Speech by Jihad Azour, Director of IMF Middle East and Central Asia Department
Arab Economic Forum, Lebanon
Prime Minister Hariri, distinguished guests, ladies and gentlemen, I am delighted to be here with you today in my beloved city of Beirut, which I admire for its creative abilities and love for its diversity and openness.
I would like to thank the Economy and Business Group for organizing this conference, as well as for their tireless and continuous efforts in general.
The importance of inclusive growth, which we will be discussing today, lies in its ability to meet the aspirations of our people, create jobs, and enhance social justice. Today, the developments facing the Middle East and the world in general make the need for bold and sustained reforms even more urgent in order to achieve inclusive growth.
Growth in the Middle East region has been sub-par since the global financial crisis, which has resulted in fluctuating income levels and insufficient job opportunities. There are internal structural causes for weak growth in the area, as well as external challenges that adversely affect the region and its economy, including volatility in global commodity prices. In addition, conflicts in the region have had a negative impact on stability and growth in its economies.
The Arab region has the highest level of youth unemployment in the world, averaging 25 percent, and more than 27 million young people will enter the labor market in the region over the next five years.
Ladies and gentlemen, reforms in support of inclusive growth can help lead to great achievements. For example, an annual increase of 0.5 percentage point in employment can raise real GDP growth to 5.5 percent and per capita income by 3.8 percent per year. The young people of the region have tremendous potential if given the right opportunities, and they are perhaps the best illustration of why promoting inclusive growth is vital to the region’s long-term success.
If the gap between men and women with regard to participation in the labor market were narrowed, growth in the countries of the region could be doubled within a single decade and cumulative GDP could be increased by a trillion dollars. If the region transferred the equivalent of 1 percent of GDP from spending on energy subsidies to investing in infrastructure, the result would be a 2 percent increase in real GDP and the creation of half a million new jobs over the next six years. By increasing the financing available to small and medium enterprises to the median level in developing countries, more than $300 billion could be provided to increase investments in the private sector in the region.
In fact, ladies and gentlemen, many countries in the region have placed creating jobs and achieving inclusive growth at the top of their reform programs, and some of these countries have taken steps to boost the economic and financial opportunities available to young people and women, and to promote and develop the private sector.
Many countries are making efforts to use technology to expand economic and financial inclusion. FinTech projects in the region have increased seven-fold since 2009 in countries such as Egypt, Lebanon, Jordan, and the United Arab Emirates.
Jordan, for example, has created a service called eFawateerCom, which is an electronic platform that enables people to pay bills electronically by means of an ATM. This platform handles more than a million transactions per year and links its users to over 70 million Internet traders.
Among the important reforms being implemented by a number of countries in the region are measures to enhance the business environment, reduce bureaucracy, and promote small and medium enterprises.
In this context, Morocco has been able to create 85,000 jobs in the auto industry by enhancing the business climate and establishing free trade zones in Casablanca and Tangier. At present, about 45 percent of the spare parts required by the auto sector are manufactured by domestic suppliers.
The region is in desperate need of such efforts to adapt and transform, and the examples that we have cited need to be duplicated in other countries of the region, as they open new and better horizons for a future in which everyone can benefit from inclusive growth.
The International Monetary Fund believes that societies flourish when there are opportunities for everyone. It is essential that the countries of the region invest in their talented young people and strive to enhance opportunities for communication and interaction with the rest of the world.
At the beginning of the current year, the IMF held a conference in Morocco, which was organized jointly by the Government of the Kingdom of Morocco, the IMF, the Arab Fund for Economic and Social Development, and the Arab Monetary Fund. The conference was attended by over 300 people from 20 countries of the region, including government officials, representatives of the private sector and civil society, and global experts, who met to discuss how to overcome the obstacles facing the implementation of inclusive growth policies.
In the first session of the conference today, we will release a report on how to activate these programs and policies on the ground, and I am confident that we will conclude our discussions with an agenda that will help promote inclusive growth.
The agenda needs to focus on five priorities:
The first priority is promoting a dynamic private sector in order to achieve higher growth and create more jobs.
In this regard, it is clear that the old model, where the state plays the role of primary employer, is no longer sustainable. The private sector must play a larger role, and this requires government measures to create a climate of fair competition for private enterprises, as well as taking advantage of global trade and new technologies. Companies in the region also need to increase their investments, contribute their fair share of the tax burdens, and cooperate with the public sector to improve the infrastructure.
The second priority in this agenda to achieve inclusive growth is providing support for marginalized groups.
To this end, policies must be adopted to integrate young people, women, and rural inhabitants into the labor force by preparing them for suitable jobs. Financial inclusion, including the use of FinTech, is an important tool for enabling people, as approximately 70 percent of the adults in the region do not have bank accounts.
The third priority on the path to inclusive growth is using fiscal policy to invest in human resources and infrastructure.
Meeting this objective requires that fiscal policy be redesigned in order to allocate a larger share of public funds to improve the infrastructure in a large number of the region’s countries, and to enhance social safety nets, services, and education by increasing social spending, which today amounts to only 11 percent of GDP in the Middle East, compared to 19 percent in the developing countries of Europe. It is also essential to expand the tax base, make it more progressive, and ensure that all parties pay their fair share, while providing support to the needy.
The fourth priority is integration into the global economy.
According to our estimates, greater openness could raise growth in the region by 1 percentage point on average, which would be a huge boost.
The fifth priority of the agenda for inclusive growth is enhancing governance and combating corruption.
Corruption needs to be weeded out, as it remains a major constraint to private sector activity and public sector efficiency. We need to focus on transparency and governance, which are areas of weakness in the region.
Finally, ladies and gentlemen, there is no doubt that inclusive growth is a joint responsibility shared by the government, the private sector, and society as a whole. Inclusive growth requires both collective wisdom and collective action, and the participation of those directly affected by the reforms is also necessary. Why? Because this type of dialogue enhances confidence and the sense of ownership, which helps ensure the sustainability and lasting effect of these reforms.
The countries of the region hold enormous promise. We have a rich history and culture that is deeply rooted in science and commerce. We have vast resources. And above all, we have a talented generation of young men and women who are eager to work and be productive members of society.
We must therefore pay attention to their aspirations and rise to the level of their hopes and dreams.
Thank you very much.