This year's Arab World Competitiveness Report, released in May by the World Economic Forum in partnership with the European Bank for Reconstruction and Development, comes at a pivotal time for the MENA region, as some countries grapple with the impact of the Arab Spring and the often chaotic struggle for democracy, while others, namely in the Gulf, maintained or improved on their status as some of the world's most competitive nations. The report builds on data from the WEF's 2012-13 Global Competitiveness Report and Global Competitiveness Index, released last September. It analyzes "key factors determining future prosperity and economic growth in the Arab world," while focusing on pressing regional issues such as education, infrastructure, employment and financial systems.
The GCI ranks the competitiveness of 144 countries according to a scorecard that factors in big picture characteristics like macro-stability along with specific traits relating to health, education, innovation and technology, institutional strength and market efficiency. The data is derived from major global organizations as well as worldwide surveys of executives. The AWCR provides insight and context to the GCI ranking of 13 MENA countries. The challenges they face are diverse. In the tumultuous aftermath of the Arab Spring, North African countries (Algeria, Egypt, Libya, Morocco) continue to grapple with labor market inefficiencies and the need for institutional improvements. Many Gulf states (Bahrain, Kuwait, Qatar, Saudi Arabia, the UAE, Yemen), on the other hand, still demonstrate "low levels of innovation" despite reaping the benefits of oil exports and enjoying significant growth. Meanwhile, Jordan and Lebanon, which have experienced remarkable stability and resilience in the face of the civil strife in neighboring Syria, face challenges related to their "infrastructure shortages and small market size."
Unemployment is a universal problem. The report explores joblessness--widely considered "the most important socio-economic challenge" facing the region--in particular among women, the educated and the youth. With rapidly ballooning populations, creating jobs is critical for Middle Eastern governments. The issue is especially resonant among countries in political turmoil that have been hit by flights of foreign investment and tourism (such as Egypt). Since business creates jobs, fostering better environments for commerce is essential for these nations. Their success at achieving competitive climates has varied widely.
The Gulf
Gulf states continue to flourish economically, with three countries in the top 25 on the GCI: Qatar, Saudi Arabia and the United Arab Emirates, which are ranked 11th, 19th and 24th, respectively. These economies, traditionally dependent on oil exports and buoyed by high energy prices, are also making moves to become more innovative and diverse. With already strong macroeconomic fundamentals and relatively efficient governments, Gulf nations are focusing on improving education, technology and infrastructure. Qatar has made learning a cornerstone of its national vision, along with science and technology. In the last decade, the country has made "great strides in education reform," according to the AWCR. Saudi Arabia has also named education as a key priority, establishing a science and technology-focused university. The UAE's "Vision 2021" is an effort to establish a knowledge-based economy "driven by innovation and talented human capital." These countries have all made significant infrastructure investments and implemented reforms to improve financial markets and facilitate business.
The region's next three most-competitive countries in the GCI include Oman (32nd) Bahrain (35th) and Kuwait (37th), where similar efforts are underway. The report highlights deficits in education in Oman, however, while it explains that Kuwait and Bahrain are both in need of measures that would open up their marketplaces to foreign players. In Kuwait, domestic regulations function as a barrier to foreign investment, stemming from an insular business culture that's heavily influenced by clan and family relationships and bars foreign participation in certain sectors. As a result, the economy is deprived of "beneficial spillover effects in management practice, technology and innovation." While past measures attempting to remedy the situation have been stymied by political gridlock, legislators have managed to pass several bills supporting small business growth and implementing standard international business practices. Oman has also declared a long-term plan to implement "extensive" labor and educational reforms and launch massive infrastructure projects. The report notes that Oman has already halved the average amount of time it takes to start a business, in part by availing itself of the Internet. Bahrain, meanwhile, is trying to position itself as a regional and global commercial logistics hub. The nation has implemented significant labor reforms, according to the report, bringing it in line with the standards of the International Labor Organization, in part by better matching skilled workers with employers.
Yemen is among the MENA nations hardest hit by the tumult of the Arab Spring, according to the AWCR, and its GCI ranking is the lowest regionally, 140th. The country is in desperate need of economic and institutional reform in order to move beyond a toxic investment climate and strengthen economic performance, the report says. Security problems and political instability continue to pose major hurdles to investment and economic development.
The Levant
Jordan and Lebanon are ranked 64th and 91st, respectively, behind most of the Gulf states but ahead of most of North Africa economically. Jordan, the report explains, exhibits characteristics that have the potential to support an innovative economy, including a relatively strong educational system, a large pool of engineers and technology-savvy students and a moderate, forward-thinking government operating in a stable political environment. The administration has convened an official national innovation and competitiveness council, representing "a major step forward." The report also highlights a new Jordanian program to enhance municipal services and capacity-building using local expertise.
Lebanon, on the other hand, boasts a competitive domestic business environment and offers relatively high-quality education, but it suffers from weak institutions and corruption as well as the consequences of domestic and regional instability. These factors hamper businesses as well as new investment, according to the report. It recommends reforms aimed at bolstering infrastructure, human development and management of public debt. It also points out the importance of small and medium-sized enterprises and efforts to encourage their expansion. The report predicts that 2013 is likely to be a difficult year overall for Lebanon in light of political upheaval in neighboring Syria.
North Africa
Morocco leads the North African countries on the GCI in 70th place, while its peers, Egypt, Algeria, and Libya, come in last in the region at 107th, 110th, and 113th place, respectively. The report explains that Morocco, which has largely managed to avoid the political maelstrom of the Arab Spring, implemented a new, more democratic constitution in 2011 and launched a number of liberal economic measures, providing for "unique investment opportunities." Graft remains a problem in Morocco, however, as it does in its neighbor to the east, Algeria. Algerian businesses must contend with a cumbersome bureaucracy and "excessive red tape," the report says, while foreign investors encounter high trade tariffs and rules that "discriminate against foreign investment." That said, the AWCR still sees the macro-economic picture in Algeria as relatively favorable overall, with a promising, newly-elected government that continues to increase economic diversification and is "driving investments in housing, infrastructure, agriculture, education, ICT and SME support."
After being dropped from the GCI following the overthrow of its government in late 2011, Libya returns to the list in 113th place. Despite a chaotic period following the downfall of the Muammar Gaddafi regime, the AWCR paints a relatively bright picture of the country's prospects. It notes that Libya's vast hydrocarbon reserves, coupled with its lack of government debt and budget surplus, provide a "good base going forward." The report maintains a positive outlook for the country in the medium to long term, even in the face of security concerns, though it advocates for dramatic overhauls to the educational and financial systems as well as relaxing stringent regulations.
Egypt is once again struggling to regain its economic footing following the recent dismissal of the government of former President Mohamed Morsi, as it did after the ouster of President Hosni Mubarak in 2011. The nation's position of 107th on the GCI has been thrown into question by the recent political turmoil, and most of the country's biggest economic problems remain regardless of who is in charge. The AWCR notes that Egypt's ever-widening budget deficit and increasing debt stemming from ballooning subsidies has hampered growth. It declares that the largest Arab nation is also badly in need of labor market reforms. The report argues for an education overhaul, including "advancements in vocational and technical training." Egypt could greatly improve competition by cutting down on bureaucratic red tape, bolstering research spending and development efforts and improving the legal framework related to commercial litigation, the authors write. On a positive note, the report briefly touches on the development of business clusters, which has led to "greater value chain engagement" and improvements in "inter-firm linkages."
Reforms that aid private sector growth, it concludes, are the answer to creating "gainful and sustainable employment across the region for the benefit of both present and future generations."
© Business Monthly 2013
