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Achieving Shared Prosperity in the Middle East and North Africa

Elena Ianchovichina's picture

In terms of the World Bank’s twin goals of eliminating extreme poverty and boosting shared prosperity, the Middle East and North Africa Region was making steady progress. The percentage of people living on less than $1.25 a day was 2.4% and declining.  And the incomes of the bottom 40% have been growing at higher rates than average incomes in almost all MENA countries for which we have information.

Yet, there were revolutions in several countries and widespread discontent. Why?

 

First, unemployment rates in MENA are among the highest in the world and especially high for young people and women.  In addition, good jobs are hard to find. More than 80% of the people in the region believe that “wasta” or connections in high places are critical to getting a good job.

The second reason is the poor quality of public services. Despite near full school enrolment, students are not learning as much as they should when they are in school.  MENA students are underperforming relative to their peers in other developing countries on standardized 8th grade math tests. Even in some high income Gulf economies, students are underperforming.

One of the reasons for the poor education outcomes is the shortage of qualified math teachers. More than half of the students in the region attend schools with a severe shortage of qualified staff. The situation is particularly dire in Tunisia, Syria, and Morocco, but it is a problem even in the GCC economies. And teachers are frequently absent from schools. In Yemen, for instance, teachers are absent 20% of the time and doctors are absent nearly 40% of the time. Teacher and doctor absenteeism is a problem not only in low-income Yemen, but also in middle-income Egypt and Morocco.

The third reason for the dissatisfaction is the fact that expensive energy subsidies have benefitted the rich. The top 20% of households consume 60% of the energy subsidies. Not only are energy subsidies benefiting affluent households, they also benefit the politically connected firms.  In Egypt, for example, firms with political connections are disproportionately present in high energy-intensive industries.

Fourth, and more fundamentally, economic growth has been low in per capita terms. It averaged between 2 and 3% during the last decade when other middle-income economies grew at much higher rates. Growth has been slow despite policies to encourage industrial development. Industrial policies have not worked in the region because they have been captured by the powerful and those with connections. In Tunisia, for example, the Ben Ali family not only owned companies in a diverse set of industries from banks to pharmaceutical companies, hotels, and dealerships, to name a few, but they used their influence to pass regulations that restricted entry into the industries in which they were present.  As a result of this regulatory capture, the private sector in MENA lacks dynamism. In Egypt, for example, firms stay small as they age because they have few opportunities to grow into medium-sized and large firms.

Since 2011, the situation in the region has gotten worse. Unemployment rates have gone up because growth has slowed down and even collapsed in some of the transition economies. Unemployment rates are higher than those observed prior to the Arab Spring.  Several countries are facing macroeconomic crises. Investment has plummeted and fiscal and external balances worsened.

So what can be done to boost real shared prosperity in the Middle East and North Africa? Two things must be done. First, leveling the playing field is a priority because everyone must have a fair opportunity for success. Regulations should not favor the privileged. Vulnerable households should be supported with targeted cash transfers that replace general subsidies. Second, citizens should hold the state accountable, rather than the other way around. Getting there will not be easy.  One important step will be to start measuring those things that matter for real shared prosperity, for example, progress towards eliminating Wasta (privileged jobs), regulatory capture, and provider absenteeism. By collecting information and sharing it with the public, citizens will be empowered to act and improve their chances of achieving shared prosperity in the Middle East and North Africa.

 

Comments

Submitted by Warren on

Hmm it seems like your blog ate my first comment (it was super long) so I guess I'll just sum it up what I wrote and say, I'm thoroughly enjoying your blog. I as well am an aspiring blog writer but I'm still new to the whole thing. Do you have any tips for inexperienced blog writers? I'd genuinely appreciate it.

Submitted by Tina on

Warren, I am glad that you are enjoying our blogs. It's very encouraging.
My only advice would be not to hesitate and just start writing. Keep your pieces short (500 to 700 words is enough) and use simple language as if you were chatting with a friend or colleague. Good luck!

Submitted by Anonymous on

These problems of governance are symptoms of politics. Democracy, democracy, democracy. No amount of big data, open data, feedback loops or regulation can act as a replacement.

