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Rethinking Arab Employment A Systemic Approach for Resource-Endowed Economies

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Regional Agenda Rethinking Arab Employment A Systemic Approach for Resource-Endowed Economies Part of the New Vision for Arab Employment Initiative of the World Economic Forum October 2014 Contents 3 Preface
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Regional Agenda Rethinking Arab Employment A Systemic Approach for Resource-Endowed Economies Part of the New Vision for Arab Employment Initiative of the World Economic Forum October 2014 Contents 3 Preface 4 Executive Summary 6 Introduction 10 Part I Stakeholders Perceptions of the Main Causes of Youth Unemployment 12 Part II The Employment System in GCC Countries Dynamics of the Employment System Vulnerabilities of the Employment System 26 Part III Interventions 30 Conclusion: Perspectives for Further Discussion 31 Endnotes 32 Annex 1 Process 33 Annex 2 Interventions: Stakeholders Suggestions 36 Annex 3 Acknowledgments and Project Team 2 Rethinking Arab Employment Preface Espen Barth Eide Managing Director and Member of the Managing Board, World Economic Forum Countries in the Gulf Cooperation Council (GCC) have made tremendous progress in the past decades, building cities at the forefront of innovation, becoming global leaders in select industries, and continuously expanding their global aspirations. Yet, to sustain this momentum, dramatic progress needs to be achieved in how young people, a demographic majority, engage in the economy and society at large. GCC leaders are acutely aware that a job is more than a salary, and that the possible consequences of compromised futures, because of under- and unemployment, are deeply destabilizing. They understand that providing a dynamic, enabling environment in which these youth legions can realize their ambitions is critical to whether their economies can achieve their long-term aspirations, particularly in light of the current social context. At present, however, even with wide acknowledgment of the importance of the matter and despite decades of economic expansion and extensive investments in education, infrastructure projects, and economic diversification, high youth unemployment rates persist, often reaching double digits. Against this backdrop, the World Economic Forum s New Vision for Arab Employment Initiative convenes stakeholders around an impartial platform to create better understanding of the structural reasons for youth unemployment, and translate the widespread appetite for resolving the challenge into effective solutions that sustainably increase productive youth employment in the private sector. Recognizing the particularities of resource-endowed economies, the initiative began by engaging leaders of the GCC from business, government, civil society and academia at the highest levels to share perspectives and best practices, with the objective of advancing common action for creating an enabling economic environment for Arab youth. Philipp Rösler Managing Director and Member of the Managing Board, World Economic Forum This report represents the culmination of an exhaustive exploration of the root causes and potential solutions for youth unemployment in GCC countries, based on the World Economic Forum s Strategic Foresight approach. It works to understand the issue from stakeholders diverse perspectives and provides principles for the design of interventions. Thus, this report offers a tool to policy-makers and business leaders in addressing the issue effectively. The analysis highlights the deep-rooted social and economic behaviours that drive youth unemployment in GCC economies and concludes that effectively tackling an issue borne of such an engrained framework ultimately requires a holistic approach. This need for change calls for a bold leadership in fundamentally rebuilding the employment system to create a new, more sustainable form of social stability. It also calls for a collaborative effort involving policy-makers, the private sector and civil society, and engaging young people themselves. Most importantly, such an undertaking asks for the region s collective courage and foresight to abide potential short-term costs in order to seize long-term opportunities. Only such an inclusive, holistic effort will enable the GCC to fully capitalize on its demographic dividend. World Economic Forum All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, including photocopying and recording, or by any information storage and retrieval system. We hope that this report will spur debate and action and we would like to express our gratitude to all stakeholders who participated in this process and, in particular, to the Middle East and North Africa Regional Business Council Project Board. The World Economic Forum remains firmly committed to improving the state of the region by promoting constructive and forward-looking multistakeholder dialogues. The World Economic Forum will further bring together key stakeholders in a series of open dialogues in the Middle East and North Africa region through its Global Project on Employment, Skills and Human Capital. The views expressed are those of certain participants in the discussion and do not necessarily reflect the views of all participants or of the World Economic Forum. REF Rethinking Arab Employment 3 Executive Summary The demographic youth bulge represents one of the greatest opportunities, as well as one of the greatest challenges, faced by the Arab World. With more than half of its population under 25 years old and the world s highest regional youth unemployment rate, the Middle East and North Africa region stands at a critical juncture. This youthful populace can turn into either a youth dividend or a youth liability, contingent upon the region s ability to create an enabling environment in which young people s aspirations can be fulfilled. Solutions to date show little progress in confronting the challenge of youth unemployment in a structural manner, in spite of existing financial means. Despite the widely acknowledged importance of the challenge and many efforts underway, little progress has been made to effectively address youth unemployment. Persisting high youth unemployment rates in Gulf Cooperation Council (GCC) countries Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates clearly demonstrate that effectively addressing youth employment requires more than budgetary capacity and economic growth. Possible explanations of limited progress are a lack of common understanding of the problem or a perception that risks associated with comprehensive solutions are too high. Stakeholders tend to view the issue of youth unemployment from