Regional job creation lags behind growth

03 January 2013

Tackling unemployment is a critical issue for leaders in the Middle East and North Africa

In the late 1990s and early 2000s, Ibrahim studied judicial law at one of Morocco’s top universities. Today, he drives a taxi in Rabat, physically close to the world he once hoped to be a part of, but a million miles from the process of government.

“There are no jobs,” he says, when asked why he did not convert his education into a career. Now in his 30s, with a daughter in school, he does not have the time to retrain.

In Muscat, the capital of Oman, an official at the country’s central bank talks about his education, at home and abroad, in economics. Now, he works a relatively undemanding job which he can leave in the mid-afternoon without a worry in the world. He would like to do something more challenging, he says, but the state pays so much better than the private sector, where jobs are hard to come by.

In Yemen, just to the west of Oman, Jameela gets by with help from her family. She went to university in Sanaa, but, despite sending out her resume to “everyone” has yet to find a job in either the private or the public sector. For less well-off Yemenis without her education, she muses, things must be a lot harder. “No wonder,” she says, “people came out to demonstrate last year.”

Arab uprisings

During the course of 2011, the Arab world lost four heads of state: Tunisia’s Zine el-Abdine Ben Ali, Hosni Mubarak of Egypt, Libya’s Muammar Gaddaffi, and Yemen’s Ali Abdullah Saleh. Syria’s Bashar al-Assad also looks likely to be gone, one way or the other, before the end of 2013. The drivers of the Arab uprisings were varied and complex. But high among them were economic issues, not least a lack of job opportunities - a major problem across the Middle East and North Africa (Mena) region.

Despite some of the highest economic growth rates in the world, the countries that make up the Mena region have failed to create enough jobs over the past decade, all the while the size of their populations and workforces, have increased rapidly. Although regional population growth peaked at 3 per cent in the 1980s, it is still above 2 per cent a year. The UN estimates that the region’s youth population (aged 15-24) doubled between 1980 and 2010, and that it will peak at 94 million in 2030.

Unemployment averaged 10.2-10.9 per cent across the region in 2012, according to the Geneva-headquartered International Labour Organisation (ILO). It was the only region where joblessness was more than a tenth of the total workforce. The ILO figures only cover the active labour force - people who count themselves as seeking work. Many more people have given up looking. Adding the region’s able-bodied yet economically inactive people to the mix could increase the average by 1 percentage point, the ILO says.

Another critical area is unemployment among women. About a quarter of all young people in the Mena region were out of work in 2012, according to the ILO, again the highest rate in the world. Research by the US’ Gallup and Qatar’s Silatech in 2011, found that two thirds of all Arab women were unemployed.

In the region’s high-income countries, only 32 per cent of young women were in work, according to the poll, despite being better-educated than their male peers (80 per cent of women in high-income Arab countries had achieved secondary or university-level education, compared to 79 per cent of men).

Competition for jobs is only likely to increase as 15 million more people enter the job market in the Gulf alone in the next decade, according to the UK’s Ernst & Young. The Washington-headquartered World Bank says the Mena region needs to create about 100 million new jobs over the next decade. The question is how.

Job creation

Government advisers have long argued that economic growth, education and a vibrant private sector are key to the creation of jobs and economic well-being. The Mena region has seen a surge in literacy rates over the past decade. Qatar and Libya have the highest rates in the region, at 93 and 89 per cent respectively, while gross domestic product (GDP) growth averaged just under 5 per cent during the decade to 2010, according to the IMF, despite the global economic crisis of 2008-09. That is well above the global average.

However, the number of jobs being created over the same period did not keep pace with economic development. According to the ILO, the number of jobs on offer in the region increased by 3.95 per cent annually between 2002 and 2007, and by 2.6 per cent between 2008 and 2011.

Curiously, gains in productivity in the labour force were even more sluggish - less than 1.5 per cent for Mena as a whole between 2002 and 2007, according to the ILO. Economic growth was decoupled both from gains in education, productivity and in the size of the labour force. And while jobs were created, many of them did not go to Mena citizens.

The small gains in labour productivity and the poor increase in employment figures can be explained by another regional phenomenon: the use of migrant labour in the Gulf.

Migrant workers

The real-estate boom of the mid-2000s, coupled with growing demand for services thanks to an influx of oil money into the Gulf, created millions of new jobs in the region. But most of the work was manual labour in the construction sector and at oil fields, or in specialised engineering work.

“Nationals do not want to work on building sites,” says an executive at a regional engineering firm, echoing the sentiment of his regional peers. “Especially if it means getting their hands dirty.”

This led to a massive influx of foreign labourers into the Gulf. In Dubai, these real estate developments were paid for with debt and a growing service sector, which remains the envy of its regional peers.

In much of the rest of the region, they were paid for by income from the production and export of hydrocarbons - a capital-intensive sector which does not create many jobs, but does account for the lion’s share of GDP growth in the Gulf.

In a 2010 study, the UK’s London School of Economics (LSE) found that foreigners made up 66.9 per cent of the Gulf’s labour force at the end of 2008. Qatar, the study found, depended on foreigners for 94.3 per cent of its workers.

The North African states have done a better job of creating diversified economic growth, with Egypt, Tunisia and Morocco in particular managing to build strong tourism sectors. Libya and Algeria, however, have relied on oil income and public sector jobs for growth and employment. A bloated public sector is a common feature throughout the region.

The LSE study found that 88 per cent of Qatari nationals worked for the state in 2008. In Kuwait, the figure was 86 per cent. Saudi Arabia’s far larger population depended on the public sector, which provides 72 per cent of the jobs filled by locals.

According to the IMF, at 9.8 per cent of GDP, the Mena states spend more on public sector wages, than any other region in the world; the global average is 5.4 per cent. In the Gulf, the average is well above 10 per cent.

In an ideal world, the private sector would be able to create more jobs, but the dominance of the state in the Mena jobs market makes it difficult for businesses, especially small-to-medium enterprises, to compete. Public sector salaries in the region are on average 30 per cent higher than in the private sector.

In the rest of the world, the state pays 20 per cent less on average than the private sector.

Unsustainable model

“Given the skills mismatch, which means you have to retrain people, and the fact that the best and brightest end up working for the government, it makes it very hard to work profitably [by employing only locals],” says a Gulf businessman.

Economists agree that maintaining the levels of public sector employment seen in the region is impossible, even in the oil-rich Gulf.

In October, the IMF warned that the GCC states’ spending programmes were unsustainable and could lead to budgetary deficits across the region. Most North African states are already in hefty deficit and debt. The obvious solution is to cut back on public sector jobs and wages, and to find ways of encouraging economic growth in the private sector. After the events of 2011 and 2012, even the most stable of the Gulf states will find doing so difficult.


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