Submitted by Shanta on

Thanks for your comment. While it's true that big data, open data and feedback loops are not sufficient, it is also true that democracy by itself will resolve the deep and underlying political problems of these countries. Even in countries with competitive elections, such as India, we observe these problems of unemployment, poor service delivery and exclusion (especially of castes and ethnic groups). We need a combination of competitive elections and an informed citizenry to make the system work. The open data-feedback loops are part of the latter. Shanta

Submitted by Elena on

Thanks for your comment. I agree with Shanta that democracy by itself does not resolve these problems. New evidence in Freund and Jaud (2013) suggests that countries which transitioned to democracy experienced improvements in voice and accountability relatively quickly, as well as improvements in education enrollment and health performance. Importantly, countries with successful and quick transitions are more stable and less likely to fall into conflict than countries with failed transitions. However, the broader governance indicators, including rule of law, control of corruption, government effectiveness or the quality of regulation, stagnated right after transition and improved very slowly.

Freund and Jaud (2013) can be found http://www.cepr.org/pubs/dps/DP9282.asp

Submitted by Benim on

The real question increasingly becomes how does the World Bank become meaningfully involved in changing decades long institutions and patterns of behavior when our financial contributions in MENA are limited and our knowledge is, at best, interesting but lacks any real bite in countries that have access to major other sources of funding? Does it really make any sense to continue lending in areas, for example, like MSMEs, infrastructure and the myriad other lending operations the Bank undertakes without any real, sustained policy impact or where the funding can just as easily come from commercial venues or other donor agencies? Even looking at the Bank as some sort of good housekeeping seal of approval doesn't work since since it appears that in MENA the Bank will lend as long as there is demand. In short it ends up supporting - whether it wants to or not - the very structures it rails against. The Bank has had engagements in many MENA countries and in some that relationship extends to well over 50 years with no discernible impact on everything from subsidies, private sector policies, etc. For example, the Bank obviously knew about the crony capitalism afflicting these countries long before the Arab spring, in fact they finally wrote about it in an excellent report, From Privilege to Competition in 2009. But then you look at World Bank operations and aside from tinkering around the margins, except for one or two examples, you would be hard-pressed to see any difference in terms of the types of lending and analytical work that is undertaken before and after the report and before and after the Arab Spring. I am guessing that there is an imperative to lend, and that takes precedence over all else, But if that is the case and it remains a demand-driven institution, very much led by the countries and their administrations, should it even pretend to have any real leverage interms of pushing for reforms? Should it focus on countries that have a real need for Bank concessional funding and those that are committed to reforms and maybe just disengage from countries that have access to international markets and where there is little appetite for meaningful reforms? Indeed, is it just undermining its own credibility by staying engaged with little impact, no matter the regime, no matter the policies and no matter the impact?

Submitted by Shanta on

Benim: Thanks for the thoughtful, if provocative, set of comments and questions. I agree that if the problem is government failure--that there isn't a political consensus for reforms that promote the interests of the poor--then the World Bank's and other aid agencies' traditional instruments--finance and knowledge in the form of advice to governments--are unlikely to bring about real change. However, there are alternatives. For example, if the Bank's knowledge is used to inform the public in general, and the poor in particular, about the benefits to them of reform, then it increases the chances that the elites will respond (for they don't want to lose power). Furthermore, if they come about, these policy reforms will make finance more productive, so that if there is, as you say, "an imperative to lend," this imperative will be more easily met. Shanta

Submitted by Benim on

Many thanks for the thoughtful and considered response. The question was indeed posed provocatively, but not cavalierly so. Perhaps a reflection of frustration with a large institution that wants to do good but is weighed down by its own processes and culture as well as clients that are too big, too frail, or too geo-politically important to let go off. So, how does one move forward? Better and more varied communication is certainly necessary even if not always sufficient. But here again if the Bank talks the same talk to the same venues it will have the same effect as continuing on with the same analytic and financial instruments no matter the impact. Reaching the poor indeed, but how is the question, especially when governments and the World Bank's mandate to stay engaged with them often stand in the way. Perhaps, though, the recent decision on an Uganda World Bank loan does presage a different model of engagement, we shall see.

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