The public engagement emerging today in several Arab countries offer an opportunity for the people in the region o take their destiny in their hands, voice their desires and aspirations, formulate the strategies to achieve them and carry out the kind of reforms needed to overhaul the development paradigm in their countries and unlock their full creative potential.
Going forward, participation and accountability will be necessary preconditions for corrective measures to be applied when economic and social policies do not achieve the desired results. Regardless of the path each country may take, because each element of the social contract is part of a coherent whole, reforms of the political, economic and social system have to be supported as an integrated, cohesive whole, reassessed in a continuous manner, and sequenced appropriately.
The recent developments of early 2011 in Tunisia, Egypt, Libya and Syria are a wake-up call for governments not only in the Middle East and North Africa, but also throughout the world. They also offer an opportunity to rebuild the relationship between state institutions and the citizens they are expected to serve.
With the opportunities and risks facing much of the Arab World in mind, I believe the region will need the support of the international community around four key areas to ensure a better future for its citizens: 1) Increasing transparency, social accountability, and citizen participation, to create more accountable and responsive states that serve citizens; 2) Increasing social and economic inclusion, in particular of youth and women, and of poor people in economically-disadvantaged regions; 3) Creating jobs for the unemployed and underemployed, by taking short-term actions that support job creation in the medium and long-term; 4) Accelerating economic growth through policies for a more dynamic, open, and competitive private sector that supports individual initiative and entrepreneurship, and creates more and better jobs.
Increasing transparency, social accountability, and citizen participation:
Actionable governance indices, such as Global Integrity, indicate that the region lags behind other parts of the world on many governance dimensions. A better governance architecture will help provide legitimacy to emerging governments, while providing the citizenry and civil society with the means to understand and evaluate government services.
More transparency will require that governments disclose information on key operations, including national budgets and their execution, economic and social data, information on government processes and decisions (for instance, public procurement). This increased openness would be complemented with enhanced rules to reduce conflict of interests of public and elected officials, strengthened internal control mechanisms, and a greater role for (and independence of) Supreme Audit Institutions. There is also greater scope for corporate governance reforms that increase disclosure, business ethics and the use of international reporting and compliance standards.
Increasing social and economic inclusion:
Unlike many regions of the developing world, Middle Eastern countries have long had redistributive policies through subsidies and public employment programs. However, public discontent in the regions has been less about income poverty. One of the words most frequently heard from young people demonstrating in region was the word “dignity”. It is first and foremost about exclusion from the political process. But it is also about exclusion from social and economic opportunities, from an ability to contribute to society and to earn a living – not through handouts – but through jobs that make use of individual effort, creativity, and education, or through access to land and credit to help create or grow a small business.
Social and economic exclusion in the Arab World is significant, and has many facets. It affects young people, women, religious and ethnic minorities, and poor people in urban and rural areas. Young people face increasingly limited job opportunities and are increasingly unable to sustain an independent livelihood. And supporting social inclusion of disaffected youth will take more than offering public jobs to excluded groups. Governments in the region will need to offer youth a diverse range of positive outlets for their energy and aspirations that go beyond work and marriage, but include political and economic freedoms. The energy of young people could also be channeled to enhancing government accountability. In addition, there are community-based projects in the new technologies, infrastructure, the arts, sports, or the environment, that could help direct the efforts of young people to the improvement of their own societies.
Women especially face even greater difficulties in economic and in some countries social participation. Gender equality matters for development—improvements in gender equality can generate gains in economic efficiency and improvements in other development outcomes. It also has consequences for the quality and representativeness of the institutions a society develops, and developing these institutions is more critical for the region today than it ever was – it is critical that women be part of transition governments, help shape new constitutions, and participate in the political process of the Region’s new regimes. Some of these impediments to a fuller inclusion of women in the economy and society may take time to address. But some countries in the Region - Morocco, Tunisia, Jordan, and Egypt - are further ahead than others.
Creating jobs:
With relatively high rates of unemployment around 10 percent and youth unemployment at 24 percent, approximately 48 million jobs will have to be created in the coming decade in the Arab World; even more if low labor participation rates are to rise to levels of other regions. Only a dynamic and growing private sector can create high quality jobs at a rate that keeps pace with this growing and increasingly young population. However, the private sector in the region does not exhibit the sort of dynamism found in high-growth economies. Regional economies are dominated by uncompetitive markets, the regional business environment is lagging in some areas and restrictive labor regulations have increased the costs of hiring labor and reduced the competitiveness of the private sector by increasing labor costs. On the other hand, the labor force does not have the skills the private sector needs, and labor market institutions are ineffective in matching labor demand to supply. Public sector jobs offer generous benefits, hence encouraging educated individuals to queue for them, creating distortions in the market and contributing to long unemployment spells.
Accelerating growth:
Before the uprisings, the region’s GDP growth was projected to return to the pre-global economic crisis levels (4.8 percent) by 2011-12. Recent developments have now reduced 2011’s growth prospects, especially for those countries affected directly by the turmoil. In the short run, avoiding a sharp growth decline is the first priority. Growth rates for oil producing countries may raise due to high oil prices, but for oil importers and countries directly affected by disturbances, there could be a sharp decline in 2011, which will place further stress on the population. In addition, the growth slowdown and fiscal and balance of payments pressures will increase risk premium and financing costs, especially for those countries that entered the crisis with already large imbalances.
If growth and the employment response to growth remain close to the ones experienced during the past decade, the region will add about 4.8 million jobs a year, or 48 million between 2011 and 2020. To reduce unemployment and employ the millions of nonparticipating MENA people, job creation will need to be faster and higher. If growth accelerates to 6 percent a year, it could produce double the number of jobs relative to 1999-2009. And if the capital intensity of growth (which is high in many MENA countries due to energy subsidies) declines, growth would generate even more jobs.
To accelerate job creation and reduce unemployment, economic growth will need to speed up to rates observed in East Asia and other high-performing emerging economies. The growth pattern will also need to change, to absorb more labor. Key medium-term reforms should include: a) reduction in distortions introduced by energy subsidies; b) establishing a level playing field for all firms and individuals, for incumbents and those politically connected, and for new entrants and those previously excluded; and c) trade reforms to make markets truly contestable – in particular in the labor-intensive services sectors, to allow the region to become more integrated regionally, and with the global economy - to tap into new markets and to take advantage of its location.
Regional integration could also provide a powerful policy anchor to consolidate the Arab transitions. Such an approach has proven successful in other regions in times of transformation (e.g., Eastern Europe post-1989, Balkans post- 1995). In today’s Arab world, such regional integration would entail greater convergence of regional institutions, policies, and regulations toward those of the EU and other developed countries, and the further integration of the Arab countries among themselves. Regional integration through trade, investment, and migration has the potential to unleash productivity gains in the Arab World.
In conclusion, let me say that how and at what pace recent events will transform the region is still unknown. It is likely this will be a long process, with some countries transitioning into a new social contract faster and in more extensive ways than others, but the international community with its global knowledge and financial support, can ensure that the region will be better placed to get the most out of the promising opportunities, while avoiding much of the risks. Regardless, recent events have a historic significance – they have unleashed a process that, over time, may transform the political and economic landscape in the Arab World – and translate into a brighter, more equitable, and far more sustainable future for its people and the World.
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