SocioEconomic Challenges Facing the Arab World: A Vision Forward

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Socio-Economic Challenges Facing the Arab World
A Vision Forward

• Sheikha Lubna Qasimi
• Minister of Economy
• United Arab Emirates

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Todays Topics

• Socio-economic challenges facing the Arab World
  today
• What needs to be done
• Success stories from the region
• The UAE experience

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The Macroeconomic Challenges

• The aggregate GDP of Arab countries by the end of
  the last century was around 600 billion-
  slightly more than Spain (559 billion) and less
  than Italy (1,074 billion)
• High population growth is increasing the severity
  of the problem by 2020, we need to create 100
  million new jobs!
• sources Arab Human Development Report MEP

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Why is the Arab World Lagging Behind?

• Low FDI levels

1- Little exposure to the outside world in
school and university education
2- Slow governmental reform process
As demonstrated by the need for national reform
agendas in the MENA OECD framework
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Why is the Arab World Lagging Behind?
1- Little investment in research and
development (RD)
3- A private sector that replicates, not innovates
2b- Little loyalty to current job and
personal development
2a- Citizens perception of government as a
source of employment of last resort
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The Challenges- Higher Education

• Little exposure to the outside world in school
  and university education No more than 10,000
  books were translated into Arabic over the entire
  millennium
• This is equivalent to the number of books
  translated every year into Spanish!
• source Arab Human Development Report 2003

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The Challenges- Higher Education (cntd)

• Fewer than one in twenty Arab university students
  were pursuing scientific disciplines, compared to
  one in five in South Korea
• None of the Worlds Top 500 Universities (in
  2005) are Arab universities
• sources The Institute of Higher Education,
  Shanghai Jiao Tong University and the Arab Human
  Development Report 2003

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The Challenges- ICT and RD (cntd)

• Access to digital media is also among the lowest
  in the world There are 18 computers per 1,000
  people compared to a global average of 78
• Only 1.6 of over 270 million Arabs have internet
  access, one of the lowest ratios in the world
• Research and Development in the Arab world does
  not exceed 0.2 of Gross National Product

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Domestic investments are not sufficient to create
employment for our children
The Need for Foreign Direct Investment in the
Region

• Creates employment
• Transfers knowledge and expertise in areas that
  are not the countrys core competencies
• Secures needed capital inflows
• Opens new market opportunities due to the
  creation of new networks
• Accelerates reforms

FDI
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The Evidence

• FDI to the Middle East and North Africa (MENA)
  region scarcely increased during the years 1985
  to 1999
• Although net inflows as a percentage of GDP grew
  sixfold between 1985 and 1999 in most other
  regions, that of MENA stagnated
• FDI in the MENA region is around 0.5 of GDP
• ? The region has failed, thus far, in the
  competition for FDI
• source IMF Working Paper- Chan and Gemayel.
  August 2004

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Although net inflows as a percentage of GDP grew
sixfold between 1985 and 1999 in most other
regions, that of MENA stagnated
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Investment Risks- The Empirical Evidence from
Private Sector Decision Makers

• According to a survey of senior executives of
• the worlds 1,000 largest corporations, over
• 60 of senior executives believe that the
• most critical risks that bear on their
• investment decisions were
• Government regulations
• Country financial risk
• Currency risk
• Political and social disturbance
• source IMF Working Paper- Chan and Gemayel.
  August 2004

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Perceived Investment Risks- The Empirical
Evidence
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The largest number of greenfield FDI investments
in the region was recorded in the UAE and Saudi
Arabia
Source World Investment Report 2005 United
Nations
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Saudi Arabias Recent Successes

• Saudi Arabias petrochemicals industry continues
  to grow at a consistent and exponential pace
  accounting for 7 of the global supply for basic
  and intermediary petrochemical products
• A winning formula in petrochemical investments is
  exemplified by Jubail and Yanbu industrial
  cities, and the building of a gas network by
  Saudi Aramco
• The industrys investors confidence is mirrrored
  by the large investment commitments made by
  global names over the last few years via joint
  ventures and expansions. Over 70 of the first
  wave of projects in 2004 came in the form of
  joint ventures with ExxonMobil, Shell and
  Mitsubishi followed by newcomers Chevron
  Phillips, Sumitomo, Basell and Acetex
• Of the 59 petrochemicals projects in hydrocarbon
  sub-sectors, 74 are greenfield projects
• source www.strategIy.com October 2005

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The largest gains by Arab countries in FDI
relative to GDP in 2004 were recorded by Jordan
and Bahrain
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Jordan Success Stories

• Garments and textiles and tourism are the two
  largest export sectors, contributing, in the
  space of a few years, more than 15 of the
  countrys GDP
• The Jordanian Government completed a
  comprehensive National Agenda to map out the
  responsibilities and KPIs facing each ministry
  for the coming decade
• The Jordanian private sector completed phase II
  of the Jordan Vision 2020 initiative to double
  per capita real GDP of Jordanians by the year
  2020
• ? Both initiatives above outlined the need for
  FDI to accelerate economic development

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Bahrain and Islamic Banking

• Bahrains share of natural oil and endowments is
  small relative to other GCC countries, which
  prompted it to focus on economic diversification
• In the seventies, Bahrain became a hub for
  off-shore banking several regional and
  international banks based their operations in
  Bahrain
• Today, this sector focuses on the Islamic banking
  niche
• Bahrain's total banking sector assets grew by 18
  percent in 2005 to reach over 140 billion
• Source Bahrain Monetary Agency (BMA) Governor

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What does the Arab World need to do?

• Implement a tax structure that is
  non-discriminatory (equal for all sectors) and
  that does not change frequently
  (to increase investor
  confidence)
• Reduce the perceived risks through the provision
  of transparent legislation that espouses open
  markets and free movement of labor and capital
• Reduce tariffs, especially on imported inputs of
  production
• Promote intra-regional investments

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What does the Arab World need to do? (cntd)

• Invest in capital and knowledge intensive
  industries and create export markets for
  qualified individuals akin to the Indian ICT
  model
• This may seem paradoxical given high
  unemployment and underemployment, but our
  emphasis on higher education and the high
  percentages of engineers, physicians, and
  scientists renders this the only true path to
  effectively compete in the 21st century
• Increase investments in (or create) effective
  Investment Promotion Agencies
• And crucially
• INVEST IN RD AND EDUCATION

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Strengths of the UAE

• Transparent tax exemptions for most sectors
• Low tariffs (around 5 for virtually all goods)
• Low currency risk (pegged system)
• Low financial risk
• No restrictions in repatriation of profits or
  capital

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Cranes The National Bird of the UAE

• With less than 0.1 of the worlds population,
  the UAE has 15 to 25 of the worlds cranes!

If this isnt a vote of confidence, by the
private sector, in the UAE economy, then
nothing is!
Source and pictures Gulf News, May 13th, 2006
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In conclusion

• Reform is crucial for us if we want our children
  to enjoy at least the same lifestyles that we had
• Time is NOT on our side