Building Trust in a Competitive World: Transparency in the MENA region
Having a lack of anti-corruption infrastructure also hinders productivity. For example, the World Economic Forum found that corruption increases the cost of conducting business by up to 10%. (WEF) The MENA region has lagged behind the rest of the world in terms of transparency but has also seen recent growth in certain respects. Building greater transparency for businesses in the MENA region is an important marker for growth and success that will help attract more investors into the region.
According to the 2022 Corruption Perceptions Index (CPI) – an index that measures a countries perceived level of corruption – the United Arab Emirates fared well as the least corrupt and most transparent country in the MENA region. (Transparency.org) Countries who scored on the other end of the spectrum were fairly foreseeable ones like Yemen and Syria for of course having civil conflicts and extreme government instability. However, regardless of their ranking within the MENA region, the MENA region on a whole is perceived as one of the least transparent regions for business. And although some countries like the UAE are putting an active effort to include more publicly available information on their business practices, the MENA region still lacks the infrastructure to ensure transparent reporting due to its political and entrepreneurial infrastructure.
Non-gulf Arab countries typically struggle with transparency due to political instability related to conflicts, or even for their own populations' own distrust or dissatisfaction with their own governments. Being able to build greater business transparency without the foundation of a government that is at least supported or trusted by their own inhabitants is quite tough and complicated, and there are likely many deeper-rooted issues that these countries must address within their own systems before being able to attract investors and increase their confidence in their transparency.
Gulf countries in the region have their own specific challenges in this space too. These challenges include that businesses in the Gulf are typically either government-owned or have strong government ties. This can cause public perception of these countries to believe in a strong conflict of interest. Moreover, having favoritism and a system in which the government is heavily affiliated with the business sector causes a lack of incentive to adopt transparent practices, especially in sectors like oil and gas, which are crucial to these economies.
In order to see more growth related to transparency, the MENA region will have to take a number of steps such as improving AML regulations, KYC laws, pay transparency laws, and be up to bar with international standards of transparency regulations.
The region overall is on the trend of growth, although can see occasional bumps due to regional conflicts that can decrease investor confidence in the regions state registries as a reliable and honest source of self-reporting. State policies that support transparency are extremely important for numerous reasons; they ensure less corruption, increase investor confidence, and allow for free and accurate risk-assessment of businesses which improves market efficacy. Having these strong pillars for business will help the interests that many expats have in engaging in business and trade in the region and will help protect the character and integrity of these countries' systems.