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MENA Must Launch Its Own ‘Employment Miracle’

April 19, 2012

WASHINGTON April 19 2012 – The World Bank’s latest Economic Update for the Middle East and North Africa presents a two-track regional growth forecast for 2012. The report says growth in oil exporters will receive an anticipated 2 percent boost and achieve a rate of 5.4 percent in 2012, while oil importers are expected to grow at about half that rate as internal and external risks continue to threaten recovery prospects.

The report, entitled Middle East and North Africa: Enabling Employment Miracles (pdf), provides a full analysis of the region’s recent economic performance but also dedicates an entire section to its greatest policy challenge: job creation. With youth unemployment in MENA above 25 percent, a method for tackling one of the region’s longstanding development challenges is now more urgent than ever.

The authors examine the incidence, and subsequently the determinants of employment miracles across the globe over the past three decades, defining those miracles as large and sustained reductions in unemployment. Although such miracles are less prevalent in the MENA region, they occur fairly frequently elsewhere in the world and are associated with large declines in unemployment.

In this spirit the report identifies what might be helpful to MENA countries in the hunt for similar miracles now. The likelihood of embarking on an employment miracle is significantly higher for countries with better regulatory frameworks, the report finds. Critical policy levers for the creation of enduring employment opportunities include prudent macroeconomic management, sound business regulation and good governance.

Good regulation pays a double dividend in terms of fostering employment,” says Caroline Freund, Chief Economist of the Middle East and North Africa region. “Our global sampling of past employment miracles show that good regulation is associated with lower unemployment on average, and better prospects for enduring employment creation in times when unemployment is high.”

Business regulations and policies promoting trade are especially important enablers of employment creation, says Freund, but stresses that the formulation and enforcement of regulations cannot be divorced from good governance. The extent to which business regulation is conducive to job creation depends not only on de jure rules, but also hinges critically upon how consistently these are enforced and implemented in practice. Thus the report concludes that the solution to MENA’s employment challenge lies in better governance, and associated improvements in regulatory frameworks and their enforcement.

Turning to the growth story for MENA, the report expects the overall rate of growth for 2012 to be 4.8 percent, surpassing the 3 percent growth the region achieved in 2011. The macroeconomic outlook is contingent on political developments both in the region and beyond. Risks are multiple and reflect the heterogeneous domestic conditions across MENA, especially in oil importing countries, and in the global economy. They include uncertainties about political transitions, oil price developments, domestic and global macroeconomic vulnerabilities, and geopolitical tensions.

Oil importers, especially those recovering from political turbulence, remain vulnerable with widening risk premiums, diminished foreign reserves and increasing difficulty financing fiscal and current account deficits. Net oil importers will be affected negatively by high oil prices, and those with strong EU links will be impacted by the weak growth expected in the Eurozone. Still, oil importers with Gulf Cooperation Council links will benefit from strong growth in the GCC group of countries through trade, investment and remittances.

This picture underlines the two-track growth path for MENA in 2012,” says Freund. “Domestic political uncertainties and major developments in the global economy, including a significant rise in crude oil prices and weak economic activity in the Eurozone, create significant challenges for oil importers while elevated oil prices expand opportunities for exporters.”

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