September 19, 2003
Dubai, United Arab Emirates
MS. RIZA: (Interpreted from Arabic) Good morning. I would like to thank all of you for your attendance, and I shall turn to English because all of the presentations are going to be in English.
(In English) Thank you all for being here today for the launch of our fourth and last of the regional reports. As you know, we have already launched three reports before--one on trade, one on governance, one on gender--and this one is going to be a report which is entitled, "Unlocking the Employment Potential in the MENA, in the Middle East and North Africa Region Toward a New Social Contract."
I would like to introduce to my right, my immediate right, Jean-Louis Sarbib, who is now Senior Vice President for the Human Development Network of the World Bank. He took up that position in July of this year. And prior to that, for three years, he was the Vice President for the Middle East and North Africa Region.
Next to him is Mr. Christiaan Poortman, and he has joined the Middle East and North Africa Region as Vice President in July of this year as well.
Next to him is Mr. Mustapha Nabli, and he has been the Regional Chief Economist and Director of the Social and Economic Development Group in the Middle East and North Africa Region since 1999.
Next to him is the principal author of this report, Mr. Tarik Yousef, and he is a consultant with the Chief Economist's Office.
Thank you all for being here, and I will ask Mr. Sarbib to say a few words. No?
MR. POORTMAN: Well, thank you very much. I don't intend to say much because I think the report should start speaking for itself, and after that there will be an opportunity for some questions and answers.
Let me, first of all, say that this is a report that is the fourth one, as Shaha said, in a series of four, and it is really the one that deals with what is the overarching issue that we see for the region as a challenge for the years ahead. It's an issue that is with the region right now, but it's an issue that will, over time, become even more difficult to address.
The numbers will come out of the report, but there is no question about the fact that there needs to be a thinking started, if not already continued, about how the social contract that has existed in the past, in which a mainly public sector-led growth strategy could be changed to another strategy that will put the private sector more in the front and create an environment in which new investment can take place, together with locking up with the international market which will, in turn, create and start creating the employment opportunities for the very serious unemployment problem that exists in the region.
So this is the fourth in a series of four reports, and I would guess that at this moment the best thing we can do is ask Tarik to go ahead and make the presentation. And as I said, after that, we will have an opportunity for questions and answers.
MR. NABLI: I will say a word. Thank you, Tarik.
Just two points very quickly before Tarik.
As Mr. Poortman said, these reports aim essentially to be a contribution from the World Bank to the debate on the main challenges of the development of the region as we see it today. And we have selected these four themes which are trade, governance, employment and gender, as being the crucial ones.
So I think you have to see it in that perspective; that this is contribution to the debate. We are not coming, and maybe we can discuss this later, we are coming with some ideas, some directions, and so on, but we don't have full recipes for what any specific country needs to do. I think this has to be so it's an overall, you know, looking at the issues and trying to give directions.
Now, in terms of practicalities, you will receive, in a few moments, a copy of the report. This is the, it's coming in a minute, so I want to just highlight this as the report itself. And we have a summary of it translated in Arabic for your benefit, if you are concerned about the Arabic, and I wanted to point out there is a bonus today for you. So I'm a salesman today.
MR. NABLI: There is another piece that is going to be distributed, too, for you in a minute, and this is what we call a "Synthesis Report." This piece is a summary of all of the reports. It's where we try to bring together all that has been discussed, the main issues that have been discussed in the trade, in governance, in gender, and the employment, and we try to have a summary, a short summary of 25 or 30 pages. For those of you who want to have, you know, a full view of the reports, then you will have copies available in a minute for this. So this is a bonus of today. So thank you for coming.
MR. YOUSEF: Thank you. Thank you. (Translated from Arabic) Good morning.
(In English.) Thank you for being with us today. I'm especially pleased to be here to share with you some of the ideas, conclusions, and approaches we have used in putting together this employment report. In the few minutes that I have, I will not be able to do justice to what has taken over a year to think about drafts, analyze, empirically assess. So I invite you to read the report, at least look at the overview. That should give you a very good idea as to what this report aims to achieve.
And I will begin with what Mr. Poortman has essentially indicated; that, at least from the perspective of those who are concerned about development in the Middle East and North Africa Region, certainly from the perspective of the World Bank, employment, unemployment, labor market issues are overriding development challenges.
They are, in many ways, as he said, the overarching development objective that the Middle East faces now, the last 10 years, the next 20 years. And these reports have, in one way or another, tried to address this in the various policy prescriptions and diagnostic analyses.
What is MENA's employment challenge? Creating 100 million new jobs by 2020, essentially a doubling of the current level of employment.
Where do we get these 100 million new jobs from, and what does it mean, and how big is this number? The 100 million new jobs is arrived at by looking at the following two trends:
One, in the next two decades we know that the labor force will be expanding by close to 80 million new workers. It's about 80 million newcomers, to the best of our forecasts and existing information, 80 million newcomers will be going into labor markets. If you add on top of that the current unemployment rate of about 15 percent, implying about 20 million people out of work, then, in the next 20 years, you will have to create about 100 million new jobs.
Why is this challenge enormous or unprecedented? Two ways of highlighting this:
One is by looking at the annual flows into labor markets in the current and next decade relative to the more recent or distant past. Currently, the labor force is increasing by about 4.2 million workers per year, compared to 3.2 million in the 1990s, 2.1 in the 1980s, and 1.4 in the 1970s.
