Can Promoting Arab Women as Entrepreneurs Make a Difference?

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Or will age-old stereotypes relegate them to secondary roles?

The economic and business roles of Arab women have been discussed for more than two decades and initiatives have been launched on the consensus that their participation is worth promoting. With electoral quotas in several Arab countries to promote their political participation and with more women appointed to significant positions in the private sector, there are indicators that the roles of women are being taken more seriously. In Saudi Arabia, for instance, while there is a great deal of focus on women driving and flying, much less has been published about those women who make up the majority of Saudis enrolled in medical and pharmacy schools, teaching and research programs, and a number of scientific concentrations.

But I believe that the emphasis across the region on building up women on entrepreneurs will only bear fruit if the term applies broadly to women who create and run small and medium-size enterprises as businesses as well as their counterparts engaged in IT, programming, hi tech, and similar sectors where entrepreneurs tend to concentrate.

Recent enterprise program initiatives recognize that empowering rural communities, co-ops, neighborhood associations, and similar groups will enable them to act as proto-incubators for bringing greater business literacy to those who have been largely marginalized economic players. The cost of not including women as serious economic actors is severe and largely unnoticed. A Brookings Institution article noted that “The World Bank recently said that globally we are losing $160 trillion in wealth because of the gender gap in earnings, including $3.1 trillion in the Middle East and North Africa (MENA) region.”

Yet changes in legal codes, allocating more funding to female-centric programs, and building friendly ecosystems to support women in business still has to overcome the most significant barrier to women in the workforce – social and cultural stereotypes driven by a patriarchal society. As the Brookings article puts in, “In order to address the cultural barriers and the deep-rooted gender stereotyping concerning the division of labor, we must work closely with communities and with men specifically to raise the desirability and legitimacy of women working.”

Perhaps the reason that there is so much emphasis on promoting women entrepreneurs in hi tech is that these sectors are outside those traditional jobs tied to crafts and food processing or more male-dominated areas. An IFC article says it clearly. “It may surprise some to learn that one in three start-ups in the Arab World is founded or led by women — a higher percentage than in Silicon Valley. Indeed, women are a force to be reckoned with in the start-up scene across the Middle East. Because the tech industry is still relatively new in the Arab world, there is no legacy of it being a male dominated field. Many entrepreneurs from the region believe that technology is one of the few spaces where everything is viewed as possible, including breaking gender norms, and is therefore a very attractive industry for women.”

Digital platforms that are the backbone of many high-tech projects are one option for enabling women to spend time both at home and on the job. For example, “these digital platforms allow women to be unimpeded by cultural constraints or safety issues and lowers the implicit and explicit transaction costs of transportation, child care, discrimination, and social censure,” according to the IFC article.

So the future for highly educated women in the Arab world is not as regressive as for those with less education and access. In fact, “According to UNESCO, 34–57% of STEM grads in Arab countries are women, which is much higher share than universities in the US or Europe.”

Yet other statistics are not as supportive of a bright future for women. According to the IFC article, “In fact, 13 of the 15 countries with the lowest rate of female participation in the workforce are in the Arab World according to the World Bank. Restrictive laws in many countries across the region put women who wish to join or start their own businesses at a disadvantage, including prohibitions against women opening up a bank account or owning property, limited freedom of movement without a male guardian, or constraints on interactions with men who are not in their family, in addition to cultural and attitudinal stigmas.”

So it makes sense that the emphasis should be three-fold: opportunities for women at the community level through initiatives in traditional areas of crafts, niche foods, and specialty items (think argan oil and Zaatar); building ecosystems at the high end for university graduates who are well-versed in the digital economy and may apply those skills to upgrading those women at the community level (e.g. https://www.asilashop.com/, or http://deden.co.uk/heritage-natural-soap-by-tradition/), and those in-between who are eager to be active in their local economies and will excel if given training, resources, mentoring, and encouragement.

 

The Devil is in the Details – Lebanon Gets Boost for Infrastructure Development at Paris Donors Conference

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The Paris IV conference brought together more than 40 countries and institutions to address the need for funding infrastructure projects in Lebanon. The result, as reported in numerous media accounts, is a commitment to some $11 billion in support, mainly in the form of soft loans and concessionary financing for more than 250 projects presented by the government of Lebanon. While some may see this as a ringing endorsement of Prime Minister Saad Hariri’s efforts to draw attention to the needs to stabilize Lebanon’s economy, whether or not Lebanon is up to the task of managing the commitments has yet to be determined. However, the financing will not come about without hard lessons ahead for Lebanon’s patronage and political wasta system.

According to Chris Jarvis, IMF head of Mission in Lebanon, the funding is conditioned on at least two major steps: the development of a management system to handle the funds, and a clear accountability system that ensures that funds are managed and “really contribute to growth in Lebanon.”

Hariri’s game plan has a number of triggers to attract international investors, particularly the use of Public-Private Partnerships (PPPs) that wed government planning and seed funds with investor expertise and control. The danger is in the low level of expertise in the public sector in negotiating PPPs, which can lead to unjustified risk-taking and risk-allocation by government agencies.

