Dr. Shamshad Akhtar
Middle East and North Africa
The World Bank
October 6, 2010
To complement the insights already provided on the Tunisian economy, I will offer some perspectives on the MENA region as a whole. In my remarks, I will :
(i) outline the region’s achievements and development challenges;
(ii) lay out a few necessary conditions for the Region to get onto a higher growth path and make better use of its human capital;
(iii) note how successful countries have used knowledge based strategies to sustain growth under changing global conditions; and
(iv) indicate how the World Bank is supporting knowledge-base strategies for the Region.
At the outset it is important to acknowledge that MENA managed and came through the recent crisis well. The crisis has led to some global re-thinking of the overall development paradigm and international financial architecture. At the regional level as well. MENA needs some re-thinking to address its own medium and long term challenges and re-define its development course.
Region’s emerging developments and directions
The achievements of the region are worth acknowledging. By exploiting their energy and mineral resources oil rich economies of MENA have moved far up the income ladder. Most of the region’s economies, including Tunisia, have reached middle income status. Some are high income as well. The region has also substantially improved access to basic services, progressed on MDG agenda and benefited collectively from the remittances that were close to 10% of regional GDP.
Across the board, the key challenge now faced is how to address unemployment that has been above 10% throughout the past 10 years or so. This is largely because growth has been below its potential and below the trends observed for dynamic regions. For example, while the growth of output has been 4.5% on average for MENA since 2000, it has been 9% in East Asia, 7% in South Asia, and just over 5% in sub-Saharan Africa.
And very few countries have been able to seize emerging technological opportunities. While some progress has been made in this regard in Egypt, Jordan and Tunisia, it is worth noting that technology intensive exports account for only 0.6% of total exports. This is below the 3% observed for Eastern Europe, 6% for Latin America and the Caribbean and 25% for East Asia and the Pacific. The most diversified countries in MENA currently export around 1500 goods---most of them in low value-added sectors compared to close to 4000 goods in countries like Poland, Malaysia and Turkey. Diversification is even weaker in oil-rich countries, many of which export less than 500 goods.
Finally, despite impressive achievements in primary and secondary education enrollments, the quality of education in the region remains weak. None of the twelve MENA countries that took part in the international TIMMS survey of math and science results achieved above average scores, and overall scores were stagnant as compared to four years previously.
Conditions for MENA to embark on higher growth trajectory
As China and India dominate many labor-intensive manufacturing sectors, for MENA more promising areas for growth would be those in which its prevailing wages and wage expectations are not a major handicap.
To exploit growth opportunities MENA must focus on the quality and quantity of investment and focus on diversifying its industrial base into higher value added manufacturing. Capital investments need to be raised to the range of 25-35% of GDP seen in East Asia’s successful development march. Currently only 8 countries in MENA meet this criterion.
Furthermore, the capital needs to be deployed in an efficient manner by offering private and foreign investor’s an enabling investment environment. Not only is private investment low but it has not as yet penetrated into infrastructure and high end technologically driven industry.
Capital investment per se will not have the desired impact unless it promotes productivity and competitiveness that can be catalyzed by mainstreaming of knowledge and innovation in the economy and more flexible labor policies. More than anything else, this is the main lesson emanating from East Asia and other high-growth regions of the world. As evidence from these countries has shown new ideas and innovation need a nurturing environment. When entrepreneurs innovate, countries can continue to grow in spite of diminishing returns to capital and labor. Ideas always entail positive externalities for individuals, firms and industries that are capable of absorbing them. In today’s global market, rather than volumes, incremental export growth is driven by new product and varieties.
Knowledge-based growth strategy for MENA
Among others, to systematically develop knowledge based economies there is need for the World Bank and development partners to focus in six strategic areas.
First, we need to get better appreciation of the global and competitive forces. This off course requires identifying the promising trade and foreign investment opportunities that foster and benefit from technological adoption and up gradation. This can only be effectively implemented if there is a comprehensive analysis of trends in the growth of trade in goods and services of relevance for the region; the geographical and industrial distribution of FDI; and the diffusion of technology.
