Understand the Big Picture of Development at WEF MENA 2015

May 21, 2015

Decision-makers at WEF MENA are working for change against the backdrop of a historic transition between development models

As regional and world leaders meet in Jordan on the Dead Sea for the three-day World Economic Forum Middle East and North Africa, all will be conscious of the need to address youth economic opportunity. This year will mark the five-year anniversary of the Arab Spring, which began with the first protests in Tunisia in December 2010. Accelerated by social media, the frustrated economic and political aspirations of youth across the region would go on to unseat governments as far afield as Egypt and Yemen. Five years later, gains have been made, but important work remains to be done.

In the MENA region, youth (ages 15-24) unemployment rates remain high: 22% for young men and 39% for young women. Since 2011, the percentage of young adults holding bank accounts has climbed 3 percentage points, to 14%, in the Middle East compared with 37% in other developing countries. Young adults in the Middle East are still less than half as likely as older adults, age 25 and up, to have an account. This is the largest gap anywhere in the world, according to the World Bank’s Findex data for 2014. What factors make progress on youth financial inclusion so challenging?

The long shadows of the traditional Arab development model
The traditional Arab development model—strong state economic intervention, large welfare entitlements enabled by an abundance of natural resources and a private sector where competition was not very strong—has proven to be unsustainable, says Dr. Adeel Malik, a Globe Fellow in the Economies of Muslim Societies at the Oxford Centre for Islamic Studies.

Yuwa Hedrick-Wong, HSBC Professor of International Business, University of British Columbia and the MasterCard Center for Inclusive Growth’s chief economist, says the account ownership gap is a holdover from the old economic model, where transfers were dominated by government payments to citizens, rather than between private entities, meaning there was little incentive for financial services institutions focusing on investment and growth to take root. “Financial services hadn’t been critical for that model of economic growth,” he said.

This surfaces the deeper challenges involved in moving away from the traditional Arab development model: Even after the Arab Spring, polls showed that youth preferences for public-sector employment remained high, with better-educated youth especially likely to wait for an elusive public-sector job. That wait, in turn, forces them into the precarious and low-capital-intensive informal sector, whose large size Malik cites as another reason for the low rate of account holding in the region.

Details matter in the way forward
The goal, then, for regional leaders is to set a virtuous cycle in motion in which private entrepreneurship incentivizes the growth of financial services that, in turn, supply investment to jump-start further private entrepreneurship that creates jobs and wealth, thus stimulating further financial transactions. But this also illuminates why making progress is so challenging: Such a virtuous cycle requires moving away from a previous economic dynamic that has deep roots even among the young and well-educated toward one that’s entirely new.

Looking at WEF MENA through this lens reveals the importance of what at first seem to be finer points of discussion. Improving tourism in the Middle East & North Africa, for example, through simplified visa regimes and regional cooperation could promote financial inclusion in the form of a vast job pool for less-educated workers. Egypt, says Hedrick-Wong, is an example to watch in discussions of regional development; it is a country without the natural resources of others in the region that is pursuing increased friendliness to private investment. Most important, any discussions of promoting entrepreneurship need to be assessed taking into account the kind of entrepreneurship they will advance. The young street vendors who took to protests over the lack of economic opportunities in the Arab Spring were entrepreneurs, albeit by necessity. The way forward lies in promoting the conditions to support entrepreneurs by choice—those who can get credit for a business, accumulate enough capital to hire others and generate more jobs—thus generating the momentum needed for a new model of development.


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