So the absolute flows, the pressures, that are coming from the absolute flows are enormous by historical standards. Another way of putting it is to say that the expansion of the labor force in the MENA region in the next 20 years, that is the 80 million, will be equivalent to the entire cumulative expansion of the labor forces of the region in the previous 50 years.
Labor markets will expand in less than half the time by as much as they did over a half century. That is the sense in which this challenge is enormous, unprecedented from the region's previous history, and by international standards, we'll see in a minute, it is also quite a challenge.
What is the origin of labor market pressures that we see today? Much of it has to do with past demography. MENA started out in the 1950s with some of the highest fertility rates in the world. These fertility rates went through a very slow and extended decline until the 1980s. In the 1990s, things have changed with a rather massive reduction in fertility, but by then already the forces driving current labor market pressures had been put into place.
As the graph indicates, population growth rates have been declining, but the effects of these population growth rates, past population growth rates, is what is being translated today into labor market pressures. Much of it has to do with demography, but it's not demography alone as we will see in a minute. From delayed transition, delayed demographic transition, to rapid labor force growth, MENA's slow and extended transition has resulted in the highest and most persistent labor market pressures anywhere in the world in the past half century.
The average annual growth of the labor force, for example, between 1970 and 2010 is above three percent. You see this in the graph below. If you start out with 1970s, MENA was just slightly below Latin America and the Caribbean at about three percent in the 1980s. MENA's labor force growth exceeds everyone else in the world. The story is still the same in the 1990s, and it's still the same through 2010, and, in fact, into the next decade MENA's labor force growth will be among the highest in the world.
So the challenge we've spoken about is not only a challenge of unprecedented proportions from MENA's previous history, but it's also by global standards one that is quite daunting.
Not only is the labor force growing rapidly, but it's also increasingly more educated and more feminized. Female labor force has been growing annually by over five percent due to the effects of demography and higher participation. As a result, the share of females in the labor force has risen steadily from about 22 percent in 1970 to about 32 percent in 2000.
MENA especially has witnessed the fastest expansion in educational attainment in the world between 1980 and 2000. As a result, the new generation of workers, males and females, in the region are the most educated in the region's prior history. Indeed, MENA's educational attainment was the fastest growing in the world between 1980 and 2000 by about 140 percent cumulatively over the period.
Now, before we get into unemployment, the two facts I've just mentioned, labor force growth, educated generations, imply at least theoretically tremendous potential in the region for rapid accumulation of productive factors, rapid growth, and certainly from the perspective of East Asia's own experience, these rapid labor force growth rates in conjunction with high education create a window of opportunity for rapid growth in the future on account of demography alone.
This is where the present dislocations of labor markets are a source of concern for people in the region and outside. The 1990s has certainly been a period when we've seen the emergence of high unemployment in the region. In most countries, employment growth fell short of labor force growth, and there was a notable, in some cases quite a rapid, increase in the rates of unemployment.
The regional average at present is around 15 percent. Unemployment falls disproportionately on the youth, people between the ages of 15 to 24. Their share in total unemployment ranges from about 36 percent in Morocco, 73 percent in Syria, with the regional average of about 53 percent.
Unemployment tends to also have a gender dimension to it. It's higher for females, close to 50 percent higher for females than it is for males. As the chart below indicates, MENA has currently the highest unemployment rates in the world except for sub-Saharan Africa.
The 1990s, however, wasn't only a period of high unemployment. Poor labor market outcomes extended also to productivity. Worker productivity was low. Productivity, in fact, was the lowest among all regions in the world except for East Asia and Central Europe. We all remember that these countries were going--the latter countries were going through a rapid period of restructuring as part of the transition, and so for them to have had low worker productivity was expected. For the MENA region, this was not expected.
As a result of lower worker productivity, real wages increased barely in a few countries. In most countries, they either fell or stagnated in the 1990s, extending a trend that began in the late 1980s. The chart shows you the position of MENA in global comparisons of worker productivity in the 1990s.
These two important stylized facts about what has been happening in labor markets to us indicate serious dislocations in their performance, poor labor market outcomes, both by global standards, and by the region's own standards. Why? Why the poor labor market outcomes in the 1990s?
Well, one way of thinking about it, perhaps the most direct way, is to say that poor labor market outcomes in the 1990s went hand in hand with the poor growth, output growth performance, that was registered in the region, very much in stark contrast to the previous period of the '60s, '70s, and early '80s, as the chart indicates below. In the earlier period, 1965 to '85, MENA had the second-highest growth rates in the world on a per capita basis after East Asia. In the late 1980s and '90s, MENA was trailing behind Asia, certainly behind Latin America, certainly behind South Asia. It only exceeded the growth performance of that of sub-Saharan Africa.
Why the poor growth performance which reflects the poor labor market outcomes? To our judgment, this reflected really the pace of reforms in general that took place in the region in the 1990s. The 1990s, even though they witnessed a small recovery in overall productivity due to some of the policy reforms that stabilized macroeconomic imbalances and introduced structural reforms, there was a massive or a sustained decline in investment that began in the 1980s, worsened in the 1990s. This really reflected a lack of a strong response by the private sector, itself due to the slow, uneven and hesitant pace of structural reforms.
