Lively Debate on the Dead Sea Shores
IMF Blog, October 24, 2011
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- Authors: Nemat Shafik
- Published: October 24, 2011
Overview
- Author: Nemat Shafik
- Date: October 24, 2011
- Event: World Economic Forum on jobs and growth in the Middle East, Jordan
- Atmosphere at the meeting: both cautious (risk of downturn in advanced economies, particularly Europe, spreading to the region) and optimistic (recent political gains in Libya and Tunisia).
- Central theme: creating jobs for the young and growing population in the Middle East and North Africa remains dominant—“jobs, jobs, jobs.”
Need for a better business climate
- Core proposition: Building a better climate for business and trade is essential to create jobs and improve growth in the region.
- Policy priority: Governments must put employment generation at the center of policy by removing obstacles to job creation such as excessive regulation.
- Importance of stability: Creating a stable economic environment in which the private sector can grow and create opportunities, particularly for youth, is vital.
- Key statistics:
- “About a quarter of young Arabs are unemployed, and the statistic is even higher among women.”
- “This costs the region about $ 15 billion.”
- Identified constraints:
- Burdensome regulations (stringent labor rules).
- Excessive labor costs (minimum wages that exceed productivity, high severance pay).
- High taxes raising the cost of operating in the formal economy and driving firms to the informal sector.
- Social context: Since Tunisian street vendor Mohamed Bouazizi set himself on fire in December last year in protest against arbitrary confiscation of his wares, street demonstrations have highlighted high unemployment, hikes in food prices, and unequal access to economic resources that hampered growth and fostered discontent.
- Examples of progress within the region:
- “Smart Villages” or “Education Cities” offering modern infrastructure, simplified regulation, and low taxation.
- Expansion in services such as tourism and call centers.
- Attraction of foreign direct investment in high-tech sectors such as information technology and aeronautics.
- Additional needs to spread benefits: add training, curb corruption, and provide the right incentives.
Fairer rules
- Diagnosis: Prior to the Arab Spring, business environments were perceived as unfair and set up to benefit a privileged few.
- Reform agenda elements:
- Strengthening 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.
- Enhancing the quality and dissemination of information and statistics.
- Anti-corruption measures: Public institutions must be reformed to become effective and pro-business; corruption must be tamed by enforcing oversight rules to make all actors more accountable.
- Fiscal space recommendation: Governments can create more room in budgets by making costly subsidies more efficient—reduce generalized subsidies and replace them with well-targeted safety nets to protect the most vulnerable.
Access to markets
- Observation: Countries in the Middle East and North Africa have been trading far below their potential.
- Trade policy constraint: Trade policies in some countries in the region are among the most restrictive in the world; many countries have tariffs almost twice the size of those in emerging Asia.
- Regional integration gap: Despite geographic proximity, Egypt, Jordan, Morocco, and Tunisia have lagged in trade integration with Europe, facing significant problems with access to European markets, resulting in weak export performance and sluggish growth.
- Opportunity: These countries could forge closer ties with new trade partners in the fast-growing emerging markets.
Call for engagement
- Request to readers: The author welcomes reactions from readers in the Middle East, particularly entrepreneurs from the region, asking for thoughts on the way forward and what should be the priorities.
Lively Debate on the Dead Sea Shores — Nemat Shafik, October 24, 2011