Re-Blogged From Stratfor
- With labor markets in the Middle East and North Africa swamped due to a baby boom, countries in the region will continue to face the acute challenge of massive youth unemployment.
- Though each state struggles with its own circumstances, most countries will face daunting hurdles as they try to build strong private sectors.
- Even if these states do foster more robust private sectors, they may not be able to mitigate the economic hardship when it hits their citizens, due to the uncontrollable nature of the free market.
(HAIDAR HAMDANI/AFP/Getty Images)
Earlier this month, Dubai hosted the World Government Summit, welcoming dignitaries from around the world for talks on global happiness. But amid all the discussions of more contented societies lurked a more pressing issue right on the Emiratis’ doorstep: the prospect that 5 million workers are set to enter the Middle East’s job market each year, even as gainful employment is in short supply. That, at least, was on the mind of Christine Lagarde, managing director of the International Monetary Fund, who once more exhorted Arab governments to address youth unemployment — and fast. No one was about to disagree. From Morocco to Iran, states and leaders of all sects, political systems and governing systems understand the threat posed by the region’s high youth unemployment.
Although regional leaders agree on the need to increase employment, there is a good reason why youth unemployment remains stubbornly above the global average in the Middle East and North Africa. From building vibrant private sectors to finding the right jobs for youth to chasing technological silver bullets, many states have encountered hurdles in searching for a solution. Even if these countries do foster their private sectors and a technological boom, they will open themselves to market forces that they can scarcely control — a development that would challenge their already-strained social contracts with their people. Countries in the region are not blessed with decades to solve the issue of youth employment, but if they fail to find a resolution soon, the survival of these states will come into question.
Slim Pickings for These Baby Boomers
The Middle East and North Africa witnessed a baby bulge in the 1980s and 1990s, as infant mortality rates rapidly dropped in societies that are characterized by large families. From 1980 until 2000, the region’s population nearly doubled. Employment, however, failed to keep pace, and today the Middle East has the highest rate of youth unemployment in the world, according to the IMF, the World Bank and the Organization for Economic Cooperation and Development (OECD).
Regional economies failed to keep pace with the rate of population growth for a variety of reasons. Some countries, such as Iraq, Libya and Syria, experienced war, conflict and sanctions, but in places that did not suffer such degradations, youth unemployment rose inexorably. Whether rich or poor, Sunni or Shiite, Arab or non-Arab, Middle Eastern states report more young people searching for work with every passing year. Hampering the youth quest for jobs are a number of factors, including weak private sectors, mismatched skills and a regionwide overreliance on the public sector. But beyond these commonalities, geopolitical issues unique to each country have driven youth unemployment, as local constraints and local problems have all conspired against youth trying their luck in the job market.
On the western edge of the region, the former French colonies of the Maghreb — Tunisia, Algeria and Morocco — struggle with unemployment rates that run close to 30 percent. For Tunis and Rabat, the problem stems from a lack of high-value natural resources.
Tunisia’s pleasant climate benefited inhabitants in an ancient, agricultural era. Today, however, the country’s agricultural sector does not yield enough income to provide jobs for most of its people. Instead, Tunisia is forced to rely on the low-wage, low-skilled tourist sector for much of its national employment. Moreover, the country also suffers from underemployment, as a robust education sector has produced many skilled graduates, but there are few jobs to match their skill sets. At the same time, a small coterie of elites continues to syphon off national wealth through corruption.
Morocco, meanwhile, mines phosphorus but that — along with its limited connections to Europe’s common market — does not provide enough income to ensure development at the speed necessary for youth job creation.
Algeria suffers from fewer resource constraints thanks to its abundance of hydrocarbon reserves, but the country has failed to fulfill its energy potential. The state has driven a hard bargain in negotiations with foreign energy companies in an effort to extract the most possible income, but the tactics have slowed the sector’s growth because they have dissuaded investment, harming employment rates.
In addition, all three suffer from a French colonial legacy of strong civil societies — which would nominally be an asset for stability, because they provide representation for people with grievances. Such groups, however, frequently slow the reforms that are prerequisites for revitalizing the private sector. When countries in the Maghreb propose austerity cuts, tax increases or public sector salary cuts to improve their competitiveness, they can face pushback in the form of strikes or other civil action.
Algiers’ actions during the Arab Spring highlighted these issues. Amid the global economic crunch, the overthrow of the government in neighboring Tunisia and worries about its own stability, Algeria’s government opened the doors to the public sector, doubling how much it spent on civil servants’ wages from 2009 to 2011. The action helped maintain calm on the streets but hurt the country’s budgets in the long term. Government spending has yet to return to pre-Arab Spring levels, even as the country’s critical energy sector brings in even less oil revenue. Now, Algeria is grappling with the aftereffects of a strategy that solved problems yesterday but gave little thought to today.
The Armies With Their Hands in the Pie
For Egypt, the problem is not just a lack of resources — the recent discovery of the massive Zohr gas field notwithstanding — but a large, urbanized population, a bloated public sector and an economy that is corrupt and dominated by the military.
The country’s population of 95 million has almost doubled since 1990, crowding ever more people into cities with poor infrastructure and few jobs besides the low-wage tourist sector. Citizens endure enough problems just finding clean water and affordable food, let alone jobs that can offer them the accoutrements of middle-class life. Unsurprisingly, the jobless rate for youth exceeds 30 percent.
Graft is also rife in Egypt due to years of military domination over large parts of the economy, and that corruption saps national wealth, which could provide more jobs, away from the private sector. The 2011 revolution did not dislodge the military from its paramount position in these businesses, which help divert wealth to these corrupt networks. Layers of regulation additionally protect these sectors and networks from competition.