It's also true that economic volatility due to regional instability, oil market conditions, and weather conditions in some countries contributed to the disappointing outcomes of output growth and labor market outcomes in the 1990s.
At the structural level, we observe that while aggregate macroeconomic performance has been also relatively weak, at the structural level, government continues to dominate labor markets. Unemployment rates are highest for people in the middle and high ends of the education distribution, and very low, quite low, in fact, for those with little or no education.
First-time job seekers, in particular, make up the bulk of the unemployed, 50 percent in all countries, confirming that unemployment is an insertion problem for newcomers into labor markets. If you take the first piece of information about who is the unemployed, get educational profile and their age profile, you're able to conclude that the unemployed are essentially those who would have had a chance at a formal job in government after years of guaranteed public sector employment, and although public sector hiring has been curtailed in recent years, labor markets remain segmented.
Educated new entrants, surveys indicated, continue to queue for government jobs despite falling civil service wages because though of the non-wage benefits, whether it's job security or social protection.
This leads us to conclude that higher returns, higher returns in the government sense, higher returns to formal education in the public sector--the fact that government rewards educational credentials higher than the private sector encourages the accumulation of these credentials, even if they do not add to worker productivity and are undervalued by the private sector in the region.
So unemployment in MENA has both a macroeconomic dimension as well as a structural dimension. This leads the report to look at unlocking labor markets or looking at policy prescriptions from the perspective of dealing with these two dimensions.
We begin with the reform of labor markets, themselves, reform of labor markets necessary but not sufficient. Reform of labor markets involves public-sector employment, hiring and wage-setting practices and they also involve hiring and firing regulations in the private sector all of which to realign incentives toward work in the private sector and allow for greater flexibility in labor markets.
This is an agenda that a number of MENA countries are proceeding with. Our findings are that, based on empirical simulations, detailed empirical simulations, for MENA, these indicate that labor-market reforms alone will not be sufficient to address the scope of the employment challenge in the region.
When they are contemplated, however, these reforms need to be broad and deep. Another way of stating what this slide says is making changes on the margin to the existing structure of labor markets, how contracts are regulated, what incentive structures exist, will not, by itself, be sufficient to deal with the challenge of job creation. You need to look at broader policy prescriptions.
This is where the report, based, again, on previous work that was done as part of the other three reports concludes that MENA really needs a new development model. The report and the accompanying volumes on trade and investment, governance and gender, argue that, for MENA to accelerate job creation and growth, it must address a set of long-standing policy and institutional challenges to contemplate three fundamental and interrelated realignments in their economies; from public-sector dominated to private-sector dominated economies, the first alignment; from closed to more open economies, the second alignment; and from oil-dominated and volatile to more diversified and stable economies.
These three alignments, we believe, based on, again, simulations done, using international evidence, regional evidence, hold the most promise for delivering the sort of employment growth rates that will be able to address the challenge of job creation in the region.
This was also done with the background of looking at the traditional engines of job creation, namely public-sector employment and migration. And our conclusion was that these, at present, will not be sufficient to address the scope of job creation nor will they be able to sustain the sort of increases in income that will be required in the future. Hence, our conclusion that MENA needs a new development model, new engines of job creation.
The challenge, then, of job creation is really a comprehensive approach to reform although the priorities, as the report notes, and the sequencing of reforms will vary across countries depending on initial conditions, oil resources, governance.
Comprehensive reforms, to our mind, require better governance, very integral aspect of it. Governments need the institutional and regulatory instruments to manage the difficult process of the economic transition of making the three alignments we noted in the previous slide.
This will be taking place under conditions of economic volatility and social vulnerability; hence, the need for governments to have special institutional and regulatory instruments for precisely that task. Governance reforms will be essential to permit governments to credibly--credibly--articulate and realize a new vision of state-society relations.
Most of the changes we have noted will, invariably, imply a new vision for state-society relations; hence, the title of the report, A New Social Contract. Governance reforms will be an integral component to allowing governments to articulate this.
To move forward, governments, themselves, must link economic performance to the quality of governance. They must create rule of law mechanisms to ensure that their own accountability and transparency is in place. This is the vision that the report has for what needs to be done in the future.
We are also aware of the fact that, in the last ten years, very little has been done, or the things that were done were often hesitant, incomplete and there were, in some cases, reversals. Hence, we felt it would be important to understand the obstacles for broad comprehensive reforms. What is likely to be the obstacle for embarking on a broad comprehensive agenda for economic reform?
Two variables, or two factors, to our minds, explain what happened in the 1990s and will be important in the future. The first we call soft budget constraints. The fact that a great deal of government revenues in the region flows outside of the economy through aid, oil exports, strategic grants, remittances. Much of this allows governments plenty of room to avoid necessary deep and sustained reforms, allows them, essentially, to buy time instead of facing the pressing challenges.
The second factor that played a role in the 1990s was what we call political challenges. Radical movements, politically active movements that, in some cases, receive a great deal of popular appeal, force governments to dealing the process of economic reform from that of governance reform of broader political change.
As a result, the sort of strategy that was followed in much of the region in the 1990s was one of top-down management of reform by decree. Top-down management of reform by decree replaced earlier efforts we saw in the late 1980s and early '90s to generate support for economic reform by opening the political arena.
