The Middle East and North Africa, which has the world’s second-youngest population after Sub-Saharan Africa, needs reforms to create jobs for the youth to curb rising unemployment, the biggest challenge faced by the region, according to the International Monetary Fund.
Current population projections show that about 5.5 million new workers will join the Mena labour force each year over the next five years, the fund said in a new report released on Saturday.
“There is no greater challenge facing the Mena region in its efforts to build a future based on inclusive growth than job creation,” the fund said.
“In the past five years, the region’s working-age population increased by 50.2 million, and 27.6 million people joined the labour force. Yet employment increased by only 25.4 million.”
With 60 per cent of the population under the age of 30, the region is struggling to create enough jobs for its young work force. Unemployment rates remain high. After reaching more than 11.5 per cent in the early 2000s, it averaged 10.6 per cent in the region in 2016, compared with 7.2 per cent in advanced economies and 9.8 per cent in emerging markets.
“If the region could generate an additional 0.5 percentage point of employment growth per year, real gross domestic product growth would accelerate to 5.5 per cent per year, and real per capita income would rise annually by 3.8 per cent,” the IMF said. “Without such change, unemployment could reach 14 per cent by 2030 and labour force participation would not change.”
Limited access to financing for the small and medium-sized enterprises, low levels of foreign direct investment, and political instability are some of the reasons holding back the region from creating enough jobs, the fund noted.
Boosting access to finance for the SMEs to the average in the emerging markets will create more than $300 billion in additional private sector investment in the region, the IMF said.
The Mena has the lowest concentration of loans to SMEs among all regions, representing 2 per cent of the aggregate GDP of the region.
The public sector also remains the largest employer in several countries in the region, hindering the growth of the private sector and job creation in SMEs, a vital plank of the economy. The public sector accounts for an average of 8 per cent of working-age population in Mena oil importers and 13 per cent in the Arabian Gulf, compared to an average of 5 per cent in emerging markets and developing economies.
It is no surprise that Mena countries, excluding Arabian Gulf states, which accounts for about a third of the world's proven oil reserves, have the lowest number of newly registered limited liability companies per 1,000 working-age people of any region, according to the IMF report.
The region also suffers from low levels of foreign direct investment, another deterrent to job creation.
During the 2010-15 period, FDI inflows into Mena declined by 53 per cent, compared to an increase of 11 per cent in Latin America and the Caribbean and 76 per cent in sub-Saharan Africa.
“Raising levels of FDI inflows as a share of GDP to the average of emerging markets would require an influx of $40bn or 1.25 per cent of GDP,” the fund said.
IMF said that the region should also eliminate energy subsidies and improve tax collection so it could allocate more resources to add more jobs to the economy.
Increasing tax collection to the average level of emerging market would create resources of more than 9 per cent of Mena GDP, which could finance social and infrastructure expenditure.
“For each 1 percentage point of GDP in spending on energy subsidies in the Mena region that is redirected to infrastructure spending, the region has the potential over six years to increase its real GDP by 2 percentage points and create 0.5 million new jobs,” the fund said.
“Alternatively, by eliminating generalised fuel subsidies, governments in the Mena region could afford to fund a 40 per cent increase in social protection spending to bring the regional average spending on social protection to 7 per cent of GDP.”