2003 World Bank MENA Development Reports

Jobs, Growth and Governance in the Middle East and North Africa

Mustapha K. NabliChief Economist

Middle East and North Africa RegionThe World Bank

Brussels, February 16, 2003

2

•Unlocking the Employment Potential of the Middle East and North Africa: Toward A New Social Contract

•Better Governance for Development in the Middle East and North Africa: Enhancing Inclusiveness and Accountability

•Trade, Investment and Development in the Middle East and North Africa: Engaging the World

•Gender and Development in the Middle East and North Africa:Women in the Public Sphere

The 4 reports focus on areas of central concern to policy makers, researchers and outside observers:

3

MENA’s Employment Challenge

• Creating 100 million new jobs by 2020 or doubling the current level of employment.

• In the next two decades the labor force will expand by 80 million new workers. The expansion of the labor force in the next two decades is equal to the cumulative increase over the period 1950-2000.

• Currently, the labor force is increasing by 4.2 million workers per year compared to 3.2 million in the 1990s and 2.1 in the 1980s.

• The current unemployment rate is around 15 percent affecting close to 20 million workers.

4

From Demographic Transition to Rapid Labor Growth

• MENA’s slow demographic transition has resulted in the highest and most persistent labor market pressures anywhere in the world in the past half-century.

Labor Force Growth Rates by Region, 1970-2010

0

0.5

1

1.5

2

2.5

3

3.5

4

South Asia East Asia Latin America andthe Caribbean

MENA Sub-SaharanAfrica

1970-1980 1980-1990

1990-2000 2000-2010

5

The Emergence of High Unemployment in the 1990s

• Employment growth in the 1990s fell short of labor force.

International Comparison of Unemployment Rates

0

5

10

15

20

25

30

35

OECD MENA: GCC

South Asia LatinAmerica &

theCaribbean

Europe andCentral Asia

East Asiaand thePacific

MENA: Non-GCC

Sub-Saharan

Africa

Per

cen

t

• Unemployment falls disproportionately on the youth.

• Unemployment rates tend to be higher for females.

6

Current Unemployment Rates in Arab Economies

2001

2002

2001

2001

2002

2001

2002

1999

2001

1996

2000

1997

1999

2003

1999

0

5

10

15

20

25

30

35

UAE

Kuwait

Saud

i Arab

ia

Leba

non

Egypt

OmanSyri

a

Yemen

Qatar

Bahra

inJo

rdan

Tunis

ia

Morocc

o

West B

ank a

nd G

aza

Algeri

a

Un

emp

loym

ent

(%)

Note: Data include most recent estimates available for each country; rates in GCC countries are for nationals only.Source: Compiled by World Bank staff from ILO and country sources.

High Unemployment Rates in MENA countries

7

Fir s t-T im e Job Se e k e r s A m ong the Unem ploye d

0

10

20

30

40

50

60

70

80

90

100

Morocco 2001 Jordan 2003 Yemen 1999 UA E 2000 Kuw ait 1995 Egypt 2000

Per

cen

t

Source: ILO 2003b; except for Kuw ait, Population Census 2001; For Jordan, HES, 2003.

Youth are especially affected:First-time job seekers: 90% of unemployed in Egypt; 2/3 in Yemen and UAE; more than 50% in Jordan and Morocco

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Workers are increasingly educated …and facing increasingly difficult job prospects

Figure 4.4. Dis tribution of the Unem ployed by Level of Education (percent)

0

10

20

30

40

50

60

70

80

Bahrain Oman Jordan Egypt Morocco Tunisia Algeria Djibouti

None Primary Secondary Tertiary

Sources: ILO 2002; except for Bahrain, ILO 2003a; for Egypt ELMS, 1998; for Morocco, LSMS 1999.