Engagement with reform remains selective and limited and limited. Efforts to advance structural-adjustment programs coincided, in some cases, with the erosion of political inclusiveness and accountability. To move the reform process forward, you would precisely need to address the obstacles in the past. Our assessment leads us to believe that the soft budget constraints of the past will--the soft budget constraints will no longer be available. Most budget constraints will become harder and thus it will be important for governments to revive national conversations about labor-market reform, about restructuring of redistributive programs, the old social contract that provided the platform for how society has evolved in the last thirty years and for redefining the terms of a new social contract.
With the existence of large middle classes in the Middle East and North Africa region, the revival of political life, once again a prerequisite for economic growth, is not only necessary but it is also possible, as the chart indicates, the blue lines for MENA, the size, the share of the middle class and the income distribution, remains relatively high by international standards.
As such, a selective top-down approach to economic reform that sidesteps the need for political change to secure the legitimacy of the reform process, itself, and the reform policies, themselves, and the credibility of government commitments is no longer adequate.
This is this final conclusion of the report and its final chapter in looking to the future, looking to what needs to be done, both to address what our Vice President has just indicated as the overarching development challenge in the region.
The report, unusually, perhaps, combines both economic broad governance and political analysis to bring the entire issues together. This was not done accidentally as the senior economist or our chief economist indicated, Mustapha Nabli. When the region embarked on four reports, it was with a view to wanting to provide as comprehensive a story as possible as to the sort of options, the sort of vision, that may contribute to the kind of conversation the region is engaged in.
MS. RIZA: Do we have a microphone? There's one over here. Over here, right in front.
QUESTION: Hello. I'm with Reuters. Given that the last time the region moved to reforms called first generation reforms was under the pressure of falling oil prices, is population growth and the bubble that's about to burst enough of a trigger to see the sort of deepened economic reforms that threaten some governments actually with this fear or political upheaval?
My second question is, you were saying some budget constraints that could actually allow people to delay things is one factor in slowing the reform process. But could another one become exporting workers legally or illegally to other parts of the world? Are we going to see that as a rising phenomenon? It's already a trend from North Africa to Europe and within the Arab world, but is that going to be another trend we see? Thanks.
MS. RIZA: Would you like to just take the question or shall we take a couple of questions and--
MR. NABLI: I think it's better to answer immediately.
MS. RIZA: Immediately? Okay, go ahead.
MR. YOUSEF: I'll try to be very brief. On the first question, I think our view of reform in the report was not that it had to take place necessarily under difficult conditions or it needed to be triggered by economic crises or political crises. The pressures we believe are mounting. MENA countries, MENA governments do have a strong preference for the sort of political stability and social cohesion, oftentimes justifying the hesitant, slow pace of reform by the claim that reforms often create winners and losers, but losers may in fact potentially contribute to the sort of political instability that society and governments fear.
Our view is, however, that given the size of the unemployment problem at present in the region, and given the fact that labor market pressures will not be going away any time soon, the enormity of the labor market pressures faced in the region is unprecedented. The status quo could only lead to higher unemployment. In fact we document in the report how, if the status--past performance were to be replicated in the next decade, unemployment rates could rise by between 40 and 50 percent.
From that perspective, the preference of governments and societies for instability is at odds with maintaining the status quo. Now governments and countries will choose to proceed, will sequence these reforms differently. Priorities will be different. Initial conditions will be different, and our various reports detail these to a large extent.
What is undeniably important and decisively needed now is to proceed with the sort of progress. It will not be, as our reports, this report in particular emphasizes, it will not be productive for reforms, nor will it be possible for the sort of reforms needed to come top down, to be selective. Governments need to engage with societies. Societies need to express their preferences. They together, through economic and political openings, can provide a vision for the future.
On the second question of migration, we deal with this very briefly in the report. While we note the important role that migration has played in the past and may play in the some countries in some cases in the future, helping to alleviate labor market pressures, migration even under the best circumstances will not be sufficient alone to solve the labor market challenges in the region. This is whether you look at migration to Europe or migration within the region, for reasons that the report goes into in great detail.
MR. NABLI: I would like to compliment what Tarik said by making two comments. On the migration, I think the report makes the point that intra-region migration prospects are not very large because the employment pressures, even in the Gulf countries which are traditionally the importers of laborers, are not there any more because unemployment even in the Gulf countries is increasing and the work--I mean, finding job opportunities for the nationals is an issue.
On the European side, we think there is a scope for additional migration. I think it's important, and the report points out that Europe particularly needs to have a more open-door policy. It may be managed. It may be some types of migration and so on. There is a lot that Europe can do in terms of helping migration opportunities for--you know. But even that is not going to be enough. At whatever level this may be, this will not be enough to resolve the issues.
On the first issue of the soft budget constraint, I think it's important to realize and I think the report tries to document when we look at the three main sources of income that have sustained the status quo more or less over the last 10 or 15 years are oil revenue, aid, and remittances. When you look at oil revenue per capita, it's declining. When you take the overall oil revenue in the region in per capita terms, given the population growth and given the decline in real prices of oil, the real income per capita is declining.
Second, the aid per capita is declining. Except when you have some temporary spikes in aid or something, it's declining overall per capita. Remittances of workers per capita is also declining. So in all those sources of what we call easy incomes or easy revenue are declining.
