9. Enhancing connectivity through infrastructure investment

High-quality infrastructure is a crucial input for inclusive and sustainable growth. Transport, energy and ICT infrastructure are vital for facilitating investment and promoting connectivity, industrial development and economic diversification in the MENA economies covered in this report (MENA focus economies). Yet, several shortcomings persist across all infrastructure sectors. While the MENA focus economies have made progress in developing basic physical infrastructure, the performance of transport infrastructure (including ports, roads and airports) remains low, causing delays and raising the cost of trade. Poor logistics affects trade and investment more than the lack of infrastructure. On average, 24% of manufacturing firms in the MENA focus economies identify transport issues as a major constraint to their business operations.1

MENA economies face bottlenecks in transport infrastructure, including railways, a lack of multi-modal transport, and a fragmented port system. In the wider MENA region2, this will require investment of at least USD 100 billion annually over the next five to ten years to maintain existing and build new infrastructure (World Bank, 2020[1]). Financing gaps are present across all infrastructure sectors, but more prevalent in cross-border infrastructure, road transport and energy.

While ICT infrastructure is relatively well developed across the MENA region, significant investment in fixed and mobile broadband capacity is required to further facilitate domestic and foreign investment. Key factors limiting the development of the ICT sector include the lack of effective competition and appropriate regulation (Gelvanovska, Rogy and Rossotto, 2014[2]). Many countries still face high barriers to internet accessibility, hindering business operations. Currently, only 8% of SMEs in the wider MENA region have an online presence (compared to 80% in the US) and only 1.5% of the region’s retailers are online (McKenna, 2017[3]).

Infrastructure is mainly provided by the public sector through state-owned enterprise (SOEs), with relatively little private sector participation. Public-private partnerships (PPPs) are limited but they are an important avenue through which private sector resources and expertise can be leveraged. In recent years, some MENA governments have boosted efforts to build a credible environment for PPPs by updating their PPP laws and setting up PPP agencies or specialised units within existing institutions (e.g. Jordan, Morocco, Tunisia and Egypt). While the regulatory and institutional environments governing PPPs differ, there is growing political support for PPPs across most MENA economies. Greater private sector involvement in infrastructure through PPPs could not only improve the efficiency of infrastructure and bring new technologies and skills, but also reduce the fiscal burden on public budgets.

Improving infrastructure governance could also attract more private investment. MENA focus economies could improve the management and efficiency of public investment, as well as transparency of procurement and appraisal processes. Planning infrastructure development in a holistic way, following good practices for infrastructure governance, can help alleviate some of the challenges in the region and boost investment.

Infrastructure that improves the connectivity of the eight focus economies in the MENA region is an essential element of policies to promote inclusive and sustainable growth. With a population that is expected to grow by 40% to 586 million by 2030, accelerated urbanisation in the coming decades, and a rapidly growing middle class, the region faces increasing strains on its existing infrastructure (Kandeel, 2019[4]). The economic fallout caused by the Covid-19 pandemic is also creating the need for technologically advanced, sustainable and resilient infrastructure that can support the economic recovery. Infrastructure – including transport, energy and ICT and associated services – is vital for facilitating investment, promoting industrial development and economic diversification of the focus economies in the MENA region. Yet, several shortcomings across all infrastructure sectors currently limit the potential for further investment and the contribution made by infrastructure to sustainable and inclusive growth.

While the region has made progress in developing basic physical infrastructure in recent years, the performance of transport infrastructure (e.g. ports, roads and airports) remains low, causing delays and raising the cost of trade. According to the World Bank’s Logistic Performance Index, the performance of infrastructure varies considerably across the eight focus economies (Figure 9.1). Egypt has advanced most in the region in the past decade thanks to a boost in investment, while Morocco’s performance has worsened. Morocco’s performance is partly inhibited by weaknesses in customs services and tracking and tracing consignments (Chauffour, 2018[5]). Algeria has also improved its performance since 2010, while in Tunisia and Lebanon there is significant scope for improvement. Overall, the region still faces important infrastructure shortcomings, including in transport, ICT and energy, as reflected in various international indicators (Annex 9.A).