P e r c e n t o f t o t a l u n e m p l o y e d

D is tr i b u t i o n o f u n e m p l o y e d b y l e v e l o f e d u c a t i o n

9

Unemployment rates for women are 30% higher than for men

Unemployment Rates by Gender in Arab Countries (percent)

0

5

10

15

20

25

30

35

40

Algeria2000

WestBank and

Gaza2001

Jordan2000

Morocco1999

Tunisia1997

Bahrain2001

Qatar2002

Yemen1999

Syria 2001

Egypt2000

Lebanon1997

SaudiArabia1999

UAE 1999

Kuwait2003

Female Male

Source: For Algeria, Jordan, Syria, Egypt, West Bank and Gaza, Yemen, ILO 2003b; for Tunisia, INS 2001; for Bahrain, Qatar, Saudi Arabia , Kuwait and UAE, Girgis, Hadad-Zervose, and Coulibaly 2003; for Morocco, LSMS 1999; for Yemen, NPPS 1999.

10

Worker Productivity Growth Was Also Low in the 1990s

Average Annual Growth of GDP Per Employed Person by Region, 1990s

0

1

2

3

4

5

6

7

8

East Asia andPacific

South Asia High income /OECD

Europe andCentral Asia

Latin Americaand the

Caribbean

MENA

Per

cent

• For the MENA region, productivity was the lowest among all other regions except for Eastern Europe and Central Asia.

• As a result, real wages increased marginally in a few countries. In most, they either stagnated or fell in the 1990s.

Old modes of employment in the public sector in MENA fast dwindling

Has depended upon• Oil• Aid• Labor Remittances : diminishedopportunities to GCC and Europe

…and all financial resources declining

11

Per Capita Oil Exports, 1980–2000

0

2000

4000

6000

8000

10000

12000

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000

GC

C a

nd

ME

NA

0

50

100

150

200

250

300

No

n-G

CC

MENA (right axis)GCC (left axis) Non-GCC (right axis)

Per capita oil exports, 1980-2000

12

F i g u r e 1 . 5 A i d - t o - G D P r a t i o i n t h e M E N A r e g i o n , 1 9 8 0 – 2 0 0 0

0 . 0

1 . 0

2 . 0

3 . 0

4 . 0

5 . 0

6 . 0

7 . 0

8 . 0

Per

cen

t

Aid to GDP ratio in the MENA region, 1980-2000

1980 1985 1990 1995 2000

13

Worker remittances as % of GDP: Egypt and Morocco, 1970-2000

0

2

4

6

8

10

12

14

16

1970

1973

1976

1979

1982

1985

1988

1991

1994

1997

2000

Per

cen

t

Egypt

Morocco

14

15

MENA Needs a New Development Model to unlock its potential

•From public sector dominated to private-sector driven,

•From closed and passive to more open and active,

•From oil dominated and volatile to more stable and diversified.

…. the challenge of job creation requires a comprehensive approach to reform.

The private sector in MENA remains underdeveloped

Private Sector Contribution to GDP in MENA (percent)

1980

1993 19

85

1990

2000

1985

1983

1995

1990

1990

2000

1995

2002

1997

1999

1999

2002

1999

1997

2000

2001

2000

0

10

20

30

40

50

60

70

80

90

100

Lebanon Egypt Morocco Jordan Iran Palestine Syria Tunisia Yemen UAE Algeria SaudiArabia

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Exports outside of oil have been limited…

F i g u r e 1 . 1 5 T r a d e P o te n t ia l o f n o n - o i l e x p o rts, 2 0 0 0

0

5 0

1 0 0

1 5 0

2 0 0

2 5 0

M E N A 1 0 E C A 5 E A S IA 3 L A C 4

Mill

ion

US

Dol

lars

Trade Potential of Non Oil Exports, 2000$US Million

200

150

100

50

0

MENA 10 Europe and East Asia 3 Latin AmericaCentral Asia 5 Caribbean 4

17

18

Arab Non-Oil Export Potential

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50A

lger

ia

Egy

pt, A

rab

Rep

.

Leba

non

Syr

ian

Ara

b R

epub

lic

Ara

b9

Tun

isia

Sau

di A

rabi

a

Jord

an

Mor

occo

Iran,

Isla

mic

Rep

.