Now you don't need really a major crisis for this to explode in your face, but the pressures are mounting in most of the countries of the region from that perspective. So what has sustained the status quo is increasingly difficult to sustain given the decline of those sources of income.
MS. RIZA: Ibrahim?
QUESTION: What I've noticed is that this report are trying to take into consideration variables on a macroeconomic national level, not take into consideration what is happening on a regional or probably international. Like now the migration problem, which is trying to integrate this variable which is related to the open-door policy if it is coming from Europe, for example. In 2020, there will be a huge pressure and probably policies, migration policies might be changing in Europe where there is a big decline in the number of youth, for example.
If you have, Mr. Tarik, you have mentioned that both ends of the educational system probably there is no--this is why unemployment is increasingly, and probably both, at these both ends there will be pressure for people to immigrate. On the long term you are enhancing the debate, but also there will be a big problem on the long run.
The other one is, we have wars in this region and this is--we haven't taken in consideration this element. All the time there is a crisis. We have a new neighbor in the region which is called the United States, and it's going to be there in Iraq for probably a long time. What is going to happen if this 2010 will be an integrated market Americans are trying to implement and they're trying to make conditions mature by doing these changes on a political level?
This is--can we call this interference or a support element? Because we haven't heard. Every time there is one of these reports we're just talking about on a lower scale, not taking into consideration all elements while Americans now are present and this is a new neighbor in this region.
MR. YOUSEF: Make no mistake about it, we are fully aware of the global geopolitical regional security dimensions, and we do, we have, in this and other reports, integrated them.
We do note that the persistent conflict in the region, whether it's conflict that is bilateral or regional has very strong negative spillover effects on the entire region by association, by direct links, and we make the statement, at least in this report, and I'm aware of it in all of our reports, that the responsibilities of an international community towards these conflicts must be important.
We note the Arab-Israeli conflict and its effects. We note also the situation in Iraq and the need to bring it to normalcy as an important ingredient as part of the responsibilities of the international community towards this region.
We note also the responsibilities, for example, of Europe in adopting, perhaps, a more relaxed migration policy that will be both consistent with its own political, social, internal issues, but nonetheless serve to integrate MENA better as part of the Euro-Med Initiative.
While noting all of this, their importance, and their relevance, we still come to the conclusion that dealing with an overarching problem such as employment, deeply rooted in state-society relations and the way societies are organized, in the role of government and labor markets, the primary responsibility will still fall on the governments of the region.
Thus, I think we're consistent with your concerns, but at the same time true to the development objective we're trying to address, we believe the internal mechanisms, internal processes will be paramount in doing so.
MR. POORTMAN: Can I just add to this? I mean, the other part we shouldn't forget is that these changes that you seem to say might, if I understand your words correctly, create opportunities for employment creation and thereby take away a little bit from this very difficult scenario that has been painted, that even those, in and by themselves, require a lot of the--to realize those, require a lot of the policy recommendations that are coming out of this report and the others.
It still requires a greater opening up of these economies, it requires a better environment for private sector investment. All of these potential opportunities that you're talking about still require the policy reforms in order to cash in on them, to put it bluntly, it will still require these governments to come to grips with some of these challenges that are being pointed out in this report and in others.
QUESTION: I'm Saba (?). I would like to ask in Arabic, please.
(Translated from Arabic): The four reports that were issued by the World Bank in the recent period, they focus on one issue, which is that the region is economically undeveloped, and therefore do you believe that only those reports can enhance or can encourage a new era for development and would we be, would we think that by the year 2020 there wouldn't be any Arab citizen that will be facing the danger of unemployment?
The other question is the criteria that were advanced for the establishment of employment opportunities, it does not give any criteria for the establishment of new models than those stereotype models that are being implemented nowadays. We know that the future is for the digital economy, and therefore is our economy coping with this development?
On the other hand, another question, why does the MENA Region bear alone the impacts of unemployment? We knew that in the past, when we were speaking about the free flow of trade and the liberalization of markets, why are only the Arab markets supposed to open their doors and the markets of other countries in other regions are not supposed to do so?
MR. YOUSEF: (Translated from Arabic) In fact, it's a very intricate question. It's a number of questions. I believe that when we have prepared those reports, we were not pessimistic, actually, whether for the present or the future of the region. We were very keen to be objective and to highlight the situation, and we also wanted to highlight the achievements of the region in the past; for example, the file of education, of educational qualification, and the development of many social indices in the region during the past 30 or 40 years.
I have to say that all of these factors we have taken them into consideration in order to be in a situation to give recommendation to improve the future of the region and to help the region overcome the obstacles in such a way that it will be very helpful for the development process. Indeed, there were many great achievements in a number of countries, however. The unemployment problems and the problems in the labor force are the ones that are, in our opinion, are problems that have to be taken into consideration.
It is not a matter of imposing certain policies on the region. However, we are giving rise to certain issues that have to be discussed and a dialogue that has to be opened. And if you go back to the reports, you would see that we are indeed very optimistic. There is an optimistic preview to the future, to the new generation, and in my presentation, I have tried to express this opinion.
