This document discusses the economic challenges facing Arab countries and elements needed for a new vision. It outlines how Arab countries arrived at their current state in 2010, describing growth led by oil and services, lack of industrialization, employment in low productivity sectors, and rising poverty and inequality. While some progress was made on social indicators, governance deficits persisted. The current state is assessed depending on the lens used, with challenges including political instability, conflict, declining oil revenues, youth unemployment, and environmental threats. A new vision is needed to achieve inclusive and sustainable development.

1. Economic and Social Commission for Western AsiaEconomic and Social Commission for Western Asia
ARAB DEVELOPMENT:
CHALLENGES AND ELEMENTS FOR A NEW VISION
Khalid Abu-Ismail

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Outline of the presentation
1. How did we get to 2010?
2. Where are we today?
3. Where do we go from here?

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How did we get to 2010?

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Of course we can argue a lot
about the drivers:
1. Was it poor governance?
2. Was it crony capitalism?
3. Was it too much oil (and related conflicts)?
4. Was it rising poverty and inequality?
5. Was it lack of skills?
6. Was it limited fiscal space?
7. Was it bad economic policy choices?

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Growth was led by Oil and services
Sectoral composition of rate of growth for: Arab countries
(A), developing regions (B), oil-rich countries (C) and oil-poor countries (D)
1970-2010
(A) (B)
(C) (D)

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Arab region is least industrialized region
Economic transformation in Arab countries (A), Sub-Saharan Africa (B),
Latin America& Caribbean (C), South Asia (D), East Asia& Pacific
(E) and Europe & Central Asia (F)
1970-2009
(A) (B) (C)
(D) (E) (F)

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Employment creation happened in low productivity sectors
Components of labor productivity growth 2000-2010

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Why? Because formal sectors did not create enough jobs
0
5
10
15
20
25
30
35
2000 2001 2002 2003 2004 2005 2006 2007 2008
Changes in the rates of informal employment and unemployment in
Algeria, 2000-2008
Share of informal employment Unemployment rate

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And it also applied to educated job seekers
Egypt: Employment by sector (secondary and upper education)
68.9
43.6
23.0 21.3
7.5
9.5
9.6 14.3
15.5
26.1
41.8
51.2
17.4
9.3
0
10
20
30
40
50
60
70
80
90
100
1980 1990 2000 2012
Public Formal private Informal private Employers Self-employed Unpaid family workers

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Poverty is in the eye of the beholder
Poverty rates in 2010 based on multiple poverty lines (in 2005 PPPs)
0
10
20
30
40
50
60
70
80
90
100
0
10
20
30
40
50
60
70
80
90
100
0.2
0.6
1
1.25
1.6
2
2.4
2.8
3.2
3.6
4
4.4
4.8
5.2
5.6
6
6.4
6.8
7.2
7.6
8
8.4
8.8
9.2
9.6
10
P0 (%)
World East Asia & Pacific
Europe & Central Asia Latin America & Caribbean
South Asia Sub-Saharan Africa

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Arab countries score highest % change in poverty rates as we
move from $1.25 to $2 PLs
0%
50%
100%
150%
200%
250%
300%
350%
400%
450%
AC EAP ECA LAC SAS SSA DR
% change
Source: Sarangi, N., Abu-Ismail, K., and Laithy, H 2014.

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Did poverty decline from 1990?
Yes, for 1.25 and 2$ PLs but not for lower national poverty lines
10.5
23.4
42.6
23.4
18.4
20.3
40.0
22.7
0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0 40.0 45.0
Maghreb
Mashreq
LDCs
Arab region
1990 2012Source: UN and LAS Arab MDG Report 2013.

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Story on inequality is fuzzy.. Low and stable inequality if
you use Gini or share of bottom 40% but macro side of
the story does not corroborate this
The ratio between national per capita household final expenditure from National
Accounts and that from the surveys is high and increasing.
0.74
1.14
1.96
2.62
1.00 1.14 1.16
1.39
1.82
2.22
1.42 1.45
0.00
0.50
1.00
1.50
2.00
2.50
3.00
1998
2006
2000
2011
1997
2007
2002
2010
2000
2010
2005
2010
Yemen Egypt Syria Jordan Oman Tunisia

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Other evidence on inequality
1. Alvaredo and Picketty (2014) estimated that the share of top 1 per
cent income receivers might exceed 25 per cent of the region’s
income (compared to 20 per cent in the United States)
2. Wealth Gini is 0.80 in Egypt fastest rise in inequality (Credit Suisse
2014).
3. Rural-urban inequalities are sharp in some countries
4. Of course if we are talking about inequality in opportunities we get
another story altogether. But that’s another debate..