Across the MENA region, poor logistics affects trade and investment more than the actual lack of infrastructure, making the economies relative outliers compared to other regions in terms of their logistics performance. Logistics challenges can be widespread. The cost of port facilities in North African economies are around 40% above the global norm, with long container dwell times, lengthy documentation processing, and delays in vessel traffic clearance (AfDB, 2019[6]). As a result, 70% of delays in cargo is due to extra time in ports. Less than 7% of global intraregional merchandise trade occurs within the region, compared to 40% in East Asia and 50% in Europe. Public sector monopolies in transport infrastructure in most of the MENA economies has undermined incentives to reform (World Bank, 2020[1]).

Bottlenecks in logistics and transport infrastructure in the MENA region are a major constraint to more trade and investment, limiting the growth of manufacturing firms in particular. In a number of the focus economies, firms identify transport issues as a major constraint to their business operations (Figure 9.2). According the World Bank Enterprise Survey, this is particularly a challenge in Jordan, Morocco and Tunisia. Exporting firms also often face higher transport constraints than domestic firms, particularly in Tunisia, Jordan and the Palestinian Authority.

In contrast to other transport sectors, port infrastructure has received significant public investment by MENA governments. Many economies have developed port infrastructure aimed at accessing European markets but there is also scope to enhance regional trade. Only 5% of cargo traffic in the Mediterranean region passes between MENA countries, while it is 70% between European ports, and 15% between Europe and North Africa (IMF, 2019[7]). The number of inter-port links or port pairs across the Mediterranean has actually declined, from 2,279 in 2009 to 1,532 in 2016. For instance, Tunisia has direct links only to its closest European trade partners (Arvis et al., 2019[8]). There are very few direct lines of sea transport among Maghreb countries, which transport their intraregional goods through third-country ports, such as Marseille, Almeria or even Rotterdam. These locations generate additional costs and limit the price competitiveness of traded products.

Many ports in the region offer significant opportunities for foreign manufacturers looking for locations near markets in Europe, the Middle East and Africa, but this potential is not realised in many countries. According to the IMF, only a few ports are competitive by international standards, with Morocco leading the way with its Tangier port, which became a logistical hub for the region and is considered the biggest container port in Africa in terms of turnover. In Egypt, the expansion of the Suez Canal in 2015 and the establishment of the Suez Canal Economic Zone to offer more competitive services for global shipping lines and investors are also expected to capture up to 25% of Egypt’s containerised Mediterranean trade (Arvis et al., 2019[8]).

The MENA focus economies are well endowed with renewable energy sources such as solar and wind, but the share of renewables in the energy mix varies among countries (see also Chapter 2 on FDI trends and development benefits). Such resources could lower the price of renewable energy and add significant generating capacity. Yet, the share of renewable energy in final energy consumption varies significantly among countries, from 0.1% in Algeria, between 5 and 5.5% in Egypt and Jordan, and between 10 and 12% in Morocco and Tunisia (IEA, 2020[9]). Similarly, the share of renewables in electricity production ranges from 35% in Morocco and 8.5% in Egypt.

Some countries have shown commitment to deepen the use of renewables. For instance, Jordan, which together with Morocco is one of the largest energy importers in the MENA region (importing over 93% of its total energy supplies), has launched a large renewable energy programme focusing on wind and solar (Abu-Rumman, Khdair and Khdair, 2020[10]). Morocco, which also imports 93% of its energy needs, aims to increase the share of renewable energy to reduce its vulnerability to supply shocks and other disruptions caused by the heavy dependence on imports (IFC, 2019[11]). Its National Energy Strategy, implemented by the Moroccan Agency for Sustainable Energy, aims to increase the share of renewable energy to 52% of total installed energy generating capacity by 2030 (ibid). In general, one challenge in the MENA region is to create an environment conducive to low-carbon and climate resilient options. In particular, countries need to encourage competition and entry of private investors in renewable energy.

