IMF managing director Christine Lagarde has warned that more needs to be done to reduce the dominance of large corporations in the Middle East.

Speaking in Rabat on 8 May, Lagarde said: “The formal sector is dominated by a few large firms — either owned by the state or with strong connections to the state. They are often shielded from competition through a network of patronage and political proximity, reducing the incentive to innovate and stay competitive. As a result, very few firms in the region are in a position to compete on world markets.”

Lagarde said that strengthening small and medium-sized companies and the middle class is a critical factor for transition economies but said that the middle class had lost ground in countries affected by Arab Spring uprisings in 2011.

“In many countries — such as Egypt, Jordan and Morocco — the middle class share of societal wealth is lower today than in the 1960s,” Lagarde said. “..the relative position of the middle class has not improved since the 1990s.”

“Let me be frank,” Lagarde said. “…the dividends of growth  have too often gone to the top, leaving  too many others out in the cold.”

“The good news is that the economic situation in the Arab transition countries is looking up,” she said. “Countries like Morocco are reaping the fruits of their efforts by diversifying and spurring both exports and foreign investment.”

“Jordan has moved away from generalised energy subsidies and toward genuine safety nets, while Tunisia is reforming its banking system,” Lagarde said.

“…economic stability must remain a key priority.” Lagarde said. “Out-of-control government budgets, rising debt, high inflation, or dwindling foreign currency reserves could block further progress and impose the heaviest burden on those who can least afford it — the poor.”

“The Arab transition countries are today facing a jarring job crisis, and this must be addressed,” Lagarde said. “The unemployment rate averages 13 per cent, with youth unemployment more than double that at 29 per cent…Since 2010, the number of people out of work has jumped by 1.5 million.”

Lagarde said policies that would strengthen the Middle East middle ground include:

* macroeconomic stability

* enabling the private sector

* creating jobs for young people

* enforcing rules.

Lagarde said that the IMF had organised 55 technical assistance missions and committed more than $10bn to Arab countries in transition in 2013.

Lagarde was speaking ahead of the IMF regional conference in Amman on 11-12 May.