varying angles based upon their assumptions about the root cause of the problem. Shaped by these assumptions, policies often tackle the issue in a selective manner, without fundamentally confronting the status quo. With this in mind, the first phase of the World Economic Forum s New Vision for Arab Employment initiative engaged leaders from business, government, civil society and academia to develop a holistic analysis of the employment system in Arab resource-endowed economies, with specific emphasis on GCC countries. This approach sought to create a shared understanding of the structural reasons for youth unemployment, while raising awareness of future pressures to the current system were it to be continued, as well as the potential consequences of interventions. non-national workers and their host country. The result of the current employment system is that the private and public labour markets are disconnected from each other, with high barriers for national young people to be productively employed in the private sector. This disconnect has roots in the massive demand for non-national labour after the oil boom, coupled with a pervasive protective attitude by governments towards their own citizens. The foundations of the social contract need to be modified so that national workers become integrated into the private sector if both purposes social stability and economic prosperity are to be sustained over the long term. Systemic solutions include improved frameworks for young people s independence, creativity, motivation and responsibility, as well as a regulatory framework that harmonizes the attractiveness of non-national and national workers, creates opportunities for trust-building between both workforces, and increases the attractiveness of the private sector for young nationals when compared with the public sector. The implementation of systemic solutions, which require rebuilding the employment system, involves risks but creates a more sustainable system. Perpetuating the current employment system implies exposure to current pressures, such as budgetary and public productivity constraints, as well as to potential future pressures, such as declining oil and gas prices, political pressures, rising tensions between national and non-national workforces, stagnant low productivity in the private sector, and a lack of non-national labour supply. An employment system that is more reliant on the productivity of its own national workforce, with its foundation therefore being in the hands of national decisionmakers, would be one in which social stability and economic prosperity are appreciably more sustainable. Hence, tackling the challenge on a structural level today, now that wealth and economic growth allow it, opens the way to seize long-term opportunities and makes the system more sustainable over the long run. While this approach might incur short-term costs, it prevents decision-makers from reaching a stage at which the solution space could be significantly constrained due to potential pressures. Youth unemployment is a complex structural problem, driven by deep-rooted social and economic behaviours. An integrated, holistic approach helps identify the structural and interrelated reasons for youth unemployment and the vulnerabilities of the current employment model. The analysis explored stakeholders different perceptions of the challenge of youth unemployment and integrated them into a framework that provides a big picture of the employment system in GCC countries. The current employment system fulfils two specific purposes: securing social stability, through the social contract established between the state and its citizens; and ensuring economic prosperity, through an economic contract, which represents the relationship between 4 Rethinking Arab Employment Rethinking Arab Employment 5 Introduction In the context of an increasingly competitive global economy, the transition from education to productive and rewarding employment is challenging for young people everywhere. Nevertheless, the situation has reached a particularly critical juncture in the Middle East and North Africa (MENA), where regional youth unemployment rates are the highest in the world: 27.2% in the Middle East and more than 29% in North Africa, which is more than double the global average. 1 With more than half of the region s population under 25 years old and 2.8 million young people 2 entering the labour market every year, the demographic youth bulge represents one the greatest challenges faced by MENA economies. Creating an enabling environment in which young people can turn their education into employment and realize their aspirations is critical to avoid frustration and to ensure social stability. At the same time, these large cohorts of young people represent an enormous pool of talent, with a huge potential to drive the innovation necessary to build more competitive and sustainable economies. In light of such social and economic imperatives, youth employment is at the top of policy and business agendas. However, little progress has been made towards increasing youth employment in a productive and sustained manner. The recent experience of the Gulf Cooperation Council (GCC) countries Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates (UAE) has clearly demonstrated that effectively addressing the youth employment agenda requires more than budgetary capacity and economic growth. Supported by a spectacular rise in oil prices, the fast economic expansion of the GCC during the past decades enabled substantial job creation 3 and the accumulation of considerable wealth. A significant portion of these gains has been translated into extensive investments in education and infrastructure projects, and into the diversification of the GCC economies. Yet, Gulf countries still face persisting high youth unemployment rates, particularly for young women (see Figures 1 and 2), suggesting that economic expansion is not enough to solve the youth unemployment challenge in the region. Figure 1: In GCC countries, youth unemployment rates are more than twice as large as overall unemployment rates 40 Overall unemployment Youth unemployment Unemployment rate (% of labour force), Source: World Bank, World Development Indicators Qatar Kuwait UAE Oman Bahrain Saudi Arabia 5.6 Figure 2: With the exception of Kuwait, youth unemployment rates in GCC countries are much higher for women 60 Young Men Young Women 55.5 Youth unemployment rate (% of labour force ages 15-24), Kuwait Qatar UAE Oman Bahrain 21.2 Saudi Arabia Note: When accounting for the national population only, unemployment rates tend to be higher than the ones presented in Figures 1 and 2. For instance, in the case of Saudi Arabia, according to World Economic