Transforming Finance in the Middle East and North Africa

Rabah AREZKI * Économiste en chef pour la région MENA, Banque mondiale ; membre honoraire, Harvard's Kennedy School of Government. Contact : rarezki@worldbank.org.

Lemma W. SENBET ** Professeur de finance, Chaire William E. Mayer, Université du Maryland, College Park ; directeur exécutif/directeur général sortant, Consortium pour la recherche économique en Afrique (CREA).L'article a été préparé pour le numéro spécial de la Revue d'économie financière n° 136 ayant pour thème « La finance méditerranéenne ». Nous remercions les coéditeurs Vincent Caupin et Xavier Mahieux, ainsi que Hesham Alogeel, Jihad Azour, Omar Bougara, Mohamed Belkhir, Moez Ben Hassine, Olivier Blanchard, Patrick Bolton, Simeon Djankov, Merza Hasan, Mahmoud Mohieldin, Ghiath Shabsigh pour leurs précieuses interventions. Nous remercions également Fang Tan pour son aide efficace sur le plan des recherches. Nous sommes seuls responsables des erreurs qui pourraient subsister.

This paper argues for a transformation of finance to support the economic and social transformation of the Middle East and North Africa (MENA). The paper first documents the existing financial system in MENA. The system is heavily skewed toward banking, relative to non-banking services, such as stock and corporate bond markets, with significant heterogeneity across countries in the region. Second, the paper discusses the macroeconomic impact on the development of finance in MENA. The stance of macroeconomic policy has had important implications on the destination, profitability and quality of bank lending and the limited evolution of the financial system. Third, the paper explores the impact of technology on financial development, with particular attention to prospects for the development of fintechs in MENA. Entrenched incumbency of banks has limited the role of non-bank operators in fostering market contestability and fintech development. The paper is intended to be a call to the authorities and policy makers in MENA to break with the status quo and business as usual. More specifically, it underscores the need for a “moonshot approach” focused on establishing the foundations of a new digital economy in MENA and its role in promoting a well-functioning and inclusive financial economy to support the development needs of MENA.