Political turmoil gripping Arab states that has pushed investors to step back in apprehension has not dampened the Middle East's growth prospects, the regional head of the World Bank's private-sector lender said.

Uprisings that toppled the presidents of Tunisia and Egypt after decades and now threaten their counterparts in Syria, Yemen and Libya have not curtailed the International Finance Corporation's (IFC) commitments in the region, Dimitris Tsitsiragos said in an interview.

Since Egypt's President Hosni Mubarak was forced to step down, the country's tourism and foreign investment have slumped, hitting national income hard and sending the economy into an estimated 7 percent contraction in the January-to-March quarter.

But Tsitsiragos, the IFC's Middle East, North Africa, and Southern Europe director, told Reuters in a recent interview that the Arab world's most populous country had potential to boom and the IFC is ready to support investment in the country.

"We think at this stage, we need to step up, because we need to show our support -- or our confidence -- in the market," Tsitsiragos said. "By investing at this time, in this region, what we show is that business prospects are good."    

The IFC's Middle East and North Africa portfolio ran at about $3.3 billion in 2010 and he said the group was looking to match that in 2011 and even increase investments later.

"It might be a challenge because the situation has slowed down a bit but I think we are prepared to scale up our investments," he said. "If you look at it in the longer term, business prospects in Egypt and North Africa are very strong."         

A widening graft probe against executives associated with the ousted regime in Egypt has heightened investor worries about the risk of doing business in the country, putting pressure on the country's stock exchange and foreign reserves.   

Egypt's EGX30 index has tumbled 29 percent this year. Shares in real estate firms being probed over purchases of state land for development have slumped as much as 70 percent.

"It is understood that when there is change, there are going to be a lot of investigations. I think the government has to go through this process," Tsitsiragos said, adding that the IFC was carefully selecting clients to work with.
   
"What is also important is that this type of process should be done in a way that sends a message that these countries are receptive to private investment and it should not stop investment," he said. "One has to see what the outcome will be."    

But beyond the political risk, Egypt and the rest of the region are faced with enormous challenges to find employment for a bulging young population, increase funding access to small and medium-sized enterprises and boost infrastructure investment.   

Private sector investment is critical in the region which needs to create about 40 million jobs over the next decade, according to World Bank estimates.   

About 25 percent of the young in the region are unemployed, costing the region about $50 billion each year, the IFC says.

"You have changes in the government, you have changes in the political systems, but you don't have changes in the challenges yet that face the region," Tsitsiragos said. "It is still there and it is a challenge for whoever is going to come to power."    

"One thing that comes to us is that the private sector is important and it needs to be supported during such times."  - Reuters