Across the Middle East and North Africa, countries are being forced to face up to a harsh reality—that, left as they are now, their economies won’t create anything like enough jobs for the hundreds of thousands of people entering their job markets each year. Popular discontent will continue alongside widespread economic inactivity. What can they do to change this?
Official data, made available only since the Arab Spring in 2011, has given World Bank researchers the opportunity to compare the region’s job performance and the policies that shape them, and examine what’s going wrong. Their conclusions are contained in a new report, Jobs or Privileges: Unleashing the Employment Potential of the Middle East and North Africa.
The “privileges” referred to in the report are the many old policies that continue to protect the business interests of entrenched elites. The report shows the extent to which these policies—designed to prevent or deter competitors while allowing elites to make easy money or “to earn rents”—distort the natural workings of economies in which businesses either grow and become more productive, or exit the market. In this environment, political connections are more important for success than innovative spirit.
The newly available census data unearthed for the report reveals how firms linked to former regimes in Tunisia and Egypt were given undue privileges, or business advantages: in Egypt, for example, 71 percent of politically connected but only 4 percent of unconnected firms sell products protected by at least three import barriers; while in Tunisia, 64 percent of connected firms but only 36 percent of non-connected firms operate in sectors in which Foreign Direct Investment is restricted.
Privileged insiders also have outsized influence over such sectors: one of the best-known cases is that of the American fast food giant, McDonalds, which never managed to enter the Tunisian market because it rejected an exclusive offer from a franchisee with ties to the regime of the country’s former leader, Ben Ali.
Privileges like this put local entrepreneurs without political connections at a disadvantage, stunting domestic investment. Uncertainty over which economic policies a government might adopt—and whether they will be implemented evenly—deters foreign investors.