World Bank projects 2% growth in the MENA region

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The special section of the KEU examines the distributional consequences of government’s spending and taxation measures. The analysis could provide input for designing pro-poor policies and describes the rate at which economic growth translates into poverty reduction.

Growth in the Middle East and North Africa (MENA) region is projected to rebound to an average of 2% in 2018, up from an average 1.4% in 2017 according to a new World Bank report.

The modest rebound in growth is driven mostly by the recent rise in oil prices, which has benefitted the region’s oil exporters while putting pressure on the budgets of oil importers. The rebound also reflects the impact of modest reforms and stabilization efforts undertaken in some countries in the region.

The slow pace of growth, however, will not generate enough jobs for the region’s large youth population. New drivers of growth are needed to reach the level of job creation required.

The latest edition of the bi-annual MENA Economic Monitor, entitled ‘A New Economy for the Middle East and North Africa’, offers a roadmap for unlocking the enormous potential of the region’s large and well-educated youth population by embracing the new digital economy.

Broader and bolder reforms will be needed to achieve this goal, along with critical investments in digital infrastructure. It will require the reorientation of education systems toward science and technology, the creation of modern telecommunications and payments systems, and a private-sector driven economy governed by regulations that encourage rather than stifle innovation.

“Far too many of the region’s young men and women are unemployed,” said Ferid Belhaj, World Bank Vice President for the Middle East and North Africa Region. “This challenge will continue to grow unless it is turned into an opportunity. The current growth momentum is a chance to increase the speed and ambition of reforms. The focus should be on building a modern economy that leverages new technology and is driven by the energy and innovation of young people.”

The report indicates that the foundations already exist for a shift toward the digital economy. There is widespread adoption of new digital and mobile technologies among the region’s youth.

Yet, due to a combination of regulatory obstacles and the lack of key infrastructure, the ubiquitous hand-held devices are mostly used for accessing social media rather than for launching new enterprises. The report also identifies ‘green shoots’ of the new, digital economy. These include the ride-hailing app Careem that has grown from a start-up to a billion-dollar company creating thousands of jobs across MENA and beyond.

New digital platforms are also connecting job seekers and employers, providing vocational training, and hosting start-up incubators. The challenge now is to create the conditions for these green shoots to grow and multiply.

“Countries in the region possess all the ingredients they need to leapfrog into the digital future,” said Rabah Arezki, World Bank Chief Economist for the Middle East and North Africa Region and lead author of the report.

“The key is making sure young people are taught the skills needed for the new economy, have access to tools such as digital payments, and that obstacles to innovation are removed. It will require governments acting on many fronts, and pulling multiple policy levers, but the rewards in growth and jobs will be more than worth it.”

The report recommends setting out goals, such as achieving parity with advanced economies in information and communications technology by 2022. These sorts of bold objectives can serve to unite governments, citizens and the private sector in the collective effort needed to achieve the ambitious agenda.

The effort would transform MENA economies and help to ensure that millions of the region’s young people can find good jobs and contribute to the region’s growth with their skill and creativity.

In its economic outlook, the report forecasts that regional growth will continue to improve modestly, to an average of 2.8% by the end of 2020. There is the ongoing risk that instability in the region could worsen and dampen growth, but the region’s oil exporters are expected to benefit from oil prices and demand that will remain high.

Domestic reforms to increase revenues and contain public spending, such as in Saudi Arabia, will also contribute to growth in oil exporters. The region’s oil importers are expected to benefit from reforms to manage public expenditures, rising trade with Europe and China, and financial inflows from MENA oil exporters.

Egypt’s growth is expected to reach 5.8% in 2020 driven by a reform program that has included the liberalization of the exchange rate, rationalized energy subsidies, and increased social protection for the poor.

Overall, reforms in the region have led to cumulative savings of nearly US$180 billion, mostly in oil exporting countries, providing government’s additional financial space to continue economic reforms.