- ter must increase. And it is in improving land and water productivity that new technology, such as eLEAF can play a vital role. eLEAF technology allows us to see from space what the crop pro- duction is in a certain area, how much water the crop has used to get to its current level of ma- turity, and whether there was any water stress during the growing process. Maurits Voogt