Arab World Competitiveness Report 2011-2012 - World Economic ...

1. A Time of Opportunities: The Competitiveness Performance of the Arab World
Arab World Competitiveness Report 2011-2012
20
North Africa’s National Competitiveness
Assessment
In early 2011, most North African countries experienced
a wave of social protests that impacted countries in
different ways. While political transitions are now under
way in Egypt, Tunisia, and Libya, Morocco and, to a
lesser extent, Algeria have also embarked on political
and economic reform programs. The uncertainty
associated with these events inevitably has led to a
short-term decline in economic and competitiveness
performance for 2011 in the most affected countries.
However, the political changes bring with them the
opportunity to put into place competitiveness-enhancing
measures that will enable countries to move towards a
higher growth path quickly and to generate employment
opportunities for their populations.
While competitiveness has been high on the agenda of
most economies over the past several years, progress
across North Africa has been mixed. The economies of
Egypt and Algeria have declined in the rankings, while
Morocco and Tunisia have remained stable.
Tunisia, the country where the Arab Spring began,
maintains the lead as the by far most competitive
economy in North Africa at 40th place overall. The
popular uprising in the spring of 2011 was accompanied
by a rise in uncertainty, and has brought to light
a number of challenges related to the institutional
environment, among others. These two developments
resulted in a less favorable assessment of the quality
of public and private institutions, which drops from
23rd last year to 41st. There seems to be a greater
recognition within the institutional framework of the
prevalence of corruption and government favoritism,
as well as concerns about the independence of the
judiciary. Not surprisingly, the security situation – one of
the country’s main competitive advantages in the past
– is seen as more costly for business than in previous
years (47th).
However, the country’s core competitive strengths bode
well for the future. First, Tunisia continues to display
solid educational outcomes, which remain significantly
above the North African average in terms of not only
quality (33rd), but also participation at the primary
and secondary levels (91.8 and 33.7 percent of the
respective age groups) Second, the macroeconomic
environment was traditionally maintained at a healthy
state (38th in 2010), so the country’s new government
will benefit from manageable levels of public debt that
will not significantly constrain investment in the future.
Despite these strengths, the economic agenda is
challenging. Political leaders must not lose sight of the
long-term picture. Providing the country’s youth with
employment opportunities in the future will require not
only stronger and more transparent institutions and a
more meritocratic business culture, but also a business
environment that is more conducive to vibrant and
healthy competition. Such an environment requires
reducing domestic barriers to market entry – presently
constrained by red tape and high taxes (107th and
122nd, respectively) – and lowering import tariffs. Some
of the measures enacted by the interim government aim
at fighting corruption and undue influence and will raise
the country’s competitiveness in the future.
Placing 73rd in the GCI, Morocco is consolidating
its position. The country’s strong macroeconomic
fundamentals balance out some pronounced
competitive weaknesses in other areas. A low fiscal
deficit (1.8 percent of GDP in 2010), a favorable
interest rate spread (18th), and low inflation (1 percent)
contribute to a stable and predictable business
environment. Likewise, some aspects of the institutional
framework are assessed rather positively, such as public
trust in politicians (48th) and the degree of government
favoritism (46th). Morocco has made important progress
in terms of reducing red tape when creating enterprises
(34th for number of procedures to start a business) and
reducing the burden of customs procedures (49th).
Additional reforms were implemented in 2010 and 2011
to facilitate administrative procedures related to the
functioning of enterprises.
According to the GCI, challenges persist in two areas
that are important not only for competitiveness, but also
for social cohesion in the country – education and the
efficiency of labor markets. Education systems across
all levels need improvement. Access to education is less
prevalent than in other countries from the region, with
enrolment rates for secondary and tertiary education
remaining low (112th and 101st, respectively). At the
same time, curricula and teaching methods are not
aligned sufficiently with the needs of business (93rd).
One positive aspect is the prevalence of on-the-job
training (58th), which certainly has the potential to
compensate for some shortcomings in the educational
system. Yet, for education to translate into higher
productivity, labor market structure must allow for an
efficient use of talent and sufficient flexibility. This is
currently not the case in Morocco, where labor market
efficiency is assessed at 132nd overall. Labor market
regulations are rigid with respect to the hiring process
and wage setting, and meritocracy is not prevalent
among management. Last but not least, the potential
of the female labor force for productivity improvement is
underused (134th).