The World Economic Forum (WEF) highlighted the importance of quality education in the Arab world in order to sustain economic growth independent of energy prices.
In the recently released Arab World Competitiveness Report 2007 by WEF, the performance of Arab countries is benchmarked in terms of national competitiveness. Understanding competitiveness as the set of factors, policies and institutions that enable growth, the report looks into how to put the region on track to sustain the current growth momentum by strengthening drivers of competitiveness while removing obstacles to faster growth.
Among the findings that emerge from the report, three are particularly worth highlighting. The first is that the Arab world is comprised of highly diverse economies. This difference is reflected most strikingly in the level of income per capita. GDP per capita of the wealthiest country in the Arab world, Qatar, is 73 times higher than that of the least developed, Mauritania. Apart from the pure level of income, the countries also have very diverse economic structures — while some have accumulated significant wealth by extracting energy resources, others follow a more traditional, export-led development path. As a consequence, states face very different challenges in terms of their economic policy. While oil exporting countries seeking to diversify their economy will have to address what the index results highlight as one of their main weaknesses, namely putting conditions in place for a more innovative private sector, other countries will have to focus on more basic policy areas, such as enhancing transport and telecommunications infrastructure and fostering the use of technology or, even more fundamental — stabilizing their macroeconomic environment.
The second key finding of the report is that on average, when benchmarked against economies with a comparable level of income, countries that do not dispose of energy resources are often significantly more competitive than their oil-exporting neighbors.
All four Gulf states that fall into the highest income group rank toward the bottom of this peer group, outperformed by a significant margin by some Asian economies that often serve as an example for the region, such as Singapore and Hong Kong. There are a number of reasons for this.
Firstly, for wealthier countries, innovation and sophistication of business operations are relatively more important, as otherwise they would not be able to maintain the high wage level and the oil exporters’ performance in these two areas looks back at a relatively weak track record. Secondly, the availability of natural resources ensures sustained wealth for the foreseeable future and therefore weakens incentives to implement reforms. And lastly, some countries started only recently to more actively pursue economic and political reforms with a new generation of leaders coming to power and the results become only slowly visible.
In these countries, a number of policy areas remains to be addressed. Over the past few years, many states have seen increased unemployment among nationals.
Despite increasing wealth, efforts to diversify the economy and a focus on labor policies, many nationals newly entering the workforce have not been able to find jobs. Skills shortages and the lack of an education that stresses skills necessary for the private sector are usually identified as reasons for this development. Education at all levels needs to be enhanced and geared more strongly toward the needs of the private sector.
At the same time, in a region with abundant liquidity, access to capital is still difficult for private business and new entrepreneurs, and the intensity of competition remains fairly low. For many countries, competitiveness is on top of their agendas and they have geared public investment toward enhancing growth and diversification and established appropriate structures, such as economic development boards, competitiveness councils, or observatories. Yet an even clearer focus on outputs and a more supportive framework for the private sector could significantly improve the efficiency of government spending on growth enhancing measures.
In the two lower income groups, performance is more mixed. Countries that have policies focused on reform and economic growth for sometime, such as Jordan or Tunisia, compare relatively well to their peer income group. For example, Algeria and Libya lag behind. This further confirms that the availability of resources weakens incentives to reform, although Libya’s low rank can be explained by the international isolation the country suffered from until recently.
Thirdly, and finally, the report highlights the high importance of education in all countries of the region. Although the exact recommendations differ, the business sector in virtually all countries of the region pointed out that graduates lack appropriate skills and that innovation is often hampered by lack of qualified scientists and engineers.
More importantly, the report noted that 7 of the 13 countries said “inadequately educated workforce” is one the three most serious obstacles the business sector faces. Improving education programs will require more focus on the quality of education, an overhaul of curricula, better training of teachers and more and qualitatively better vocational training programs.
Using the current benign environment to set the foundation for self-sustained growth independent of energy prices will require strong leadership and political will. Yet, if the current opportunity is well used, the region may emerge as one of the drivers of the global economy in foreseeable future.
Margareta Drzeniek-Hanouz is a senior economist at the World Economic Forum and co-author of The Arab World Competitiveness Report 2007.