Second, we need to collectively launch consistent efforts to nurture industrial capabilities, competitiveness and productivity growth and technology absorption are essential. Besides evaluating broader trends, aligning incentive regime at sector and subsector level to nurture countries comparative advantage and competitiveness, encourage networked industrial structures and address the intra-industry productivity differentials. These measures would induce firms to innovate by making right investment choices and to move closer to best practice. Productivity growth and technological change needs to be viewed as a means also of achieving sustainable development through a shrinking of resource and carbon footprints.
Third, we need to be focused on deepening global and regional trade integration requires maximizing the benefits of lowering of tariff regime by eliminating non-tariff barriers. Aside from strengthening of the legal and regulatory frameworks, this requires development of regional infrastructure to allow for better sharing of energy resources, improving transport connectivity and cross borders trade facilitation which together will help develop optimal production structure and diversify economies.
Fourth, human capital and the intangible assets accumulated by firm’s foster productivity and technological change that are principal determinants of sustainable growth. There are at least four important issues to be addressed: the quality of the human capital and the mix of skills; creating innovation capacity in universities and the corporate sector; integrating the business community and the education/research sector; and augmenting the management, IT, training and research assets of business firms.
Fifth, institutional development, proper governance and implementation capacities are critical to ensure strategic coordination on policy actions and the degree to which these are reinforced. Knowledge based growth strategies require strong coordination among different government agencies for infusing change and effective implementation.
Sixth, the design, management and livability of the urban regions are vital elements of a knowledge based economies as major cities serve as the geographical foci of sustainable development. Cities nurture knowledge best if they offer an efficient hub with good transportation and basic services and skills that enhances its attractiveness to firms and knowledge workers (domestic and foreign).
Role of the World Bank in Development of Knowledge-Based Growth Strategies
On our part, we are now reshaping country strategies and regional initiatives to reinforce each other to promote knowledge-based growth strategies and their implementation.
- Across Arab countries work is being launched on growth and trade diagnostics and technical support structured on knowledge and innovation. Substantial analytical work has been expedited to assess regional and sub-regional integration issues and offer recommendations. Besides overall assessments, sector studies have been completed or are underway to examine issues of energy and electricity integration networks and transport connectivity and development of cross border infrastructure.
- Bank has launched work to assess the demand for infrastructure in the region. Preliminary assessments are that the region would need almost $75-100 billion of infrastructure investments. With support of public and private sector for the first time an Arab Infrastructure Financing Facility has been developed in partnership with the Islamic Development Bank. In tandem, a large Concentrated Solar power Development package as well as Development of Deserts – that constitute larger geography of MENA are being launched with financing support of concessional funding lined up by the World Bank from the Carbon Technology Fund and the Global Environment Facility.
- To improve industry competitiveness, investments are anticipated to expand the role of small and medium and micro enterprises in the region and an Arab financing facility is also being structured for this purpose.
- Under the aegis of the Arab World Initiative, Bank with support of Tunisia has sponsored High Level Conference on knowledge economy with support of ISESCO that is emerging in a well conceptualized strategy for knowledge economy and being integrated in Tunisia’s development plan. Algeria, Morocco, Saudi Arabia and Qatar are engaged in similar attempts with World Bank support.
- Similarly, Arab Ministers of Education issued a Doha declaration to launch a regional endeavor to improve quality of education. Some countries are working on technology transfer through foreign investment and licensing arrangements to promote knowledge-based growth.
- The Bank is providing significant support to modernizing public sector management systems to improve governance and facilitate harmonization of policy and regulatory approaches.
- For efficient urban growth in many MENA countries and help in disseminating lessons and experiences throughout the region as well. Recently, Bank supported a major gathering of Arab mayors in Kuwait under the auspices of the Arab Towns Organization.
Looking ahead. The knowledge agenda is a complex one and depends, for its success, on access to a range of global, regional and local experiences. Accordingly, partnerships will be key to implementing this agenda. The Bank can contribute through bringing some insights and lessons from global experience. Regional and local organizations can help with the other needed inputs. We therefore look forward to productive partnerships with regional and local development organizations, at both the technical and financial level, to bring the knowledge agenda for the MENA region to fruition.