25 April - 1 May 2002
Issue No.583
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Al-Ahram Weekly Online 25 April - 1 May 2002 Issue No.583 |
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Mission Impossible?
To meet its development needs, the Arab world needs to create 40 million jobs in the next 10 years. Can it be done? Sherine Nasr investigates
The Arab world stretches from the Gulf to the Atlantic, and is blessed with vast human and natural resources. One glance at this profusion and the wealth of options that should be open to the region becomes clear. But wealth of resources alone, alas, is no guarantee of economic strength.
"We are often tempted to think of the Arab region as an important player in the world economy, particularly in trade. Such beliefs need to be moderated," argues Abdel Latif El-Hamad, general-director and chairman of the board of directors of the Arab Fund for Economic and Social Development.
Total Arab exports, El-Hamad points out, barely exceed those of Singapore and represent less than three quarters of the Netherlands'. As for imports, the Arab total in 2000 was a mere 46 per cent of Hong Kong's and 56 per cent of Belgium's. "We can put a damper on pretentious claims if we look at financial flows, high-tech production and our contribution to science and technology," he says.
The Arab world has witnessed dramatic changes during the last half century. Real growth has averaged 4.9 per cent a year over the last four decades. In Egypt, Saudi Arabia and Kuwait, that rate exceeded five per cent. "Yet concern stems from two simple observations. First, Arab countries are largely outperformed by many other developing countries. Second, the region is facing new problems, serious challenges, even threats," explains El-Hamad.
Among these challenges is the fierce competition resulting from a free market economy, the rapid expansion of information and communication technologies and the progress of global economic integration.
"While the Arab world faces these demanding challenges no differently from anywhere else, this region has distinctive constraints which constitute major handicaps. These are political tensions, paucity of [mobilised] resources and rapid population growth," observes El-Hamad.
"But other fears also agitate the region. Employment prospects are undoubtedly at the top of the list," adds Ahmed El-Goueli, former minister of trade and supply and professor of agriculture Economics at Cairo University.
"The population in the Arab World has increased at a rate close to three per cent a year for more than 40 years. The rate declined to about 2.5 per cent a year in the last decade but it is still too high to allow significant economic progress," he argues.
Egypt, for example, had roughly the same population size and GDP level as South Korea in 1960. In those days, the value of Egyptian exports of goods and services exceeded Korea's by seven times. "Today, the population of Korea is three quarters the size of Egypt's, but its GDP is six times higher and its exports are 36 times higher," El-Hamad points out.
According to studies conducted by the Arab Fund for Economic and Social Development, Arab countries need to create over 25 million new jobs during the next decade, in addition to providing 15 million jobs to those currently unemployed.
"Creating 40 million new jobs while facing competition in a global market represents an enormous challenge for Arab countries. It requires not only massive investment, but major changes in economic policy as well," El-Hamad says.
The situation is made even more difficult because attitudes to work in the region are imbricated by social and cultural prejudices. "Arab countries suffer high unemployment not only because there are not enough jobs but because the young want jobs tailored to them. While we have a considerable labour force, mainly comprised of Asians and Indians, our young people remain out of work because they refuse to take the jobs done by other nationalities," comments El-Hamad, explaining that, for example, the bulk of farmers in Jordan are Egyptian while Asians dominate the hotel room-service trade in Lebanon.
But even without these complications, it remains hard to imagine the investment needed to create 40 million new jobs in the next 10 years stampeding to the region.
For one thing, Arab capital has been flowing out of the region in considerable amounts for some time. Some reports indicate that accumulated outflows from Arab countries, from both public and private sources, may have reached $900 billion a year.
"A major question to be posed is: how can we win this money back and what guarantees can we give that will encourage these funds to be invested at home rather than outside?" asks Sultan Abu Ali, former minister of economy and professor of economics at Cairo University.
El-Hamad agrees with many economists on the best way of offering investors surety: "Money is not the issue. Some countries have the best resources, yet have been unable to make the progress required. I am concerned, rather, with the dire need of all the Arab societies to adopt the right economic policies, hold on to the principles of transparency and to allow for more participation by the public in decision making," he argues.
Another problem is that although government spending remains high, foreign investment in the region is slight. Reports by the Arab Fund show that, over the last three decades, the countries of the region invested $2.3 trillion in major infrastructure projects and in new production capacities while maintaining a high level of investment in social services. But the main source of financing was state coffers, which lean heavily on oil revenues. "In the nine Arab oil exporting countries, 80 per cent of public spending was financed by oil revenues while for the other 11 Arab countries, development was mainly paid for by tax, capital flows from the oil procedures and development assistance," El-Hamad says.
At the same time, foreign direct investment in the region has remained modest. It did not exceed $63 billion in total during the period 1980-1998. Almost half of the inflows went to the oil and petrochemical industries. Foreign direct investment in all of the Arab world during that period was less than one per cent of total global capital flows and accounted for only four per cent of foreign investment in developing countries.
According to El-Hamad, foreign direct investments need to grow at a rate of over five per cent a year in the next decade while Arab countries need to invest at least $20 trillion, if the employment needs of the region are to be met.
The problem is that capital markets have not been successful in mobilising funds for major projects. "The know-how is lacking in the banking sector while the capital markets still cannot act as catalysts for massive financial projects," Abu Ali says.
Some see promoting small and medium-sized enterprises (SMEs) as the way to economic prosperity. "The required upgrades to the banking sector should include the ability to extend financial help to SMEs without such a heavy need for feasibility studies and physical financial guarantees," argues Mohamed Maged, a banking expert.
The private sector, experts think, should also lead the way in financing future development needs. But private savings in Arab countries still fall short of investment needs and savings are not always directed to priority sectors of the economy. Private sector funds are often attracted by real estate and marginal projects. "But Egypt, as well as a number of other Arab countries, has given the private sector the opportunity to invest in infrastructure projects such as electricity, water, waste-water treatment, roads and airports," El- Hamad says.
All this must be done, at any rate, while keeping one eye on the social costs of development. "A strategy that does not aim to lift poverty, create jobs and promote fairness puts at risk the peace and stability in the region," El-Hamad concludes.
All the Arab world needs, then, to meet its development challenges, is 10 times as much Arab investment in the next 10 years as it saw in the last 30, aggressive growth in foreign direct investment, the creation of 40 million new jobs, and all achieved without causing social upheaval. A tall order, some might say, and perhaps one that should be termed "Mission Impossible."
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