The Arab Spring and the turmoil left in its wake, has concentrated the minds of policymakers on dealing with the economic causes of the uprising across the Middle East and North Africa (MENA).
A new study, presented at the International Monetary Fund (IMF)/World Bank meetings earlier this month, seeks to address the weaknesses, particularly in the labour market, in the region.
Israel, although geographically, part of the MENA region, is treated separately by the IMF. Israel’s report card from the IMF is strong. Growth eased this year from 4.6 per cent to 2.9 per cent, partly as a result of the slowdown in the eurozone, but output is expected to rise to 3.2 per cent in 2013. This year, inflation in Israel is projected to be flat at 1.7 per cent, rising slightly to 2.1 per cent and unemployment will be remarkably moderate at just 7 per cent — less than in most other well-developed economies.
The contrast with Israel’s near neighbours could not be more stark. Yet delivering gains in the Arab Spring countries is a challenge that could be far greater than what the Western world faced in the early 1990s as the Berlin Wall came down and the former communist countries of Eastern Europe embraced free market models.
“Governments are under tremendous pressure to deliver results rapidly,” argues the World Bank in a new report* and its fear is that this might lead to “populist fiscal measures that continue to reinforce existing privileges” — in other words, swapping one group of elites, the last generation of autocratic dictators, for another, such as the Muslim Brotherhood and military leaders of Egypt. Nevertheless, the World Bank believes that the forces that toppled the ancient regimes could, as they were in Eastern Europe, be harnessed to force more progressive policies. This is among the reasons why the London-based European Bank for Reconstruction & Development has been invited to turn its attention to the Middle East.
At the core of the economic problems of the MENA reasons is jobs. A lack of work, among younger people in particular, leads to not just a loss of livelihoods, but a sense of dignity. The same arguments could be applied to Israeli Arabs, especially some of the Negev Bedouin, the most socially-deprived group in Israeli society.
The numbers of inactive workers across the MENA region, at 48 per cent of the potential workforce, compares hugely unfavourably with other developing regions of the world, including Latin American, the Caribbean and Eastern Europe.
There are huge variations across the MENA region. But there are also common characteristics. The most sought-after jobs are those in the public sector because they accrue benefits that do not exist elsewhere, including pensions. Among Israel’s neighbours, government workers make up 25 per cent in Egypt, 30 per cent in Jordan and nearly 40 per cent in Iraq. The smallest amount of jobs in all of these countries comes from the segment most likely to contribute to prosperity, the “formal” private sector. Jordan, Tunisia and Morocco have the strongest private employers. In the West Bank, Gaza and Iraq, the private informal sector (what we might call the “black economy”) represent a large chunk of the workforce.
The World Bank has a five-point plan for changing economic thinking across the region. Firstly, while public sector jobs may be the safest in most cases, they have traditionally been used by autocratic leaders to create loyalties and protect elites. This could be changed by opening them to broader recruitment processes and to weaken conditions (as is happening in Europe’s periphery) so the benefits such as pensions are less attractive
Clearly, the clue to advancement for the MENA economies is a healtheir commercial sector. This means better credit provision and less intrusive procedures and regulations. The barriers to new entrants, such as protected markets for the elites, need to be removed. Thirdly, labour laws need to be reorganised so that people gaining the valuable public sector jobs have real skills and are not there by virtue of birth and political affiliation. In addition, the development of a type of national insurance system for workers in the private sector would make it a more attractive place to work for skilled younger people.
The fourth proposal is to make young people more employable by giving them appropriate skills, offering them a second chance in education, and by the government and agencies partnering with the private sector to create better pathways to work. The quality of education needs to be more closely tested.
Finally, the Bank proposes that the public dialogue in the countries needs to change. Social media, that helped to make the Arab Spring possible, needs to be used to debate the reform dialogue, rather than foment public protest.
There needs to be initiatives to promote debates and make them about social advancement not political and fundamentalist activism. Turning the tide in MENA is hugely important for the future stability of Israel’s neighbours. Nevertheless, a focus on functioning modern economies could work in Israel’s favour, ending the myth that the Israel is the cause of all their problems.
Alex Brummer is City Editor
of the Daily Mail
*Free to Prosper: Jobs in the Middle East and North Africa (the World Bank, Washington)