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Can the Middle East create 15M jobs over 10 years?

Can the Middle East create 15M jobs over 10 years?

Job creation is one of the most pivotal issues in the Middle East. But is the current public spending and business environment enough to cater to this wave of jobseekers?

February 28, 2012 4:45 by

The average annual growth rate in the labour force in the MENA region over the next 10 years is expected to be around 2 percent per year, according to Ernst & Young’s (EY) second quarterly Rapid-Growth Markets Forecast.

That’s 15 million jobseekers from the national population over a span of a decade across the MENA region. In the Middle East, EY particularly looked at four countries the company considers as RGM (Rapid-Growth Markets). These are Qatar, Saudi Arabia, the UAE and Egypt.

While Ernst & Young does not provide a country breakdown of jobseekers, it would be safe to assume that a big chunk of this figure comes from Egypt and then, perhaps, from Saudi Arabia. (Kipp has requested EY to provide a country breakdown for this study. We’ll share this with you as soon as we get our hands on it.)

And, while some growth in workforce can be promising, it can be detrimental to a country’s economy and political standing—some of which pockets of the region are already witnessing.

It’s easy to say that the job creation should be high on any government’s agenda. But what would governments have to do to make sure this growth in labor force becomes a boon to the economy and not a burden?

While this issue might be relatively easier to manage across a smaller national population such in the UAE and Qatar, nationalisation programmes in these countries still have a lot of headway to cover in ensuring low employment rates. So what hope for larger populations like Saudi Arabia or Egypt?

The EY report points to a four-step response to job creation:

  • Promoting entrepreneurship
  • Creating the right environment for new businesses
  • Developing the non-oil economy, education and training
  • Targeted public spending on infrastructure

According to the International Monetary Fund (IMF), infrastructure investment can have a sizeable impact on employment generation – about 40,000 annual direct and indirect new jobs can be created in the short term for every $1 billion spend on infrastructure projects. On this basis, 1 percent of GDP spent on the right kind of infrastructure projects could generate up to 87,000 new jobs in Egypt, for example.

From a half-glass full perspective, the region has already seen fledgling investments across the four-step response. From a half-glass empty perspective, however, none of these investments are enough to secure such a massive a safety net for this amount of jobseekers.

And the challenge continues as EY forecasts a slowdown in GDP growth across the UAE, Saudi Arabia, Qatar and Egypt. This is mostly attributed to a decrease in oil revenue expectations.

Of the four MENA RGMs, Qatar, with its large oil and gas reserves, will continue to be the fastest growing. MENA RGMs are attempting to offset weaker external growth through fiscal programs.

Aside from a decrease in revenues from oil, its undeniable that the sovereign debt crisis in Europe have depressed growth in the Middle East. Oil importers like Egypt are much more directly affected, as close to 30 percent of the country’s goods export is destined for the Eurozone and a significant proportion of their remittances, FDI inflows and revenue from tourism come from Europe as well.

Some good news for citizens is that despite a decreased dependence on the oil economy, governments seem to indicate an increase in public spending, particularly in Qatar and Saudi Arabia.

In Qatar, large capital spending increases coupled with rises in wages, pensions and benefits for all state and military employees helped boost the economy. Saudi Arabia’s GDP growth rate of 6.1 percent in 2011 is largely attributable to support from government spending, especially on infrastructure. In the UAE, GDP growth has been supported by the oil sector, tourism and business services as well as government spending. The UAE economy has been insulated somewhat from the problems in the Eurozone through close links with the fast-growing Asian economies.

In addition, Saudi Arabia has announced a multi-year spending package equivalent to 19 percent of total GDP. In 2011, the bulk of the extra spending is on increased employment and social welfare, including wages and subsidies. In the future, however, the focus will be on capital spending, directed mostly toward the housing sector.

Spending programmes, particularly on expanded subsidies and transfers, have been implemented in Egypt, as the country responds not only to the political uncertainty, but the economic downturn and higher commodity prices. Monetary policy has also been supportive. Qatar, Saudi Arabia and the UAE have cut further or maintained their already low interest rates.

In a nutshell, things have started rolling but it would be nicer to see things moving a little faster in terms of creating a more robust economy that cultivates a higher rate of job creation. A lot can happen in ten years. And while it may seem preposterous to think about making sure the 5th graders of today have jobs to look forward to in their future, it’s well worth the effort to create a sustainable economy that solves this dilemma right now.

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