Transcript Presentation - The UAE National Productivity Forum

Assessing Labour Productivity in
The UAE
Toward Productivity-driven Knowledge Economy
in the UAE: Issues and Policy Framework
May 2, 2016
Ibrahim Elbadawi, Dhuha Fadhel and Eman Refaat
Dubai Economic Council
Why Does Productivity Matter?
Ensuring the sustainability of economic
growth.
Creating sustainable high-paying jobs in the
private sector (i.e. supporting Emiratisation
initiatives).
It is the centerpiece of viable knowledgebased economy (UAE vision 2021).
The Main Issues
Over the last 40 years or so, the UAE has made strong
strides toward diversifying and modernizing its economy
And, it has been able to do so in a context of factor
intensive growth model:
• Infrastructure and other physical capital investment
• Mainly unskilled and semi-skilled labor
• Low labor productivity and total factor productivity (TFP)
However, sustainability of growth and diversification is
no longer possible under this model:
•
•
•
•
The emerging low oil price global economy
The UAE economy is close to the level of ‘desired’ capital stock
Public sector cannot continue to meet labor demand by nationals
Need for high productivity, high paying private sector jobs
The Main Issues (contd.)
An emerging UAE Development model: productivitydriven knowledge economy initiatives by the Federal and
Local Governments:
The UAE Vision 2021
The “post-oil” era Initiative
However, the march toward high productivity
economy requires an integrated, broad based policy
framework:
Horizontal
Industrial policy
Vertical Industrial
Policy
Building
Knowledge society
Outline
(1) Understanding the Context
(2) Sectoral Labour Productivity
and Structural Transformations
(3) Determinants of Firm
Productivity
(4) The March Toward High
Productivity Growth
Outline – Item (1)
Understanding the Context
The story of economywide productivity in
the UAE
Labour Productivity
Understanding the Context: Spectacular
Growth Record (1975-2008)
UAE: Real GDP, Capital Stock and Employment
(1975=100)
Despite the huge
natural-resource
capital and the
massive
investment in
physical capital,
the UAE economy
has become
increasingly
labor-intensive.
Source: Soto and Haouas (2012).
Understanding the Context: However, growth
happened without Productivity Growth
Average Labor Productivity - UAE Real
GDP per Worker
Source: Soto and Haouas (2012).
Since the
mid-1980s
labor
productivity
in UAE have
decelerated
to lower
levels than
that of the
advanced
economies,
Hong Kong
and
Singapore.
Understanding the Context: However, growth
happened without Productivity Growth
UAE: GDP per worker and Total Factor Productivity (Normalized
so that 1975=100)
Total factor
productivity did
not play an
important role in
the economic
growth in the UAE.
TFP and labour
productivity
growth were
relatively weak for
the last four
decades.
Source: Soto and Haouas (2012).
Outline – Item (2)
Sectoral Labour Productivity and Structural
Transformations
The UAE
Experience
Lessons
form the
Singaporean
Model
Lessons
form the
Hong Kong
Model
Sectoral Labour Productivity and structural
transformations
UAE represents an
intermediate stage,
where a substantial
stock of
infrastructure has
been built and is
now at the stage of
consolidation
Sectoral Labor Productivity in UAE in 2001
Top 3 labour
absorbing
sectors are
• Wholesale Retail Trade and Repairing Services
• Construction
• Manufacturing
Sectoral Labor Productivity in UAE in 2010
UAE represents an intermediate stage, where a substantial stock of
infrastructure has been built and is now at the stage of consolidation.
Sectoral Labor Productivity in Qatar in 2012
Sectoral Labor Productivity in SingaporeTwo Phases
Labor productivity gaps in Singapore 1990
Labor productivity gaps in Singapore 2011
Sectoral Labor Productivity in Hong KongTwo Phases
Labor productivity gaps in Hong Kong 1991
Labor productivity gaps in Hong Kong 2011
Why UAE Needs to Account for Both Strategies
Enhancing Productivity in the UAE Entails Learning from
both experiences:
Comparisons to Hong Kong suggests focusing on Services
(Tourism, Financial, Trade,….etc)
Singapore’s Case of Enhancing Manufacturing Even More
Compelling and there is a room for improvement
(Aerospace, Aluminum, Masdar City, RAK Ceramics …etc)
The UAE Vision 2021
Outline – Item (3)
Determinants of Firm Productivity
Dubai Firm Level
Survey
Evidence from
Dubai Firms:
Issues and Lessons
Productivity: Evidence from Dubai Firms
• Construct labor productivity indexes (as measured by VA
per worker):
Total revenue from output sales minus cost of intermediate inputs
and utilities divided by the number of workers
• Estimate the determinants of average VA per worker:
Firm Characteristics
• firm’s capital
intensity, capacity
utilization, Foreign
investment (%),
local ownership
(%), age and size
Locational effect
• Dubai main vs.
