Competitiveness and Job Creation in MENA

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1 Competitiveness and Job Creation in MENA Morocco Tunisia Lebanon Syria Iraq Iran Afghanistan Algeria Libya Egypt Jordan Saudi Arabia Bahrain Kuwait Pakistan Qatar Oman United Arab Emirates Mauritania Sudan Yemen Djibouti Ratna Sahay Deputy Director Cairo University Middle East and Central Asia Department January 23, 211 International Monetary Fund 1

2 Global outlook: Two-speed recovery in motion Real GDP Growth (percent change from a year earlier) Emerging economies Egypt World Advanced economies Advanced economies P Projection (Percent change, unless otherwise indicated) World Advanced economies Emerging economies MENA Egypt Oil price (in US$) Note: Egypt number is financial year basis. Sources: IMF, World Economic Outlook, Fall 2. 2 Global Outlook

3 Global food prices are rising rapidly IMF Food Price Index (25-)¹ IMF Food Price Index Groups (25-)¹ Cereals Meat Seafood Vegetable oils 8 Dec-5 Dec-6 Dec-7 Dec-8 Dec-9 Dec- 5 Dec-5 Dec-6 Dec-7 Dec-8 Dec-9 Dec- Source: IMF, Commodity Price System. ¹ U.S. dollar price index rebased at 25= 3 Global Outlook

4 Inflation has picked up from low levels Core Inflation 12-month growth, percent 25 2 Emerging economies Advanced economies World Egypt Dec-5 Dec-6 Dec-7 Dec-8 Dec-9 Dec- Sources: Haver Analytics; and IMF, World Economic Outlook Global Outlook

5 Capital flows are recovering Net Monthly Flows to Emerging Market Equity Funds (billions of U.S. dollars) Lehman Collapse Net Monthly Flows to Emerging Market Bond Funds (billions of U.S. dollars) Lehman Collapse Dec-6 Dec-7 Dec-8 Dec-9 Dec- -8 Dec-6 Dec-7 Dec-8 Dec-9 Dec- -6 Sources: IMF, World Economic Outlook. 5 Global Outlook 9

6 Risks to the global recovery tilted down World GDP Growth (percent change) 9% Confidence interval 7% Confidence interval 5% Confidence interval Central forecast Risks tilted to downside but double-dip unlikely Advanced country banking systems still vulnerable -2 Internal and external rebalancing needed Sources: IMF, World Economic Outlook. 6 Global Outlook

7 Oil Exporters Iraq Iran Algeria Libya Saudi Arabia Bahrain Kuwait Qatar Oman United Arab Emirates Sudan Yemen 7 MENAP Oil Exporters

8 Global demand recovers, boosts activity in oil exporters MENAP Oil Exporters Real Growth (in percent) Oil GDP Non-oil GDP Oil prices (rhs) Sources: National authorities; and IMF staff estimates. 8 MENAP Oil Exporters

9 Attracts large outward migration from oil importers Stock of migrants; percent of labor force, 25 Lebanon 44 Jordan 42 Morocco 25 Tunisia 18 Egypt Syria Source: World Bank. 9

10 Oil Importers Morocco Tunisia Lebanon Syria Afghanistan Jordan Pakistan Egypt Mauritania Djibouti

11 Real GDP growth picking up across the region (Annual percentage change) MENAP oil importers (excl. AFG, LBN, and PAK) -2 Emerging and developing economies Advanced economies -4 Egypt 1/ P 211P Source: National Authorities; and IMF staff estimates.. 1/ Financial year basis. 11

12 Real GDP per capita (average annual growth rate, ) But growth and exports lag other regions 35 3 Emerging and developing economies 8 China 25 Emerging Asia 6 2 LBN India 15 MENAP oil importers MRT 4 2 PAK TUN JOR EM total MAR EGY SYR Source: IMF, World Economic Outlook. -2 Goods exports Volume of exports of goods and services per capita (in percent of GDP) (average annual growth rate, ) 12

13 Public debt (Percent of GDP) Fiscal consolidation in train, but may come under stress LBN Fiscal consolidation MRT 8 EGY JOR DJI 6 PAK MAR TUN 4 EM average SYR Fiscal balance (Percent of GDP) Source: National Authorities; and IMF staff estimates and projections. 13

14 Inflation is rising, reflecting sharp increase in food prices Oil Importers: Consumer Prices (annual percentage change) Core Food Overall CPI Including: EGY,JOR,LBN,MAR,PAK,TUN Jun-9 Dec-9 Jun- Dec- Source: Haver Analytics; and national authorities. 14