As for the responsibilities of other countries, whether Europe or the international community or the USA, we have indicated that this file is very important. It has many complexities, and we have urged for a more open and free flow of labor force and the flow of goods, the establishment of a secure environment. We have also spoken about the issue of Iraq and Palestine.
And when we took all of this into consideration, we have seen that there will be challenges in the future. The region is supposed to bear the main responsibility in trying to cope with these challenges. In the '60s and the '70s, there have been foundations that we have laid down as far as development is concerned. At the end, the nations and the governments of the region have to set forth the foundations for the solution of such problems.
In addition, when you look at the title of the report, it is clear that there is a potential possibility in the region to face this challenge, and to improve the situation and to establish more employment opportunities. There are many reasons. There are investments. We have been investing in education, and there was development in education. In the past, there were many problems facing education. However, we have to say that there is development in the infrastructure as well and institutional development in many aspects.
There are many examples that show that there are potential opportunities in the region. The main issue is how to unlock such potentials in order to provide employment possibilities, and this is the main aim of the report.
Another thing is the responsibility of other people. Yes, the region is not the only region that has to bear and assume its responsibility. There is a responsibility to be borne by the international community, Europe, the USA and others. However, the main responsibility is that of the region.
When a region builds its future and policies, it cannot rely on the role of other parties. We have to be responsible for ourselves as countries, as region, as nations. We have to assume our responsibility before we ask others to provide assistance.
Yes, we call upon Europe. And this is what was in the report itself. We call upon Europe, for example, to facilitate the flow of agricultural products from our countries to Europe and the World Bank on the international scale and on the level of the relationship between the MENA countries and Europe. It places this issue as one of the priority issues.
Another issue is the migration of the labor force as well. It is true that even as far as the security is concerned and the regional security, these are issues that are very important. However, other regions as well should assume responsibility in this regard. However, the main responsibility is that that should be assumed by the MENA Region itself.
QUESTION: (Interpreted from Arabic.) I will ask in Arabic, as well. I'm from Saudi Arabia. In the report you have spoken about the productivity of the Arab worker and you said that the productivity is very low. Would you please tell us the average rate of the productivity of the Arab worker in figures, please? And my other question relates to the productivity as well.
You have mentioned that certain reforms were not serious, and you spoke about the governments of the region and maybe, of course, this is an issue that has given rise to the bad feelings of the Arab citizen, and when we speak about the productivity and especially in the public sector, have you got any assessment of the disguised employment, unemployment in the region?
When we speak about the reforms by the Arab governments, here we would like to speak about the privatization of the public sector projects. Many of the economists believe that this increases the unemployment problem. Many of the public sector enterprises seem to be exhausted and full of employees and maybe doesn't this create disguised unemployment?
MR. YOUSEF: (Interpreted from Arabic.) I would like to call upon you to read the report, sir, because many of the questions that you have cited are covered in the reports. For example, the productivity level in the '90s was less than one percentage, was 0.7 percent annually. Concerning disguised and undisguised unemployment, it is very difficult oftentimes to determine the identity of unemployment, the nature of unemployment.
However, since unemployment affects mainly the youth, the youth that have secondary school certification education, this means that unemployment is not really disguised, because there is a clear wish on the part of these youngsters to seek employment in the public sector and the large public institutions and corporations.
As for privatization of some of the state-owned corporations, in the short term, it would have negative repercussions on the employment market, and many economists and international institutions seem to say so. However, in the longer run, there are advantages on the labor market and on other markets.
Up to date, we are not talking about replacement of a certain employment by another employment. What we are calling for is creation of jobs. We need a large impetus in order to create more jobs, new corporations, new fields of work. The private sector is going to have the lion's share as we suppose. So we have to focus on creating jobs rather than replacing jobs or raising the standards of unemployment in any manner or form.
In spite of the fact that some countries face problems in the services sector, be it the civil service or major public industrial sectors, so these problems in those countries might be solved or resolved through privatization programs. However, in the future, the main issue lies in the creation, in the urgent need to create jobs. As Mr. Nabli has said, this is the main arch objective of this report which is unlocking the employment in the Middle East rather than leaving the situation as is.
QUESTION: (Interpreted from Arabic.) Shamil Haire (ph) from the UAE News Agency. We cannot look at the World Bank report, this fourth report, without looking at the other three reports. The four reports link a very important point of political to economic reformations. And I would like to underscore that. We cannot have any economic reform without political reforms. However, the problem that lies in the region is that political reforms require time, so economic reforms consequently are going to take some time, which means that we are going to face even more problems.
The second point that I would like to raise is that we have, however, a series of crises in the region which are also going to impact investments because we all know that the capital is a coward, is cowered, and that we will not have investment in the region so long as we have such crises, intentions, be it in Iran, the Middle East, Palestine or Iraq.
The third question, rising economic pressures, are going to lead more immigration or brain drain, which means that we will have more unemployment or loss of economic opportunities.
The last point, you are talking about investments and capitals. We're calling for new investments to come to the region. Capital is not in the hands of individuals. It is in the hands of governments. Most of the capital lie in government banks and governments invest, not individuals. Most of the capitals, most of the funds that can be invested, are in the hands of government regimes and not individuals unlike the western world, where in the West, capital and major investments are with the private sector.
So how can we look at the future of the economic situation in the Arab world over the 20 years in the light of those four questions?
