MENA uprising looms as inclusive growth proves elusive
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Emerging Markets

MENA uprising looms as inclusive growth proves elusive

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Although the MENA region is forecast to grow, the rate of expansion is not fast enough to create the volume of jobs needed to avert a second Arab Spring, analysts tell Emerging Markets

The Middle East risks a second Arab spring in the next year unless it can produce higher rates of inclusive economic growth, analysts told Emerging Markets. But the structural and institutional reforms necessary to produce this growth are likely to take at least half a decade.

Real GDP growth will reach 2.8% across the Middle East and North Africa this year and 3.4% in 2015, according to estimates from the Institute of International Finance.

But Mohsin Khan, senior fellow at the Atlantic Council’s Rafik Hariri Center for the Middle East, believes that a 6%-7% rate of inclusive economic growth is needed to “satisfy and pacify” the population.

High rates of unemployment coupled with a rapid rise in new entrants to the labour force mean countries across the region are fighting a losing battle to find jobs for their populations. Youth unemployment in the MENA region remains the highest in the world, according to an International Labour Organisation report published this year.

In the Middle East, 27.2% of young people were out of work in 2013 and more than 29% in North Africa. The ILO expects the figure for the region as a whole to rise to above 29% by 2018.

“It’s really the main issue in the whole region,” said Hassan El Sayed Abdalla, Arab African International Bank’s chief executive. “This issue is being put at the front of all policies that are being made in Egypt.”

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Most attempts to address the unemployment problem have been ad hoc, said Yahya Alyahya, chief executive of Bahraini Gulf International Bank. “But you need structural reforms and educational infrastructure, not just economic reforms” he said.

Demography and time, however, are against the region’s efforts. Creating the necessary economic growth across the wider MENA region will take a long list of structural and institutional reforms, Khan told Emerging Markets. Even if many of the reforms under debate were instituted this would only get growth to perhaps 5%, he said.

“The political will is not really there and the problem is being pushed off into the future,” he said. “It would take five years at least for the necessary reforms to be implemented and then you would start seeing growth rates pick up. But without the growth you could see another uprising in a year or two.”

A return to stability and high growth across the region requires addressing a variety of risks — including heightened conflict across large areas of Syria and Iraq — as well as the focus on fundamental reforms, the Institute of International Finance said in a report published this week.

But the prospects for that to happen in the near future are small, it said. Oil exporting MENA economies can rely partly on subsidies and stimulus to buy time. But others do not have this luxury.

“The oil producing countries have the money to buy peace,” said Khan. “They can throw money at the problem. The other countries can’t.”

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