Tackling the MENA jobs crisis

From 14 – 24 January, I visited Lebanon, the Palestinian territories and Tunisia. It is a region that has some of the greatest challenges when it comes to creating jobs. Finding solutions to the jobs crisis in the MENA region is key to solving many of the other issues that are holding back the region’s development.

In Beirut, I met with the central bank, ministries, well established businesses and new entrepreneurs, and trade unions. I was in Tunis as the new government was being announced. The mood was one that combined anticipation with some skepticism. I met with a range of senior ministry officials, the main employers association and the Secretary General of main trade union group. In the Palestinian territories, I again met with established businesses, young entrepreneurs, trade unions, the Minister of Labor and with a number of international organizations.

The three countries face similar challenges in creating jobs by promoting innovation and entrepreneurship, reducing the reliance in the public sector, increasing the productivity of jobs, and connecting people to jobs – particularly women and youth.

Economic growth has been insufficient to improve labor market outcomes

Until 2010 Tunisia was considered by the World Bank and the IMF to be a role model for developing countries. The country’s good economic performance – an average 4.4% annual GDP growth over the prior decade – resulted in rapid poverty reduction and increased prosperity. The bottom 40% saw their level of income improve rapidly. But the economy was only creating jobs at a rate of 2.5% p.a., which was not enough to absorb new entrants.

In Lebanon, the average 3.7% GDP growth over the last decade has only translated into just over 1% annual employment increases. Younger and more productive Lebanese firms have been the engine of job creation, but their employment growth is significantly below potential, when compared to other countries in the region.

In the Palestinian territories, the story is similar: unemployment has risen sharply to 27%. Among Palestinians aged 20 – 24, the rate is 43%; in Gaza it is 63%. Female labor force participation is just 19%.

What jobs are being created, are poor quality jobs

In Tunisia, a majority of the new jobs created have been low productivity, low skill jobs: 77% of Tunisia’s workforce is now employed in low productivity sectors. Today, only one third of employed workers have jobs in the formal sector, and more than half of these are in the public sector. Skilled youth face increasing challenges, and female labor force participation is at just 27%. Four years after the revolution, a large share of the working age population is idle, unemployed or in a low quality job. In Lebanon it is similar: the jobs created have been mainly in low productivity and low skill sectors. Youth and women are particularly affected and half the total labor force is in the informal sector.

Lack of good jobs is a cause and effect of political instability

A jobs agenda is challenging anywhere, but exponentially tougher when key components of a potential integrated strategy are hampered by forces beyond the authorities’ control. Palestinians import 85% of their goods and services from Israel and sell over 80% of their exports to Israel. The political tension between the two directly impacts the employment opportunities for many Palestinians.

In Lebanon the problem of poor quality job creation is compounded today by the large number of Syrian refugees – there are 1.5 million registered refugees, in a country with a population of just 4.5 million; the active labor force has effectively increased by 30% and maybe more.

Over reliance on the public sector for jobs and services

One of the most interesting parts of my visit was to eavesdrop on an outreach event in Ras El Jabel, an hour or so outside Tunis, where citizens and civil society were giving structured scorecard feedback to staff of the local government employment office. The feedback on the quality of staff, of equipment, of availability of jobs was negative, but the tragedy was the assumption of these mostly unemployed young people that if only the public sector officials of the employment office improved, they would all be able to access jobs. The reality is that the jobs aren’t there and that expecting the government to provide them is a key part of Tunisia’s (and the region’s) problem.

The past two decades have seen steady and depressing trends in the Palestinian economy: weak private sector performance, high reliance on donor aid, an expanding public sector, a growing population, and the shedding of Palestinian workers by the Israeli economy. High levels of donor aid have supported consumption of public services such as education, health, and policing; by 2012, the public sector workforce had ballooned to 177,000 workers – 60% more than in 2004. This trend is unsustainable.

Politically Connected Firms

Before the revolution in Tunisia, there were serious flaws in the country’s economic model that we now understand and acknowledge. These include the role played in the economy by the Ben Ali family. The presence of politically connected firms in the region is known to be a major restraint on overall employment. The World Bank outlined its findings on connected firms in our report ‘Jobs or Privileges: Unleashing the employment Potential of the Middle East and North Africa’. The presence of politically connected firms in the MENA region crowds out the type of firms that have the highest potential for job creation. Moreover, the presence of politically connected firms tends to push the majority of unconnected firms towards unproductive small-scale, potentially informal activities.

Higher education is not a guarantee to succeed

In the West Bank and Gaza there are 49 higher education institutions and the number continues to rise. Poor families sometimes sell their land to pay higher education fees for their children, hoping this will give them a better future. There is no formal tracking system of graduates, but it seems that more than 50% of these higher education graduates don’t get a job, with this number rising far higher for arts and social science graduates. In Lebanon, the consequence of this poor jobs environment is inevitable: half of those with a tertiary education emigrate.

Solutions to the MENA region jobs crisis

The Middle East’s jobs environment faces problems general to the region. Even so, we have been working closely with our colleagues and partner organizations on the ground in developing solutions that are specific to each country. In Lebanon, we are helping the government adopt an integrated strategy to support job creation. This strategy needs to support reforms that improve macro-economic and investment policies but we are also identifying and addressing sector-specific constraints that affect investments and access to jobs.  This involves in-depth sectoral analysis of sub-sectors and associated value chains, with a jobs focus. In Tunisia we are also looking at Geographic Jobs Poles and within each, the types of economic activities that that have the greatest potential for economic growth and employment creation.

Since 2005, our Quality Improvement Facility, QIF, has encouraged tertiary institutions in the Palestinian Territories to bid for funds for projects that build better practical links with business, make the curriculum more relevant to market needs, and make students more employable. I visited two inspiring examples, at Dar Al Kalima University College of Arts & Culture in Bethlehem, training documentary film makers, and at the Palestine Polytechnic University in Hebron, exploring a range of private sector partnership models.

We also have a project under preparation to mobilize private sector financing in high potential sectors, looking to engage at an early stage in the investment cycle on both the supply and demand sides. This will generate job opportunities.  A group of Palestinian business leaders have already established a risk and innovation fund, targeting investment to entrepreneurs in specific sub-sectors, and providing incubator / accelerator technical support.

We also have a team exploring the introduction of development impact bonds into this eco-system: the bonds would be purchased by Palestinian investors; payout would depend on the achievement of specific development targets, financed by a group of donors. This might solve two problems: first, the bond provides the working capital which other results-based financing approaches don’t pay until the results have been delivered; second, donors only need to focus on the development results, leaving program design and input adjustment to the investors and project management teams. The selected activities would be accompanied by technical support as well as skills work to address constraints faced by the entrepreneurs.

Although the problems are deep rooted, there is huge potential for us and our partners to dig deeper into these sectors and products to find specific solutions to the challenges. We are optimistic that we can achieve meaningful results.

This post first appeared on The World Bank Jobs and Development Blog. Publication does not imply endorsement of views by the World Economic Forum. 

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Author: Nigel Twose is the Senior Director responsible for the World Bank Group.

Image: An instructor (R) teaches trainees at a maritime transport training centre. REUTERS/Stringer.