Arab Spring economics, more than 3 years later

By: ABDEL AZIZ ALUWAISHEG
Earlier this month, the International Monetary Fund (IMF) released a lengthy study on the economic repercussions of “Arab Spring.” The study examines the economies of Egypt, Jordan, Morocco, Yemen, Tunisia, and Libya and concludes that the economic outlook continues to be difficult and that the priority for the coming year should be maintaining economic stability. In other words, bad news for the near future.

The study (Toward New Horizons Arab Economic Transformation amid Political Transitions) is perhaps the most systematic to-date by an international institution on the effects of Arab Spring. As expected, it glosses over the IMF own responsibility for the economic muddle those countries are in, and understates its potential role in helping them to get out of it.

To launch the study, the IMF held public meetings in the region “from Rabat to Amman,” where IMF staff highlighted the urgency of pursuing bold economic policy reforms to achieve economic stability and generate job-creating growth, and debated the study’s findings with local experts and officials.

IMF Managing Director Christine Lagarde weighed in, in a public statement, pointing out that “Economic growth is still too low and the jobs created are far too few to meet the aspirations of the people that took to the streets more than three years ago, in part to ensure better access to economic opportunity. The priority now is to launch ambitious reforms to raise growth and make a dent in the countries’ high rates of unemployment, especially among youth.”

Despite a few bright spots, particularly in Morocco and Jordan, the overall picture is grim. Had the report included Syria and Iraq, the diagnosis would have been even
grimmer. In sum, those countries have gone from bad to worse, according to the IMF. It further predicts, “Unless strong economic and financial reforms are implemented, recovery will be insufficient to reduce the region’s high rates of unemployment in a meaningful way.”

Economic conditions were at the heart of the crisis when protests spread throughout the region in 2011, including in the countries under study. Misguided policies combined with the global financial crisis to create deep economic distortions in those countries, including high levels of unemployment. Some of those policies were undertaken at the behest of international organizations such as the IMF.

Three years later, the IMF study shows, conditions are worse. For example, unemployment was already high in those countries before 2011, especially youth unemployment, but it is higher today, double the international average. Consequently, job creation is key to the recovery and future growth. This fact is reflected in the IMF new study’s recommendations, which revolve around the theme “jobs, jobs, and more jobs. They call for labor market and education reform, and for job-creating economic growth, which means that economic policy should aim to reorient resources toward raising public investment, deepening trade integration, easing burdensome business regulation, unleashing entrepreneurial activity and private investment, reducing corruption, and strengthening access to finance especially for small and medium enterprises, an area the region lags behind all other regions in the world.

According to the study, youth unemployment is high, ranging from 18 percent to 30 percent in Egypt, Jordan, Morocco, and Tunisia. In Egypt, the chance of first-time job seekers finding employment in a formal job dropped from 80 percent in the past to less than 30 percent nowadays. The root of the problem varies from one country to another, but the IMF study identifies a number of common critical factors, including stifling labor market regulations; the dominance of the public sector as employer of first and last resort; and education systems that do not deliver an adequate skill mix.

For example, rigid labor market regulations discourage firms from hiring. Enterprise surveys show that 23 percent of firms in the region perceive labor regulations as a major constraint, by far the highest share among the world’s regions. A survey of manufacturing firms in Egypt found that 24 percent would increase their hiring in the absence of restrictions, while only 3 percent would fire workers.

Similarly, the dominance of the public sector in the labor market has introduced distortions by affecting the structure of unemployment and the supply of skills through the education system. The implicit and explicit employment guarantees in government hiring, and mismatched salary expectations resulting from generous civil service pay scales and benefits, have led to market segmentation and excess demand for public sector jobs.

A significant share of the blame should be borne by the education systems, which focus on formal qualifications for entry into the civil service, rather than the right skills mix for the private sector. Enterprise surveys show that the share of firms in region identifying an inadequately educated workforce as a major constraint (39 percent) is the highest among the world’s region. In Egypt, for example, a study found that 34 percent of jobs require a technical education, but only 11 percent of graduates have this level of qualification. University education, meanwhile, is skewed away from technical subjects; across North Africa, only 18 percent of university graduates are in the fields of science and engineering.

For transition countries to recover, they need help from the international community. The IMF contends that stepped-up support from the international community will also be critical, through increased financing, better access for their exports to advanced economies’ markets, and broader policy advice and capacity-building. Needless to say, the international community, with a few notable exceptions, has been slow to respond to the economic challenges transition countries are facing. Never lost for advice on political issues, the great powers are reluctant to provide the economic means to help on the economic front.

The GCC countries have undertaken massive pledges of economic support for most of those transition countries. The rest of the world must follow that example, for as the IMF points out, without international help, they could languish in transition indefinitely.

Email: aluwaisheg@gmail.com

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