Knowledge-Based Economic Development in a Post-Awakening Arab World


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In pursuing knowledge-based economic development, many countries in the region have made large state-driven human capital investments with the goals of job creation, economic integration, economic diversification, environmental sustainability, and social development. An assessment of the effectiveness of Arab investments in human capital shows marginal progress over the last decade.

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Knowledge-Based Economic Development in a Post-Awakening Arab World

  1. 1. Knowledge-Based Economic Development as a Unifying Vision inAbout Us a Post-Awakening Arab World Tahseen Consulting is an advisor on strategic and organizational issues facing governments, social sector institutions, and corporations in the Arab World. You can read more about our capabilities at An assessment of the effectiveness of Arab investments in ▲Public Sector human capital over the last decadeSocial SectorCorporate ResponsibilityCONFIDENTIAL AND PROPRIETARYAny use of this material without specific permission of Tahseen Consulting is strictly prohibited
  2. 2. The Arab Spring has led to renewed emphasis on solving national developmentchallenges that may provide a basis for regional economic cooperation for KBED Arab Key questions of future These changes may Evolving national and Spring state design have present an opportunity regional policies are likely emerged … for national growth … to stress KBED • Can new government • Political violence, even if • Economic growth at the administrations form organized, generally seen national level may provide political consensus? as severely detrimental to an impetus for integration economic growth and cooperation towards • What economic trajectory KBED can address development • But … Competitive political challenges? participation and relatively free elections can actually increase economic growth Knowledge- based Economic Development Sources: Henry and Springborg 2011, Bodea and Elbadawi 2008 | 2
  3. 3. Popular theories suggests intangibles are becoming a more important driver of modern economic growth in the transition to knowledge-based economies Knowledge-based Through public policy and institutions, Economic governments influence long-run growth Development Financial and Intangible capital other tangible capital Economic Computerized Capital markets Infrastructure Capital equipment Innovative property information (programs Competencies and databases) Brand equity R&D (patents, licenses and Economic growth can be affected by public policies (investments to retain or gain market share and investment general know-how) and mineral exploration and Institutions concerned with in brand names) • International trade and openness Organizational capital Creative property • Education and training policies (investments in strategic planning, adaptation, (innovative/artistic content in commercial copyrights, • Domestic and foreign Investment climate organizational structures and business processes) licenses and designs) • Macroeconomic and competitive policy • Financial markets • Institutional quality of government Firm-specific human capital (employee • Security skills) • The availability of public services and infrastructure Knowledge Components of KBESource: Corrado, Hulten and Sichel (2006) | 3
  4. 4. Knowledge-based economic development emerged as a policy goal in the early 90s dueto the regional commonality of several economic, socio-political, and cultural factors Regional Drivers Illustrative Regional Development Challenges 1 • Dependence on foreign technologies • Shortages/difficulty in finding/developing qualified employees • Low capacity to transfer technologies • Capital formation has not led to higher value industry or exports Economic • Low levels of total factor productivity • Suboptimal environment for business, entrepreneurship, and FDI • Volatile oil prices leading to regional booms and busts • Low R&D spending Knowledge- 2 based Economic Development • Youth bulge • Supply of highly educated youth has outpaced job creation Socio-political • Education systems are not well suited to the needs of KBED • Political reform has proceeded at varying rates • Work of international organizations has encouraged KBED 3 • Religious importance of the quest for learning and knowledge Cultural • Brain drain of prominent academics and scientists • Perception the region is lagging behind in developmentSources: Al-Ali 1991, Sawhel 2009, Djeflat 2009, Program 2002, Hertog 2010, Program 2003, United Nations Educational 2010, Dhillion and Yousef 2009, Program 2010, Foundation and Program 2009, House2011, Miller and Holmes 2011 | 4
