After the Spring: Inclusive Growth in the Arab World

The revolutions that swept through the Arab world two years ago have socio-economic as well as political roots. The end of decades-long autocratic rule in Egypt and Tunisia represented the population’s ardent wish for political, social and economic change, and many were hopeful it meant progress was imminent. However, almost two years later, we continue to see Egypt plagued by violent protests, with critics arguing President Morsi is a new form of authoritarianism that disregards the judiciary and continues Mubarak’s reign of social injustice. In Tunisia, unemployment has risen from 14 to 19 percent and few real advances in economic and social development have been seen in other Middle East and North African countries racked by unrest. The populations that fed the Arab Spring movement feel betrayed and argue the purpose behind their protests have yet to be realized. As a consequence Arab governments and their development partners need to adjust their economic policies and assistance programs to respond to the demands for inclusive growth and social justice. Failure to do so could jeopardize the transition to democracy and lead to continued unrest and instability.

This is the overarching message of five papers on the Arab economies that have been recently published as part of a collaboration between Brookings and the Japan International Cooperation Agency (JICA). After making the case for a change toward more inclusive growth patterns, these country-focused papers cover three important dimensions of inclusive development in Egypt, Tunisia, Yemen and Iraq: (1) economic opportunities for youth, (2) education, and (3) voice and good governance.

Later this week, we will be discussing the themes and policy recommendations of these papers as well as ongoing issues in Egypt and other Arab Spring countries at an upcoming public event at Brookings. Below is a summary of the major themes of the papers.

Economic Opportunities for Youth

Young men and women led the revolutions of the Arab Spring. Nearly 55 percent of the Arab population is under the age of 25 and two-thirds are under the age of 30. Hence, creating opportunities for the millions of young people who are entering the job market every year is a major economic challenge for post-revolution governments. Youth unemployment in the Arab world is among the highest in the world, and joblessness is a particularly serious problem for educated youth and for young women (female labor force participation rates are only around 25 percent). In Egypt youth with secondary education and above represent about 95 percent of the unemployed, and in Tunisia the unemployment rate for university graduates is nearly 30 percent.

The small enterprise sector is a major employer in most Arab countries. It is growing at about 5 percent a year in Tunisia and thus providing the majority of new jobs. In Egypt about 72 percent of new entrants to the labor market end up working in small and micro enterprises. Therefore, it seems that encouraging youth entrepreneurship and the development of small businesses, so that they can create better paying jobs, have to be key objectives of any inclusive growth strategy in the Arab world. It is the subject of two papers that use Egypt and Tunisia as case studies.

The Egypt case study uses enterprise surveys from 2003, 2008, 2010 and 2011 to describe the Egyptian micro and small enterprise (MSE) sector and identify key obstacles to its development. It argues that the objective of government policy and donor interventions should not be simply to support the growth of the existing small enterprise sector that is characterized by low productivity (average wage for males is $3.70 a day and for females $2.60 a day) and low market access (99 percent of MSEs service local markets with no access to national or international markets). The aim should be to raise the sector’s productivity and its linkages to domestic and international markets, and to support its modernization so that it can become more dynamic, providing better living standards for young entrepreneurs and decent jobs for new entrants to the labor market. Programs to support MSEs have focused on providing financing. However, the key constraints facing the sector are probably access to technology and markets. The paper concludes by proposing a two-pronged strategy for the expansion and modernization of the MSE sector: a macroeconomic and regulatory environment that is conducive to the development of MSEs, and specific interventions to support the sector and encourage youth entrepreneurship.