ICT infrastructure is relatively well developed across the wider MENA region, thanks to investment by the government as well as by the private sector. According to the 2019 Mobile Connectivity Index3, which measures the performance of countries against the key enablers of mobile internet adoption – infrastructure, affordability, consumer readiness, content and services – many of the MENA focus economies are “transitioners”.4 Lebanon has the highest score among the focus economies, followed closely by Tunisia and Morocco; Jordan, Egypt, and Algeria rank slightly lower on the index (GSMA Intelligence, 2020[12]). Mobile technologies and services account for 4.5% of GDP in the wider MENA region, supporting 1 million jobs directly and indirectly, and contributing to over USD 18 billion of taxes. Overall, mobile technology and services generated USD 191 billion of value added, which is expected to exceed USD 222 billion by 2023. 4G technology is expected to surpass 3G in the region by 2021 (ibid).

Yet, to keep up with growing demand, significant investment is necessary to increase the fixed and mobile broadband transmission capacity of the eight focus economies. Key factors limiting the development of the ICT sector in Algeria, Egypt, Morocco, Libya, Tunisia and Jordan include the lack of effective competition and appropriate regulation (Gelvanovska, Rogy and Rossotto, 2014[2]). In Jordan, lack of competition has led to low quality of service and one of the highest prices of mobile and fixed internet in the region. Better ICT infrastructure could further facilitate investment, including by making it easier for companies to access local and international markets, and allowing frequent and uninterrupted communication with the headquarters (Latif et al., 2018[13]).

A more competitive ICT sector would allow companies to enter new markets and contribute to the digitalisation agenda of the focus governments in the region. Like many other sectors, the ICT sector is generally dominated by incumbent firms, private sector or state-owned, making it difficult for other firms to enter the market (World Bank, 2019[14]). Enhanced broadband services would allow all sectors to take advantage of a more modern digital economy (ibid). It would also create new trade opportunities for SMEs, allowing them to reach to new markets.

Many countries still face high barriers to internet accessibility. Currently, only 8% of SMEs in the wider MENA region have an online presence (compared to 80% in the US) and only 1.5% of the region’s retailers are online (McKenna, 2017[3]). Excluding the high-income countries from the average, the MENA region has 100 mobile phone subscriptions per 100 inhabitants on average. Morocco and Tunisia surpass the average (128 and 124 per 100 inhabitants respectively), while other countries are below the average: Lebanon (64) and Jordan (88) (WEF, 2019[15]).

The wider MENA region needs over 100 billion a year (7% of the annual regional GDP) over the next five years to maintain existing and create new infrastructure, according to the World Bank5 (Figure 9.3). Developing oil exporting countries will need to commit 11% of their GDP annually. Oil importing countries and GCC oil exporters need approximately 6% and 5% of their GDP in infrastructure investments, respectively. The gaps are present across all sectors, but are more prevalent in cross-border infrastructure, road transport and energy. Transport and electricity account for around 43% of total needs, followed by ICT (9%) and water and sanitation (5%). The electricity needs alone will require 3% of annual regional GDP. Oil importing countries will also need to spend around USD 86 billion to upgrade transport networks. Not only is new infrastructure needed, but also proper maintenance and quality control of the existing assets.

The Global Infrastructure Hub recently estimated that Egypt, Morocco and Tunisia together need USD 997 billion of investment in infrastructure until 2040 (GIHub, 2017[17]). The largest gap is in Egypt, which, under a growth assumption of 4% of GDP each year, will need to spend USD 675 billion (or 5% of GDP) on average until 2040. Given the current levels of spending, this translates to an investment gap of 1.7% of GDP. Morocco has a USD 37 billion infrastructure gap (or 0.90% of GDP under a 3.6% growth assumption). More recent estimates suggest that total investment needs range from 11.5%-18.3% depending on three scenarios of low-growth, business-as-usual, or high-growth) (IFC, 2019[11]). Similarly, Tunisia will also need to spend USD 75 billion (or 4.4% of GDP) on average on infrastructure until 2040.

Since the early 2000s, private investment in infrastructure has been increasing steadily across most regions with the exception of MENA. In several MENA countries, private sector infrastructure investments declined sharply in 2010-12. While investment has since recovered to pre-2010 levels, this is primarily due to a few large projects concentrated in the electricity sector in Morocco. The transport and water sectors have seen very limited activity over the past five years (Figure 9.4). Private investment in infrastructure over the past three years has been highly concentrated geographically. Two-thirds of the number of projects have taken place in Jordan, partly a result of the country’s programme promoting renewable energy, particularly solar PV plants. In terms of capital expenditure however, almost 75% has gone to Morocco due to the Noor I and II large concentrated solar power projects in Ouarzazate, and a 1360 MW coal-fired power plant in Safi, Southwest Morocco (OECD, 2017[18]).