  5. 5. Knowledge-based economic development in the Arab World is closely intertwined with economic and social development issues Emerging Thinking on Knowledge-based Empirically Established Links Between Human Economic Development in the Arab World Capital and Social and Economic Development Closely intertwined with policies that support Several social and economic benefits are attributed to higher levels of human capital:  Economic integration and diversification  Innovation Social Outcomes  Technology development  Entrepreneurship • Higher levels of educational attainment  Job creation/workforce skills development • Increased health  Education and training system reform • Efficiency of consumer choices  Environmental sustainability • Higher levels of savings and charitable giving  Social development • Social cohesion  Healthcare reform • Increased self-reliance and econ. independence  ICT infrastructure development • Reduced Crime Economic Outcomes Significant emphasis on • Growth and competitiveness human capital • Enabling comparative advantage • Increased productivity • Domestic innovation • Speeding technology adoptionSources: Powell and Snellman 2004, Planning 2010, Rischard 2009 | 5
  6. 6. This shared vision of a knowledge-led future and similar human capital challenges hasled to the convergence of human capital development policies as a precursor to KBEDHuman Capital Illustrative ChallengesDevelopment ChallengesLow productivity • Across the region, labor productivity is low • The social aspects of career choice has slowed integration, led to the substitution ofPreference for public expatriate labor in certain industries, and decreased productivity in low value added industriessector employment • Governments unable to create opportunities to absorb youth, particularly educated womenIncreasing female • Cultural values/familial obligations influential in labor participation and obtaining educationlabor participation • Many women find employment in part-time work, microenterprises, the informal economy • Low match between the skills/qualifications of public employees and the roles they performWorkforce skills • Disconnect between regional human capital and the skills demanded by the private sectorEducation system • Education systems failing to produce the right quality and mix of human capitalBarriers to • The procedures, time, costs, and minimum capital required to start a business are highentrepreneurship • Funding for entrepreneurial endeavors is very limited • R&D is significantly lower than in the developed world with very little private sector fundingWeak innovation systems • Weak government policymaking in research and innovationSustainable growth • Population growth/urbanization has ▲ demand for health, education, housing, water, sewage A key challenge for Arab governments is strategically investing in endowing citizens with human capital that meets the demand of labor markets and leads to productive employment that benefits the national economy as a wholeSource: Hanouz and Khatib 2010, Oman 2010, Miles 2002, Flynn and Oldham 1999, Al-Yahya 2008, Dunlop 2006, Bank 2010, Klapper 2010, Djeflat 2002, United NationsEducational 2010, Zahlan 2007, Mirkin 2010, Asia 2009, Zahlan 2007 | 6
