Lively Debate on the Dead Sea Shores

By Nemat Shafik

(Version in عربي)

 I’ve been in Jordan this weekend, attending a vibrant meeting of the World Economic Forum on jobs and growth in the Middle East. I participated in a panel on employment with Queen Rania, and I’d like to share some of the ideas generated during that discussion and at the meeting more generally.

The atmosphere was both cautious and optimistic—cautious because of the growing risk of the downturn in advanced economies (particularly Europe) spreading to the region, and optimistic because of the recent political gains in both Libya and Tunisia in particular.

 One of my biggest (and heartening) takeaways was that there were more young people bubbling with ideas and entrepreneurial spirit (ready to take risk) than ever before at this regional forum—which reflects a growing recognition of their current role in the Arab Spring and the role they will have to play in the future as drivers of economic change.

 Creating jobs for the young and growing population in the Middle East and North Africa remains the dominant topic. Here on the Dead Sea, it’s jobs, jobs, jobs that are still on everybody’s mind. And it’s clear that there’s a tension between the high hopes for a better future in the long term and the impatience and frustration with difficulties and challenges in the short term.

Need for a better business climate

Building a better climate for business and trade that will help create jobs is essential for improving growth in the region. Governments must put employment generation at the center of policy by removing obstacles to job creation such as excessive regulation. Creating a stable economic environment in which the private sector can grow and create opportunities, particularly for youth, is vital. About a quarter of young Arabs are unemployed, and the statistic is even higher among women. This costs the region about $ 15 billion.

 Burdensome regulations, exemplified by stringent labor rules, excessive labor costs—such as minimum wages that exceed productivity, and high severance pay—and high taxes tend to raise the cost of operating in the formal economy in several countries across the region, and hence drive firms to the informal sector where they can avoid such costs. Since Tunisian street vendor Mohamed Bouazizi set himself on fire that fateful day in December last year in protest against the arbitrary confiscation of his wares, street demonstrations have highlighted the high unemployment, hikes in food prices, and unequal access to economic resources that have hampered growth in parts of the region and fostered discontent.

 Making the Middle East and North Africa more business friendly is not beyond reach. In fact, there are numerous success stories within the region itself.

A number of countries have established “Smart Villages” or “Education Cities” where entrepreneurs find modern infrastructure and face simplified regulation and low taxation. Others have established a base in services such as tourism and call centers. In some cases, such improvements have also succeeded in attracting foreign direct investment from global companies, including those in high-tech sectors such as information technology and aeronautics. And all of these new businesses have created jobs, directly and indirectly.

 But more is needed to spread the benefits widely, to add training, curb corruption, and provide the right incentives.

 Fairer rules

In the years leading up to the Arab Spring, there was an increasing sense that business environments were unfair, set up to benefit a privileged few. To succeed, the region’s economies now need a vision not hijacked by crony interests. Public institutions have to be reformed to become effective and pro-business. Corruption has to be tamed by enforcing oversight rules to make all actors more accountable.

The region also needs to focus on improving its economic governance. An agenda to do this should include the strengthening of public institutions, both fiscal and financial; modernizing regulatory institutions to improve the business climate and level the playing field for private sector participants; improving the delivery, coverage and cost effectiveness of social protection; and enhancing the quality and dissemination of information and statistics.

 Governments can create more room in budgets by making costly subsidies more efficient. As we’ve argued, the best way to do this is to reduce generalized subsidies—which disproportionately benefit the better offer—and replace them with well-targeted safety nets to protect the most vulnerable.

 Access to markets

Countries in the Middle East and North Africa have been trading far below their potential. One explanation is that trade policies in some of these countries are among the most restrictive in the world. Many countries in the region have tariffs almost twice the size of those in emerging Asia.

 And despite geographic proximity, countries such as Egypt, Jordan, Morocco, and Tunisia have lagged behind others in trade integration with Europe. These countries face significant problems with access to European markets, which has resulted in weak export performance and sluggish growth. They could also forge closer ties with new trade partners in the fast-growing emerging markets.

 We’d welcome reactions from readers in the Middle East, particularly from entrepreneurs from the region. Give us your thoughts on the way forward and what should be the priorities. Looking forward to your ideas.

16 Responses

  1. […] the experience of those who work in the informal sector came under the media spotlight when Tunisian street vendor Mohamed Bouazizi set himself on fire that fateful day in December last year, sparking the Arab Spring […]

  2. […] View detail here: iMFdirect – The IMF Blog […]

  3. […] in the GCC Ministerial Meeting in Abu Dhabi and the World Economic Forum’s special meeting on Economic Growth and Job Creation in the Arab World in […]

  4. […] Lively Debate on the Dead Sea Shores […]

  5. […] in the GCC Ministerial Meeting in Abu Dhabi and the World Economic Forum’s special meeting on Economic Growth and Job Creation in the Arab World in […]

  6. […] in the GCC Ministerial Meeting in Abu Dhabi and the World Economic Forum’s special meeting on Economic Growth and Job Creation in the Arab World in […]

  7. […] in the GCC Ministerial Meeting in Abu Dhabi and the World Economic Forum’s special meeting on Economic Growth and Job Creation in the Arab World in Jordan.My core takeaway from all these events is that the underlying sense of optimism in the […]

  8. Your article on Egypt, Jordan, Morocco, and Tunisia have lagged behind others in Europe, trade integration. As a result of weak export performance and slow growth in these countries in the European markets, with access to the face of significant problems. We know nothing of the new. This is the way they want to be. The following five pillars of their faith in these countries, and most of the country or not, or, accept a full day of work full stop. They never intend to, or they do not plan to become a part of the emerging market. They always came along, and globalization has changed everything to have no problems. However, once they have realized that the demand for these natural resources, and infrastructure necessary for future growth, the need is now, something must give, and autonomy is granted. One will now be able to trade during the globally.