Reuters reported that “Jarvis also pointed out that following the IMF’s proposed measures are fundamental to reduce the government’s budget deficit, which includes raising the VAT rate, reintroducing taxes on petroleum products, and raising electricity tariffs to cut down on the subsidy bill.

“We think stricter structural reforms are very important, especially in stepping up anti-corruption efforts, and improving the electricity sector, so that people get a better supply of what they’re paying for.”

A similar concern was raised in an Asharq Al-Awsat story that “The donors would be very strict in following up the Lebanese performance and how to deal with these funding plans, which will last for six years, including two years devoted to the study of the hundreds of projects submitted, and four years of execution. The discussions revealed a key demand to adopt a ‘follow-up mechanism’ to ensure that the government is serious about implementing two issues: reforms and fighting corruption.”

The donors are well aware of the challenges to Lebanon due to many political shocks of the past decade, the continued security challenges, and the burden of support more than 1.5 million Syrian refugees. “The small Mediterranean country’s debt-to-GDP ratio is the third-highest in the world at 148%, and annual growth is projected at around 2% for 2018. Among the major donors was the World Bank, which pledged $4 billion in low-interest-rate loans. Saudi Arabia reactivated a $1 billion line of credit and France pledged $492 million in low-interest-rate loans and $183 million in grants.” The United States committed some $110 million as a grant.

Prime Minister Saad Hariri spelled out the desperate situation, pointing to the impact of Lebanon’s status on the region. “It is not the stability of Lebanon alone. This is the stability of the region and, therefore, of our world,” Hariri said, warning that a collapse in Lebanon could ricochet throughout the Middle East and Europe. Syria’s war has hindered land exports to Jordan, Iraq, and oil-rich Gulf Arab countries. And as The Washington Post added, “Rampant corruption has taken another kind of toll, hollowing out infrastructure and basic services, with frequent water and electricity cutoffs.”

The hard road ahead will only prove more difficult if Lebanon does not adopt needed reforms to make its economy and government more efficient. With a mix of grants, concessionary loans, market loans, and guarantees, having a robust and transparent management system is paramount if Lebanon is to achieve its badly needed economic targets. Estimates are that the first phase of study and initial projects will take four plus years and cost $10 billion, with a total of $17 billion needed over the following seven years.

French President Macron, the host of the conference stressed that “The delivery of the funds is also tied to a series of measures that include public-spending cuts and an assault on corruption. This conference only has a sense if it’s accompanied by your will and your courage, and a precise monitoring of the follow-up,” Macron said in his closing comments. “It only has a purpose if it’s accompanied by a profound transformation.”

Lebanese officials maintain that the private sector would finance around 40 percent of the program, while any grants and loans received would be used for the remaining 60 percent. Yet some view these soft loans – with an interest rate of around 1.5 percent over a period of 20 to 30 years – as an extra layer of debt. Not great news if not properly managed.

Up next is the Brussels conference scheduled later this spring, which will focus on the Syrian refugee crisis.

Lebanon Needs to Pass 2018 Budget before Paris Donors Conference April 6

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Not only is Lebanon’s fiscal health in question as Parliament struggles to pass a new budget, but it can ill-afford to show up at the international donors conference in Paris on April 6 without a strong case for how it will spend funds made available to Lebanon. There are three steps to be taken, starting with approval by the relevant committees, then agreement by the Cabinet and then Parliament. While the initial approvals were completed last week, there is plenty of time for mischief in the Cabinet and Parliament deliberations. Added to this is the challenge of being prepared for the donors conference later in April in Brussels dealing with support to countries hosting Syrian refugees.

The latest news is that the government is likely to approve the budget this week at the latest so that it can be presented, along with its Capital Investment Program at which Lebanon is requesting funding for a 10-year, $16+ billion capital investment program of reforms and incentives aimed at strengthening and accelerating economic growth. The donors summit is dubbed the Paris IV donors conference, which along with summits planned in Rome and Brussels, intend to rally support for building up Lebanon’s and attracting foreign investments to strengthen Lebanon’s economy battered by the consequences of the Syrian refugee crisis and regional unrest.

In a recent comment, the IMF noted that Lebanon’s deficit, already at 150% of GDP, was expected to increase another 10% under the 2018 budget projections, even with planned reforms. The projected deficit of $5.3 billion makes Lebanon one of the three most indebted countries in the world.

A recent statement by Prime Minister Hariri underscored the current negative situation. “It is no secret that the economic situation in Lebanon today is difficult and that we face big challenges. Growth rates are low, unemployment rates have exceeded 30 per cent, poverty rates are increasing, the balance of payments suffers a deficit, public debt is rising at a rapid rate and has exceeded $80 billion and the treasury deficit has reached unsustainable levels.”

Unfortunately, Lebanon’s power-sharing agreement among sectarian parties exacerbates the difficulty in reaching agreement on the budget and recommended reforms as each group seeks to maximize their benefits under the budget while avoiding reforms that would help stabilize the overall economy. Added to the dysfunctional process at the national level are issues such as the battle over who can provide Lebanon with reliable power, when some communities have only 12 hours of electricity a day. Generator owners, tied to different factions, continually block legislation that would allow solar power incentives to help close the gap.

