June 27, 2007


People power: Arab economies in a global era (Marcus Noland Howard Pack, 2007-06-27, Open Democracy)

For two generations, the economic performance of the Arab countries of the Middle East has been middling. It has been worse than east Asia, better than sub-Saharan Africa, and about the same as Latin America and south Asia. Yet while there has been no crisis in the past - indeed, on some social indicators progress has been spectacular - the region now faces an imminent challenge: how to create jobs for the large cohort of young people reaching working age. The task is immense and the stakes are high: over the next decade or so, the region may experience population growth of 150 million people - the equivalent of adding two Egypts. Rising labour-force participation by women only increases the pressure. The region is a demographic time-bomb.

The picture is not entirely bleak: underpinned by relatively high oil and gas prices, the region as a whole has exhibited both steady growth of income and employment of late. The small emirate of Dubai appears bent on establishing itself as the Singapore of the Middle East. But whether the current level of energy prices will be sustained is an open question and in any event the impact of this windfall is felt unevenly across the Arab world, where some of the most populous states are not well-endowed in oil. Measured unemployment is decreasing. There may be some rot beneath the veneer, however.

Remarkably, the net increase in employment over the past five years is accounted for entirely by women. The increase in employment opportunities for women is encouraging. But the stagnation of male employment is worrisome and in some countries - including Jordan and the oil-exporters of the Gulf - most of the newly created jobs have been filled by foreigners. This phenomenon is even more acute if one looks at private-sector employment, and there is some evidence of warehousing people in public-sector employment, particularly in the Maghreb. With a few exceptions, employment has not been growing in industries where productivity is increasing - that is, it does not appear to reflect an expansion of activity in rising dynamic sectors.

One method of rapidly creating a sustainable increase in employment is through an expansion of labor-intensive manufacturing or services exports, often in conjunction with foreign investors or local entrepreneurs integrating into global supply networks. But outside the petroleum sector, the region's track-record is inauspicious. Not just in comparison with China or India: in one recent year the Philippines generated more manufactured exports than the entire Arab world. And until the recent oil-fuelled expansion of intraregional foreign direct investment (FDI), the region typically attracted less FDI than Sweden. Even this recent surge in activity appears to be concentrated to a significant extent in so-called "non-tradable" sectors such as real-estate development that could be highly vulnerable to a downturn in the oil market or a contraction of global liquidity. The Arab world risks being left behind at precisely the moment it needs to accelerate job growth.

Wow, can they really get behinder?

Posted by Orrin Judd at June 27, 2007 1:08 PM

Certainly they can get farther behind. Particularly if we mean "relatively farther behind".

Posted by: Tony Zbaraschuk at June 27, 2007 8:39 PM