15 Monetary policy dilemma, as inflation picks up Consumer Prices (annual percentage change) Egypt Pakistan Other MENAP oil importers¹ Dec-7 Jun-8 Dec-8 Jun-9 Dec-9 Jun- Dec- Sources: Haver Analytics; and national authorities. 1 Excludes Mauritania and Syria. 15

16 High unemployment is a long-standing problem Unemployment rate (Percent, rhs) Working age population (mm) Labor force (mm) Sources: National authorities; IMF, World Economic Outlook; staff estimates; and International Labor Organization. 16

17 Youth unemployment is even higher President Mubarak: The youth are the most precious of all our resources and wealth 35 3 Unemployment rate, 28 (percent) Total Youth 1/ n/a Egypt Jordan Lebanon Morocco 2/ Syria Tunisia MENA simple avg Sources: National authorities; IMF, World Economic Outlook; staff estimates; and International Labor Organization. 1/ 28, or most recent year for which data are available. 2/ Unemployment rate reflects data from Urban Labor Force survey. 17

18 Youth unemployment (Percent) Unemployment is high compared to other regions 3 Egypt 25 MENA South-East Asia and the Pacif ic Latin America Central and South- Eastern Europe (non- EU) and CIS East Asia South Asia Developed Economies World Sub-Saharan Af rica Total unemployment rate (Percent) Sources: National authorities; IMF, World Economic Outlook; staff estimates; and International Labor Organization. Note: MENA6 refers to Egypt, Jordan, Lebanon, Morocco, Syria, and Tunisia. Youth unemployment estimate for MENA6 excludes Jordan. Data refers to 28 or latest available year. 18

19 Challenges going forward Preserve macro stability Create jobs Raise competitiveness 19

20 Labor Force: Unemployed and New Entrants MENA6 Countries Unemployed in 28 (millions) New Entrants (28 22) (millions) Egypt Jordan.2.7 Lebanon.1.1 Morocco Syria.8 2. Tunisia.5.5 Total Source: Abdih,Yasser and Anjali Garg (2), IMF. Egypt 9.4 million jobs need to be created GDP growth rate needs to rise to 7 percent per annum to absorb only the new entrants GDP growth rate needs to rise to nearly percent per annum to absorb the unemployed and new entrants => focus on laborintensive growth

21 Competitiveness will need to improve Competitiveness Rankings, 2 11¹ Emerging Asia Egypt Technological readiness Business sophistication Institutions Market size Best Inf rastructure Macroeconomic stability Health and primary education Innovation Financial market sophistication Labor market efficiency Goods market efficiency Higher education and training Source: World Economic Forum, Global Competitiveness Report, ¹Economies are ranked from 1 to 139, with first place being the best. MENAP oil importers is a simple average of Egypt, Jordan, Lebanon, Mauritania, Morocco, Pakistan, Syria, and Tunisia. Emerging Asia is simple average of China, Hong Kong SAR, India, Indonesia, Korea, Malaysia, the Philippines, Singapore, Taiwan Province of China, Thailand, and Vietnam. 21

22 LBN SYR JOR MAR EGY Latin Am. & Carib. World E. Asia & Pacific E. Euruoe & Centr. Asia South Asia Sub-Saharan Africa OECD Skills mismatch? Firms identifying labor skill level as a major constraint; percent, most recent Source: World Bank, Enterprise Survey Results. 22

23 LBN SYR EGY Latin Am. & Carib. MAR E. Asia & Pacific JOR South Asia World OECD E. Euruoe & Centr. Asia Sub-Saharan Africa Labor markets are rigid Firms identifying labor regulations as a major constraint; percent, most recent Egypt Firing cost is high (132 weeks of wages relative to 54 weeks in MENA) Top private sector positions filled often by relatives or friends Source: The 7 th Egyptian Competitiveness Report (2) Source: World Bank, Enterprise Survey Results. 23

24 Seek new economic partnerships Real GDP trends, annual percent change 8 Asia 6 4 Latin America 2 Advanced economies Source: IMF, World Economic Outlook database. Note: real GDP growth data are de-trended as -year backward rolling averages

25 Adapt education driven by private sector demand Reduce labor market rigidities Jobs and Growth Support laborintensive private sector Seek partnerships with dynamic emerging markets 25