Forum calculations based on national statistics (see Central Department of Statistics & Information, Labour Force Survey 2012), the youth unemployment rate among nationals reaches 41% and more than 70% among young national women. Source: World Bank, World Development Indicators 6 Rethinking Arab Employment Youth unemployment is a complex structural problem, driven by deep-rooted social and economic behaviours, shaped by institutions, rules and norms governing the labour market and education system. Designing interventions to sustainably increase productive youth employment is not easy; adopting a more holistic approach appears to be essential to the effort. For instance, different stakeholders view the solution to youth unemployment from varying angles based upon their assumptions about the root causes of the problem. As the development and effective implementation of options often requires the support of a multitude of stakeholders, it is essential that these stakeholders hold a level of shared understanding of both the challenge and potential solutions. Furthermore, solutions to complex problems often require a long time to bear fruit. This means decisions must take into account not only present contexts and risks, but also future ones, which are likely to be very different from the current. Against this background, the World Economic Forum engaged leaders from business, government, civil society and academia in a series of conversations between August 2013 and January 2014 to develop a comprehensive analysis of the employment system in Arab resourceendowed economies, with a particular emphasis on GCC countries, shedding light on the fundamental reasons for youth unemployment and their interdependencies. This approach, based on the World Economic Forum s Strategic Foresight practice, aims at creating a common understanding of the structural reasons for youth unemployment and raising awareness of potential consequences intended and unintended of interventions, to help decision-makers identify effective and robust solutions, and ensure their successful implementation (for further details on the process, see Annex 1). This report provides the main conclusions of the process. The first part of the report summarizes stakeholders various perceptions of the root causes of youth unemployment. Building on this preliminary exploration, the second part uses a systems thinking approach to provide a holistic analysis of the employment system, integrating the different causes of youth unemployment and mapping out their interdependencies into a synthesized framework. It includes an analysis of external changes to the employment system that might undermine social stability and economic prosperity, the system s very objectives. The third part of the report suggests how the insights presented in the second part, generated through a collaborative cross-stakeholder process, can contribute to advance fruitful discussions to sustainably increase productive youth employment. Rethinking Arab Employment 7 Box 1: Historical Context The current employment situation in GCC countries has been shaped by the oil-based growth model adopted by these economies and has evolved supported by, and to support, rapid economic development. The discovery of vast oil reserves in the 1930s, 4 and their subsequent extraction and exportation, allowed Gulf States to generate considerable revenues from oil which today account for at least 80% of total government revenues in all GCC countries, with the exception of Qatar for which combined oil and gas revenues represent about 70% of government revenues. 5 Through oil exports, GCC countries have been able to record rapid economic growth, accumulate considerable wealth, modernize infrastructure and greatly improve their citizens living standards, all of which with various and overall relatively low levels of diversification of the economy into productive, labourintensive sectors. 6 This distinguishes the GCC s economic path from that of most advanced economies, for which the transition to higher per capita income has generally been associated with greater diversification. Furthermore, large oil revenues have enabled the provision of a generous social contract, so that GCC governments do not need to tax their citizens to ensure social welfare. Through implementing the social contract materialized by subsidies, free access to public services, and the provision of jobs in the public sector governments commit to securing their citizens economic and social well-being, and in turn, citizens support their government. The hiring of both skilled and unskilled non-national labour, which has been needed to sustain the rapid oil-based growth of GCC economies, has also helped shape the employment situation of Gulf States, with non-nationals filling the majority of jobs in the private sector. Labour migration began following the initial discovery of oil, but increased substantially only after the 1973 oil boom and subsequent initiation of ambitious development projects. Such projects led to a rapid increase in labour demand that could not be met by national workforces, either because they were too small or did not have the required skills. In parallel, nationals were absorbed in the social contract that commits to offering comfortable, well-remunerated jobs in the public sector. Thus, by giving citizens an entitlement on oil wealth without promoting the productive use of national labour resources, the social contract has led to low labour force participation rates among GCC nationals (see Figure 3) and a high proportion of non-working dependents per employed person. 7 While economic growth has been translated into high medical standards, it has not yet significantly altered cultural norms that still put a premium on large families and traditional gender roles. As a result, fertility rates have remained high over the past decades. 8 This can be linked to the remarkable pace of economic growth that has occurred so far, without needing to productively mobilize the entire national labour force. The resulting high population growth has led to today s inordinately large youth population, with about one-third to one-half of the GCC s populations under the age of Figure 3: Although aligned with the average rate for MENA non-oil exporting countries, labour force participation rates in GCC countries are low compared to selected international cases Total Men Women Labour force participation rate (% of population ages 15+) Saudi Arabia United Arab Emirates Qatar Kuwait MENA nonoil exporters World's 10 largest net oil exporters (excluding GCC countries) Advanced economies* * OECD countries Note: Figures for GCC countries are for nationals only. All f
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