MidEast economies need new boosters

As most global growth happens in blocs, the best place to start is to look deeper within the region to create opportunities

The region’s economies are at a crossroads. Spanning Pakistan to Morocco, it represents 8.5 per cent of the world’s population. But we only generate 3.4 per cent of global GDP, with just two of our companies making it into the Fortune 500. Estimated growth in 2019 amounted to just 1 per cent, and the outlook across the region remains one of low- to no-growth.

We need to act – and fast – to turn around our fortunes, redressing pressing issues such as unemployment, economic inequality and social cohesion in the process. This was the starting point of a panel discussion I joined at the recent World Economic Forum meeting in Davos, which convened political and industry leaders from across the region.

Like the UAE has done over many years, countries like Egypt — now the fastest-growing economy in the region — are reaping the benefits of re-engineering their economic structures. Others, like Saudi Arabia, are following a similar model, introducing extensive reforms and public-private initiatives.

But getting the whole of Menap (Middle East, North Africa, Afghanistan and Pakistan) back on track will require a concerted effort to foster a more collaborative and structured approach amongst all markets. H ere are three key takeaways from Davos on how the public and private sector can work together to achieve greater economic integration.

Intra-regional trade and investment:

■

We’re not as globally powerful as we could be... because we don’t have scale. Market fragmentation is the biggest inhibitor of our growth.

Most global growth now happens in blocs — take Asean (Association of Southeast Asian Nations), the European Union or Nafta (North American Free Trade Agreement). But trade between Menap nations is only around 16 per cent of total trade, according to a recent report Majid Al Futtaim produced with McKinsey & Company. If you take oil out, it’s less than a third of that. This is in stark comparison to 52 per cent in Asia-Pacific and 63 per cent in Europe. As my co-panellist Dr Rania Al Mashat, Egypt’s Minister of International Cooperation, pointed out, our region is very heterogeneous. But, I strongly believe that we also have a lot in common, not least our culture and geographic proximity.

To stimulate the same kind of growth and stability as in Asia and Europe, we need to work in partnership towards a common manifesto of progress. Greater economic integration will be the single most important driver of growth. This could add $231 billion to our regional economy, by helping us become globally competitive, attracting talent and investment.

■ Deregulation and incentives:

Alongside this, we will need to promote a thriving private sector and grow the number of Fortune 500 companies beyond the current two — Saudi Arabia’s Sabic and UAE’s Emirates Group. According to McKinsey & Company, emerging market economies that experience high levels of growth share one important characteristic — the presence of large, competitive firms that propel the economy’s growth trajectory. To nurture the private sector means effective deregulation and less “red-tape”. Only if we deregulate can we eliminate market distortions, foster innovation, better competition and, ultimately, drive growth.

This isn’t hard: Saudi Arabia recently simplified its visa process for 49 countries to boost its tourist industry. The expected inflows of foreign direct investment into the tourism sector will materially increase from 3 per cent of gross domestic product at the current allocation levels to 10 per cent by 2030.

Enabling more private-public collaboration and, where appropriate, privatising state-owned businesses also falls into this category. In the process, public money can be freed up and channelled to where it is needed the most, for instance towards entrepreneurship, start-up funding, education and infrastructure.

■ Matching jobs with people:

The region produces disproportionate amounts of graduates for the jobs available. In the Middle East and North Africa, for example, youth unemployment has been the highest in the world for more than a quarter of a century. Young people often search for long periods of time before finding work, affecting their ability to meaningfully participate in society and the economy. My fellow Davos panellist, Majid Jafar, CEO of Crescent Petroleum, summarised the talent conundrum, saying; “The more educated you are, the less likely you are to have a job.”

Region-wide, we need to create between 80 million and 100 million jobs in the next decade. Even in trailblasing Egypt, an annual growth rate of about 8 per cent over a period of 10 years would be needed to accommodate for the current levels of people coming into the workforce.

The priority has to be reskilling, but matching people and jobs also requires redesigning university courses so that graduates learn skills needed locally rather than increasing the “brain drain”. As suggested by Mohammad Ebrahim Shtayyeh, Prime Minister of the Palestinian National Authority, a move towards a dual system like Germany’s, with its academic and vocational strands, may also be worth considering.

My fellow panellist Abdullah AlSwaha, Minister of Communications and Information Technology in Saudi Arabia, told Davos: “Growth in the Middle East is no longer a case of if, but when.”

Once we make progress across the three priorities outlined above, that “when” will be much closer than it has been to date.