Free zones
Sectoral effect
• Construction,
hotels and
restaurants, social
services, logistics,
trade,
manufacturing and
financial services.
Firms in FZs are more productive
than their counterparts in DM…
Value added per worker (by location)
Median ('000 AED)
250
195
200
150
100
105
97
50
0
DM
FZ
* Source: Business Environment Survey 2012/13, Dubai Economic Council.
Overall
Financial firms are the most productive while
construction firms are the least
Value added per worker (by sector)
Median ('000 AED)
180
160
140
120
100
80
60
40
20
0
173
136
105
51
Construction
54
Manufacturing
107
120
58
Hotels &
Restaurants
Overall
Transport &
communication
* Source: Business Environment Survey 2012/13, Dubai Economic Council.
Social services
Trade
Financial
services
What determines firms’ productivity in Dubai?
Locational effect: FZ firms are more productive than DM firms (i.e. more incentives in
the FZs)
• Workers’ training is a factor behind the human capital advantage in the FZ
• Assess possibilities of transferring some of the FZ design features to the main economy
Sectoral effect: Firms in the financial sector tend to be more productive than
firms in construction, manufacturing and hospitality sectors.
• Skilled workers in the financial sector vs. unskilled in construction, manufacturing and hospitality.
• Advanced technology and high capital intensity help enhance productivity.
Firm Characteristics: More productive firms are generally characterized by:
Higher capital
intensity
Better capacity
utilization
Higher share of
foreign
investment
Being a larger
firm (i.e.
economies of
scale)
Other Issues Affecting Firm Productivity
Properties
ownership
Productivity
Firms that own their properties tend to be more productive
than those that rent them .
Firms face difficulties related to high rentals, limited
availability of rented units, short duration of rental
contracts and lengthy dispute resolution process .
These difficulties can hinder firms’ investment on capital
intensive assets or more advanced technologies hence
leading to lower productivity.
Firms with export-orientation tend to be more productive.
Manufacturing firms in Dubai have low productivity due to
the fact that they are largely SMEs. However, exporting
activities can help those firms become more productive.
Exportorientation
Outline – Item (4)
The March Toward High Productivity
Growth
An actionable
‘Policy Strategy’
Specific Policy
Recommendations
The March Toward High Productivity Economy:
Lessons from the Development Literature
“It is not factor
accumulation”
(Easterly and
Levine, 2001)
“Factor
accumulation
does not
account for the
bulk of crosscountry
differences in
the level or
growth rate of
GDP per capital;
something else
– TFP –
accounts for a
substantial
amount of
cross-country
differences”
“National
policies that
enhance the
efficiency of
capital and
labor or alter
the endogenous
rate of
technological
change can
boost
productivity
growth and
thereby
accelerate longrun economic
growth,”
The March Toward High Productivity
Economy: A Broad Strategy
Horizontal
Industrial Policy
Vertical
Industrial Policy
Education and training
Technical
upgrading of a
‘select’ set of
industries
Enhancing the regulatory
system in the UAE main
economy (vs. free zones)
Research
Universities,
Laboratories,
Science Parks
Increasing productivity in
comparative advantage
sectors: tourism, logistic,
trade …etc.
R & D Strategy
Building
Knowledge
Society
Align incentives
towards
professionals,
especially :
educators,
professors,
scientists,
engineers, as well
as technology
companies.
The March Toward High Productivity
Economy: A Broad Strategy
Horizontal
Industrial Policy
Vertical
Industrial Policy
Education and training
Technical
upgrading of a
‘select’ set of
industries
Enhancing the regulatory
system in the UAE main
economy (vs. free zones)
Research
Universities,
Laboratories,
Science Parks
Increasing productivity in
comparative advantage
sectors: tourism, logistic,
trade …etc.
R & D Strategy
Building
Knowledge
Society
Align incentives
towards
professionals,
especially :
educators,
professors,
scientists,
engineers, as well
as technology
companies.
