The Arab world has a long tradition of commerce and enterprise. Yet, since achieving independence, many Arab countries have adopted state-led development models that have left their economies overly reliant on the government. This is unsustainable.
The Arab world’s economic model has endured, despite major setbacks in the 1990s, largely because the state employs a large share of workers and provides universal subsidies. This eliminates risk from citizens’ economic lives, entrenching their dependence on the government and stifling entrepreneurship and innovation. It also undermines the delivery of public services, stoking mistrust of the very government on which populations depend so heavily.
The Arab world’s state-led development model might be set to reach a breaking point as hundreds of millions of young people prepare to enter labor markets in the coming decades. With the public sector unlikely to be able to absorb these new workers, there is an urgent need to create a dynamic private sector that not only adopts, but also generates technological innovations that empower workers and deliver durable and inclusive growth.
This approach is in line with the demands of the Sustainable Development Goals, which were approved by all UN member states — including all Arab countries — in 2015. Achieving the goals — which range from eliminating hunger and poverty to protecting the environment — will require the involvement of dynamic private sectors that are capable of producing technological solutions and willing to provide critical financing.
Private-sector financing — say, of the infrastructure projects demanded by goal No. 9 — is particularly important in the Arab world, where many governments are already burdened by debt. To help mobilize that financing, the World Bank Group has launched the Maximizing Finance for Development program.
Of course, governments must also maximize their own resources. In the past, abundant investment and energy revenues limited the incentive to mobilize tax revenues. However, as government coffers are depleted, Arab countries — among the least efficient tax collectors in the world — are under growing pressure to pursue meaningful reform.
Arab governments must also boost the efficiency of their spending. As it stands, while most Arab countries spend a fair amount relative to their income levels, they achieve relatively poor outcomes, especially in health and education.
To improve the state’s functioning and regain citizens’ trust — developments that could facilitate tax collection — Arab governments should apply the concept of “value for money” to public administration. Such a framework for assessing the cost-effectiveness of public-sector activities requires that data about those activities be collected, assessed and disclosed in a transparent way. Mechanisms such as information-feedback loops would then enable authorities to identify quality issues and make improvements quickly.
Here, too, the World Bank Group is taking steps to help. Because investing in human capital is the most important long-term action a government can take, the Human Capital Project focuses on identifying the factors that are undermining the efficiency of investments in this area.
However, even before comprehensive data are available, some approaches for improving the efficiency of public spending and administration stand out. In particular, Arab countries can emphasize the localization of development. By improving the capacity of local governments to plan, finance and deliver key services, including health and education, countries could boost value for money, build confidence among citizens, and make significant strides toward achieving the goals.
A final area where reform is imperative is regulation. In many Arab countries, incumbent public and private firms — especially in critical sectors like financial services, telecommunications, and energy — enjoy significant advantages, including outright protection, onerous regulations that deter market entry by new players and inadequate limits on natural monopolies. This impedes competition and contestability, undermines the diffusion of general-purpose technology, and blocks the type of adaptation and evolution that a dynamic private sector requires.
Rather than control the economy outright, Arab governments should foster the emergence of independent yet accountable regulators that can help ensure improved economic outcomes. Of course, if history is any indication, the shift from a dirigiste state to a regulatory one will not be easy. However, experience offers useful lessons to guide this process. In any case, the regulatory “status quo” — which will condemn Arab youth to unemployment and disenfranchisement — is not an option.
This is all the more true at a time when tech giants like Facebook, Amazon, Tencent and Alibaba — with matchmaking-based business models turbo-boosted by digital technology — are propelling a shift toward “ultra-concentration.” In this context, building a dynamic private sector capable of providing opportunities to the Arab world’s young workers will require even more vigilant and effective regulators, operating within a smart regulatory framework that addresses issues relating to the collection and use of data.
It is often said that private-sector-led innovation is the key to enabling developing countries to leapfrog their way into the future, but this narrative should not be allowed to obscure the paramount importance of smart and innovative regulations to support such progress. The state’s role in Arab economies must improve, not diminish.
Mahmoud Mohieldin is World Bank group senior vice president for the 2030 Development Agenda, UN relations and partnerships. Rabah Arezki is chief economist for the Middle East and North Africa region at the bank.
Copyright: Project Syndicate
Two sets of economic data released last week by the Directorate-General of Budget, Accounting and Statistics (DGBAS) have drawn mixed reactions from the public: One on the nation’s economic performance in the first quarter of the year and the other on Taiwan’s household wealth distribution in 2021. GDP growth for the first quarter was faster than expected, at 6.51 percent year-on-year, an acceleration from the previous quarter’s 4.93 percent and higher than the agency’s February estimate of 5.92 percent. It was also the highest growth since the second quarter of 2021, when the economy expanded 8.07 percent, DGBAS data showed. The growth
In the intricate ballet of geopolitics, names signify more than mere identification: They embody history, culture and sovereignty. The recent decision by China to refer to Arunachal Pradesh as “Tsang Nan” or South Tibet, and to rename Tibet as “Xizang,” is a strategic move that extends beyond cartography into the realm of diplomatic signaling. This op-ed explores the implications of these actions and India’s potential response. Names are potent symbols in international relations, encapsulating the essence of a nation’s stance on territorial disputes. China’s choice to rename regions within Indian territory is not merely a linguistic exercise, but a symbolic assertion
More than seven months into the armed conflict in Gaza, the International Court of Justice ordered Israel to take “immediate and effective measures” to protect Palestinians in Gaza from the risk of genocide following a case brought by South Africa regarding Israel’s breaches of the 1948 Genocide Convention. The international community, including Amnesty International, called for an immediate ceasefire by all parties to prevent further loss of civilian lives and to ensure access to life-saving aid. Several protests have been organized around the world, including at the University of California Los Angeles (UCLA) and many other universities in the US.
Every day since Oct. 7 last year, the world has watched an unprecedented wave of violence rain down on Israel and the occupied Palestinian Territories — more than 200 days of constant suffering and death in Gaza with just a seven-day pause. Many of us in the American expatriate community in Taiwan have been watching this tragedy unfold in horror. We know we are implicated with every US-made “dumb” bomb dropped on a civilian target and by the diplomatic cover our government gives to the Israeli government, which has only gotten more extreme with such impunity. Meantime, multicultural coalitions of US