The principal sources of infrastructure project finance in the MENA region over the past three years have been multilateral and bilateral lenders with the EIB, EBRD, and Islamic Development Bank, being among the most active players. Bilateral lenders come from a wide range of countries and include France, Germany and Japan, among others. Support from multilateral and bilateral lenders has almost exclusively been in the form of debt. International banks have also participated in a number of projects though always in conjunction with a multilateral lender or a major bilateral lender. Local commercial banks have only played a marginal role with the exception of the Agadir desalination plant in Morocco, where they have been the only source of debt finance (OECD, 2017[18]).

In order to attract more private sector participation in infrastructure, governments in the region need to ensure that infrastructure priorities are an integral part of economic development strategies and supported by a clear accompanying regulatory and institutional framework. There are often cases when hard infrastructure is developed without the appropriate trade and business regulatory reforms, or where it has lacked the necessary multi-modal approach to deliver the expected results. Overcoming such a fragmented approach is critical for strengthening the investment climate and leveraging the positive spillovers from regional connectivity.

In MENA countries that have traditionally relied on natural resource revenues for infrastructure financing, low oil prices will require governments to reconsider their investment strategies and plans for the long term (Rice, 2015[19]). The social and political upheavals over the past decade, coupled with the Covid-19 pandemic, have created additional challenges, including the need to improve governance to give confidence to the private sector to invest in infrastructure.

Infrastructure development is high on the region’s agenda. Many focus economies have launched national strategies that stress the need for upgrades in infrastructure to promote sustainable development. Two specific projects that have successfully combined infrastructure investment with an industrial policy agenda are the expansion of the Suez Canal and the Development of the Suez Canal Economic Zone and the Tanger Med Port of Morocco (Box 9.1). In Egypt, plans to increase connectivity are laid out in Egypt’s Vision 2030, which aims to increase the capacity of the transport sector and boost Egypt’s share in international and regional transport volumes. The Economic Pillar of Vision 2030 includes mega projects such as the Suez Canal and Suez Canal Economic Zone. At the sectoral level, the Transport Master Plan 2027 aims to achieve multi-modal transport chains between national, regional and gateway centres, but also to enhance the role of the private sector in investing and participating in transport projects.

In Morocco, all infrastructure sectors have developed investment plans with ambitious targets and long time horizons for increasing both stocks and quality. For instance, the 2040 Rail Strategy (Plan Rail Maroc) aims to develop the rail network and its various components across the country by 2040 and contribute to territorial development (ONCF, 2020[20]). The National Port Strategy 2030 also aims to consolidate Morocco’s ports to increase cargo output and port capacity at a total investment of USD 6 billion, primarily from the public sector (Rensma and Hamoumi, 2018[21]).

Infrastructure development is also high on Algeria’s policy agenda. The 2015-2019 Investment Plan aimed to support development of various connectivity projects, including rail systems, roads, airport modernisation and ports (Oxford Business Group, 2017[25]). Given that the vast majority of the country’s trade is moved through its 11 commercial ports (95% of imports arrive by sea), an important priority is to upgrade ports to increase capacity to handle large vessels and make Algeria a Mediterranean hub (ITA, 2019[26]). Another priority is to expand the rail network to reduce road congestion and increase rail freight domestically and with neighbours. The push for regional connectivity is also driven by the opening of a rail line linking Annaba with Tunisia (Oxford Business Group, 2017[25]).

Jordan’s 2025 National Vision and Strategy stresses the role of infrastructure to achieve economic transformation based on export development (Harake, 2019[27]). The infrastructure priorities are laid out in the Jordan Economic Growth Plan 2018-22 for each sectors. In the transport sector, the Plan has several objectives, including to complete and upgrade the transport networks such as airports and ports, enhance the capacity of the land cargo system, and develop a multimodal transport system. In particular, the government aims to establish a cargo-based rail network connecting the main industrial cities and logistical centres domestically, as well as to connect with neighbouring countries and Europe (Jordan Economic Policy Council, 2018[28]). The investment required for such a network is estimated at USD 2.1 billion, which the government hopes to allocate through partnerships with the private sector (ibid).