The March Toward High Productivity
Economy: Horizontal Industrial Policy
Thoroughly reform public schools to improve
management, align incentives to productivity, and make
teachers accountable.
Education
Education
and
training
Create incentives for universities to have wider
programs in different disciplines (e.g. engineering,
natural sciences, social sciences and business).
Identify future skills needed to develop leading sectors
(tourism, IT, trade, etc.) and quantify the current skill gap.
Continuous improvement of the workers’ skills (onjob training)
Training
Adoption of modern technologies to complement
workers’ knowledge and skills.
Giving market incentives to the private sector (e.g. visa
or labor card fee waiver) if they hire more skilled
workers above a certain threshold or establish
businesses in knowledge-intensive industries.
The March Toward High Productivity
Economy: Horizontal Industrial Policy
Continue to update the laws and improve the
regulatory environment in the real estate sector
Enhancing
the
regulatory
system in
the UAE
main
economy
Addressing
rental
difficulties The regulatory framework adopted in the free
zones can provide some guidance on the types of
faced by
regulations (i.e. access to land) that can help
firms that
do not own facilitate doing business in the main economy
their
properties. Extending the duration of rental contracts to more
This can
than one year
include the
following: Establishing an office under the department of
land to undertake all tenants’ affairs
Revisiting the foreign ownership law
The March Toward High Productivity Economy:
Horizontal Industrial Policy
Developing industrial policies to
promote more competition in the
product market.
Increasing
productivity in
comparative
advantage
sectors:
tourism,
logistic, trade
…etc.
Promoting export-orientation strategies
especially among SMEs in the
manufacturing sector through specific
industrial policies.
Introducing policy measures that target
enhancing productivity of firms in laborintensive sectors ( e.g. taxing the
demand for unskilled workers)
The latter could help create incentives
for entrepreneurs to develop capital
intensive high value-added industries
that rely on skilled labor.
The March Toward High Productivity
Economy: A Broad Strategy
Horizontal
Industrial Policy
Vertical
Industrial Policy
Education and training
Technical
upgrading of a
‘select’ set of
industries
Enhancing the regulatory
system in the UAE main
economy (vs. free zones)
Research
Universities,
Laboratories,
Science Parks
Increasing productivity in
comparative advantage
sectors: tourism, logistic,
trade …etc.
R & D Strategy
Building
Knowledge
Society
Align incentives
towards
professionals,
especially :
educators,
professors,
scientists,
engineers, as well
as technology
companies.
The March Toward High Productivity
Economy: Vertical Industrial Policy
Long term strategy for enhancing technology and
knowledge transfer through research laboratories,
national universities and science parks.
Establishing
A National
Productivity
Board
Improve labor conditions to ensure a positive labor
environment that would, in turn, attract foreign
investment.
Focus on upgrading the skills of labor market.
Switch the focus towards more knowledge-intensive
and high productivity sectors.
The March Toward High Productivity
Economy: A Broad Strategy
Horizontal
Industrial Policy
Vertical
Industrial Policy
Education and training
Technical
upgrading of a
‘select’ set of
industries
Enhancing the regulatory
system in the UAE main
economy (vs. free zones)
Research
Universities,
Laboratories,
Science Parks
Increasing productivity in
comparative advantage
sectors: tourism, logistic,
trade …etc.
R & D Strategy
Building
Knowledge
Society
Align incentives
towards
professionals,
especially :
educators,
professors,
scientists,
engineers, as well
as technology
companies.
The March Toward High Productivity
Economy: Building Knowledge Society
An Appropriate Economic
Incentive and Institutional
Regime
that encourages the widespread and
efficient use of local and global
knowledge in the economy, that
fosters
entrepreneurship,
and
Productivity
A Society of Skilled, Flexible
and Creative People
with opportunities for quality
education, jobs and life-long learning
available to all;
An Efficient Innovation
System
comprising firms, science and
research centers, universities, and
other organizations that can tap into
and contribute to global knowledge,
adapt it to local needs, and use it to
create new products and services.
A Dynamic Information and
Telecommunication
Infrastructure
that provides efficient services and
tools available to all sectors of
society; and
The March Toward High Productivity
Economy: Building Knowledge Society – contd.
Align incentives towards professionals,
especially: educators, professors, scientists,
engineers, as well as technology companies
Introducing regulations/incentives that encourage more
labour flexibility and help retain high-skilled foreign
workers, e.g.:
Long Term Visa
Pension Schemes for
Foreigners
Thank You