In many ways, the goals of the donors conferences are all interrelated. For example, in 2017, Lebanon spent $10 billion of its funds addressing the Syrian refugee situation in the country, a sum not reimbursed by the donors. According to a report by the Carnegie Endowment, “Lebanon’s national response plan—a joint initiative with the UN to address Lebanon’s challenges related to the Syrian conflict—only received 54 percent of pledged funding in 2015, down to 46 percent in 2016, and 43 percent in 2017.” Some of this, Lebanese officials admit, is due to its lack of organization regarding services to the refugees and supporting local host communities.

So the debate on the national budget carries enormous fiscal consequences beyond allocations for the government, its programs, and its broader responsibilities to the refugees, and regional security. It is an opportunity for Lebanon’s leaders and Parliament to adopt a reform agenda add hopefully make a dent in a system that depends on arguments over assigning benefits by sect rather than the national good.

Can Lebanon Salvage Its Stability and Regional Economic Role? PR Hariri Thinks So

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A recent story on www.Naharnet.com featured an assessment of Prime Minister Saad Hariri’s recent experiences and his vision for Lebanon in the coming year. He emphasized once again that it is vital that the parties in Lebanon engage in serious and concrete dialogue as the only possible approach to moving the country forward.

The posting noted Hariri’s statement “Emphasizing that he and certain political parties will not agree on a lot of issues, especially regional matters, Hariri asked: “Without dialogue, how would the situation in the country be? We experienced the absence of dialogue prior to the Taif Accord but we ended up around the same table. The Taif Accord is doing very well because we will always defend this Constitution.”

Despite his return and the commitment of the government to observe the dissociation agreement, many questions regarding the relationship with Saudi Arabia, the role of Hezbollah as Iran’s proxy, the flailing economy, and the impact of the outcome of upcoming election on May 6, still confound most Lebanese and outside observers.

Hariri remains proactive on the economy

High on the PM’s agenda is restoring Lebanon as an investment destination for regional business. Even the latest political upheaval around his resignation/reversal has not dimmed his optimism. In a statement carried by the government media, He said that “this is the best time to invest in Lebanon because, thanks to this political stability and security in our country, we have been able to establish that the country is capable of confronting crises in a wise manner.”

More specifically, he hopes the government will not increase the fiscal deficit next year while meeting the financial demands of the new national budget.
His remarks came during a session at the Global Business Summit organized by LIFE and Endeavor Lebanon.

Regarding the national budget, he noted that the recently passed legislation includes a number of reforms and some taxes. He was quick to emphasize that investments in the existing infrastructure program, debuted at the donors conference last year, was a viable starting point. The PM said that the government was ready to launch its efforts based on the results of the upcoming donors conference in March, which would mean raising $750 million of the $3 billion price tag. He also stressed the importance of the private sector’s role in the program with projects that could be initiated as early as February to upgrade the power infrastructure, rebuild roads, and other projects requiring the acquisition of land from existing owners.

In order to attract both domestic and international investors, however, Lebanon must adopt certain regulations and protocols that are not yet in place. Hariri said that “There are many laws that we have prepared and which are very important to encourage work. We worked on them in cooperation with several ministries and advisory bodies. They will be completed in Cabinet and then referred to Parliament, which will not delay them. With these laws, business will be much easier. There are a number of other laws that we will work on and a number of legal offices will help us in this matter in order to speed up their adoption.”

On the thorny issue of transparency, the PM pointed out how Lebanon had utilized international standards for the oil and gas awards and was now following up with the World Bank and IMF to implement similar standards for the CIP (Capital Improvement Projects) and other efforts that require international donors and participation by the private sector.

The wide-ranging discussion continued on topics such as taxes, the government deficit, support for SMEs, perceptions of political stability, relations with the Gulf States, investing in technology, and the internet in Lebanon. While it was an effective presentation by the PM, his points did not go unchallenged.

Not so fast Mr. Prime Minister In an article posted on the UAE site www.thenational.ae, the author challenged the PM’s optimism on a number of points. The author, Michael Karam, noted that “Everyone from the IMF to the various ratings agencies knows that the country is crippled by an external funding deficit of roughly 20 per cent of GDP and a government debt running at 150 per cent of GDP.” He also noted the disproportionate importance of remittances, some 16% of GDP, which could be reduced by political actions abroad, setting off an economic crisis.

Karam wrote that “Mr Hariri should take a page out of his late father’s book and give the people he is trying to woo something worth investing in. Rafik Hariri rebuilt the whole of central Beirut into what he believed would be a retail, tourism, and commercial hub.” It was a success initially “But today, the Beirut Central District lies largely deserted, a symbol of what happens when regional politics trumps business ambition,” referring to the blockade of the BCD by Hezbollah to force the government to not interfere with its independent telecommunications network.

The key point, he contends, “Is that the initiative was government-led, forming part of Hariri’s Lebanon 2000 vision, which he unveiled in the mid-90s. If only someone would give us similar hope, the business community might get behind his son. Give the private sector enough electricity, adequate clean water, and decent broadband, and it will perform miracles. And it could all be paid for with the oil and that gas that in all likelihood sits under the Lebanese coast.”