MR. NABLI: (Interpreted from Arabic.) Indeed, these are very important questions. Let's tackle the last point first, that the fact that the capital lies in the hands of governments in the region. I do not think that this is solely true or wholly true. Governments in the region or most of them actually take loans from the private sector and not the country, which means that governments have deficits in their budgets and this deficit is being financed by the private sector.
Let's take, for example, Saudi Arabia. Its budgetary deficit is financed from the private sector banks. You know that the indebtedness level of Saudi Arabia, of Saudi Arabian government, is very high nowadays, and this is a debt, two words, the private sector, which belies what you have just said, that the capital is not in the hands of the government.
However, the reason or the main element is that the private sector has not developed its investment in a proper manner. The private sector finances the government or invests abroad rather than invests within the region. This is what I wanted to say as far as the fourth point.
Now, concerning tensions and crises in the region, I think that goes without saying. We have tackled this issue awhile ago. It is a very important issue. One of the objectives of such reports is to address not only governments of the region, not only individuals and citizens of the region, but also addresses foreign parties. They are aimed at attracting the attention of all and everyone to the investment problems in the region and the need for support to this region in terms of security and stability in order to be able to confront these challenges. These reports, as I have said, are not addressed to specific parties, but address everyone.
Another important issue that you have raised is the time lag, that political reforms require time. In fact, we learned from experience that political reforms do not take that long. Sometimes political reforms can be undertaken in a relatively short lapse of time. Let's look at Central Europe and how fast political reforms were undertaken. Let's look at Latin America. Also, in Latin America, political reforms did not take many decades.
Political reforms can be undertaken in a relatively short period of time.
Now the main issue at stake, I think not to link political reforms to economic reforms, political reforms being the first step. I think they go hand in hand. We should not make it preconditional for economic reforms to have political reforms in advance. We need developments at all fronts, be it economic, political and developmental so that the whole process goes forward.
QUESTION: (Interpreted from Arabic) I'm from the UAE News Agency. The volume of investments required in the Middle East to create 100 million jobs by the year 2020. The second question, varying labor codes in the region and the relation between or the industrial relations between employers and employees, regulations in the GCC countries that, for example, impede employment, unemployment in the GCC citizen or within the GCC citizens. A large expenditure on employment jobs for GCC citizens. What are your comments there on?
MR. YOUSEF: There is an analysis and evaluation of the whole situation and there are some recommendations concerning employment for those countries that import employment or import employees, particularly in the GCC, and I do urge you to read that report thoroughly.
We do read the regulations of the labor market as part and parcel of the reformation in the cycle. In some Arab countries recently, and particularly last year there were many reforms in the laws and regulations that have been there for years or decades in Egypt in January, Morocco last month, Kuwait last year, all these countries have introduced new labor codes or regulations. So the region has indeed demonstrated its capacity to introduce amendments related to the regulation of the labor market.
These reformations or adjustments did not come from a top to the bottom approach on the job market but as a part of an overall package of a political formula which gave the laborers their say in the formula in order to give them a chance to give their thoughts on the need for certain reformations. This is an example of what this region can perform once all parties involved are included in the formula and the debate. So I shall suffice here by saying or by referring you to the report.
MR. NABLI: (Interpreted from Arabic) As for the volume of investments, we have a 50-year-old economic concept which is the cost of employee to the economy or the creation of a job to the economy. I think that is not always valid. We have to understand what is the volume of investment in the region. It continues to be low in comparison to other parts of the region. Investment to the GDP, private investment to the GDP in the region remains, or returns around 10 to 15 percent. No more than that, which is a very weak percentage. Countries that have made it, have shown that this percentage was around 20 percent, 15 to 20 percent. So the volume of investment is indeed very vital.
However, what is more important in our view is economic policies that would create an investment-friendly environment. Investment in its turn would lead to more jobs. So we do not want more capital-intensive investment. We want a labor-intensive investment. Policies, institutions, reforms are more important in their own right than investment, per se. Investment comes as a result of reformations and adjustments.
The 50-year experience of development in region focused on investment, per se, and investment was intense and high in the region. Sometimes the investment, overall investment was around 30 to 40 percent of the GDP. But that did not create more jobs because it was public or government investment or institutions with capital intensity, whereby investment became a problem to those--whereby these institutions became a burden to society rather than of service to the society. So we have to focus on investment that creates jobs and not in pure figures or numbers of the investment volume.
QUESTION: Just a quick question about the migrant workforce in the Gulf.
MR. SARBIB: Can you introduce yourself, please?
MS. RIZA: Introduce yourself.
QUESTION: Just a quick question about the migrant--
MS. RIZA: Could you please introduce yourself?
QUESTION: Yes, Paul Marley from Dubai Meetings News. Quick question about the migrant workforce. Do you think that there should be more regulations to protect the worker, protect the rights of migrant workers and provide a more formalized framework for their employment conditions so that they're on a more comparable basis with those of GCC citizens in terms of labor protection and holiday, sickness rights and all that sort of thing?
MR. YOUSEF: We do not go into the specifics but we do note is that when you have segmented labor markets, labor markets that are structurally rigid along public, private, national, migrant, expatriate, these labor markets tend to lack the sort of dynamism, the kind of flexibility that is often good for job creation, for social protection.