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What about the middle class?
• International definitions are quite diverse and produce a mess (MC
size range from 2 - 75%).
• We define MC any HHs whose expenditure lies above upper national
poverty line (using common WB definition) but whose expenditure on
non-essential goods and services is less than the value of that poverty
line.
(of course we can argue for the next 2 hours about what is a non-essential good)

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MC was single largest economic group before Arab Spring
34.5% 34.8%
25.2%
5.5%
12.3%
2.5%
8.0% 4.6% 1.4%
12.0%
25.0%
23.7%
17.4%
21.3%
11.9%
20.6%
10.9%
9.6%
43.4%
31.6%
44.0%
60.9%
56.5%
55.0%
56.2%
57.5%
29.8%
10.1% 8.7% 7.1%
16.3%
9.9%
30.7%
15.3%
27.1%
59.2%
2009 2006 2011 2007 2007 2010 2005 2010 2010
Sudan Yemen Egypt Iraq Syria Jordan Lebanon Tunisia Oman
LDCs MICs UMICs HICs
Poor Vulnerable Middle Class Affluent

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And their size was largely stable during 2000-2010
18.3% 21.8%
21.2%
21.8%
47.3%
45.1%
13.3% 11.3%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2000 2011
Affluent
Middle class
Vulnerable
Poor

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And of course we all know the Arab governance deficit
-1.6
-1.4
-1.2
-1
-0.8
-0.6
1996 2001 2006 2011
politiucalstability
-0.75
-0.7
-0.65
-0.6
-0.55
-0.5
-0.45
-0.4
1996 2001 2006 2011
controlofcorruption
• The Arab region lags
behind the rest of the
world in terms of
institutional quality
• 5 of 6 World Bank
governance indicators
show negative linear
trends
• The most striking negative
trend is seen in Political
Stability, followed by
Control of Corruption

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But there were successes:
Arab region has performed better than the global average on most MDGs (%
progress from 1990-2010)
-0.191
-0.189
-0.021
-0.060
0.001
-0.034
-0.152
-0.163
-0.073
-0.249
0.076
-0.096
-0.034
-0.125
-0.062
-0.083
-0.003
0.008
-0.392
-0.407
-0.364
-0.207
0.222
-0.146
-0.133
-0.5 -0.4 -0.3 -0.2 -0.1 0 0.1 0.2 0.3
Children underweight
Population undernourished
Primary enrolment
Youth literacy
Gender parity, primary
Gender parity, secondary
Child mortality rate
Infant mortality rate
Maternal mortality rate
Births attended by skilled personnel
Access to safe drinking water
Access to basic sanitation
MDGI
Developing region Arab countries

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And guess which countries led the region
27.9%
27.0%
20.3%
5.8%
3.6%
-4.8%
-7.4%
-17.3%
-30.5%
-32.3%
-35.1%
-35.2%
-37.3%
-44.8%
-59.0%
-70.9%
-80% -60% -40% -20% 0% 20% 40%
Oman
Egypt
Tunisia
Syria
Saudi Arabia
Algeria
Morocco
Jordan
Comoros
Mauritania
Palestine
Yemen
Djibouti
Iraq
Sudan
Somalia

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So was it crony capitalism or was it also the rentier
growth pattern due to economic policy choices?
1. Over-obsession with macro-stability.
2. Rapid uncritical privatization and trade liberalization
3. FDI in areas with low social returns
4. No healthy bounce back of the private sector,
including low rates of investment.
5. Little “trickle down” (shares of wages in GDP
significantly reduced)

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Where are we today?

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Our assessment of where we are depends
on the lens we use:
HDI an example
26 28 30
34 36
40
58
62
72
80
91
96
121 124
1310.85
0.84
0.83
0.82
0.82
0.79
0.75
0.73
0.72
0.69
0.66
0.63 0.50
0.50
0.47
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
0
20
40
60
80
100
120
140
Qatar
SaudiArabia
UAE
Bahrain
Kuwait
Oman
Jordan
Algeria
Tunisia
Egypt
Iraq
Morocco
Mauritania
Yemen
Djibouti
HDI2013Score(HDIScore)
HDI2013Rank(HDIRank)
Very High
Human
Development
High Human
Development
Medium
Human
Development
Low Human
Development

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What if human development is looked
upon slightly more broadly: new HDI
Pillar Indicator Weight in pillar
Economic GNI per capita, PPP (constant 2011 international $) 50.0%
10-year coefficient of variation on GDP pc growth 50%
Social Mean years of schooling (years) 25%
Expected years of schooling (years) 25%
Life expectancy at birth (years) 25%
Disability adjusted life years (DALY) 25%
Governance Voice and accountability 33.3%
Government effectiveness 33.3%
Rule of law 33.3%
Environment Ecological footprint (hectares per cap) 100%
Access to Electricity 25%
Living conditions Access to internet 25%
Access to clean water source 25%
Access to sanitation 25%
Total Countries (2013) 144
Arab Countries (2013) 15

