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

Executive Summary
Arab World Competitiveness Report 2011-2012
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The Arab world has seen many important shifts over the
past decade. Almost ten years of relatively high economic
growth slowed significantly with the global economic
and financial crisis of 2008-2009. More recently, a wave
of protests driven by longstanding socio-political and
economic issues spread across several countries, leading
to instability and the fall of the regimes in Tunisia, Egypt,
and (after months of a violent revolution) Libya. These
events – commonly known as the “Arab Spring” – have
spurred major political changes, notably in Tunisia and
Egypt, where new constitutions are being drafted and
entirely new governments elected. Yet, political changes
will have to be accompanied by structural economic
reform if the root causes of the current events in the
region are to be addressed.
The recent developments have heightened awareness
of key socio-economic challenges, the most important
of them being creating more and better employment
opportunities for the 2.8 million young people entering the
labor markets every year. Reducing unemployment will
have to focus on three groups that are disproportionately
affected – the young, the educated, and women.
Enhancing overall competitiveness should be part of the
reform agenda to address the challenges and exploit
the opportunities present in the Middle East and North
Africa (MENA) region. Particularly needed are measures
to support a vibrant, competitive, and entrepreneurial
private sector. The private sector currently remains
stifled by a business environment that is not conducive
to the development of enterprises. Corruption, lack of
transparency in government decision making, market
distortion, and weak global and regional integration hinder
competition and reduce efficiency.
The development of a dynamic private sector would not
only involve the promotion of domestic enterprise but also
the opening up of the economy to trade and investment.
Although the region has made progress in these areas,
the significant increase of foreign direct investment (FDI)
registered during the last decade has not been sufficient
to reduce the high levels of unemployment. The recent
decrease in FDI flows due to the global economic
crisis and the impact of the Arab Spring on investors’
confidence brings additional challenges.
Against this background, The Arab World
Competitiveness Report 2011-2012 analyzes the region’s
competitive strengths and areas requiring improvement
in chapter 1; examines the challenges and opportunities
for reform in chapter 2; and provides an overview of the
impact of FDI on employment and outlines some policy
measures which could enhance that impact in chapter 3.
Chapter 1, entitled “A Time of Opportunities: The
Competitiveness Performance of the Arab World” by
Margareta Drzeniek Hanouz and Miroslav Dusek (World
Economic Forum), analyzes the competitiveness of
14 Arab countries using the framework of the Global
Competitiveness Index (GCI). Competitive economies
are those that are likely to grow over the medium to
longer term and have in place the policies, factors, and
institutions that support productivity. Productivity is a
determining factor for economic growth, which in turn is
needed to generate employment.
The analysis shows that the countries are highly diverse
in terms of national competitiveness, yet some common
features can be identified among the three geographical
sub-regions: the Gulf economies, North Africa, and
the Levant. Most Gulf economies benefit from vast
natural resources and rising energy prices, and have
used the resulting revenues for improvements in their
competitiveness in recent years. While North African and
Levantine economies face numerous impediments, the
current socio-political momentum does offer a unique
opportunity for a robust response. These challenges
include institutional concerns such as high levels of undue
influence and corruption, weak domestic and foreign
competition, underdeveloped financial markets, and rates
of technological adoption that trail other economies at
similar levels of development.
Despite the considerable differences among nations, the
common denominator across the region is the imperative
to provide sustainable and gainful employment.
Competitiveness-enhancing reforms can be instrumental
in this context, as they contribute to employment creation
in the long run. The two key reforms that would address
obstacles to job creation in almost all countries in the
region are overhauling education systems to better
respond to the needs of the rapidly evolving economy;
and raising the efficiency of markets by moving towards
healthier competition, fostering entrepreneurship, and
supporting a more dynamic environment for enterprises.
The Arab Spring has led to significant turbulence in the
region, which has had negative effects on the economic
performance of countries in the short term. This is likely
to persist in the medium term, as well, depending on
the success and direction of political reform. However,
while uncertainty about the future social, political, and
economic environment and a heightened awareness
of institutional weaknesses may have adverse effects
in the near future, the political changes underway and
the recognition of the key role of the private sector
in generating jobs and growth may drive the needed
political momentum to enhance competitiveness over the
medium to long term.