Furthermore, Egypt’s domineering public sector provides the bedrock of the state’s political legitimacy. Public sector jobs direct talent away from the private sector and into often unproductive jobs. Those positions are usually created not to conduct functions of state but to buy loyalty to the regime. They also drain national wealth because workers strongly resist pay cuts.
Cairo has registered some success in its attempts to increase competitiveness — at least in 2017. But with President Abdel Fattah al-Sisi too dependent on military support for his power, it is unlikely that the authorities will roll back army control over much of the economy to implement greater reforms.
Military cronyism also hampers the economy in Iran, where the youth employment rate is 30 percent. The Islamic Revolutionary Guard Corps is a powerful presence in the economy, but other elites within the Islamic republic, including the supreme leader’s office, have accumulated assets over the years, diverting resources and distorting economic incentives. Perhaps a bigger problem for Iran, however, is a brain drain that has left the the country devoid of its best and brightest. Iran’s universities have robust engineering and mathematics programs, but many of its graduates seek work and study opportunities abroad. As a result, Iran foots the bill for the education of such youth but enjoys no dividends from its investment.
The Gulf Between Public and Private
In contrast, members of the Gulf Cooperation Council (GCC) are neither resource-poor, like the Maghreb, nor overpopulated, like Egypt. Their systems of government are authoritarian, yet there are no military networks gobbling up whole sections of the economy, as in Iran and Egypt. Many GCC states even have many jobs to offer nationals, yet the youth unemployment rate runs to nearly 30 percent in many of the countries. Young people in the Gulf frequently opt for comfortable employment in the public sector rather than seek work in the more demanding private sector. On top of that, the education systems in many GCC countries teach few of the skills private sector employers desire in a potential hire.
To consolidate their legitimacy, Gulf Arab states have relied on their hydrocarbon wealth to build large public sectors that are becoming increasingly expensive and unproductive with their offers of cushy jobs. Now, states in the region are struggling to push their youth toward the private sector despite a preponderance of jobs in the industry, with some eschewing the available private sector jobs in favor of remaining unemployed until a public sector job opens up. Ultimately, generous social safety nets inadvertently remove the incentives for Gulf Arabs to look for immediate work.
GCC members have each set targets to increase the number of nationals working in the private sector, but countries have often reneged on pledges to champion private industry instead of the oversized public sector. As part of a continuing drive to increase the number of Emiratis working in the private sector, the United Arab Emirates’ federal government recently froze public sector salaries for 2018 — only for the ruler of Sharjah to give employees in his emirate a raise anyway.
Similarly, Saudi Arabia has been seeking to cut its subsidies and improve its tax base. The kingdom implemented a value-added tax in January to improve the country’s overall budget situation, but after members of the public expressed fears that it would lower the standard of living, Riyadh rolled out a Citizen Account Program to soften the impact for poorer Saudis. In February alone, the program transferred $587 million to citizens.
Letting Go of Control
In their bid to find jobs for their youth, many Middle Eastern and North African states are confronted with challenges that will be difficult to overcome. Some are leaning on technology to provide a pathway forward, especially Gulf states such as Saudi Arabia, the United Arab Emirates and Qatar. Others, such as Egypt, are resorting to international institutions such as the IMF to help them implement the necessary structural changes. Yet a desire to produce modern, vibrant private sectors unifies them all.
The drive for such a private sector, however, presents a risk to many states. Private sectors have a tendency to crash, experience recessions and produce hardship as part of their natural economic cycles. Many Middle Eastern states have strived to mitigate hardship for decades as part of their social contracts with their people, but by embracing stronger private sectors, governments invite the risk that they will fail to manage the difficulties inherent in the inevitable downturns.
This desire to prevent hardship is already playing out in the battle over subsidies across the region. States with economies as diverse as Jordan, Saudi Arabia, Iran and Egypt are all trying to maintain a fine balance as they fight to reduce budget-draining subsidies and avoid a backlash from societies that have become accustomed to them.
Bigger private sectors connected to the global markets may also alter other expectations for governments, especially when recessions occur. Instead of counting on unified public support for further subsidies during hard times, states could face hostility from entrepreneurs and private sector leaders, making it difficult to mitigate a recession for the population through public spending or new subsidies. Even if they embark on spending sprees to bolster employment, the lag between the beginning of a recession and the response from the government could anger citizens, obliging them to endure recessions that impose austerity with little warning. And if states cannot learn how to absorb such social stress, they risk fomenting the unrest that has racked other austerity-riven countries, such as Greece.
If these states fail to provide the jobs their youth want or need, young people could turn to more extreme ideologies for answers. Religious militants will find plenty of recruits within the ranks of the unemployed, as they always have. Terrorism alone, however, is not the only threat. Some states, such as Saudi Arabia, are actively encouraging a more open society to try to entice investors, tap into the potential of their female workforce and inculcate a culture that lends itself to innovation and creativity. But if openness does not beget prosperity, the hard-line conservatives who have long argued that salvation lies not within the pocketbook but in holy texts may gain the political upper hand, allowing them to sideline reformists.
Right now, there is little appetite in the Middle East and North Africa for a repeat of the Arab Spring. But over the next decade, the demands for change will grow if no solution is found to the problems of unemployment among the 5 million youth who will enter the labor market this year. As the jobless suffer through year after year of poor work prospects, they will question the economic and political systems that have endlessly promised solutions yet failed to deliver an acceptable standard of living. Inevitably, a lack of solutions will foment protests and, potentially in turn, insurrection. With time running out for a solution, revolution might become the youth’s biggest employer in the not-too-distant future.