Now when you start reforming labor market laws and regulations you often always have to create the right balance between the flexibility that's required by the private sector and the social protection that is owed to workers. As a general policy prescription we do advocate that countries in general in the region balance the two. That labor market flexibility need not imply lack of social protection, and the reverse should not be the case.
What should guide reforms in general should be overall objective of job creation, minimum acceptable, socially acceptable living standards, and a labor force or a labor sector that is a capable and an empowered partner in formulating and amending and reforming laws.
MS. RIZA: I'm going to take one last question, but the author, Tarik, and the chief economist are--I'm going to tell them that they're going to be sitting here and you can ask them questions later on, but we will allow our two vice presidents to move on if they would like to. One last question over there and then--
QUESTION: (Translated from Arabic) Muhammed (?). I will ask my question in Arabic.
Please permit me to say that you, as if you are coming here to accuse the or to present the region to accord and not to analyze the situation, was it very important to have this conference held in the UAE so that we would have such a large number of reports prepared about the region?
Does the IMF and the World Bank or would you want to reverse the policies of the IMF and the World Bank as far as the employment is concerned? We know that we, as Arabs, are responsible for the development. However, don't you think that such states were driven towards by the rich countries? And Arab states have had to go into war for the benefit of other states, and don't you think that such wars have economic impact on the countries of the region?
MR. NABLI: (Interpreted from Arabic) Regarding the issue of waiting up till now so that we would issue this report or other reports, when we go back to the past, these are not the first reports to be issued by the World Bank of the region. In the past, we have issued and prepared the many reports on several issues. This is not the first time that we have issued such reports.
Maybe they are now more intensive. Of course, on this occasion of holding this conference here, it is not a new pattern of work to prepare and issue such kinds of reports. We thought that this would be an occasion that we would avail of in order to introduce this region and in order to contribute to this region, especially that people are focusing on the region right now with the holding of the conference here, and we wanted to highlight the challenges that are faced by this region.
This is my remark regarding the first issue.
As for the second issue, which is the financing policies, as you know, the financing by the World Bank is relatively weak in the region. As you know, the World Bank finances the governmental projects and not the private sector, maybe the IFC, for example. Partly, the private sector gets certain partial finances. However, as I said, there are World Bank finances going to the government. However, as I have said, they are still weak.
We believe that the contribution of the World Bank in this regard is in the part that concerns the knowledge. We contribute in such a way that we open the floor to thinking about the developmental issues based on the experience acquired by the World Bank in different regions in such a way that the region may avail of the experience available with the World Bank.
As for the wars, we have spoken about wars in the report. We believe that the issue of war and security in the region is of great importance for several reasons, especially before that the instability caused by the wars has impact on the investment, whether national investment or foreign investment, and the impact is in such a way that the investment is not to the level that we are striving to.
In many countries of the region, a high percentage of income is devoted to security, and to warfare and military equipment in the same time that this money can be devoted to other concerns and not only to military purposes. Of course, on the other hand, the regional security, as mentioned in many reports, has an utmost importance.
However, this is not under the control of the World Bank. The World Bank is a developmental institution. It is not an institution that is focusing on issues of war and military action. Yes, indeed, we recognize the importance of this issue. However, as World Bank, we focus on economic and development issues and policies.
MR. POORTMAN: Can I just say one word? Because I think Mustapha has more or less dealt with the question. I just want to make absolutely sure that you do look and read the four reports very carefully. I think they're meant to be and their written in a very constructive way. It's a way in which, and by the way, if you do read the reports, you will find that a lot of credit is being given to the region, as was already reflected in this presentation, but also in others that went before, in terms of very significant achievements of the region, particularly during the '60s and the '70s, particularly also in the area of social indicators, economic growth levels and, to a large extent, at that point in time, creating, in another approach, primarily government led, employment creation and employment opportunities for most of the people that wanted work.
So it is meant to be setting the stage against that; that since that time there have been changes that are important for the governments in the region to consider in formulating their future programs.
We also indicate that there is a degree of urgency attached to this, but the report is being prepared and was prepared in a very constructive way, the way we see our role, as Mustapha says, in being a bank that has wide international experience, and it would like to put this international experience at the disposal of our members. This, after all, is a region where we have the members of the World Bank. These are shareholders of the World Bank, and it's our job to do that.
Let me also explain to you that, in terms of the timing and the setting of the reports, yes, indeed, the meetings being held in Dubai was an important opportunity to do this because we could reach a larger number of people, and we also felt that a large number of people would be here and would be able to enter into a first dialogue with us on these reports.
When the meetings were held three years ago in Prague, the World Bank did a similar thing. We had a number of reports out particularly related to the challenges of Eastern and Central Europe, and we also saw it, at that point in time, as an appropriate opportunity to bring these out.
But let me, once again, emphasize that these reports were meant to be constructive and in line with what we see our role as a development institution that doesn't just provide financing, but also tries to assist our members in charting their economic development challenges.
MS. RIZA: I'd like to thank you all for coming here, and I would like to thank Dubai 2003 for translating the four reports into Arabic, and I think that Tarik and Mustapha are still going to be here for any more questions that you might want to ask.
Thank you, again, and I'd like to thank the speakers as well.
(Whereupon, at 11:27 a.m., the press briefing was concluded.)