In the aftermath of the Arab Spring, the new governments of the Middle East need to remain committed to economic openness, but there is a real danger that the high expectations of their populations for immediate benefits might force them to dodge making the necessary changes, said Joe Saddi, Chairman of Booze and Co.
“A year ago the conversation was all about politics, but now everyone is focused on the economies and the need for jobs. People have been through the whole revolution and now they want to see the difference”.
“But the governments need to stay the course on economic reform. The biggest risk these new governments face is managing the high expectations of their populations in terms of jobs and careers, said Saddi who is also Booze and Co’s Managing Director for the Middle East. Saddi recently authored a viewpoint called “Staying on the Road to Growth, Why Middle East leaders must maintain their commitment to economic reform.”
The new leaders of the Middle East have to deal with the perception that openness, competitiveness, and privatisation were something that the previous governments supported and therefore are bad, Saddi told Gulf News.
But the governments major challenge now is their populations led by the youth demanding that their voices are heard, which forces policy makers to focus on their urgent issues. But this understandable inclination to address the most pressing needs, means a loss of opportunities to get things right for economic and future growth.
Employment is the major issue, as a huge youth bulge works into the working populations, and youth unemployment is double most national unemployment rates, which are already very high.
Saddi suggests that the answer to meeting peoples’ demand for jobs needs governments to focus on encouraging sustained economic growth, which needs four things: Education and skills, entrepreneurship and support of SMEs; government investment; and regional economic integration.
Improving education is the top priority, and it involves governments working to match the teaching in the schools and colleges with the needs of its companies. There needs to be a new focus on technical skills, sciences, and engineering, even if this evolution of education will take years.
In addition there has to be more private sector initiatives to be involved in education. Saddi quoted the example of what Sabic has been doing with universities in Saudi Arabia, where the company funds education, and also makes commitment to offer jobs to the students. Governments around the region need to be part of programmes that work with the private sector.
Saddi’s second strand of policy is ensuring government support of entrepreneurship, so that the SME sector will flourish. Small and medium sized enterprises are the backbone of employment job creation in any country, which hold 60 to 70 per cent of existing jobs and new jobs. A key to economic success is anything that encourages entrepreneurship at the grass roots, and allows SME to grow.
This means building the economic infrastructure, like incubators, but it must also include providing financing like venture capital. Most importantly SMEs need access to funds since the banks are often too slow and have their limits as they look for collateral from companies that have none. Governments can help bridge that gap by guaranteeing certain types of loans, etc.
The third area of focus in government investment in value added projects. “There is still a way to go around the region in creating the proper infrastructure that would allow trade and business to flourish. There needs to be a lot more investment in areas such as railways, ports, since countries are at very different levels in building a seamless modern and easy system for goods to move around and trade to work quickly”, said Saddi.
The fourth area is to work on regional economic integration. “Governments have to recognise that regional economic integration in the Middle East has failed, and this must be changed. All over the world it has been proven that regional integration increases GDP thanks to easier access and improved trade,” said Saddi.
“This aim is most elusive in the Middle East, but is still very important and governments need to work to implement more integration. Remember that this is a region that at the start of the last century had no frontiers, shares one language and culture, but despite this advantage and in contrast to Europe or Latin America, it has no regional integration, to its great disadvantage”.
An extra element of the answer is to stay committed to privatisation, even if it is seen as synonymous with corruption because people associate it with the way it was handled under the previous regimes. But this should not stop the new governments from staying with it, Saddi told Gulf News.
“Privatisation may not have done in the right way, but the public sector does not create jobs. But this does not stop the genuine importance of privatisation nor should the new governments stop privatising,” he said.