Mobilising the necessary resources for infrastructure investment in the region requires effective planning and prioritisation of projects. Numerous projects are set up in different infrastructure strategies across countries. Often, the allocation of budget for projects is done on an annual basis. MENA governments need a medium-term planning and funding allocation to increase stability for infrastructure projects. So far, Algeria and Jordan have introduced a medium-term budgetary framework that could allow for multiyear sectoral planning to ensure that investment expenditures are driven by policy priorities and fiscal objectives (World Bank, 2013[29]). Better co-ordination between different ministries would also allow for better prioritisation of investment projects.

In order for the private sector to participate in infrastructure projects, an adequate regulatory framework is required. This involves removing administrative bottlenecks and improving regulations (see Chapter 3). In recent years, some governments across the MENA region have boosted efforts to build a credible environment for public-private partnerships (PPPs) by updating their PPP laws and setting up PPP agencies or specialised units within existing institutions (e.g. Jordan, Morocco, Tunisia and Egypt). These improvements have led to a growth in PPPs in recent years. Greater private sector involvement in infrastructure could not only improve the efficiency of such investment, bring new technologies and skills, but also reduce the fiscal burden on public budgets.

The regulatory and legal frameworks vary significantly across different countries with some countries clearly separating PPPs from other forms of procurement, while in others PPPs are treated as a dimension of a wider procurement policy. A number of countries in the region, including Jordan, Morocco, Tunisia and Egypt, have recently updated their PPP laws and set up a new PPP agency or unit to bring further clarity and transparency to their PPP regimes in line with good practices (Table 9.1) (OECD, 2016[30]). In Jordan, PPP investments have equalled 2% of GDP per year over the last five years and a revised PPP law las been submitted to the Parliament. Egypt’s revised PPP law streamlined PPP contracts, particularly by cutting the time to issue tenders for PPP projects and introducing new mechanisms for private sector contracting (Enterprise, 2019[31]).

Yet, a large proportion of private investment in the region has been in sectors where financial sustainability is easier to attain, such as for example power generation projects. For sectors other than energy such as water, it is more challenging to attract investment because projects are generally less bankable and offer fewer prospects for future cash flows. In Jordan, most PPP investments focused on renewable energy. A revamped PPP framework is needed to help facilitate projects in sectors where more extensive government support is required to attract private investment, such as in toll roads. Egypt has a general PPP framework that coexists with alternative channels for procuring infrastructure projects, such as the system of public economic entities, public utilities legislation and a number of sector- specific or project- specific laws (EBRD, 2018[33]).

In Morocco, while the PPP law (Law 86-12) offers a framework for PPPs, it has not replaced other specific laws, which create overlapping legislation for private investment in infrastructure and uncertainty regarding which laws apply to what contracts. The sector-specific laws allow for contracting with private parties in a number of sectors such as ports, renewable energy, electricity generation, desalination, and airports. This has created misalignment on contract selection, preliminary evaluation of projects, minimum clauses, and guarantees. Moreover, SOEs involved in infrastructure, which often receive subsidies (around 0.5% of GDP) from the public budget for investment or operations, can directly select private partners for joint ventures under the commercial law and can invest in private operators even when they compete against them in the market. To address such shortcomings, the Ministry of Finance has taken steps to streamline the market participation of SOEs but with mixed results, while the Ministry of Economy is currently preparing an amendment to the PPP law.

There is growing political support for PPPs across most MENA economies. PPP laws and regulations could create an environment that protects both the public and private sector. When PPPs are used, it is important that, among other principles, the process is transparent and predictable, with a level playing field for all bidders (Box 9.2). Adopting PPPs is not straightforward. It takes time for governments to build capacity to implement credible PPP programmes. But there is strong commitment and multilateral support to help countries deliver and manage PPPs, which can lead to more infrastructure that enhances regional connectivity.