Col

ombi

a

Arg

entin

a

Bra

zil

Rus

sian

Fed

erat

ion

Sou

th A

fric

a

Tur

key

Gua

tem

ala

Pol

and

Bul

garia

El S

alva

dor

Mau

ritiu

s

Bol

ivia

Chi

le

Jam

aica

Ecu

ador

Slo

vak

Rep

ublic

Cze

ch R

epub

lic

Cos

ta R

ica

Kor

ea, R

ep.

Mex

ico

Hun

gary

Tha

iland

Phi

lippi

nes

Mal

aysi

a

Note: Regression is based on 42 countries, but values for 8 low income countries, including Yemen, are not reported because of negative values. Arab9 = Algeria, Egypt, Jordan, Lebanon, Morocco, the Republic of Yemen, Saudi Arabia, Syria, and Tunisia.

High performing countries

Weak performing countries

Non-oil exports remain largely below potential

Figure 1.2 Real oil prices and growth, 1976–99

0.0

10.0

20.0

30.0

40.0

50.0

1976

1981

1986

1991

1996

Rea

l oil

pric

e (d

olla

rs p

er b

arre

l)

-2

0

2

4

6

8

10

12

14

16

GD

P G

row

th (

perc

ent)

Real oil Price GDP growth

Real oil prices (left) and GDP growth (right)

Oil has dominated development………affecting growth but not producing jobs

19

20

These Economic Transitions Require Three

Fundamental Transformations•Reducing governance gaps in inclusiveness and accountability

•Promoting greater participation of women in economic activity, in order to utilize all their potential/talent

•Improving the quality of educational outputs which meet the needs of the new economy

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Indicators of governance are well under potential in MENA

Figure 6.9. Governance and Per-Capita Income in MENA

-2

-1

0

1

2

6 8 10Log of Per Capita GDP

Ind

ex o

f Gove

rnan

ce Q

ual

ity

MENA

Rest of the World

MENA Trend

Rest of the World Trend

Source: Per capita GDP, WDI 2002; governance quality, World Bank 2003a.

Average MENA gap in quality of governance

22

Better Governance Can Not Wait

•A vigorous state role in improving public administration is essential to establishing the conditions that will permit economies to grow.

•Governance reforms are needed to enhance the investment climate required for the emergence of a vibrant private sector.

•Governments need the institutional and regulatory instruments to manage the difficult process of transition under conditions of vulnerability.

• Governance reforms are essential to permit governments to credibly articulate and realize a new vision of state–society relations.

23

Participation of women in economic activity is also well

below potential

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

2

Mor

occ

o

Kuw

ait

Tun

isia

Egy

pt

Alg

eria

Syr

ia

Iran

Bah

rain

Jord

an Iraq

MEN

A

LAC

4

Indi

a

Tur

key

EC

A2

EAP4

China

AFR

4

Act

ual / P

redi

cted

MENA 1980 MENA 2000

Non-MENA 1980

Non-MENA 2000

24

Understanding the Obstacles of the Past Is Critical

•Soft budget constraints:: External revenues cushioned the impact of economic stagnation and permitted governments to adopt limited reforms while postponing difficult decisions.

•Political challenge from radical movements meant that economic and political reforms were de-linked as governments responded by reviving political control and national security concerns.

•As a result, top-down management of Reform by Decreereplaced earlier efforts to generate support for economic reformby opening the political arena.

25

Moving the Reform Process Forward requires

From the countries of the region

• a change from the selective, top-down approach to economic reform that sidesteps the need for political change to secure the legitimacy of reform and government credibility, which is no longer adequate.

•Governments will need to revive national conversations about therestructuring of redistributive programs and a redefining of the terms of the social contract.

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……. And from external partners

• Rethinking the response to persistent conflict in the region. Multilateral efforts are needed to resolve the Israeli–Palestinian conflict and return Iraq to a state of normalcy.

• Determined and programmatic efforts to support the wide-ranging reform agenda, going beyond the transaction specific support

• To support deeper integration of MENA into the world economy, encouraging more trade and investment, and lifting economic sanctions.