Economic Underpinnings of Arab Spring

Adeel Malik and Bassem Awadallah discuss \”The economics of the Arab Spring\” in a working paper (WPS/2011-23) for the Center for the Study of African Economies at the University of Oxford. They point out that despite rapid growth in education levels, access to water, and urbanization–all patterns that are often associated with sustained economic development–the region has failed dismally to develop a robust private sector. As a result, well-educated and youth-heavy populations see little chance for economic advancement. Here are some excerpts: 

On large numbers of young and unemployed workers: 

\”Over the last few decades, the Middle East has witnessed an unprecedented youth bulge that has dramatically changed its demographic profile. An overwhelming proportion of its population–in many countries about three-quarters–now consists of young people under the age of 30. Together with a greater female participation in the labour force, these demographic trends have greatly enhanced the number of people looking for jobs. During the period 1996=2006, labour force in Middle East and North Africa has grown three times as much annually as in the rest of the developing world, resulting in one of the larges rates of youth unemployment in the world.\”

On the collision between rising education and thwarted aspirations:

\”Of the tip 10 countries that made the most impressive strides in human development during the last 40 years, five were from the Arab world. Starting from one of the lowest levels of educational achievement in the 1960s, adult education rose faster in the Middle East during the 19890-2000 period than any other region in the World. Despite reservations about the quality of education imparted, even this quantitative expansion of education has led to a silent revolution of sorts. It is a revolution of aspirations. Even as aspirations have become more mobile with the new gadgets of globalization, the local systems of governance are ossified and offer limited economic mobility to the region\’s youth.\” 

On the centrality of government in the economic sphere:

\”The state in most Arab economies is the most important economic actor, eclipsing all independent productive sectors. When it comes to essentials of life, such as food, energy, jobs, shelter, and other public services, the state is often the provider of both first and last resort. The functioning of this system rests on a heavy dose of subsidies, economic controls, and a variety of other uncompetitive practices. … The state-centred development paradigm rests on an uninterrupted flow of external windfalls. In fact, many of the region\’s pathologies–whether it is a weak private sector, segmented labor markets, or limited regional trade–are ultimately rooted in an economic structure that relies overwhelmingly on rents derived from fuel exports, foreign aid, or remittances. Reliance on such unearned income streams is the \”original sin\” for Arab economies.\”

On the paucity of intra-Arab trade:

\”With a population of 350 million people that share a common language, culture, and a rich trading civilization, the Arab world doesn\’t function as one common market. … Few Arab countries consider their neighbors as their natural trading partners. Pan-Arab trade is noticeably insignificant. Despite having tripled between 2000 and 2005, the share in intra-Arab trade in total merchandise trade still hovers around 10 percent. … The share of intra-Arab imports, despite having fluctuated widely, is only marginally higher than that in 1960. … Even this limited trade is geographically clustered, with countries in the Gulf and North Africa trading predominantly within their own sub-regions.\”

Location and water access don\’t seem to be helping: 

\”The Arab world is well-positioned to be a global trade and production hub. Geographically, it lies at the cross-roads of major sea and trading routes with easy access to Europe, Africa, and the near East. … Strictly speaking, there is not even a single landlocked country in the Arab world, even if Iraq and Jordan have narrow coastal strips. … It is ironical that a region that connects Asian merchants with European markets is itself stuck in primary production. Everywhere in the world proximity to coasts tends to be associated with lower transport costs and better access to global markets. The Arab world defies these forces of gravity, however.\”

Urbanization doesn\’t seem to be helping:

\”[C]ities offer a range of mutually supportive activities. Bringing together machinery, skills, suppliers and resources together in a single location can be tremendously advantageous for firms. Such agglomeration economies are missing in the Middle East, even if it is more urbanized today than several developing regions: 58 percent of the region\’s population lives in urban areas, compared to 30-37 percetn in sub-Sarharan Africa and south Asia. … Yet, Arab firms are failing to reap the cost advantages that growing urbanization confers on them.\”

The jobs challenge and the private sector:

\”The private sector is at once the most despised as well as the most desirable aspect of reform. Business in the Arab world is often comfortably embedded within the state, wtiht eh result that it invokes images of crony capitalism. At the same time, an estimated 100 million jobs need to be created in the MENA [Middle East and North Africa] region in the next decade or so. This employment challenge cannot be addressed without a strong private sector. .. An independent business sector will also serve a vital political function: it can generate a middle class that can serve as a powerful constituency for political reform. … Viewed in this light, the struggle for a new Middle East will be won or lost in the private sector.\”

Malik and Awadallah lay particular emphasis, among all the policy steps that might be taken, on policies that would help to create a regional market across the Middle East: that is, policies and investments to make travel, shipping, business, and communication cheaper and easier. Such policies might be more politically acceptable (that is, less upsetting to local elites) than attempts to open more directly to the global economy. Riding the wave of discontented and well-educated young adults, such policies might also help to harness the power of Arab spring in a productive manner.

High Food Prices and Political Unrest

Marco Lagi, Karla Z. Bertrand and Yaneer Bar-Yam of the New England Complex Systems Institute have a working paper up about \”The Food Crises and Political Instability in North Africa and the Middle East.\” This figure tells the heart of the story. The black line shows the two recent spikes in global food prices, one in 2008 and one in 2011. The vertical red lines show the dates of various food riots and/or civil disruptions, with the number of deaths shown in parentheses.Of course, food prices aren\’t the only factor in causing such disruptions, but the fact that such riots and disruptions essentially vanished in 2009 and 2010, in the time period between the two price spikes, is nonetheless striking.

Thanks to the Instapundit website for the pointer to this study. I\’ve posted a couple of times recently on the subject of the global spike in food prices in 2008 and again in 2011 (see here and here). I\’ve also posted a couple of times in the last few months on how unemployment and poor economic conditions have contributed to political unrest in the Middle East (for example, here and here).

More on Stagnant Job Growth in the Middle East

I wrote a couple of weeks ago about slow growth and stagnant job creation in the Middle East. In the most recent issue of Finance and Development, Yasser Abdih offers some additional evidence.

Focus on six populous Middle Eastern countries where solid labor market data is available: Egypt, Jordan, Lebanon, Morocco, Syria, and Tunisia. Abdih writes: \”High unemployment in these countries, together with low labor force participation rates, has resulted in very low ratios of employment to working-age population. With less than 45 percent of working-age people actually employed, this regional rate is the lowest for any region in the world.\”

When you look at youth employment in particular, the situation is equally dismal. They write:\”The average unemployment rate among youth in these nations was 27 percent in 2008, higher than in any other region in the world …  In contrast to most of the world, joblessness in many Middle Eastern countries tends to increase with schooling: the unemployment rate among those with college degrees exceeds 15 percent in Egypt, Jordan, and Tunisia.\”

The Middle East: Slow Growth and Stagnant Job Creation

For a summit of the Group of Eight on May 27, 2011, the staff of the IMF produced a useful memo on the economies of the Middle East and North Africa (MENA) region: \”Economic Transformation in MENA: Delivering on the Promise of Shared Prosperity.\” The fundamental issue for the region, as I see it, is that unemployment rates are very high and economic growth rates are low. Moreover, the region barely participates in the global economy, other than oil, and has a poor climate for starting businesses. So it\’s not clear where future growth in jobs will come from. Here are figures to illustrate these themes:

Per capita economic growth has been slow in this region from 1980 to 2010, compared to Asia, Latin America, and even Africa.

Unemployment is a severe problem for countries in this region. Overall unemployment rates are often in the range of 10-15%. Youth unemployment rates often exceed 20%.

Other than oil, this region participates little in globalization. The top lines show non-oil export as a share of world exports for emerging Asia and for all emerging and developing economies. The bottom line, down around 1-2%, is the share of non-oil world exports for the Middle East and North Africa region.

The business climate for the Middle East and North Africa region isn\’t strong. In this \”spider web\” diagram, each of the labels around the outside shows a measure of  how easy it is to do business in an area, based on World Bank data. The countries of the world are ranked on these criteria, and lower rankings are better. The dashed line shows the average country ranking for emerging Asia on these measures; the dark blue line shows the average ranking for oil importing countries in the Middle East and North Africa.