Although any realistic projection of revenues from oil and gas production is still 3-5 years away, there can still be another Lebanese “miracle” if somehow the business of reconstruction reverses the stereotype of Lebanon as a country that lacks transparency, is ruled by elites more concerned with benefiting their own constituencies rather than country as a whole, and a political system beholden to forces domestic, regional, and international forces that do not respect Lebanon’s independence.

So What about Tunisia?

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Government Faces Legacy and Aspirational Challenges

Perhaps it was too much to expect, that Tunisia could overturn a decades long autocratic state, create inclusive political space and a responsive and inclusive economic strategy, and fight off external security threats, all in ten years. Regardless, one thing is clear, the majority of Tunisians are committed to peeling back years of political and economic decay and restructuring their society to be more inclusive and equitable, but how?

There are many analyses of where Tunisia is headed – it even comes up during US wine tastings of Tunisia’s finest (another one of those pesky Muslim countries that grows and enjoys wine!). And there is consensus on the key issues, but the how to get there and who will have to make the sacrifices engender a great deal of debate.

As I noted in my recent blog on Morocco, forming a national strategy is a bit easier when you have a king who reminds his citizens about their obligations towards each other and responsibilities within the context of government serving the people. Yet, even King Mohammed VI has expressed frustration with officials and cultural luddites that see the past as the only guide to the future. And he is giving the Parliament, civil society organizations, and NGOs plenty of space to figure out how democracy will work in Morocco and the burdens of not delivering.

So it is with Tunisia. Everyone is rooting for its success, but it is still fighting past demons of inequitable political and economic empowerment, structural discrimination against women and youth, entrenched elite power networks, and lack of robust economic growth to generate badly needed employment. Among the recent reports of note was published by the Carnegie Endowment for International Peace authored by Maha Yahya, after extensive research in the country. The report came out before the most recent government shake-up so it is useful to compare the recommendations in the report with the latest policies espoused by the government.

The major concern expressed in the report was the “The spreading disillusionment and alienation of large swaths of Tunisia society and their burgeoning misgivings about their prospects for a democratic and stable future.” Both the political and economic spheres are characterized as out of touch with young people, beholden to elites tied to the old regime, not rigorous in developing inclusive strategies to promote prosperity in the inland areas, and lacking long-term strategies to ensure equitable participation in the political and economic life of the country.

Relying on various polling data, Ms. Yahya points out that in 2014, 50% of Tunisians point to corruption, especially in the health services and police, as widespread, and close to 70% believe that the government is not proactive in combating corruption.

Similarly, it is not surprising that 80% of those 35-49 believe that strong economic growth should be the country’s first priority. Less than 9% of rural youth and 31% of urban youth expressed any confidence in the political system, while more than 80% believe that their local imam and religious organizations are credible. This has serious consequences. “In the 2014 elections 80% of 18-24 year olds did not vote in the parliamentary elections and largely abstained from the presidential election.”

As Nabil Fahmy, former Foreign Minister of Egypt recently noted, “Domestic social and sectarian grievances are still very much a part of Tunisian politics. The Tunisian government must tread carefully, and it cannot assume that all of its citizens are satisfied with the new arrangements.”

Recommendations

The primary recommendation made in the Carnegie study is that “Tunisian political elites need to rebuild the bonds of trust between the citizens and their state, strengthen democratic institutions, and uphold the principles of equity and social justice enshrined in the constitution.”

Voters waiting their turn. cartercenter.org

Voters waiting their turn. cartercenter.org

Regardless of the overarching concern with border security and counterterrorism, the country needs to continue to build on the 2012 National Council of Social Dialogue to build “a common platform for dialogue on basic principles among political parties, civil society organizations, and the private sector, and for reflecting the basic concerns of Tunisian citizens.”

The government has committed to far-ranging economic and political reforms, which need to be defined and sequenced with special attention to addressing regional disparities. An innovation in the MENA that definitely has applications throughout the region is the country-wide use of technology to link state and citizen. While Jordan and others have instituted some e-government programs to promote transparency and communications, the Tunisian goal is more robust and has the potential to generate effective bridges between youth and decision-makers.

It was recently pointed out by a former government minister that the country is moving to equip its people with 21st century technology, for example, promising internet access throughout the country by 2020, but the government is narrowly focused on issued defined in the 20th century using laws and institutions based on 19th century or before models…not, he fears, the most effective equation for success.

Some hard facts…the global economy is undergoing traumatic transitions wherein two-thirds of many jobs will disappear, reflecting increased computer-driven capabilities; and all countries are searching for strategies to prepare market-relevant workers. Put building walls and threatening companies aside. The disruption of digital technologies is here to stay. Some countries will remain competitive with human capital as long as the costs are competitive with new technologies, and that won’t last long.