  7. 7. However, employers, particularly in the GCC, face both “skills shortages” as well as “skillsgaps” that limit performance and achievement of business objectives Our Research Focus Skills Shortages Skills Gaps Skill Shortage Skills Gap Desired Quantity of Internal Workers Workforce With a Quantity of Current Skill Level Particular Workers Internal Skill With a Workforce Required Particular Skill Level Skill Available • Genuine lack of adequately skilled individuals available • Employers feel that their existing workforce has inadequate in the labor market with the type of skill being sought skill types/levels to meet their business objectives • Employers unable to recruit staff with the skills they • New entrants to the labor market trained and qualified for are looking for at the going rate of pay occupations but still lack a variety of the skills required 7 | 7
  8. 8. Skills deficiencies have severely negative impacts on firms in the region Internal firm deficiencies External labor market deficienciesSkills Well Functioning Labor Markets Employers Require EffectiveFormation Require Allocative Efficiency Firm-level Utilization of Workforce SkillsObjective Workforce skills levels meet the expectations of Preparation of individuals with the skills, work experience, employers either in terms of full occupationalDescription and qualifications in the quantity and quality to meet laborof Objective proficiency or in the ability to meet business market needs objectives with current workforce skills levelsImpact on Skills shortages requiring expatriate reliance for Even when employees are hired, many still have skillsfirm if skills technical/commercial roles such as gaps requiring remediation through measures such asformation Technical Roles Commercial Roles Discipline Engineering Finance • Increased training and trainee programssystem is Geology/Geophysics Business Analysis • More staff appraisals / performance reviewsweak Process Engineering Contracting & Procurement • Implementation of mentoring / buddying schemes Product/Process Human Resources • More supervision Research Information Technology • Changing working practices and redefining jobs Production Engineering Sales & Marketing • Reallocation of work within the company Production Technology Supply & Distribution • Outsourcing to external providers Project/Facilities Trading • Using government resources / funding Engineering O&G • Incentives/rewards/recognition Reservoir/Petroleum Example • Sending employees for certification Engineering • Providing cross functional exposure to the business Well EngineeringInfluence on Medium to severe, but recruiting from outside Severe because skills gaps influence manybusiness region is a short-term solution to what is a large- aspects of current operations includingoperations scale, systemic problem efficiency, service, and profitability | 8
  9. 9. Several failures of the skill formation system can lead to skills gaps Market and Institutional Human Resources Management Structural Skills Gaps Transitional Skills Gaps Failure Induced Skills Gaps Related Skills Gaps Poor Skills Formation Policy Insufficient Staff Development Strategic shifts in response to Incomplete Orientation changing business and Integration • Lack or weakness of • Depressed levels or environments government institutions that inadequately planned training • Attributable to the beginning of prevent underinvestment in and development • Failure to increase and the employee-employer skills, provide adequate maintain workforce skills to relationship whether due to regulation, and coordinate Poor Retention and Motivation build and renew firm recent recruitment or post- stakeholders Practices competencies in response to merger employee integration changing business • HR practices that inadequately • Presumably decrease as Education and Training opportunities address employee retention or employees complete induction System Misalignment a misalignment of HR practices • A strategy-skills lag in which training and gain confidence in • Accessibility, quality, and the with sources of workforce current workforce skills lag new their roles degree to which education and motivation or expanded skills required by training systems produce alternative strategic directions employable students are associated with competency insufficient renewal Insufficient Individual Investment • Unclear returns to particular skills which negatively impact individual skilling decisions | 9
