JEDDAH, 3 December 2007 — The Middle East and North Africa (MENA) region is a unique economy due to its dependence on oil revenue. High oil prices during 1970’s benefited the region immensely. However challenge lies ahead in terms of economic reforms, adequate analysis and adherence to benefits of globalization. High oil prices resulted in high rates of creation of wealth, high gross capital formation, strong GDP growth rates and improvement in living standards during last 40 years.
In the economic liberalization that ensued, FDI was encouraged and countries that adopted trade reforms benefited. However the MENA region is lagging behind in terms of employment generation. According to various studies, unemployment rate in the region is highest compared to any other region of the world. In one sense high unemployment rate is affecting the region’s high growth rate. High unemployment rate is likely to aggravate in near future with additional population adding up to the existing labor force.
Against this backdrop, the region is facing challenges regarding diversification of the economy and expansion activity. Employment generation is restricted to those fields where productivity is increasing. Job creation is restricted to few visible areas in the region, e.g., oil production. Apart from this, it is evident that foreigners account for most of the employment opportunity in the oil exporting countries.
According to various experiments conducted, economic growth and job creation are correlated. A comparative study suggests that the MENA countries that pursued economic reforms have better chances of overall robust macroeconomic growth due to active economic diversification process and high productivity, consequently boosting employment rate.
One measure that may be able to rehabilitate the present scenario is to rapidly create economic opportunities that can substantially increase employment generation with benefits going to local unemployed population. The economic diversification can be toward revitalizing the labor- intensive economic activity such as manufacturing and service sector.
Though foreign direct investment flows has increased rapidly, it has been absorbed only by petroleum-related activities.
The situation is, to a certain extent, reflected by weaker economic integration from outside world. The relative remoteness from global economic activity has restricted international technological inflow, foreign innovations and correlated economic operations. These can largely be attributed to authoritarianism, risky business environment and lack of political transition from the successor regimes. The changes made in this political situation might be conducive to globalization and hence further macroeconomic growth.
(Faisal H. Alsayrafi is president & CEO of Financial Transaction House, Jeddah. The idea is that of the author and does not necessarily reflect the idea of FTH.)