Dubai: Unemployment across the Middle East and North Africa (Mena) region is expected to surge in the coming years as a combination of structural and cyclical factors is adversely impacting job creation in both oil-exporting and oil-importing countries.
According to a recent report ‘Re-Dynamising the Job Machine: Technology-Driven Transformation of Labor Markets in MENA’, produced jointly by INSEAD Business School, the Centre for Economic Growth in Abu Dhabi, and SAP Mena region, is facing the highest youth unemployment in the world.
With 40 million underunemployed youth and 27 million not in education, employment, or training, the Mena region has the highest rate of youth unemployment in the world at 27.2 per cent according to the World Economic Forum (WEF). This presents a serious problem for a region where more than half the 369 million inhabitants are under the age of 25.
Although the unemployment levels differ across countries in the region, depending on the level of prosperity, it is a growing problem for most countries.
In the context of a sharp decline in oil prices over the past 15 months, unemployment levels in the oil-exporting countries in the region, including the GCC, are expected to surge as governments are poised to cut spending to cope with rising fiscal deficits, according to the latest regional economic outlook of the International Monetary Fund (IMF).
In the GCC, excluding the UAE, more than 2 million nationals are expected to join the workforce by 2020. If private sector job growth were to follow past trends, and public sector employment growth is consistent with the current fiscal projections, the IMF expects more than half a million job market entrants will end up being unemployed, in addition to the 1 million who are already out of work.
“The aggregate GCC unemployment rate would increase from 12 per cent to 16 per cent. Clearly, if more fiscal adjustment were to take place, with some of it in the form of reined-in public sector hiring, unemployment rates would be even higher,” said Masoud Ahmad, IMF’s regional director for Middle East and Central Asia.
In the non-GCC region, about 8 million people are projected to enter the labour force over the next five years. Under current growth projections, and using historical growth-employment elasticities, the average unemployment rate would increase from 14 per cent to 15.5 per cent. In practice, the increase could be much higher, because cash-strapped governments will not be able to maintain the pace of public sector hiring.
Clearly, the private sector will have to take over from the public sector as the main source of job creation. However, the expansion of the private sector and the diversification away from oil that are needed to absorb the growing workforce have so far proven elusive. Though some progress has been made, most economies in the region are still deeply dependent on the capital-intensive hydrocarbon sector, which generates limited direct employment.
Additionally, the private sector itself is highly reliant on government spending and needs to become self-sustaining through increased competitiveness in other markets including exports. Creating incentives for nationals to move to the private non-hydrocarbon sector, improving skills, and making those skills more relevant to the private sector by improving the quality of education are crucial in this respect.
Technology is widely seen as a ‘game changer’ in tackling youth unemployment in the Mena’s emerging digital economy. The region has made significant progress in technology adoption with the internet penetration jumping 294 per cent in the region between 2007 and 2012.
Technology is impacting every aspect of labour markets, including better matching of jobs across all sectors, facilitating up-skilling, empowering entrepreneurs, and providing actionable data to decision-makers. The millennial generation of people aged under 25 are digitally connected as never before, according to the report.
Demonstrating the growing demand for Information and Communications Technology (ICT) jobs, the Middle East’s ICT industry value is expected to reach $173 billion (Dh635.39 billion) in 2015, more than double the value in 2010, and projected to create nearly 4.4 million jobs by 2020, according to research firm Strategy&.
Governments can encourage and support digital entrepreneurs by removing obstacles, including restrictive legal frameworks, while governments should also support incubation centres to educate entrepreneurs and innovators, and provide them with the needed skills and support to help them succeed.
According to the WEF report, enabling youth employment will require decision makers from government, the private sector, academia, and civil society to collaborate on adapting academic curricula to better integrate ICT learning, upskill students and workers with ICT and e-business skills, and create an environment that encourages entrepreneurship and small-business job creation.