The former minister suggests three points of impact on countries. First, the widespread availability of Internet, either as a government policy or as a result of market forces, will diminish the isolation of rural areas and forge bonds for mobilization and action that can be used for many purposes. Secondly, digital education will provide equality of access not only within a country but to the world of global classrooms, changing the way we value and accredit education and skills acquisition. National education policies will of necessity need to incorporate these opportunities. Also, for many reasons, technology will lead to greater government transparency as administrations forgo paper and rely more on computer-based cashless transactions, hopefully reducing at least one channel for corruption. All of these will change the forms of government structure and services in the coming generation and require a 21st century constitution reflecting the digital ties between state and citizens.

As Tunisia struggles to implement the pledges of the new government, it faces tremendous entrenched interests, from political and economic elites to trade and other unions protecting their turf. Exhorting Tunisians to do more with less will not save the day in the short term. If and how Tunisia succeeds may point the way ahead for other MENA and African countries.

 

image from shutterstock.com

Is Morocco On Course?

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Morocco’s second election since the adoption of the new constitution in 2011 resulted in the appointment of Abdelilah Benkirane as head of government, since his moderate Islamic party, PJD, had the highest number of votes. He is currently in the process of negotiating a governing coalition.

To outside observers, this seems consistent with the norms of a democratic election and so is not remarkable. However, it has a much larger significance for several reasons. First of all, the results reinforce the reality that free and fair elections are a consistent feature of political life in Morocco. There are winners and losers, and the process moves towards peaceful outcomes and transitions, if necessary. Secondly, the results indicated the rise of a strong party, the PAM, in opposition to the PJD-led government, another healthy sign of a society in which no one party has the monopoly on the national discourse. A third consideration is that King Mohammed VI showed his support for the electoral process by immediately appointing Benkirane to form a government, a critical step since PAM is known to be strong supporters of the palace.

Most important in the long run, the election underscores Morocco’s advance towards greater civic engagement and government accountability, a consistent theme in the King’s speeches, most recently to the opening session of Parliament, itself continually including more women and youth members. And this is probably Morocco’s strongest asset, the blending of the King’s leadership with a government supporting ongoing reforms that bring Morocco in line with human and civic values that solidify its democratic elements.

Intentions are certainly not enough. The reform agenda is still incomplete. And the gap between passing and implementing legislation cannot be ignored. The King himself complained about the inadequate understanding and enforcement of the Family Law (Moudawana), which provides significant policies for women’s empowerment. Judicial independence is still to be attained; the regionalization process devolving certain powers to local governments has yet to be fully codified with institutions and human resources prepared to implement it; and there are gaps in the educational infrastructure and approach that are an obstacle to fully developing the country’s human potential.

These issues and many more were raised during the election, another positive sign for Morocco’s democracy. Most importantly, aside from a defensible prohibition on pre-election polling (which can be appreciated given the cornucopia of contradictory results of the myriad polls in the US at this time), Morocco has achieved a seasoned election process. As the political parties mature and the number of serious parties shrinks from the 30+ in the recent election, the opportunities for more robust and vibrant political campaigns can be realized.

Casting Ballots are only one small piece of democracy

Casting ballots are only one small piece of democracy

Over the longer term, Morocco’s elections have another very important function – to build needed credibility in the political system. Some international election observers suggested that the turnout of 43%, while comparable to democratic elections elsewhere, may signal dissatisfaction with political parties. In fact, there are signs that the political parties are getting the message that defining positions, seeking to be more inclusive, and listening to constituencies are critical to their survival and success. Shake-ups are already underway in those parties that fared poorly. Another lesson learned in the recent elections.

Finally, another issue to be reckoned with is how legitimate political mechanisms, such as elections, contribute to Morocco’s internal coherence and ability to govern. The lack of credible mechanism is commonly mentioned an indicator of “state fragility.” As Thomas Carothers points out in a recent Policy Brief produced jointly by the Carnegie Endowment for International Peace, Center for a New American Security, and the United States Institute for Peace, a common feature of fragile states is the systematic exclusion of its citizens. And the commonly defined prescription is “inclusive governance.”

If inclusiveness is the glue for building stability and the social contract, then Morocco is surely headed in the right direction. Elevating the Amazigh language as an official language for the government and educational system, broadening the role of civil society in in policy-making, and the King’s insistence, in his latest speech, that the government remain focused on providing quality services to the people – are all positive trends towards inclusion. People are already more empowered due to digital technologies; the government and institutions must keep pace develop credible and effective communications strategies in order to proactively discharge their responsibilities.

As the Policy Brief concludes:

When a government closes off space for independent civil society, it is creating a significant structural obstacle to achieving inclusive governance and positive state-society relations. An active, diverse civil society is the key to empowering marginalized groups, creating multiple channels for citizen participation, mediating diverse interests in a peaceful fashion, and in general creating state-society relations based on mutual communication, respect, and consensus.

This is where Morocco is headed and the country is well on its way.

Too Few Solutions from Algeria’s Leadership for Economic Woes

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The economic news for Algeria, tied to its opaque political-business regimen, is hardly heartening. Despite the recent decree of yet another attempt at reform, the country remains stagnated within a system that inspires little confidence in international investors and drives away its talented youth looking for opportunities elsewhere.

