Looking Beyond the Boom
by Marcus Noland, Peterson Institute for International Economics
and Howard Pack, Wharton School
Op-ed in VoxEU.org
August 1, 2008
The Arab world is experiencing an economic boom spurred by surging energy prices, reinforced by reform. But most Arabs do not live in major oil-producing countries, and the region has the world's lowest employment rate—less than half of adults are formally employed. The Arab world will have to create 55 to 70 million jobs between now and 2020 to keep pace and bring the rate of unemployment down to the global norm.1
More than one out of four young people are unemployed—roughly double the world average.2 Unemployment is particularly acute among the educated: Joblessness among college graduates is ten times that of people with primary educations in Egypt, five times as high in Syria, and three times as high in Algeria.3 And as the locus of employment has shifted from the public to the private sector, female graduates appear to have had a particularly difficult time gaining a toehold in the job market.
On the back of the boom, the unemployment rate is down in most Arab countries, but much of the growth has been in low-wage service sector activities, which are often staffed with imported foreign labor. Indeed, in some countries most of the new jobs have gone to foreigners. In the smaller Gulf countries, this is understandable: It is unlikely that they could generate from the indigenous population all the specialized skilled labor to support the boom. But this phenomenon is not limited to the Gulf—in Jordan, most of the new hires have been non-nationals, as garment manufacturers import labor from South Asia rather than employing locals. And the prominence of foreigners in employment is higher in the private sector—hoped to be the source of economic dynamism moving forward—since local nationals are employed disproportionately in the public sector.4
In short, the region faces a demographic imperative to create jobs. The critical issue is whether the boom can be harnessed to generate a rapid expansion in commercially sustainable employment for local residents.
Challenges and potential solutions
The key challenges involve a nexus of policies and practices centered on education, globalization, and technology absorption.5 Governments throughout the region are grappling with these challenges. The emirate of Abu Dhabi, for example, has reached an agreement with Singapore's National Institute of Education to provide teacher training. Improving teacher quality is a particular concern insofar as the prevalence of gender-segregated education in the Gulf means that there are sometimes shortages of male teachers for boys, with a consequent lowering of standards.
Massive projects are in the works to create new universities and science cities, most prominently the King Abdullah University for Science and Technology near the relatively liberal Red Sea port of Jeddah, Saudi Arabia's historic commercial center. This project and similar ones around the Gulf could conceivably become centers of commercialized science along the lines of Taiwan's Hsinchu Science Park or California's Silicon Valley, attracting scientists from across the Arab world lured by the modern facilities and the safe, congenial environment. But to reverse the brain drain, potential returnees must be convinced that they and their families will be physically safe and not subject to economic predation.
Political uncertainty discourages behavior that involves irreversibility—from fixed investments to decisions to give up established positions abroad and return home—and creates the possibility of a self-reinforcing downward spiral. The risks of internal political violence or the externalization of discontent are obvious. Even without upheaval, a widening economic gap between the Arab world and the industrial countries, particularly nearby Europe, would create enormous incentives for transborder migration, much of it illegal, and contribute to tensions with and among the countries of the European Union.
External policy anchors, such as the Euro-Med Agreements, reinvigorated by the recent Paris summit and the formation of the Union for the Mediterranean, or free trade agreements with the United States, could help reduce policy uncertainty and encourage more employment-stimulating forms of cross-border integration than have been witnessed to date.
An optimistic future
If the region's daunting employment challenge can be successfully addressed, the Arab world could reap a demographic dividend as the new generation enters its most productive working years—a phenomenon that has contributed to outstanding performance in East Asia. Growing prosperity, confidence, and optimism about the future could underpin movement toward greater political openness and social tolerance. The region's young demographic could then turn from a potential liability to a bonus.
1. World Bank, Middle East and North Africa Region, 2007 Economic Developments and Prospects (Washington: World Bank, 2007).
2. International Labour Organisation, Key Indicators of the Labour Market (KILM), Fifth Edition, September 2007 (http://www.ilo.org/public/english/employment/strat/kilm/download/kilm09.pdf).
3. Mustapha K. Nabli, Carlos Silva-Jáurequi, and Sara Johansson de Silva, “Job Creation in a High Growth Environment: The MENA Region,” Middle East and North Africa Working Paper Series, 47 (Washington: World Bank, December 2007): Table 4.
4. World Bank, Middle East and North Africa Region, 2007 Economic Developments and Prospects (Washington: World Bank, 2007).
5. More detailed analyses of these issues are contained in Marcus Noland and Howard Pack, The Arab Economies in a Changing World (Washington: Peterson Institute, 2007). Arabic translation (Dubai, UAE: Gulf Research Center) forthcoming.