The Tunisia case study analyses trends in youth employment and unemployment in private sector development, with special attention to education and female employment. It uses data from a 2007 enterprise survey to study the evolution of the MSE sector and argues that Tunisian MSEs are suffering from similar problems faced by the private sector generally. The business environment has been plagued with corruption and many other imperfections and uncertainties, and was not conducive for substantial investment and enterprise creation. Small entrepreneurs, who are not well-connected to the old political elite, have been particularly hurt by the lack of clear rules and by rampant corruption. The paper argues for reforms of labor laws and of the financial sector in order to encourage MSEs to become formal and gain better access to credit. It also points out huge inequalities between different regions in Tunisia (the poverty rate in the center west region is three times that in Tunis) and to a strong gender bias in the labor market (female labor market participation rate is 27 percent compared to 70 percent for males), and argues for special policies and programs to deal with them.

Education

Youth unemployment and lack of entrepreneurship can be partly explained by weak education systems. Arab countries’ public spending on education is relatively high (measured as a percentage of GDP), but the results are unsatisfactory. Arab education systems perform poorly on three important dimensions: equity, relevance and quality of learning. In some countries, such as Yemen and Morocco, equity of access remains a particular issue for girls. In all countries there is a mismatch between what is taught in schools and universities, and the demands of the labor market. Moreover, these inadequate curricula are not effectively transmitted to students. The quality of education is poor. All of the 13 Arab countries that participated in the Trends in International Mathematics and Science Studies (TIMSS) scored below the scale average of 500 in 2007.

One of the research papers looks at the issue of the quality of education, using Yemen as an example. It uses micro-data from TIMSS and from surveys conducted in underserved rural areas, as well as macro-level policy information from the “System Assessment for Better Education Results” (SABER) database. The analysis indicates that the availability of teachers and resources at schools, the monitoring and supervision of schools, and parental involvement in schooling are important factors for better learning outcomes and avoiding trade-offs between expansion of enrollment and quality of learning. The paper suggests three types of reforms that can be carried out in the short run. First, it is necessary to systematically monitor teachers’ actual deployment and attendance in order to link the information with salary management and incentives. Second, there is a need to refine and scale up the existing implementation and monitoring mechanism for school grants to reward schools and communities that improve access for disadvantaged students and girls, and enhance the quality of learning. Third, there is a need to enhance transparency and accountability of school resources and results by disseminating a simple database that would include trends of basic indicators to monitor and compare progress at the school, district and governorate level.

Voice, Participation and Good Governance

Implementing inclusive growth policies requires changes in the way governments operate. Arab countries lag behind the rest of the world on nearly all governance indicators, particularly those related to voice and participation. Together with a lack of transparency and low accountability, this has led to greater corruption and the emergence of the soft state. A sense of alienation and exclusion, especially among youth, contributed to popular dissatisfaction that remains unsolved after the revolution. That is why one of the research papers focuses on ways to improve participation in policymaking and economic planning, and to provide a guiding vision to recover from the crisis after the revolution, using Egypt as an example. The paper reviews the experiences of Japan, Malaysia and Indonesia, which indicate the importance of achieving a national consensus on an economic vision for the future, and the policies and programs needed to achieve it. Successful East Asian countries have put in place consultative processes (including different government departments, the private sector and civil society) to agree on national development plans and monitor their execution. The situation has been very different in Egypt where an institutional coordination mechanism among the various stakeholders to build a national vision was missing. The research paper adapts the experiences of East Asia to Egypt’s situation, and presents a proposal for introducing the concept of “inclusive planning” in economic planning and policymaking.

The last research paper addresses the question of how donors can remain engaged and support governments implementing democratic reforms. Countries in transition often go through periods of serious unrest, upheaval and weak governance. Yemen and Iraq are examples. Usually donor agencies hesitate to increase their support as they face two key problems in post-conflict or post-revolution situations: (1) high security risk for transparent implementation; and (2) poor government effectiveness, marred by corruption, ethnic tensions and economic malaise. But this is precisely the time when donor engagement is needed most. By using the experience of JICA projects in Iraq, the paper argues that donors should not withdraw their support in difficult post-conflict situations. It proposes three mechanisms – information; social recognition; and mediation – to solve such difficulties in a post-conflict society. The empirical analysis shows that more intensive feedback especially leads to a positive impact even in war-torn Iraq.