Robert Looney in Foreign Policy, argues that the country has done little to a significantly change its business culture, characterized by an interlocking coterie of politicians and businesses that still regard foreign investment as a Trojan horse for breaking their stranglehold on the commercial life of the country. Worse still, the country “is perceived to be among the world’s 10 most corrupt.” Its indicators are all moving in the wrong direction as “Fiscal and trade deficits have shot up, international reserves are falling rapidly, and the currency has been devalued by nearly 30 percent.”

Similar negative outcomes are project for GDP growth, which will end up around half of last year, largely due to the over-reliance on all things hydrocarbon. Looney paints a damning picture. He asks, “Will the new strategy [New Economic Growth Model] be the stabilizing force the government needs? If Algerian history and international experience are any indication, the answer is no.”

He goes on to note that on critical indicators such as quality of governance, rule of law, control of corruption, government effectiveness, and regulatory quality, it ranks below all of its North African neighbors. Algeria is unable to mobilize its population of 40 million, shrinking foreign reserves now around $150B, and proximity to Europe and Francophone African countries to take steps as its neighbor Morocco has done to implement a more sophisticated and open investment regime.

Looney mentions that there are “too many vested interests with a stake in blocking economic, social and political reforms have been created. Since it appears that the new reform plan was designed precisely by such vested interests in the corrupt government inner circle, it is unrealistic to expect the plan to set off a virtuous circle of reforms.”

Downward Trends

Some indications of how far Algeria has yet to go were noted in an article in the Sada Journal. It says that “This new approach has failed to convince some Algerian economists, who insist the current system needs a wholesale transformation, including tackling the structural obstacles that deter foreign investors or the emergence of a dynamic private sector.”

ITs over-reliance on hydrocarbons has stagnated Algeria's development

Over-reliance on hydrocarbons has stagnated Algeria’s development

This recommendation flows from the assumption that needed reforms, which would, among other steps, shift trade and investment responsibility to technocrats, free the financial and monetary system from its political albatross, provide transparency to contracting and commercial laws, and accept international accounting and banking standards, would be forthcoming. Not likely.

The basic structure of the economy, under the new model, like Saudi Arabia, is meant to move from its dependence on hydrocarbons to a more diversified economy. While the kingdom has Prince Mohammed bin Salman as the cheerleader-in-chief for Vision 2030, there is no comparable leadership in Algeria. It is ironic that it hosted the most recent meeting of OPEC, which will only continue to make it difficult to wean itself away from hydrocarbons if the price of oil even incrementally rebounds, thus making it easy for the Algerian leadership to once again postpone needed reforms.

The latest figures from Algeria paint a very difficult lie ahead. According to BMI Research, using Algerian government sources, “Cuts in public spending, mainly affecting capital expenditure, and higher taxes and import duties will be negative for investment and consumption. While Algeria’s remaining fiscal buffers will help to delay a more dramatic fiscal and economic adjustment, the next few years are likely to see subdued growth and rising macroeconomic challenges.”

The problem with business as usual is broad and deep. For example, due to declining hydrocarbon exports, the trade deficit went from a $4.3B surplus in 2014 to a $13.7B deficit in 2015, with the rate continuing throughout 2016. As the BMI report points out, “With investment largely dependent on public spending, there are few other domestic sources to pick up the slack. Private investment has long been constrained by Algeria’s byzantine operating environment, marked by difficult access to credit and numerous regulations and time-consuming procedures.”

There can be little satisfaction to watching Algeria weaken itself by continuing to bring on its own debilitation by continuing to rely on inadequate assumptions for economic strategies. Even the agreement with China to build and run a new port project valued at some $3.5B will not alleviate the long term consequences of failing to restructure and relaunch its economy based on a globally competitive series of assumptions that takes advantage of the keen human resources in the country.

 

Image: BBC.com

Feeding the Beast – Time to Separate Politics from Economic Reforms?

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Image property of SyrianFreePress@wordpress.com

Jordanians have been waiting months for a new national employment plan that is supposed to revamp the education and training systems to bridge the gap between education and employment; and provide guidance for the integration of Syrian refugees into the country’s workforce. It may appear after the Eid.

There is an interim government in place, tasked with preparations for elections in September, running the country, and implementing an agreed IMF reform agenda. According to the IMF, “These reforms will be focused on the business environment, the energy and water sectors, the financial sector, and the labor market. The reforms will also focus on protecting the most vulnerable segments of the population and in supporting Jordan’s efforts in hosting the Syrian refugees.”

he reforms include strengthening the tax base, controlling public spending, dealing with tax incentives and income tax in general, and ensuring the national safety net for the most vulnerable constituencies. The goal is to improve employment opportunities; encourage transitions from the informal to formal economy and support SME growth; promote cost recovery in the energy and water sectors; and improve the country’s financial system though greater transparency.

King Abdullah then announced an Economic Policies Council “to discuss economic policies, programs and development plans, supporting the government’s efforts aimed at overcoming economic difficulties, investing in opportunities, achieving higher growth rates and enhancing the competitiveness of the national economy.” Few women were in evidence on the Council’s roster.

