BARCELONA — In many parts of the Middle East and North Africa, the relationship between labor markets and economies is broken, but a combination of digital disruption and youth empowerment could jumpstart a more vibrant economy, said Rabah Arezki, the World Bank’s chief economist for the region.
“Jobs are dignity. They are things that the youth are aspiring to, and at the moment they are educated but unemployed — and that's unacceptable.”— Rabah Arezki, chief economist for Middle East and North Africa, World Bank
MENA has the highest rate of youth unemployment in the world — at 30 percent in 2017 — and with the ongoing conflict in countries such as Syria, Iraq, and Yemen, job prospects continue to suffer. Arezki believes digital technology could help remedy the problem and urged the international community to come together behind World Bank’s “moonshot agenda” — which strives for modern broadband internet in all regions along with infrastructure and regulation that enables digital money transfers.
“What I think we should be doing collectively is helping authorities recognize how important it is to seize the unique moment of economic empowerment for the youth by recognizing that the opportunity provided to us with the digital economy — and especially in the region disintermediating economic change — is of critical importance,” Arezki said.
He believes there’s been an unwillingness to reform so far, but said the bank is working to help countries see that the time to open up the job market, foster innovation and entrepreneurship, and build a stronger economy is now.
The World Bank is betting on "digital economies" as the African continent's best chance for success — but even insiders say the strategy is a gamble.
“Jobs are dignity. They are things that the youth are aspiring to, and at the moment they are educated but unemployed — and that's unacceptable,” Arezki said.
In an interview with Devex, Arezki spoke of the challenges the region faces in terms of employment and the wider economy, how these can be overcome, and why shooting for the moon is the only way forward.
This conversation has been edited for clarity and length.
What are the World Bank’s key priorities for the region over the next couple of years?
Eight years after the Arab Spring, there have been a number of actions by governments, but mostly on the macro adjustment part, and what we've not seen is a consistent set of reforms that address the issue of the day, which is the contestability of market — the so-called structural reform. The governments have failed to deliver on that very important agenda, which is an inclusive agenda opening the door of what is a rather closed labor and private sector entry for young people.
To make a dent in the agenda — in addition to looking at regulation and making regulation not just about prudential motives, meaning limiting risk — regulation has to be adapted so as to create the impetus and scope for more innovation and quality services. We all know that it is important for people to trust the financial system — so it is important to limit risk in that respect — but it's also as equally important to create a condition for regulation not to stifle innovation and entry. As a result, you create positive change in quality services and jobs.
I think that's the top priority for the region: creating scope for the regulatory framework that allows for much more quality services and jobs by stopping stifling the agenda.
What challenges stand in the way of creating this?
The challenges we face are, I think, not an ambitious enough agenda when it comes to rethinking the regulatory framework, and not ambitious enough to institutionalize competition and anti-trust. I think government commitment toward that is of paramount importance and there’s also an opportunity for them to leapfrog into the digital future.
We would like these countries to commit for themselves and their populations to adopting fast, inclusive, high-speed, affordable internet — including in isolated areas — that will connect and integrate better from within countries and facilitate financial inclusion.
In this sector, regulation is going to play a critical role. The players in the telecom and financial services can’t be holding back that innovation that is upstream and can serve the rest of the economy and that multiplier effect on jobs.
What we’ve seen is a commitment by a number of countries to double the internet and to ask for assistance in digital payment. We've seen that in Tunisia, Morocco, Alger, and Egypt. Countries are realizing and asking for assistance from us and others to help them in the early phase of a big push of a moonshot for the digital economy.
You’ve talked about the need for a new social contract focused on economically empowering the hundreds of millions of youth who are expected to join the labor market in the coming decades and the role of digital technology within that. Can you explain how the two intersect?
One cannot hope that we stimulate growth and we make that growth inclusive if we don't integrate rural areas. The best way to do that is not just roads, it’s financial services and the internet.
I think it boils down to making progress on these two agendas of mobile e-payments and fast, inclusive, affordable internet available to all. This would likely help the logistical chain, distribution chain, and transportation be much more nimble, it will fortify the economy, and create opportunities for a revival of agriculture production and agribusiness, [for example].
That's where we see the future and, of course, this is just to accelerate that access to market integration from within and help the country project abroad. But to institutionalize that we would like to see credible antitrust competition authorities that systematically take on the incumbent advantage that is stifling innovation.
I can't resist telling you that there’s a very solid body of research that documents the inverted U shape relationship between innovation and competition. If you've got little competition you get little impetus for innovation — that is the result of the quiet life, of the incumbent — and if you don't get these going in the region, we will never have the productivity that will then allow for the raising of income and increase of welfare of the citizenry, especially the youth.
How can others in the development community help in empowering youth in the MENA region?
This is not just the World Bank with the authorities, it's the broader international community coming together as one to make the case that the authorities need to come to the rescue, literally, of the hundreds of millions of youth who are coming to the labor market. There is urgency there and we would like the whole development community to help make that case. It's always difficult to recognize when there are such ruptures that the moment for change is now, because we often think about the old technology — manufacturing, industry, etcetera — so that old development model, which, to be frank, didn't stick in MENA.
The call to action is recognizing that opportunity to come together behind the moonshot agenda.