Now a year beyond the first flush of the Arab Spring movements throughout Northern Africa and other parts of the Middle East, the difficulties of economic uplift in the area are becoming apparent. In a way, the sudden successes of the uprisings, particularly in Tunisia, Egypt and Libya, mask the real long-term difficulties of laying the foundations for sustained economic viability for the region.
Joe Saddi, the chairman of Booz & Company, has long done business in the region and spoke about both the Arab Spring’s upsides and downsides at the first Wharton Middle East North Africa (MENA) business conference recently.
"I hear often the phrase, ‘The Arabs never miss an opportunity to miss an opportunity’," said Saddi. "But now that the opportunity to have an economic success is there, we can no longer afford to do that."
Over the last several months, Booz & Company has issued a variety of white papers advising its clients on how to handle the new realities in the region. Booz & Company has, for example, looked at the expansion of education, increasing the role of women in the work force, and ways to get private equity interested not just in oil reserves, but in the panoply of businesses necessary for the region to thrive in what should not just be an Arab Spring, but an Arab Century.
According to Saddi, there are roadblocks — perhaps not monumental, but substantial — and they exist both immediately and will for the foreseeable future. While the demonstrations and ousters of old leaders got people thinking about academic, environmental and governmental freedom, those thoughts have now turned to ideas on how to have prosperity with those freedoms. Saddi said that the Middle East will have to create 75 million more jobs by 2020, and the ability to figure out how to do it will determine the long-term future of the region.
"To put that into perspective, the United States created 3.5 million jobs last year, and we feel it has to be twice that rate in the Middle East. It is nothing short of daunting," Saddi said. "Unemployment is the major issue in all the countries of the Middle East and North Africa. This is the number one issue, and even the newest and most popular regimes will be swept away in a second if the unemployment issue is not solved, and rather quickly."
Jobs A Big Concern
Saddi said Booz & Company did a survey of young people in MENA in the aftermath of the Arab Spring, and the most prominent worry was not about intellectual freedom, but about jobs.
"Employment and economic concerns remain the top things in the young person’s mind," he said. "The famous ‘one percent’ from the United States protests can easily be seen in the Middle East. Inequality, or at least inequality of opportunity, creates political tension. The young people want the opportunity to create something – something new on their own and in the new society that they have fought for."
Saddi said he sees what he called "four pillars" that will produce a long-term state of growth in the Middle East and North Africa. First, he said, there needs to be an effective educational system.
"It is not how much money we are spending there. Spending indeed is on an increase," he said. "The quality of the spending is the issue." Saddi said enrollment in public and private education, particularly among females, has risen "quite sharply." Yet, he said, the quality of education has hardly improved.
"We need to be spending on educational infrastructure — not just on teacher training, but on reforming the educational system," Saadi said. "In that same survey after the Arab Spring, across the region we asked, ‘How do you think the educational system is preparing you for the right job opportunities?’"
At least half the respondents, and many more in some countries, said that they really were not being prepared for much. The theoretical knowledge students are finding their education is not in line with what the job market needs.
"Employers constantly still complain that they can’t find researchers, scientists, math students — people they really need to boost the most important industries," he said. Not only that, said Saddi, there is not a push for the two languages absolutely necessary for success in the international world — English and computer literacy.
The region, he said, spends almost nothing in research and development. The number in the United States is 2.7%, which may not be a lot, but in the Arab World, it is even less than the 1% in even developing countries around the world.
"This will stifle innovation, which is what the area really needs," Saddi said. Even if the education system itself gets a bit better, a third of the population in the Middle East is under 15 years old and 60% is in its 20s or below. "Imagine the pressure on the labor market when these people graduate and join the workers who are already there."
Secondly, according to Saddi, in order for long-term economic stability in the Middle East there needs to be a thriving entrepreneurial culture. He said that where there are specific local needs, that entrepreneurial spirit is there, especially in family-run enterprises such as shoe repair, food markets, coffee shops, tailors. All that, though, will not have the region compete in the larger global market place.
"If you look at the percentage of what you would call entrepreneurs, the numbers do not look bad, but it hides a different phenomenon," Saddi said. "A lot of the self-employed are self-employed out of necessity, because they can’t find anything else."
Mentorship Taking Root
There has to be a system where those of the one percent do more to get the young people up to speed. The good news, he said, is that mentorship has started to gain traction, but there have to been even more willing successful business people to bring along the young, now freer, generation. There needs to be more emphasis, too, on entrepreneurship. Saddi added that there are 400 universities in the region, but only 40 of them have even one course in entrepreneurship, and only four have degree granting programs. "The study of entrepreneurship has not percolated in a formalistic way," he said.
That third pillar, Saddi said, is to have not just investments, but effective investments. Banks have been reluctant to lend, just like in the rest of the world. There is nothing to rival the venture capital markets like in the United States, he said. In fact, if there is any chance an entrepreneur could get venture funding, he is still going to places like Silicon Valley, not Cairo or Tunis or Beirut, to find venture funding.
"There is some good stuff happening, some programs to channel more secured lending to small and medium enterprises of the region," Saddi said, noting that there is particularly a growth in micro-lending in the more stable parts of the region. "There are experiments, but there is still a long way to go on the financing side."
He said the red tape that has long been associated with the Middle East is not receding quickly. Setting up companies, getting approvals, guiding new entrepreneurs through those approvals, all are changing at a glacial pace. "Small and medium enterprises are going to create a lot of those 75 million jobs. Entrepreneurship will be the key to solving the unemployment issue, so we need to work through this," he said.
Third among Saddi’s pillars is channeling investments into what he called "value added economic activity." He said that while they are profitable, too much of the economy of the Middle East is tied up in oil and gas — about 47% of the revenues come from one product. Even in Norway, where the economy is tied to oil and gas discovery, the industry represents only 26% of its economy.
"Until economic diversity happens and the region does not have to cope with the volatility of oil prices, there will be problems," he said. It has to be a priority of local governments, he said, to allow entrepreneurs to enter all kinds of businesses more easily in order for the region to become a better place for all to live.
Finally, said Saddi, there has to be a greater sense of trade and economic integration, not just with the rest of the world, but with the neighboring countries themselves. "The region only had borders in the aftermath of World War I," he said. "There were no border checks and people just roamed around."
Saddi said he is not seeking to go back to Bedouin times, but that the spirit should be there. He said that in Europe, there are many different languages and many different cultures. The countries there go on and off having wars, and yet, since 1950 at least, there has been a vibrant economic zone, which trades around the world and within the various countries.
"In the Middle East, there is basically one language and one religion, and people who have been traveling across countries for centuries, but there is no integrated economic system,’ he said. "The Arab Spring brought great energy to the region, and there is optimism that the governance systems of those countries will expand," he said. "There is good stuff happening, but in order to create those 75 million jobs by 2020, we will have to work at a faster pace, and in the proper direction."