  10. 10. The GCC countries, in particular, appear to have significant levels of skills gapsRank Country and Survey Year % of Total Firms Suveyed Which Have a Major or Rank Country and Survey Year % of Total Firms Suveyed Which Have a Major or Observations Very Severe Skills Gap Very Severe Skills Gap 1 Brazil 2009 73.03% 42 Oman 2007 MBRF 33.00% 2 Kuwait 2007 MBRF 68.00% 43 Chile 2006 32.06% 3 4 Egypt 2007 MBRF Chad 2009 66.00% 57.33% 44 45 Uzbekistan 2008 Peru 2006 31.97% 31.33% • Kuwait, Egypt, KSA, UAE 5 6 Belarus 2008 CapeVerde 2009 55.31% 53.85% 46 47 China 2002 Dominican Republic 2005 30.73% 30.67% amongst the top ten 7 Saudi Arabia 2007 MBRF 53.00% 48 Estonia 2009 30.40% • Maghreb countries and 8 UAE 2007 MBRF 51% 49 Tunisia 2007 MBRF 30.00% 9 Kazakhstan 2009 50.18% 50 Malawi 2009 30.00%10 Russia 2009 48.90% 51 Thailand 2004 29.96%11 Argentina 2006 48.35% 52 Egypt 2004 29.80% Egypt moved up the12 5313 Morocco 2007 MBRF Romania 2009 47.00% 46.21% 54 Kyrgyz Republic 2009 Guatemala 2006 29.36% 29.31% ranking significantly14 Algeria 2007 MBRF 45.00% 55 Vanuatu 2009 28.91%15 56 • Levant countries and Mauritius 2009 44.97% Yemen 2010 28.72%16 Micronesia 2009 44.12% 57 Kenya 2003 27.64%17 Ukraine 2008 43.48% 58 Slovak Republic 2009 27.64%18 Lithuania 2009 43.12% 59 Samoa 2009 27.52% Bahrain in the lower 20s19 Moldova 2009 42.98% 60 Venezuela 2006 27.40%20 Tonga 2009 42.67% 61 El Salvador 2006 27.27%2122 Latvia 2009 Jamaica 2005 41.70% 41.57% 62 63 Georgia 2008 Turkey 2008 27.08% 26.82% • Qatar and Oman in 30s23 Gabon 2009 41.34% 64 Bolivia 2006 26.26%24 65 • Though there are some Congo 2009 40.40% Algeria 2002 25.47%25 Guyana 2004 40.37% 66 Honduras 2006 25.46%26 Bahrain 2007 MBRF 40.00% 67 Colombia 2006 25.40%27 Niger 2009 38.67% 68 Benin 2009 25.33% differences in the data that28 6929 Lebanon 2006 Jordan 2007 MBRF 37.96% 37.00% 70 Czech Republic 2009 Laos 2009 25.20% 25.00% are hard to reconcile30 Syria 2003 36.33% 71 Malaysia 2002 25.00%31 Paraguay 2006 36.22% 72 Armenia 2009 24.06%32 BurkinaFaso 2009 35.79% 73 Namibia 2006 23.71%33 Zambia 2002 35.75% 74 Uruguay 2006 23.51%34 Cameroon 2009 35.26% 75 Botswana 2006 22.22%3536 Qatar 2007 MBRF Tajikistan 2008 35.00% 35.00% 76 77 Mauritania 2006 Croatia 2007 22.03% 21.64% • 35% of private sector37 Oman 2003 34.63% 78 SriLanka 2004 21.33% employers in Qatar38 Poland 2009 34.51% 79 Morocco 2004 21.06%39 Albania 2007 33.88% 80 Mali 2003 20.78% indicate a skills gap40 Ecuador 2006 33.13% 81 Bosnia and Herzegovina 2009 20.50%41 Ivory Coast 2009 32.32% 82 Bulgaria 2009 20.14% Data Source: MBRF-PWC Report World bank Enterprise Survey | 10
  11. 11. Many of the Arab countries face workforce skills deficiencies that slow knowledge-basedeconomic development and negatively impact high skill industries 10 High Skills Equilibrium United Kingdom Germany 9 Ireland Employer Demand for higher, knowledge-intensive Estonia • Strong demand for high level skills High Spain Czech Republic Hungary • Skills formulation institutions and the Lithuania Korea, Rep. 8 Latvia Portugal enabling environment work in tandem Knowledge Economy Index Ranking) Slovak Republic Greece • Knowledge-based economies with skills (as proxied by the World Bank Poland Croatia Chile Bulgaria lower levels of skills gaps 7 United Arab Emirates Qatar Romania Uruguay Bahrain Malaysia Costa Rica Kuwait 6 Serbia Brazil Russia Turkey • The perception of Arab employers Medium Saudi Arabia Jordan Oman Mexico Africa South may deter entry into knowledge- Belarus based industries which are perceived 5 Colombia Lebanon China to require skills unavailable in the Egypt Tunisia Sri Lanka Philippines national workforce or too costly to Morocco Botswana Azerbaijan build internally 4 Bolivia Vietnam Cape Verde Indonesia Syria Honduras India Guatemala Swaziland 3 Kenya Algeria Senegal Uganda Pakistan Ghana Low Skills Equilibrium Zambia Yemen Tanzania Lesotho Burkina 2 Nepal • Employers face few skill gaps in a Low Faso Mozambique Cambodia Bangladesh Ethiopia Eritrea predominantly low skilled workforce Rwanda Guinea • Little incentive to participate in 1 education and training and raise qualification levels and aspirations 0 0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00% 80.00% 90.00% 100.00% Low Medium High % of firms with sufficient internal skills levels (1- % of firms reporting major or very severe skills gaps) | 11
