MENA Region

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Economic Outlook

Countries in the Middle East, North Africa, Afghanistan, and Pakistan (MENAP) region  swiftly responded to the COVID-19 pandemic with in an effort to mitigate its spread and impact but continue to face an uncertain and difficult environment. Oil exporters were particularly hit hard by the economic impact of lockdowns and the resulting sharp decline in oil demand and prices. Containing the health crisis, cushioning income losses, and expanding social spending remain immediate priorities. However, governments must also begin to lay the groundwork for recovery and rebuilding stronger, including by addressing legacies from the crisis and strengthening inclusion. (IMF Regional Outlook)

The current health and economic crisis has highlighted the importance of SMEs and  entrepreneurs, which have been greatly affected by disrupted economic activity of the past year.

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Economic Outlook

Countries in the Middle East, North Africa, Afghanistan, and Pakistan (MENAP) region  swiftly responded to the COVID-19 pandemic with in an effort to mitigate its spread and impact but continue to face an uncertain and difficult environment. Oil exporters were particularly hit hard by the economic impact of lockdowns and the resulting sharp decline in oil demand and prices. Containing the health crisis, cushioning income losses, and expanding social spending remain immediate priorities. However, governments must also begin to lay the groundwork for recovery and rebuilding stronger, including by addressing legacies from the crisis and strengthening inclusion. (IMF Regional Outlook)

The current health and economic crisis has highlighted the importance of SMEs and  entrepreneurs, which have been greatly affected by disrupted economic activity of the past year.

Prospects

Economic activity in the Middle East and North Africa is forecast to recover modestly to 2.1% in 2021, reflecting the lasting damage from the pandemic and low oil prices. The recovery is contingent on containment of the pandemic, stabilizing oil prices, no further escalation of geopolitical tensions, and the assumption of a vaccine rollout in the second half of the year. By 2022, after two years of expected recovery, output is still about 8% below the output projected prior to the pandemic, with a larger impact on oil importers than exporters. Among oil exporters, growth is expected to recover to 1.8% this year, supported by normalizing oil demand, the scheduled easing of the OPEC+ oil production cuts, policy support, and the gradual phasing out of domestic pandemic-related restrictions. In Saudi Arabia, activity will be supported by a resumption of public capital investment projects postponed during the pandemic and a recovery of demand after the sharp rise of the value added tax. (WorldBank)

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Prospects

Economic activity in the Middle East and North Africa is forecast to recover modestly to 2.1% in 2021, reflecting the lasting damage from the pandemic and low oil prices. The recovery is contingent on containment of the pandemic, stabilizing oil prices, no further escalation of geopolitical tensions, and the assumption of a vaccine rollout in the second half of the year. By 2022, after two years of expected recovery, output is still about 8% below the output projected prior to the pandemic, with a larger impact on oil importers than exporters. Among oil exporters, growth is expected to recover to 1.8% this year, supported by normalizing oil demand, the scheduled easing of the OPEC+ oil production cuts, policy support, and the gradual phasing out of domestic pandemic-related restrictions. In Saudi Arabia, activity will be supported by a resumption of public capital investment projects postponed during the pandemic and a recovery of demand after the sharp rise of the value added tax. (WorldBank)

Insufficient Growth Capital

Promoting SME resiliency and growth is well recognized contributor to both GDP and to political stability – and many country policies, including those in the MENA region, have been developed to promote economic activity in this sector.   Yet, access to finance continues to be one of the greatest challenges for the region where nearly 63 percent of the SMEs do not have access to commercial capital. The total financing gap for SMEs in MENA is estimated at $210 to $240 billion (of which the formal sector gap is estimated at $160-180 billion).   A recent World Bank/Union of Arab Banks survey of over 130 MENA banks shows that only 8 percent of lending goes to SMEs across MENA (and even less in GCC countries at 2 percent).

Not surprisingly, banking in the region is characterized by conservative lending practices, where credit risk is minimized through the imposition of high collateral requirements.  Lack of sufficient collateral is the number one reported (by borrowers) obstacle to receive bank commercial funding.  From the commercial lenders’ perspective, advancing relatively small amounts to widely distributed and undercollateralized borrowers is simply too costly a venture to pursue.

Targeting Unemployment

Addressing the long-term structural impediments to regional job creation is a massive challenge charged by political, social and economic considerations that limit the influential effectiveness any single course of action.  Nevertheless, parsing the problem into smaller bits is an important step, particularly when demonstrable evidence is at hand to support unique interventions.

As it relates to overall employment in the region, the significance of the SME sector (also known as Small & Medium Enterprises) cannot be overstated.  SMEs account for a very high share of private sector employment in MENA, particularly in countries with large informal sectors where they represent about 80% percent of all business (estimated at 19-23 million) contributing 40% of all jobs. In the typical non-GCC MENA country, SME businesses (including in the informal sector) are more likely to employ as much as 67 percent of total labor.

Unemployment

Unemployment is a key driver of potential instability in the MENA region.  The International Labor Organization (ILO) has identified two specific gaps in employment — unmatched elsewhere in the world — that further compound the problem: gender and youth.

 

How to Improve

Achieving rapid employment growth will require structural reforms and a coordination of public and private efforts.  This is particularly important given the current mismatch between the education system and the job market – those with tertiary education are three times more likely to be unemployed than those without.

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Gender

Women are almost three times more likely to be unemployed than men, despite the fact that more young women than men in the Arab world are graduating from universities.

Private-sector development is a critical part of the solution.  Entrepreneurship, access to finance, increasing IT connectivity, and reducing regulatory burdens for small businesses can help fill the jobs gap.

Youth

At an estimated 25% in 2020, the youth unemployment rate in the MENA region is almost five times higher than the joblessness rate for older adults. In North Africa, youth unemployment is higher than the Arab average: 30% for both sexes and 45% for young women.

In the MENA region, youth unemployment rates have exceeded 25% since 1991.  By the early 2000s, for every job that was created, four jobseekers entered the labor market. High labor force growth, skill mismatches, large public sectors, and high reservation wages have been key factors behind the large and persistent level of youth unemployment. (IMF)

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DSC_0873

Gender

Women are almost three times more likely to be unemployed than men, despite the fact that more young women than men in the Arab world are graduating from universities.

Private-sector development is a critical part of the solution.  Entrepreneurship, access to finance, increasing IT connectivity, and reducing regulatory burdens for small businesses can help fill the jobs gap.

Photo by <a href="https://unsplash.com/@sporlab?utm_source=unsplash&utm_medium=referral&utm_content=creditCopyText">sporlab</a> on <a href="https://unsplash.com/s/photos/turkish-youth?utm_source=unsplash&utm_medium=referral&utm_content=creditCopyText">Unsplash</a>

Youth

At an estimated 25% in 2020, the youth unemployment rate in the MENA region is almost five times higher than the joblessness rate for older adults. In North Africa, youth unemployment is higher than the Arab average: 30% for both sexes and 45% for young women.

In the MENA region, youth unemployment rates have exceeded 25% since 1991.  By the early 2000s, for every job that was created, four jobseekers entered the labor market. High labor force growth, skill mismatches, large public sectors, and high reservation wages have been key factors behind the large and persistent level of youth unemployment. (IMF)

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