The announcement of higher prices for water and energy were greeted with some small protest demonstrations and, according to the media, young people involved were demanding jobs. They initially turned down offers of private sector employment, preferring government jobs. Whatever the actual outcome, it was reported that they eventually agreed to work in the private sector…no further details.

Popular resentment towards tougher economic policies is not surprising…the US itself is unable to fund badly needed infrastructure repairs due to political sensitivities. Here in Jordan, the announcement of more economic reforms elicited three responses from local friends I consulted: the government hasn’t been doing its job properly; more meetings are a way to delay implementation of needed changes; and the government must do more to incentivize the private sector.

Women are underutilized in Jordan's development

Women are underutilized in Jordan’s development

Speaking about unemployment, one said that if Jordanians really wanted to work, there are plenty of opportunities to replace the half-million foreign workers in the country. He believes that until the government undertakes effective economic strategies that investors will not take Jordan seriously. He also spoke about the need to more proactively engage the informal sector through certification programs that enable those working outside the system to be licensed and trained to run their own businesses.

Another friend spoke about replacing the many job subsidies offered by the government with a higher minimum wage, better working conditions, and better use of government resources to eliminate waste and inefficient procurement processes. This would enable the government to pay more attention to fighting corruption and promoting effective governance, not to mention put in place more attractive job conditions.

A third source noted challenges to the economy from the impact of regional conflicts which is stifling commerce and scaring investors. He believes that business friendly reforms are the key to attracting more investments and so supports the start-up on the Economic Policies Council and the progress of the Jordan Investment Fund.

What these various perspectives underscore is that Jordan, at least for these sources, has a long way to go to rebuild the ties between decision-makers and the people. There seems to be a shrug when hearing about sacrifices needed when GID officers steal arms meant for anti-Assad fighters and sell them on the black market – their only punishment being kicked out of the service keeping their pensions and ill-gotten gains.

King Abdullah seems to sense that time is against the country. At the first meeting of the Economic Policies Council, he tasked them to “put solutions in place without any [hidden] agendas except serving people and combating poverty and unemployment. These are the interests of the people who are concerned with issues that matter to the country.”

For its part, members of the Council “underlined the indispensability of a participatory approach in the economic decision making and integrity between financial, monetary, investment and labour policies.” Time will tell is this is a call for effective action or another opportunity to avoid proactive and sometimes painful policies.

 

Tough Love Economic News Requires Array of Strategies

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Jordanians are chattering about how the interim government is facing a number of difficult choices, none of which are of its own making. There is painful medicine for Jordanians in the prescription agreed with the IMF this past week, and people felt it immediately in prices paid for energy and power. No one argues that Jordan needs to take immediate steps to stop its slide into even lower growth, and there is little disagreement among leading Jordanian economists about how to move forward. However, medium and long term reforms will not do much to alleviate the pressure felt by consumers.

This is the dilemma facing oil producers and non-oil producers alike: How to bring about long-needed reforms that will ameliorate inadequate planning and decision-making by past leadership. One approach is HRH Mohammed bin Salman – high visibility, high energy, let’s take on entrenched interests approach while continuing to coddle citizens, which Saudi Arabia can afford to do.

On the other, there are Jordan and Morocco, balancing competing economic interests among potentially volatile political constituencies. Their way forward is constrained by internal and external factors that are not easily controlled. Morocco is in a more favorable neighborhood that encourages FDI and a more stable domestic political structure. Jordan faces both short and long-term challenges that are intertwined with all of their neighbors.

An article in The Jordan Times on the reaction to the IMF  tough love agreement noted, “This means there are more hard times ahead for Jordanians…the targets set by the government seem too difficult to achieve within the framework and the time schedule agreed on with the IMF.” The government is in a quandary inherited from the previous administration. With a public debt equal to 93% of the country’s gross domestic product, “and the stubborn problems of poverty and unemployment,” former finance minister Mohammad Abu Hammour blamed the fact that “There have been no real economic reforms over the past years in Jordan. Reforms should have been incremental, because they cannot be done overnight.”

The former minister said that the situation is already gloomy as exports dropped by 10% in 2015, foreign direct investments declined by 35%, and “unemployment rose to the unprecedented 14.2% mark.”

While Arab countries face similar dilemmas – a demographic bulge, inadequate education resulting in a mismatch between education and employment, and stagnant to slowing growth, the political dynamics of each country require avoiding a single remedy formula.

In Saudi Arabia the focus is on economic restructuring to promote jobs for men and women and soak up all those Saudis who are being educated abroad since there are few excellent universities in the Kingdom. This, of course, does not resolve the issue of those young people who are not university bound but still want jobs.

Jordan is different. It has no sovereign funds to bridge its economy to a brighter tomorrow. It hosts hundreds of thousands of refugees that have absorbed any spare capacity to deliver services. And it has to rely on infusions of foreign funds and loans to maintain its operations.

jordan flagSo what should Jordan’s government do? Given the obstacles of growing an economy burdened by providing services to citizens and refugees, here are three paths to follow, each with its own consequences. First, Jordan needs to cut government spending – always tough when there are so many vested interests in the current system. Secondly, Jordan needs to move more proactively to create a more business-friendly environment, promoting transparency, reducing corruption, and building public-private partnerships focused on short to medium term results.