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Dev challenges may be more serious than
we think and country rankings may be very
different
36 38
46 50 52
58 60 63 67
74 75
97
106 107
122
0.76
0.76
0.75
0.73
0.73
0.71
0.70
0.69
0.68
0.65
0.65
0.55
0.50
0.50
0.44
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
0.90
0
20
40
60
80
100
120
140
HDI Rank HDI Score
High Human
Development
Low Human
Development
Medium
Human
Development

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Conflict is a game changer
• Countries facing conflict and other with tremendous
development challenges: Syria, Yemen, Sudan, Mauritania,
Iraq, Palestine, Libya, and Somalia.
• Countries facing economic and political spillovers: Tunisia,
Lebanon, Egypt and Jordan
• Overall growth is low and declining
• Extreme poverty is rising and middle class may have shrunk
by 15% as a result of conflict and economic recession

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Destruction in Syria: 170 Billion GDP Losses
63.6 67.3
70.9 75.1 79.5
60.2
56.1
40.3
33.5
29.6 27.2
0
20
40
60
80
100
2010 2011 2012 2013 2014 2015
Planned real GDP according to the eleventh 5-years plan prior to the
conflict
Estimates of real GDP during the conflict
GDP total losses
169.7

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Consequences of destruction in Syria
• Real GDP contracted by 55%.
•Destruction of housing and infrastructure of around 89.9
billion dollars.
•Total cultivated area fell by 60%.
•33% of population inside Syria are food insecure
•Poverty rates, using the UPL, increased from 30% to over
80%.
•Primary enrolment ratios fell from nearly 100% to 60%.

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Fiscal space is more constrained
• Most non-oil-rich countries
are experiencing huge fiscal
deficits due to the recent
drop in oil prices.
• The growth financing
requirements during 2015-
2030 are estimated at $3.6
trillion not to mention
more than 0.5 trillion for
reconstruction.
Current account balances in oil-exporting countries (%
of GDP)

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Where do we go from here?

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The state of play and why it cannot last
• The Vision 2030 report examines the
repercussions for the Arab region if the current
situation remains unchanged – the business-as-
usual scenario.
• It also provides an alternative vision of hope for
the Arab world in 2030 – the vision scenario - and
charts a course for achieving it.

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A new inclusive development model
• At the heart of Vision 2030 is the idea of a
developmental State to achieve the five strategic goals;
1. Peace and security
2. Better Governance
3. Structural transformation and resource sustainability
4. Human development and social justice
5. Regional integration

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end conflict..
ADO focuses on Arab Israeli and
Syrian conflicts.

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Governance should be the starting point yes
Institutional strength, human rights and rule of law
Human Rights are fundamentals
1. Strong state institutions leading to good overall governance quality
Public accountability reforms, improve the governance of state-owned enterprises; stimulate
labour markets; foster entrepreneurship and a business climate with reliable rules and regulations,
open budget process, etc.
2. Development friendly political systems
Unbiased rule of law (including for the ruler), strengthening checks and balances, improving
capacity of the state, and gradually moving to a more inclusive political system
3. Participatory politics
Open avenues for interaction between policy-makers and citizens, formal and informal
4. Respect for Human rights
Establishment of independent national human rights commissions where these do not yet exist
5. Frameworks for transitional justice
Legal frameworks for truth and reconciliation commissions, judicial and non judicial processes of
truth seeking, punishment, amnesty and reparations

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But governance reform has to be tied to a new economic
model based on structural transformation with sustainable
environment solutions
1. Can we replicate the macroeconomic and sectoral policies of East
Asia?
• Model assumes reduction in transport cost, increase in labor
productivity, incentives and subsidies (industrial policy
incentives). Growth reaches 6% versus BAU of 3% and
unemployment shoots down.
2. Water and energy solutions
• Efficiency in usage, water pricing, water desalination and reuse, water
governance, harnessing renewable energy and phasing out fossil fuel
subsidies, nuclear power plants.

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Political stability with good governance and structural
transformation paves way to Human Development and
Social Justice which itself feeds back into more stability
and better governance..
Promoting human development:
Ensuring quality health care
Advancing quality education towards building knowledge
society
Boosting agricultural productivity and food security
Promoting gender equality

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And all of this can be reinforced and accelerated by
regional integration
There needs to be an Arab-Arab discussion about a new regional
vision.
Do we want an Arab region with freedom of movement of
commodities, labor, and capital by 2030? If so what are the
implications on current macroeconomic trade policies and what
needs to be done?
Now is probably the best time to begin this discussion

38. Economic and Social Commission for Western AsiaEconomic and Social Commission for Western Asia
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