Transcript Indicators of governance are well below potential in the Arab world.

Jobs, Growth, Gender and Governance
in the Arab World
Mustapha K. Nabli
Chief Economist
Middle East and North Africa Region
The World Bank
Yemen Roundtable on Growth, Employment & Social Progress
Sana’a, Yemen
April 9-10, 2005
The Employment Challenge in the Arab World
• Creating 90 million new jobs by 2020 or doubling the current level
of employment.
• In the next two decades the labor force will expand by 74 million
new workers. The expansion of the labor force in the next two
decades is equal to the cumulative increase over the period 19502000.
• Currently, the labor force is increasing by 3.1 million workers per
year compared to 2.5 million in the 1990s and 1.7 in the 1980s.
• The current unemployment rate is around 15 percent affecting
more than 12 million workers.
2
Four World Bank development reports focus
on areas of central concern to policy makers,
researchers and outside observers:
•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
3
The Arab world 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
And the challenge of job creation requires a
comprehensive approach to reform.
4
The private sector in Arab countries remains underdeveloped.
Percent of GDP
Private Investment as a Share of GDP
20
1991
2001
15
10
5
China
Europe and
Central Asia 5
Latin America
and the
Caribbean 4
South Asia 4
Arab 8
Note: Measured by gross fixed capital formation as a percent of GDP. Regional averages weighted by current GDP.
Europe and Central Asia 5 includes Latvia, Poland, Slovenia, Bulgaria and the Ukraine. Latin America and the
Caribbean 4 includes Chile, Brazil, Peru and Venezuela. South Asia 4 includes Bangladesh, Pakistan, Nepal and India.
Arab 8 includes Algeria, Egypt, Jordan, Lebanon, Morocco, Syria, Tunisia and Yemen.
5
Exports outside of oil have been limited.
Trade Potential in Non-Oil Exports
250
Million US Dollars
200
150
100
50
0
ARAB9
ECA5
EASIA3
LAC4
6
OPEC oil exports from Arab economies, per capita
Constant 2000 US$
$10,000
$8,000
$6,000
$4,000
$2,000
$0
1972
* Estimate.
1980
1998
2004*
Non-oil exports remain largely below potential.
Arab Non-Oil Export Potential
3.50
3.00
High performing countries
2.50
2.00
1.50
1.00
Weak performing countries
0.50
Note: Regression is based on 42 countries, but values for 8 low income countries, including Yemen, are not reported because of negative values. Arab9 =
Note: Regression is based on 42 countries, but values for 8 low income countries, including Yemen, are not reported because of
Algeria, Egypt, Jordan, Lebanon, Morocco, the Republic of Yemen, Saudi Arabia, Syria, and Tunisia.
negative values. MENA10 = Algeria, Egypt, Jordan, Lebanon, Morocco, Saudi Arabia, Syria, Tunisia and Yemen.
8
Malaysia
Philippines
Thailand
Hungary
Mexico
Korea, Rep.
Costa Rica
Czech Republic
Slovak Republic
Ecuador
Jamaica
Chile
Bolivia
Mauritius
El Salvador
Bulgaria
Poland
Guatemala
Turkey
South Africa
Russian Federation
Brazil
Argentina
Colombia
Iran, Islamic Rep.
Morocco
Jordan
Saudi Arabia
Tunisia
Arab9
Syrian Arab Republic
Lebanon
Egypt, Arab Rep.
Algeria
0.00
Oil has dominated development. . .
. . . affecting growth but not producing jobs
Real oil prices (left) and GDP growth (right)
Figure 1.2 Real oil prices and growth, 1976–99
40.0
12
10
30.0
8
6
20.0
4
GDP Growth (percent)
16
14
2
10.0
0
Real oil Price
GDP grow th
1996
1991
1986
-2
1981
0.0
1976
Real oil price (dollars per barrel)
Real
oil prices (left) and GDP growth (right)
50.0
9
The 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
10
Indicators of governance are well below potential
in the Arab world.
Governance and Per-Capita Incom e in Arab Countries
2
Index of Governance Quality
Arab Countries
Rest of the World
1
Arab Trend
Rest of the World Trend
0
Average Arab gap in quality of
governance
-1
-2
6
8
Log of Per Capita GDP
10
Source: Per capita GDP, WDI 2002; governance quality, World Bank 2003a.
11
Better Governance Cannot 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.
12
Participation of women in economic activity is also
well below potential.
Female Labor Force Participation, Actual to Predicted
2
1.8
1.6
Arab 1980
Non-Arab 1980
Arab 2000
Non-Arab 2000
1.2
1
0.8
0.6
0.4
0.2
AFR4
China
EAP4
ECA2
Turkey
India
LAC4
Arab
Iraq
Jordan
Bahrain
Syria
Algeria
Egypt
Tunisia
Kuwait
0
Morocco
Actual / Predicted
1.4
13
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 decree
replaced earlier efforts to generate support for economic reform
by opening the political arena.
14
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
the restructuring of redistributive programs and a redefining of
the terms of the social contract.
15
What does it all mean for Yemen ?
The challenges highlighted above apply in a starking manner to Yemen :
•Yemen needs to create more than 4 million jobs over the next 20 years, with
labor force growing at more than 4% per year, one of the highest rates in the
world
•The private sector, which needs to create these jobs, remains weak: only
about 10% of GDP invested in non-oil sector. This rate needs at least to double
•Yemen needs to diversify its economy which has been too dependent on oil
revenue for the last decade. Its non-oil exports are extremely low at about the
MENA average of 7% of GDP.
16
Yemen needs also to achieve the
fundamental transformations
Yemen has made good progress in some areas: macro stability,
education, infrastructure, trade liberalization. But the three
fundamental transformations I discussed above need to take place
in Yemen:
• A drastic improvement in governance, with more inclusion in
the decision-making, and increased accountability; which
mean rule of law, respect of property rights, better public
sector management
• Achieving more inclusive access to education and health
services for women, and greater participation in economic
activity
• Overall improvement in educational attainment and better
labor skills which match the needs of the economy as it
transforms.
But Yemen is facing much much greater
urgency…
While it has to achieve these transformations, it has also to deal with an
additional challenge: time is running out, as oil—the main source of
revenues and foreign exchange earnings—is rapidly declining. This has
many implications:
• Reduction in GDP growth and the level of income,
• Risks of jeopardizing public finances with unsustainable fiscal deficit
• The needed adjustment will put into question the achievements in
building human and physical capital so badly needed for long term
growth
• The needed adjustment may also create social problems, lead to
increased poverty which undermines the climate for private investment
 Unless Yemen adjusts in an orderly way to the decline of the oil
revenue, it will not be able to meet the employment challenge and
achieve any sustainable reduction in poverty. Yemen is in need of a
major overhaul of its development strategy for it to meet the difficult
challenges ahead. With speed of reform is of the essence.