Time to break the cycle of unemployment

Just over three years ago, Arab youth took to the streets protesting and demanding a better life, a better job and a future that includes dignity and respect. Unfortunately, given the continued regional political instability and fiscal constraints, the situation in most of the Arab transition countries is worse today, with lower economic growth and youth unemployment levels increasing rather than falling. In essence, the consequences of the transitions have actually made the causes worse. Indeed the IMF estimates there were 1.5 million more young people unemployed last year than when the transitions began three years ago, with a further 1.5 million forecast to be added to their number by 2018 on current trends.

Most transition governments in the region have focused on shorter-term populist measures such as higher salaries for government workers and additional subsidies to provide temporary relief for the population. However, given high budget deficits across the region there is little scope for continued fiscal stimulus. Consistent and clear regulatory and economic reform needs to be undertaken so that these economies can support long-term sustainable economic growth that underpins new job creation. It is estimated the region needs upwards of 6-7 percent economic growth just to achieve an 8 percent unemployment rate — far higher than the IMF’s actual estimate for the region of just 3.7 percent in 2014.

Attaining adequate rates of economic growth will require much higher investment levels in the core sectors of the region’s economies, in particular major infrastructure projects including power, telecoms, and transportation. This can both generate employment and enhance long-term competitiveness. The recent admirable capital commitments by the UAE and other GCC countries to Egypt are a case in point, with the focus now shifting to long-term investments in new projects, rather than just short-term aid in the form of more grants or loans.

Economic reform in the midst of political instability is challenging and we have yet to see transitional governments in the region address the reform agenda. Jordan has been a notable exception to this rule — undertaking tough reforms on the tax and subsidy front. Unfortunately reforms such as energy subsidies, value-added tax and labour market reforms are often difficult to implement without a strong government willing to undergo some criticism in order to achieve longer-term benefit.