Author: Siddiqi, Moin
Date published: March 1, 2011
Recent political tensions in the region have highlighted once again how, with booming young populations and rising socioeconomic challenges across the Arab world - from the Gulf to North Africa - governments need to revamp educational systems and improve on the necessary skills required to meet today's increasingly competitive work environment, as well as encouraging private-sector-led growth.
The region is at a critical juncture where broaderbased, more inclusive economic growth - the key to job creation and social harmony - needs far-reaching reforms to tackle joblessness and under-employment.
The 2009 financial crisis exerted colossal human cost in terms of job losses and rising poverty in every continent. The problem of unemployment has impacted upon more than 210 million people across the globe, an increase of over 30 million since 2007. Dominique StraussKahn, managing director of the International Monetary Fund (IMF), warned: "We must not underestimate the daunting prospect we face: a lost generation, disconnected from the labour market, with progressive loss of skills and motivation." Social deprivation fuels unrest, which, in turn, leads to even higher unemployment as new private investments are deferred or cancelled.
The International Labour Organisation (ILO) believes the advanced world must wait until 2015 to see a return to the level of employment registered before the crisis and, it warns, this delay will increase social tensions. "In the 35 countries for which data exists, nearly 40% of jobseekers have been without work for more than one year and therefore run significant risks of demoralisation, loss of self-esteem and mental health problems." The impact is more severe in poorer nations with no social safety net for vulnerable groups.
Nurturing younger human resources by placing greater emphasis on science and technology, particularly ICT, in higher education, will spur solid growth in the Middle East and North Africa (MENA) region, where 60% of the population is below 25 years of age. A skilled labour force is essential for firms to thrive and compete in global markets; it fosters the ability of companies to innovate and to adopt new technologies.
The region's high unemployment is concentrated among the educated youth - whose share in total joblessness exceeds 40% in Egypt, Lebanon, Syria and Tunisia. In Saudi Arabia, over two fifths of the 500,000 unemployed are educated to degree level and 43% are aged between 20-24. Similar problems are reported in Iran, where there are an estimated 750,000 new entrants to the job market every year. Even while the economy was growing at a rate of 6% before the slowdown, only 500,000 new jobs were being created annually. Private estimates put Iran's unemployment rate at 25% among graduates, a cause for very real concern that youth unemployment could incite political instability in affected countries.
Employers identify three major hurdles to regional job creation - namely poor educational standards, the lack of skilled manpower and the work ethic. The education system does not produce people who match the demands of the labour market. The basic problem across the whole region is skills. John Sfakianakis of Banque Saudi Fransi agrees; "International companies are looking for the right talent at the right price. It is not senior talent that is the problem, it is the mid level; you have a very limited pool." Nepotism still affects recruitment in public and private sectors, thus hindering free competition.
There are nine million foreign workers in Saudi Arabia alone, though locals are being encouraged to accept less lucrative jobs, rather than expecting managerial posts after graduation. Public sector wages - higher than those offered by private firms - are not compatible with productivity or market conditions. The public sector offers enhanced job security, higher wages and more generous pensions. Such attractions induce new entrants - with family support - to remain unemployed in anticipation of securing well-paid jobs in public services.
During the past two decades, the Arab region's per capita growth has lagged behind others in the developing world, despite the influx of petrodollars. This largely reflects low industrialisation and sluggish trade performance, as well as poor governance. Historically, MENA states have not received much greenfield-related foreign direct investment (FDI) into non-hydrocarbons sectors, which both have potential for both job creation and diversification. "Critical for these economies is diversification. They need to urgently scale up non-oil sources of growth to help reduce their vulnerability to oil prices," urged the World Bank.
To absorb swelling pools of unemployed and new entrants to the labour market, MENA countries (excluding the Gulf bloc) face the daunting task of creating 18 million full-time jobs over this decade, according to the IMF. This, however, requires an average annual growth rate of 6.5% (or higher) compared with the 4.5% achieved between 2001-09. But only 11 million new jobs could be created over a 10-year period, if growth averages below 5%. Masood Ahmed, the director of the IMF's Middle East and Central Asia department, stressed robust sustained growth is a "precondition for such large-scale job creation and for raising incomes".
Education systems need to focus on a curriculum that is in tune with the demands of international job markets, and vocational training to upgrade the skills of those unemployed, joe Saddi, chairman of the board of Booz & Company, the US consultancy, believes: "A lot of spending has been on physical infrastructure. Now attention must turn to the quality of education." Private firms can better identify the required skills, whilst government hiring procedures should put a premium on skills and competition, rather than just paper qualifications.
More flexible labour-market regulations and providing social safety nets for the long-term unemployed, as well as improving workplace ethics, would help both employers and workers to respond effectively to the challenges of the modern-day work environment. Furthermore, the link between earnings and productivity should be strengthened in the public sector. One Gulf analyst remarked: "Our universities contribute to unemployment because they raise expectations about salaries without imparting the skills needed."
Further liberalisations of external trade, along with domestic markets in Algeria, Iran, Libya, Syria and Yemen could raise economic growth and labour demand. Fostering a business-friendly environment - thus leading to more investment and competition - holds the key to unlocking employment potential. The IMF explained: "MENAs lack of competitiveness has prevented the region from realising the full benefits of globalisation for its population in terms of income and employment gains."
Better access to social services (notably healthcare) and industrial training are vital for tomorrow's productive workforce and there is a also a real need for private enterprises and higher-quality investment in labourintensive sectors in order to ensure sustainable jobs for the region's expanding youthful population. Another obstacle to private-led growth has been insufficient access to finance for small and medium-sized enterprises (SMEs), the engine of job creation and poverty alleviation in poor Arab countries, an issue which must be addressed.
The demographics of the MENA region can help underpin longer-term growth patterns - contingent on structural changes. But as Marios Maratheftis of Standard Chartered Bank noted: "Just because you have a young population does not guarantee economic success. However, it is something that can enable success if these countries keep modernising and attracting the foreign investment that creates jobs for the young."