One area that needs more emphasis is on convincing wealthy Jordanians at home and abroad to make significant job-creating investments in their country. Real estate aside, there must be more productive sectors for Jordanian, and Moroccan investors. Jordan and Morocco have wealthy citizens that could contribute to the country’s growth if they were incentivized properly. Investment capital is notoriously risk averse so this will take the most persuasive power of both monarchs.

Local investment funds, properly incentivized, can be quite powerful in the near term for targeting job growth for unemployed university graduates as well as those in the vocational/technical skills groups. When under- and unemployed youth believe that they can get jobs with wages for more than basic necessities, they will take advantage of many programs available to equip them for jobs in commerce and industry…but they must see a way forward.

Jordanian economist Hosam Ayesh summed it up best when he said “Increasing prices of water and electricity as of next year will push up the prices of many commodities. Citizens are always asked to tighten the belt, but shortly, there will be no belt to tighten.” Long days ahead.

Thinking Aloud About Islam and Work

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Several years ago, I was part of a project in Saudi Arabia for the Ministry of Labor on restructuring curricula for the Technical Vocational Education and Training (TVET) sector. It was a very sophisticated effort including outreach to families and communities, revising the Qur’anic content in the syllabus to focus on work themes, and introducing widespread usage of English, innovation, soft skills, and problem-solving teaching methods in both the male and female programs.

It was, and still is an innovative effort to remake perceptions of the value of skills-based work as a career and contribution to the larger society. Recently announced plans to restructure the Saudi economy include a strong determination to have more Saudi men and women engaged in the workforce. This has been a theme since the 80s offset programs, Saudization (nationalization of the workforce) in the 90s, the nitaqat version unveiled in early 2011, and the new and improved nitaqat tied to the Vision 2030 reforms.

As explained by the Minister of Labor, Mufrej Al-Haqbani, “The government planned a new form of Nitaqat that would not focus merely on the numbers of Saudi nationals hired but also on factors such as women’s employment, the average pay of Saudi nationals, the ratio of the wages of Saudis to non-Saudis, and the sustainability of jobs occupied by local citizens.”

These same challenges exist throughout Arab countries, from Morocco to the Gulf, where many university graduates sit unemployed and underutilized due to a lack of market-ready skills, while hundreds of thousands of vocational and technical jobs are either filled by foreign labor or go vacant. Rates of unemployment among women are usually twice or more as those for men, and little or nothing is done to accommodate handicapped workers.

Women in a medical glove factory in Malaysia @hardrainproject.com

Women in a medical glove factory in Malaysia @hardrainproject.com

Muslim majority countries, especially in the Arab world, find it difficult to recruit labor willing to work in jobs unappealing for a variety of reasons: poor pay, lack of benefits, low social status, and poor working conditions are most frequently mentioned. Using Jordan as another example, a dichotomy is apparent. Jordanians waiting for the “right” job while Muslims from other countries show no hesitation to take manual technical and vocational jobs requiring very hard work without protections or future guarantees.

One could argue that for Jordanians, in their own society, there are constraints in the environment, such as social status or Islam that influences the choice of jobs. Yet that is not consistent with other Muslim countries whether one is looking at men working in the dye pits of Marrakesh or the women in Malaysia working in textile and industrial production lines.

One’s willingness to work may be affected more by local attitudes rather than other cultural considerations. In this regard, what Islam has to say about work is very instructive for both employer and employee in defining cultural values around labor.

My favorite passage on work from the Qur’an is “The Messenger of Allah (PBUH) shook the hands of a man on whom he found the effects of a rough manual labor, then said: ‘This is the hand that God’s love and His Messenger.’” And when asked what type of earning was best, “Prophet Muhammad (PBUH) replied, “A man’s work with his hands and every (lawful) business transaction.” (Al-Tirmidhi, Hadith 846) These passages remind me of my parents who immigrated to the US, ran their small businesses, always had vegetable gardens to tend, and believed that one learned important life lessons through honest labor.

Speaking about manual labor, the Prophet said “If any Muslim plants any plant, and a human being or an animal eats of it, he will be rewarded as if he had given that much in charity.” It is also written “Allah loves, when one of you is doing something, that he [or she] does it in the most excellent manner.”

The Prophet Muhammad (PBUH) also spoke directly to employers, “You should pay the laborer his wages before his sweat dries.” (Sunan Ibn Mâjah (2443) This addresses the central message of ethics in business, non-exploitation of labor, and justice – qualities both Islamic and universal. It is not surprising to find strong support for business and work in the Qur’an and hadith, given the revelations and the Prophet’s own honoring of labor and business as a community responsibility and benefit.

As governments throughout the MENA region look for effective means to motivate young people to acquire life skills built around technical and vocational capabilities, drawing on cultural and Islamic norms can be a persuasive entry point. Remembering too the responsibilities of employers to provide sufficient wages, respectful behaviors, and beneficial working environments should be promoted as both an obligation and good business sense.

 

[image from Slideshare.net]