MENA countries need structural reforms to spur trade, investment, jobs and trust
4/10/2016 - Middle Eastern and North African countries should press ahead with further economic and structural reforms to boost flagging trade and investment, restore public trust and create jobs for the region’s young population, the OECD told ministers from the region today.
Opening the 2016 MENA-OECD Ministerial Meeting in Tunis, OECD Secretary-General Angel Gurría praised Tunisia for its democratic transition since 2011. He said the so-called Arab Spring has made it more crucial than ever for MENA countries to address uneven development, soaring youth unemployment, the low share of women in jobs, and high rates of inequality that may prevent parts of the population from participating in future economic gains. Regional instability, ongoing conflicts in Syria, Iraq, Libya and Yemen, and unprecedented migration flows are piling new pressure on economies.
“MENA countries have made progress on reforms to increase economic openness, diversification and public governance, yet the popular uprisings of 2011 showed that these efforts have not created prosperity for all. Indeed, inequality and poor job prospects in disadvantaged areas remain major sources of social distress,” Mr Gurría said. “Only with a concerted effort on reforms to create more open and inclusive economies and improve governance will we achieve stability, prosperity and opportunities for all, especially the young.” (Read the full speech in French)
The OECD’s new report, “Better Policies for Inclusive Growth and Economic Integration in the MENA Region”, provides a roadmap for the MENA-OECD initiative, identifying the priority structural reforms needed to make more inclusive and sustainable growth a reality.
Economic growth in the MENA region was 2.3% in 2015 versus an average of 4.0% for emerging and developing countries. Foreign direct investment in the MENA region has fallen by 50% since 2008 to an all-time low of 1% of GDP in 2015, with regulatory and administrative obstacles a key deterrent to foreign investors. Regional instability and insecurity is also weighing on FDI as well as tourism, which has dropped sharply in Tunisia and Egypt. Intra-regional trading is scarce, with only 10% of the region’s trade taking place between MENA countries.
To overcome these problems, market access needs to be deepened through trade and investment agreements, a reduction in regulatory and administrative obstacles and improved investor protection. In addition, it is essential to improve the quality of the region’s transport and logistics infrastructure to enhance connectivity. A new four-year EU-OECD Programme on Promoting Investment in the Mediterranean, launched at the MENA-OECD Forum, will work with governments to support investment reforms, modernise investment policies and establish institutions to attract investors.
Youth unemployment in the MENA region rose to 29% in 2015 – the highest of any region in the world. Joblessness is most severe in remote rural areas but even graduates struggle to find jobs due to a mismatch between skills demand and supply. The OECD report “Youth in the MENA Region” notes that although students were among the most active drivers of the Arab Spring uprisings, opportunities for youth associations to influence policy remain limited.
Also women remain an untapped resource for MENA economies, especially in light of important improvements in their educational attainment. Only 21% women were employed or looking for paid work in 2014, well below the OECD average of 54%, and well below the rate of participation in the labour force of men in the MENA region (74%).
More flexible labour regulations are needed, together with programmes to address the specific needs of vulnerable groups. Expanding and enhancing the quality of vocational education and training can also help improve employment opportunities and address skills mismatches.
Private businesses will be essential for economic recovery, yet the private sector accounts for only 40% of GDP in the MENA region versus an OECD average of 59%. In Libya, the share is just 5%. Through specific projects focused on the role of SMEs in Libya’s reconstruction and the promotion of investment in Iraq, the OECD is already working with countries affected by conflict to prepare them for the longer-term future of their economies.
The OECD is also committed to supporting MENA countries in their efforts to:
- Build resilient institutions, particularly in countries hit by instability or conflict, to foster ambitious structural reforms.
- Raise standards at public administrations and make them more transparent. Introduce mechanisms such as codes of conduct to improve integrity and fight corruption in the public sector, particularly in procurement. Improve access to justice for all.
- Develop policies to support private sector development to boost competitiveness and encourage diversification away from oil. This should include reducing burdensome regulations, improving corporate governance, providing easier access to finance and upgrading infrastructure and services to better connect producers to markets.
- Enhance tax collection to expand the tax burden from the few individuals and businesses that pay taxes today and thus increase tax revenues. This should include introducing VAT and income taxes to countries that lack them and reducing tax exemptions.
- Raise secondary school attendance and improve teaching standards to tackle the relatively high share of low-performing students. Address skills mismatches at adult level and better integrate women and youth into economies.
Download new OECD reports on the MENA region:
For further information, journalists are invited to contact Catherine Bremer in the OECD Media Office (+33 603 483456).