While some MENA economies are fairly open to foreign investment, some restrictions are still relatively high compared to the OECD average, particularly in infrastructure services and the construction sector. According to the OECD FDI Regulatory Restrictiveness Index (Chapter 4), the MENA focus economies have higher restrictions in maritime and air transport and construction sectors than the average OECD countries (Figure 9.5). Algeria has the highest restrictions in all relevant sectors (with the exception of surface transport). Jordan also has relatively high restrictions in the transport sector. In Morocco, several sectors including in maritime and air transport face restrictions on foreign ownership. For instance, foreign investment in air transport companies is limited to 49% of capital, while in maritime transport, for a vessel to fly the Moroccan flag, it must be 75% Moroccan owned or the majority of the board of directors or the supervisory board must be Moroccan citizens.6

Egypt also only allows foreign investments in the maritime sector in the form of joint venture companies in which foreign equity does not exceed 49%. In transport, provision remains dominated by the public sector, with some private concessions in ports and airports. The Construction Law (1992) also restricts foreign investment to joint-ventures in which foreign equity does not exceed 49%. In addition, foreign participation in electrical wiring and other building completion and finishing services is restricted to projects valued over USD 10 million.7 Such restrictions affect competition in the market and limit the quality of service provision.

Good governance and strategic vision can improve the management of infrastructure projects and create the basis for increasing private sector participation in funding, construction and operation. For a number of countries in the region, developing infrastructure has come at high levels of capital expenditure, while the efficiency of public investment could be improved. Areas of public management improvement include strengthening the procurement, transparency, and appraisal and selection processes. Planning of infrastructure development in a holistic way following the OECD’s key principles for infrastructure governance can help ensure efficient use and allocation of resources (Box 9.3).

In Algeria, while the efficiency of public investment for large projects has improved in the past decade, reducing delays in project completion and cost overruns, it is still lower than in other oil exporters in the region and well below the global average (IMF, 2018[34]). Such inefficiencies have led to costly public investment projects. Algeria’s unit cost of road construction projects is about 34% higher than in most countries in the region. According to one estimate, with stronger public investment management institutions, the same amount of investment could have funded 60% more infrastructure projects (ibid).


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[1] World Bank (2020), Convergence: Five Critical Steps toward Integrating Lagging and Leading Areas in the Middle East and North Africa, World Bank, Washington, DC, https://doi.org/10.1016/978-1-4648-1450-1.

[14] World Bank (2019), MENA Economic Update: Reaching New Heights: Promoting Fair Competition in the Middle East and North Africa, World Bank, https://doi.org/10.1596/978-1-4648-1504-1.

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← 1. Based on responses to the World Bank Enterprise Surveys; average excludes Algeria and Libya due to absence of data.

← 2. Unless specified otherwise, the wider MENA region in this chapter refers to the eight focus economies as well as Bahrain, Djibouti, Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, Syria, United Arab Emirates and Yemen.

← 3. The Mobile Connectivity Index is an input index that measures the performance of 163 economies – representing 99% of the global population – of a range of metrics that are essential to create an effective enabling environment for mobile internet adoption. The corresponding output measure is the number of people accessing the internet via mobile. The GSMA includes the following economies in the MENA average: GCC Arab States (Qatar, UAE, Bahrain, Kuwait, Libya, Lebanon, Saudi Arabia), North Africa (Tunisia, Morocco, Israel, Iran, Algeria), Other Arab States (Egypt, Oman, Turkey, Jordan, Mauritania), and others (Syria, Iraq, Sudan, Palestinian Authority, Yemen, Somalia, Comoros, Djibouti).

← 4. Transitioners (score above 50) perform well on at least two enablers and generally have mobile internet penetration rates between 30% and 50%.

← 5. These estimates are based on a study of (Freund and Ianchovichina, 2012[16]), which are still considered valid today.

← 6. See OECD National Treatment Instrument, 2017: https://www.oecd.org/daf/inv/investment-policy/nationaltreatmentinstrument.htm.

← 7. See OECD National Treatment Instrument, 2017: https://www.oecd.org/daf/inv/investment-policy/nationaltreatmentinstrument.htm.

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