    You mentioned the other hand, is limited to the business process. Again, they choose to include it in this way. Became part of the emerging market, making the modern decisions, and accepting the opions of others. They have a huge moral dilema of the variable itself, as a part of something bigger than it is to be selected. They see the West did not belong to it, and this is not the case. There are a number of relations with Western countries in the region, and one of the best examples of a number of them were enriched from Saudi Arabia.

    • What is your point? You repeated what I wrote, nothing new. What was your counter point? We missed it.

  9. […] in the GCC Ministerial Meeting in Abu Dhabi and the World Economic Forum’s special meeting on Economic Growth and Job Creation in the Arab World in […]

  10. […] in the GCC Ministerial Meeting in Abu Dhabi and the World Economic Forum’s special meeting on Economic Growth and Job Creation in the Arab World in […]

  11. […] to Review This is the Link Share this:TwitterFacebookLike this:LikeBe the first to like this post. This entry was posted in […]

  12. Recent upheavals subsequent to the Arab Spring were in fact the result of unemployment, economic deprivation, and autocratic ways of governance. Those ex-rulers never thought that the land and its resources belonged to the people. Good results in the Middle East and African countries can only achieved if their leaders can develop a sense of ownership among the people and they are given free access to determine their future.

    In my humble opinion, governments (elected or dynastic) should try to create the following environments in their respective countries:-

    – Provide a supportive economic environment by reducing burdensome regulations, promoting competition, market-oriented wages and severance bills;

    – If not comprehensive at least initial efforts be made for separation of powers which will promote the environment for democracy;

    – Media should be in a position to develop their own code of conduct, especially in those countries where the Head of State is from the royal family or is not elected;

    – Corruption can be eliminated in countries where justice is universally available;

    – Strengthening of financial institutions can be made possible by having more Technical Training Centres with the help of IMF.

    The Middle Eastern Countries (especially the oil producing countries) have already enough market access to almost all the countries of the world (Madame Nemat Shafik has to update her information); however, African countries seem to be lagging behind.

    King Abdullah’s assertion that the basic requirements for economic growth are dignity, opportunity, democracy, and peace and justice, is a bold statement. We strongly hope that he believes and acts the way he talks.

  13. The Queen Rania is dedicated to help the youngsters. There is a spread of Spring Revolution in the MENA region. It has spread like fire.

    Creating jobs is easy. Adam Smith said you have to break down activities. With the green economy, there are ways to growth in non growing economies- and also, as one of my friend in Tunisia said, there is, traditional economy, too, based on people knowledge and local resources.
    People matters in the process and not disconnecting them with their own concerns of life. (particularly, the young generations)
    Istanbul conference and Rio + 20 is addressing the need of less developped countries- It should be too a milestone for the Queen Rania.

  14. Your article states Egypt, Jordan, Morocco, and Tunisia have lagged behind others in trade integration with Europe. These countries face significant problems with access to European markets, which has resulted in weak export performance and sluggish growth. We know this, this is nothing new. It’s the way they want it to be. Most living in these countries are following the five pillars of their faith and are either not able to, or refuse to work a full day, full stop. They never had the intention, nor did they plan for becoming part of an emerging market. They always got along, and had no problems until globalization changed everything. However, once realizing they have natural resources which are in demand, and the need for infrastructure for future growth is now needed, something must give, and that is autonomy. One must now be able to trade globaly in order to survive.

    The other side as you mentioned, is restrictive trade policy. Again, they choose to have it this way. Becoming part of that emerging market, means making modern decisions, and accepting opions of others. This is a choice to become part of something bigger than themselves, which becomes a huge moral dilema for them. They see it as conforming to the West, and this is not the case. Many relationships exist with Western countries in the region, and many have prospered from them, Saudi Arabia as one of the best examples.

    It’s sickening right now to see Germany begging for trade deals in North African countries, as they refused to help liberate them, but now want the economic partnerships forged through their liberation. If Germany was against the military action, they should not have been shipping them weapons for the last 2 decades, in a close relationship they enjoyed with Col Gaddafi, and now changing sides, since he is gone.

    That support of a Terror State alone should have Germany removed from the UN Security Council and once again suspended from the World Bank, but Germany always gets a pass and will continue to act with impunity. This is important as you will see many more arms deals in these now semi-liberated North African States, other Rogue leaders will poison the region, and sadly no other country will challange Germany as they continue to pedddle instruments of death, as tools of power and respect. That is the cancer that needs to be treated before any serious economic change can take place.

  15. You want jobs? Then you better start by eliminating those silly capital requirements for banks based on ex-ante perceived risk, because since the ex-ante perceived is already considered so and in so many ways by the banks when lending, these capital requirements just represent an additional and artificial and doubly dangerous layer of risk-adverseness.

    Dangerous because it creates a regulatory bias against all those job creating small businesses and entrepreneurs… and dangerous because it creates a regulatory bias in favor of lending to those who always are the likeliest candidates to produce a huge bank crisis, namely those ex-ante considered to be absolutely not-risky.

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