  12. 12. Gross value added of knowledge-based industries is the lowest in the world making up39% of regional gross domestic product Share of knowledge based industries in gross value added North America 77% European Union 75% Europe & Central Asia 74% High income 73% OECD members 73% High income: nonOECD 68% East Asia & Pacific 65% Latin America & Caribbean 63% Sub-Saharan Africa 57% Upper middle income 57% Middle income 55% Low & middle income 55% South Asia 55% Lower middle income 51% Low income 50% Least developed countries: UN… 48% Heavily indebted poor countries 47% Arab World 39% 0% 20% 40% 60% 80% Sources: Bank 2010 Note: Includes wholesale and retail trade, transport, and government, financial, professional, and personal services | 12
  13. 13. Employment in knowledge-based industries has increased only negligibly over the lastdecade despite Arab government human capital investment and focus on KBED Employment in knowledge-based industries (% of total employment) Oman 82% Kuwait 82% Saudi Arabia 75% Jordan 75% Bahrain 68% Iraq 65% Palestine 60% Qatar 55% UAE 54% Algeria 53% Syria 47% Egypt 47% Yemen 35% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Over the last decade, human capital investments do not seem to have led to significant increases in job creation in knowledge-based industries or meaningful diversification into knowledge-intensive industries Sources: Bank 2010 | 13
  14. 14. The changing demands of knowledge-based economic development create a need forinterdependence and collaborative networks for effective skills formation WORK IN PROCESS Education and Training System Business Community • Ensuring Relevancy and Employability • Workforce Investment • Quality Assurance Qualitative and • Workforce Development quantitative • Expanding Access supply-demand match Facilitate regular, on-the-job National Skills training and participation Link Formation System in skills economic for Knowledge- formation based • Coordination development with E&T Development system • Investment • Aligning Optimization Macroeconomic Policy Address policy, With Skills informational, or financial sources of • Lifelong-learning Formation underinvestment • Broad-based, Critical Government Coordination Points Inclusive Skills Formation Government Individuals | 14
  15. 15. • For Further Information About This ‫للمزيد من المعلومات عن هذا العرض التقديمي‬ • Presentation ‫للحصول على العرض التقديمي الكامل لهذه المبادرة يرجى‬ To get a copy of the full presentation or to ‫االتصال بـ ويزلي شوالييه على العنوان‬ discuss the findings, please contact Wes Schwalje• For Inquiries About Our Services and ‫• لالستفسار عن خدماتنا ولعرض أفكاركم علينا‬ Requests for Proposals ‫لالستفسار عن خدماتنا أو عرض أفكاركم علينا يرجى االتصال‬ To inquire about our services or submit a ‫بنا عبر اإلنترنت باستخدام النموذج أدناه أو إرسال بريد‬ request for proposal, please contact us using ‫إلكتروني إلى‬ the online form or send an e-mail to• For Organizations Interested in Alliances ‫• بالنسبة للمنظمات التي لديها اهتمام بالدخول في اتفاقيات‬ ‫شراكة وفي تحالفات مع شركة تحسين لالستشارات‬ We are interested in opportunities where our technical skills and expertise can be used to ‫إننا مهتمون بالفرص التي يمكن من خاللها استخدام مهاراتنا‬ complement or diversify those of potential ‫وخبراتنا الفنية لتكميل أو لتنويع مهارات وخبرات شركائنا‬ partners to pursue specific government funding ّ ‫المحتملين بما يمكن من السعي للحصول على تمويل حكومي أو‬ opportunities, commercial contracts, or RFPs. ‫عقود تجارية. لبدء نقاش حول الدخول في تحالف مع شركة‬ To begin a discussion about entering into an ‫تحسين لالستشارات يرجى االتصال بوليد العرادي على‬ alliance with Tahseen Consulting, please ‫العنوان‬ contact Walid Aradi at ‫• بالنسبة للعاملين في الصحافة أو في وسائل اإلعالم‬• For Members of the Press or Media ّ ‫لالستفسارات المقدمة من قبل وسائل اإلعالم يرجى االتصال بـ‬ For media inquiries, please contact Wes ‫ويـزلي شـوالييه على العنوان‬ Schwalje at