Tunis-MENA: More Jobs and Fewer Privileges!
1 November 2014
Read by 2142 persons
Middle East and North Africa (MENA) countries are in a difficult situation: if they don't act, their economies will not create anything, certainly not the hundreds of thousands of jobs needed each year to absorb new entrants into the job market. Widespread inactivity will persist, alongside latent popular discontent, predicts a World Bank study.
Official data that became available since the Arab Spring in 2011 allowed World Bank researchers to compare the region's employment performance and the policies governing it to see where the bottlenecks were. Their conclusions are presented in a new report on privileges and solutions to boost job creation in the region, titled "Jobs or Privileges, Unleashing the Employment Potential of the Middle East and North Africa".
The "privileges" in question refer to all those policies implemented by previous governments that continue to protect the business interests of certain companies close to power. The report shows how these measures—designed to prevent or discourage competition so that a small elite can obtain lucrative monopoly rents—disrupt the natural mechanics of the economy where a company grows and becomes more productive or is ejected from the market. In the current configuration, political connections matter more for success than innovation.
Survey data that could finally be consulted shows the undue privileges enjoyed by entrepreneurs close to the regime in Tunisia and Egypt. In Egypt, 71% of companies linked to the regime, compared to only 4% of companies without political connections, market products protected by at least three import barriers. In Tunisia, 64% of firms close to the regime and only 36% of others operate in sectors with limited access to foreign direct investment.
The lucky ones also benefited from a disproportionate influence over their sectors of activity. One of the best-known examples is that of the American giant McDonald's, which never managed to establish itself in the Tunisian market because it refused an exclusive franchise offer from a close associate of the deposed president.
This type of privilege strongly disadvantages local entrepreneurs who don't have the right connections and prefer to postpone their investments. And foreign investors hate above all the uncertainty surrounding a government's economic decisions, as no one can say whether they will then be applied fairly.
Without an economic dynamic underpinned by rapidly developing, productive companies, the energy of an ever-growing workforce has largely been wasted.
The millions of workers, consumers, and entrepreneurs penalized by this situation are often unaware of the impact of these policies on their aspirations. In Egypt, for example, overall employment growth falls by about 1.4 percentage points per year once companies affiliated with the regime enter new sectors of activity. Without understanding the nature of this impact, internal discussions on much-needed economic reform will be unproductive.
In MENA countries, as in the rest of the world, it is young shoots and the most productive companies that drive job creation. The report provides abundant evidence: in Lebanon, some 177% of net job creation between 2005 and 2010 was due to small start-ups, while in Tunisia, they created 580,000 jobs between 1996 and 2010, or 92% of the total net creation.
The region needs to expand its pool of such young and productive companies to encourage the growth of the private sector and, therefore, employment. But the current rules tend to protect well-established insiders more than encourage new businesses and offer very little incentive to turn a good idea into a successful business venture. On average, 6 limited liability companies are created per year in the region for every 10,000 working-age people. This figure compares to the results of 91 developing countries (20/10,000) and, above all, to those of Chile (40/10,000) and Bulgaria (80/10,000).
This proves that, despite a large active population (more than 65% in most MENA countries), this energy is generally wasted. Instead of holding qualified and highly productive jobs, such as those offered by the software industry, relatively educated job seekers are forced to waste their talent in low-productivity jobs in retail, hospitality, and catering, where career and pay prospects are generally very limited. Penalized by cultural barriers, women in the MENA region have the lowest labor force participation rates in the world.
The region will only succeed in creating the volume of jobs needed by eliminating the privileges highlighted in this report. The researchers show how opening markets, competition, and a level playing field will create a fertile ground for entrepreneurship and, de facto, the emergence of dynamic firms. Only reforms undertaken with full transparency will ensure that citizens are aware of their government's actions and can participate by providing feedback.
Published on October 19, 2014.
Posted online on November 1, 2014.
Africanmanager.com
Official data that became available since the Arab Spring in 2011 allowed World Bank researchers to compare the region's employment performance and the policies governing it to see where the bottlenecks were. Their conclusions are presented in a new report on privileges and solutions to boost job creation in the region, titled "Jobs or Privileges, Unleashing the Employment Potential of the Middle East and North Africa".
The "privileges" in question refer to all those policies implemented by previous governments that continue to protect the business interests of certain companies close to power. The report shows how these measures—designed to prevent or discourage competition so that a small elite can obtain lucrative monopoly rents—disrupt the natural mechanics of the economy where a company grows and becomes more productive or is ejected from the market. In the current configuration, political connections matter more for success than innovation.
Survey data that could finally be consulted shows the undue privileges enjoyed by entrepreneurs close to the regime in Tunisia and Egypt. In Egypt, 71% of companies linked to the regime, compared to only 4% of companies without political connections, market products protected by at least three import barriers. In Tunisia, 64% of firms close to the regime and only 36% of others operate in sectors with limited access to foreign direct investment.
The lucky ones also benefited from a disproportionate influence over their sectors of activity. One of the best-known examples is that of the American giant McDonald's, which never managed to establish itself in the Tunisian market because it refused an exclusive franchise offer from a close associate of the deposed president.
This type of privilege strongly disadvantages local entrepreneurs who don't have the right connections and prefer to postpone their investments. And foreign investors hate above all the uncertainty surrounding a government's economic decisions, as no one can say whether they will then be applied fairly.
Without an economic dynamic underpinned by rapidly developing, productive companies, the energy of an ever-growing workforce has largely been wasted.
The millions of workers, consumers, and entrepreneurs penalized by this situation are often unaware of the impact of these policies on their aspirations. In Egypt, for example, overall employment growth falls by about 1.4 percentage points per year once companies affiliated with the regime enter new sectors of activity. Without understanding the nature of this impact, internal discussions on much-needed economic reform will be unproductive.
In MENA countries, as in the rest of the world, it is young shoots and the most productive companies that drive job creation. The report provides abundant evidence: in Lebanon, some 177% of net job creation between 2005 and 2010 was due to small start-ups, while in Tunisia, they created 580,000 jobs between 1996 and 2010, or 92% of the total net creation.
The region needs to expand its pool of such young and productive companies to encourage the growth of the private sector and, therefore, employment. But the current rules tend to protect well-established insiders more than encourage new businesses and offer very little incentive to turn a good idea into a successful business venture. On average, 6 limited liability companies are created per year in the region for every 10,000 working-age people. This figure compares to the results of 91 developing countries (20/10,000) and, above all, to those of Chile (40/10,000) and Bulgaria (80/10,000).
This proves that, despite a large active population (more than 65% in most MENA countries), this energy is generally wasted. Instead of holding qualified and highly productive jobs, such as those offered by the software industry, relatively educated job seekers are forced to waste their talent in low-productivity jobs in retail, hospitality, and catering, where career and pay prospects are generally very limited. Penalized by cultural barriers, women in the MENA region have the lowest labor force participation rates in the world.
The region will only succeed in creating the volume of jobs needed by eliminating the privileges highlighted in this report. The researchers show how opening markets, competition, and a level playing field will create a fertile ground for entrepreneurship and, de facto, the emergence of dynamic firms. Only reforms undertaken with full transparency will ensure that citizens are aware of their government's actions and can participate by providing feedback.
Published on October 19, 2014.
Posted online on November 1, 2014.
Africanmanager.com
