Corporate Governance: Middle East and North Africa
IFC has been actively promoting corporate governance in Middle East and North Africa (MENA) over the past six years and has witnessed strong overall progress. Through the efforts of IFC and others, a solid foundation for corporate governance has been established in MENA, highlighted by the development of several of corporate governance institutes, a heightened of level of corporate governance awareness and launching of many corporate governance codes and regulations in most markets around the region. IFC's efforts alone have facilitated more than $150m in financing and trained more than 12,000 directors and executives.
Despite the progress, much more is still needed to broaden and deepen the impact of corporate governance in MENA. A 2011 Organisation for Economic Co-operation and Development (OECD) paper notes that a "second wave" of corporate governance is now in order for MENA to take the region from foundation to implementation.
Further, the ongoing political changes in the region as a result of the ‘Arab Spring’ have significantly eroded market confidence and capital flows to the region. Even before the crises, MENA had the lowest access to finance rates and foreign direct investment rates in the world. Since January 2011, the situation has worsened with sharp declines in foreign direct investment and market confidence. Beyond the current situation, the need for corporate governance assistance will continue to increase as other countries begin their post-conflict transitions.
While corporate governance alone cannot address the macro-economic issues above, it certainly has a role to play in IFC's post-revolution response in MENA. Broadly, this includes helping to improve investor confidence in companies with improved transparency and control mechanisms and ensuring companies have sound risk management practices in place to properly navigate the ongoing uncertainties. Investor protection is a key part of this and while MENA has shown improvement in its overall Investor Protection index since 2006, it will need to go further with these forms of protection as well as other corporate governance-related improvements to help restore investor confidence post-crisis.
The overall goal of the IFC Middle East and North Africa Corporate Governance Program is to improve firm performance and to increase their access to finance by promoting better corporate governance practices among companies in the region.
Institutional-Level: Continue Building Sustainable Institutes in Selected Countries.
Given that there is still a need to build sustainable institutes in the region, our Program will continue to focus on institute capacity building in selected countries.
Market-Level: Strengthen Capacity of Regulators & Intermediaries.
Across the region, there is still a need to strengthen the capacity of both regulators and market intermediaries (e.g., the media, consultants, mediators, rating agencies, and other). Combined, these regulators and intermediaries provide critical forces for promoting good governance practices across markets.
Firm-Level: Deepen corporate governance Penetration in Particular Market Segments.
While there has been good overall progress in establishing a basic corporate governance foundation across the region, there is still a need to further penetrate particular market segments.
Progress Thus Far
Significant progress has been made over the past five years in advancing corporate governance across the region as a result of IFC's efforts and our partners. For example, a solid network of corporate governance institutes has been established, the level of corporate governance awareness has increased in most countries (witnessed through number of large-scale corporate governance events), and corporate governance codes and regulations have been launched in most markets.
Why is this important to the Middle East and North Africa region?
The region needs to build on the progress made so far while still enduring acute economic challenges at different levels:
At the firm-level, there is a lack of penetration in particular countries and market segments.
At the market-level, there is a need to build and deepen capacity of many regional institutions and intermediaries
At the regulatory-level, there is a need to strengthen regulatory frameworks and capacity of regulators
At the macro-level, there is a need for heightened awareness and better understanding of the benefits of good corporate governance practices.