## Raising Competitiveness: Recipe for Tapping into the Middle East’s Growth Potential

_IMF Blog, October 29, 2010_

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## Bibliographic details
- Authors: Masood Ahmed
- Published: October 29, 2010

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### Overview
- With the global economy on the mend, countries in the Middle East and North Africa are witnessing a pickup in trade and economic growth.
- Aided by rising oil prices and production levels and supportive fiscal policies, economic growth for the region as a whole is projected to exceed 4 percent in 2010, almost double what it was in 2009.
- The region’s oil-importing countries saw only a mild slowdown in economic growth last year to 4½ percent and are likely to see growth nudge up to around 5 percent this year.
- The October 2010 Regional Economic Outlook notes that the observed growth rate is well below the average of 6½ percent a year required to create the 18 million jobs needed over the next decade to absorb new labor-market entrants and eliminate chronically high unemployment.

### Competitiveness — definition and importance
- Competitiveness is defined here mainly as a country’s ability to successfully export goods to other countries and for domestic industries to hold their own against imports.
- Key ingredients of competitiveness identified:
  - High productivity.
  - Business environments that help firms rather than put obstacles in their way.
  - Workers that are skilled and experienced.

### Trade reforms and remaining impediments
- Over the past two decades, most countries in the region have reduced the number and level of tariffs on imports.
- Egypt and Syria have accelerated progress in tariff reduction in recent years.
- Privatization of formerly government-run key industries, together with easier access to foreign capital and technology, has boosted export growth over the past decade.
- Persistent impediments:
  - Tariffs in these countries remain high (still averaging double digits).
  - Other impediments to trade remain and need to be tackled.

### Labor markets and education
- Labour market inefficiencies highlighted:
  - Dominant public sector attracts many of the most qualified graduates and serves as a ‘safety net’ for those who cannot find jobs elsewhere, often at wages well above those for comparable private sector jobs.
- Policy prescriptions for labor markets:
  - Government pay scales should differentiate across skills within a framework of overall wage and hiring restraint.
  - Education systems need to focus more on ensuring new workers have the skills and knowledge the private sector needs.
  - Reforms should accompany efforts to reduce—or even eliminate—regulatory ‘red tape’ and strengthen institutions to provide a more job-friendly environment for the private sector.

### Infrastructure, services, and global integration
- Becoming more competitive requires building sophisticated transport, communications, and financial services to integrate into the global supply chain and tap new export markets.
- Examples within the region demonstrate success when these elements are implemented.

### Regional examples of success
- Tunisia:
  - Became an ‘outsourcing hub,’ attracting foreign direct investment in textile production, car assembly, and food processing, and more recently in information technology and aeronautics.
  - Success factors: simplified regulation, modern infrastructure, government incentives, and commitment to a knowledge-based economy generating well-trained, low-cost workers.
- Dubai:
  - Transformed into a dominant regional hub for international trade and services by developing a cutting-edge logistics industry, significantly multiplying the emirate’s GDP despite fallout from reliance on large-scale, highly-leveraged property development.
- Other Gulf Cooperation Council countries:
  - Have made great strides by enhancing institutions and upgrading infrastructure.
  - Current challenge: further upgrade innovative capacity and education outcomes to diversify away from the hydrocarbon sector.

### Policy recommendations
- Rapidly enhance competitiveness to achieve higher growth rates and job creation.
- Continue and deepen tariff reductions and remove remaining impediments to trade.
- Privatize where appropriate and facilitate access to foreign capital and technology.
- Reform public sector pay structures to differentiate skills and restrain overall wage and hiring growth.
- Reorient education systems toward private-sector skill needs.
- Reduce or eliminate regulatory ‘red tape’ and strengthen institutions.
- Invest in transport, communications, and financial services to integrate into global supply chains.
- Build on successful regional examples (Tunisia, Dubai, GCC countries) to promote outsourcing, logistics, and knowledge-based economies.

*Masood Ahmed — October 29, 2010*

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## References

- [Regional Economic Outlook](http://www.imf.org/external/pubs/ft/reo/2010/mcd/eng/mreo1024.htm)
- [18 million jobs](http://blogs.imf.org/2010/10/31/more-than-18-million-jobs-needed/)

_Source: https://www.imf.org/en/blogs/articles/2010/10/29/raising-competitiveness-recipe-for-tapping-into-the-middle-easts-growth-potential_