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(originally published by Booz & Company)


Staying on the Road to Growth

Exclusion vs. Inclusion

The Arab Spring has raised questions about the dominant development model in the Middle East. For decades, national development involved top-down, countrywide policies with legitimate goals, but these policies often had unfortunate effects. Food and fuel subsidies intended for the poor were sometimes shunted instead to middle-income groups, which then treated them as an entitlement. Governments at times paid more attention to the views of organized labor and the bureaucracy than to those of the young and unemployed.

As many government leaders have already realized, this untargeted development has led to a mismatch between demography and economic structure. Despite robust growth, MENA countries cannot provide enough jobs. The youth unemployment rate on average was more than 27 percent in 2011 — more than double the global rate of 12.6 percent. Meanwhile, universities in the region produce too many graduates whose training does not match the present or future needs of employers in the private sector. Many of these graduates will depend on the state for employment, housing, and subsidies.

Instead of continuing to support untargeted development, governments can encourage development that promotes the one social sector that can have the most positive long-term effect: the middle class. The best way to do this is through inclusion, particularly of those groups with the skills and ambitions to become entrepreneurs, and those who have thus far been omitted from the development equation. The most prominent and significant of these groups is women.

Economically excluded women are part of what Booz & Company calls the “third billion” — the first and second billions are the populations of China and India. (See “The Third Billion,” by DeAnne Aguirre and Karim Sabbagh, s+b, Summer 2010.) These are the women who have the potential to become middle-class entrepreneurs, employees, and consumers, but whose economic lives have previously been stunted, underleveraged, or suppressed. As they enter the economic mainstream, they will have a huge impact around the world.

This will probably affect the Middle East dramatically, especially given its high levels of female education. For example, women in Kuwait, Qatar, and Saudi Arabia constitute 67 percent, 63 percent, and 57 percent, respectively, of university graduates. Yet in many countries, only a minority of women participate in the labor force, and comparatively few in the private sector.

Bringing educated women and properly skilled youth into the economy fuels growth, enterprise creation, and employment. Ultimately, that will provide the bedrock of stability that the MENA region has lacked: a sizable middle class.

Governments need other pro–middle class policies as well. Recently, Booz & Company surveyed about 1,450 members of the middle class in Egypt, Saudi Arabia, and Morocco; their highest-ranked aspirations were for stability and national economic development, and they showed considerable desire for better governance and education. These are exactly the qualities associated with a strong middle class, and working toward them should be the first priority of any government.

Sovereignty vs. Regionalization

Before the Arab Spring, there were repeated attempts to create regional alliances and trading blocs in the Middle East. These plans invoked the region’s shared language and culture, the commonalities that run from Morocco to Oman and that are stronger than those found in Europe. Yet few of these bids to unify governance or economic structures came to fruition, in part because of the tendency to put national sovereignty above regional ties in all cases, even when regional ties were worthwhile. Unfortunately, this tendency could increase after the Arab Spring. Governments may see trade, monetary, and financial-sector integration as a further threat to sovereignty, rather than as a chance to stimulate commerce and enterprise. But that would be an error and a swing of the pendulum in the wrong direction.

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