Middle East Perspectives on Global Competitiveness 2012-2013

Our regular contributor Jim Gilchrist from CAES sent is this Middle East highlight. Thank you for sharing with us Jim.

The World Economic Forum just released their Global Competitiveness Report 2012 – 2013, and I thought that you may find some of the contents to be of value.

“The World Economic Forum’s annual Global Competitiveness Reports have studied and benchmarked the many factors underpinning national competitiveness. From the onset, the goal has been to provide insight and stimulate the discussion among all stakeholders on the best strategies and policies to help countries to overcome the obstacles to improving competitiveness. In the current challenging economic environment, our work is a critical reminder of the importance of structural economic fundamentals for sustained growth”.
The Middle East and North Africa

The Middle East and North Africa region continues to be affected by political turbulence that has impacted individual countries’ competitiveness. Countries that embarked on partial reforms such as Jordan and Morocco move up in the rankings, while economies that were more significantly affected by unrest and political transformations tend to drop or stagnate in terms of national competitiveness. Addressing the unemployment challenge will remain the key economic priority of the region as a whole for the foreseeable future.

The United Arab Emirates gains three places in the GCI to take the 24th position. The improvement reflects a better institutional framework as well as greater macroeconomic stability. Higher oil prices buoyed the budget surplus and allowed the country to reduce public debt and raise the savings rate. Overall, the country’s competitiveness reflects the high quality of its infrastructure, where it ranks a very good 8th, as well as its highly efficient goods markets (5th). Strong macroeconomic stability (7th) and some positive aspects of the country’s institutions—such as an improving public trust in politicians (3rd) and high government efficiency (7th)—round up the list of competitive advantages. Going forward, putting the country on a more stable development path will require further investment to boost health and educational outcomes. Raising the bar with respect to education will require not only measures to improve the quality of teaching and the relevance of curricula, but also incentivizing the population to attend schools at the primary and secondary levels.

The employment challenge in the Arab world

Despite their diversity in terms of national competitiveness, economies of the Arab world share one common challenge: the need to create gainful and sustainable employment for their rising populations.

Over the past several decades most countries in the Arab world have relied on the government and state enterprises for employment creation. Although this was an expedient way to create jobs in the shorter term, over the longer term rapid population growth has made it impossible for the public sector to provide a sufficient number of jobs, particularly for the young people entering the labor market. Nor has the private sector been able to fill the gap in most of the countries, as it has remained stifled by a business environment that did not encourage private-sector growth.

As a result, unemployment has risen in many countries in the Middle East over recent decades. Currently, the regional unemployment rate of 10.3 percent is the highest among all the regions, with women and youth most severely affected.  For example, according to the International Monetary Fund (IMF), Middle East and North African oil importers need to create 18.5 million full-time jobs over the next decade. Countries in the region will have to grow significantly above historical levels in order to meet their job creation targets. While the Middle East and North Africa region is the second fastest growing region after sub-Saharan Africa according to IMF estimates, this growth is primarily based on the rise in energy prices. The energy sector is highly capital intensive and is not sufficient to create jobs in the region. In this context, what measures can the region explore to create jobs, in particular for young people?

• Boosting private-sector growth. The Arab region is in need of economic growth based on a vibrant and growing private sector if it is to attain durably higher levels of gainful, sustainable employment. The Global Competitiveness Index (GCI) sheds light on some of the major stumbling blocks to energizing the private sector, as more competitive economies are those that have in place those factors, policies, and institutions that enable higher productivity. The latter in turn tends to translate into higher growth that is necessary for higher employment. In the region, given the untapped potential of domestic and export markets, higher productivity can be expected to also translate into increased employment over the longer term, in addition to leading to wage increases and rising standards of living.

• Economic diversification. In oil- and gas-exporting countries, where growth has been high over the past years because of high energy prices, creating jobs will require countries to continue efforts to diversify their economies. Given the high wage levels present throughout these economies, appropriate productivity levels can be achieved only through expanding into high-value-added, knowledge-based sectors.

• Addressing the skills mismatch. Much progress has been made in terms of promoting education in the Arab world over the past several decades. However, as more recent data show, university degrees do not increase the chances of finding a job in many Arab countries. This situation points to a misalignment of the skills taught in educational institutions and the needs of the region’s employers. Indeed, when asked whether their country’s educational systems are supportive of a competitive economy, business leaders in the region said that private-sector training schemes could provide solutions in this context. Training does not appear to be a priority for local businesses, however.

• Promoting meritocracy. In many countries, the public sector is the employer of choice and many of the hiring decisions are based on personal networks rather than formal qualifications. In the GCI, meritocracy is captured through two variables: the degree to which employers rely on professional managers when filling positions as opposed to friends and relatives, and the relationship between pay and productivity. On both indicators at least half of the 14 Middle East countries assessed in this Report rank in the bottom half of the rankings.