Competitiveness Report Digest Part II: The Levant and North Africa

Competitiveness Report Digest Part II: The Levant and North Africa

See Part I for an introduction to the Arab World Competitiveness Report 2013.

Just as the Gulf countries exhibit similar strengths and weaknesses, countries of the Levant and North Africa share sub-regional characteristics. In North Africa, the advantages gained from having large markets and relatively stable macroeconomic conditions are tempered by labor market inefficiencies and ineffective institutions. The Levant countries feature strong human capital but lack infrastructure and are challenged by small market size.

As in part one, what follows is an executive summary of the report’s findings on each of the Levant and North African countries, in order of their rankings. The analysis and findings reported here are entirely those of the Arab World Competitiveness Report 2013 and its contributors.

Jordan (ranked 64th globally)

Jordan recently rebranded its National Competitiveness Council under the name of the National Innovation and Competitiveness Council. This change reflects a promising and much-needed commitment to innovation. The country’s human capital—including a relatively high level of education, a large number of engineers, and an IT-oriented youth—can serve as the foundation for this kind of progress. Infrastructure projects, such the new Queen Alia International Airport, will create jobs and undergird continued growth in the tourism industry. Meanwhile, a recent grassroots development program, entitled Baladiyati, aims to jumpstart the economy from the municipal level upward.

Despite these positive signs, the Hashemite Kingdom faces a number of ongoing challenges. Dependency on foreign oil and remittances from abroad leave Jordan at the mercy of outside forces. At the same time, slow levels of growth make it hard for the economy to meet demand in the job market, perpetuating youth unemployment.

Morocco (70th globally)

At a time when Arab spring events have upset the economic balance in other North African countries, Morocco seems to have weathered the storm. It continues to attract large amounts of foreign direct investment, which attests to its business-friendly environment. This openness to outside investment has been supported by a number of legislative moves in recent years. A series of measures have reduced the corporate income tax, simplified administrative procedures, and given greater protection to investors. Major projects in a number of industries, including infrastructure, energy, and tourism, provide investment opportunities.

Meanwhile, Morocco’s biggest challenge comes in the area of education. Not only is access to education underdeveloped, but enrollment levels are low. The system itself does its students a disservice by not providing them with skills that match the needs of employers. The labor market, characterized by cronyism and strict hiring rules, remains inefficient.

Lebanon (91st globally)

One of Lebanon’s greatest strengths lies in its human capital. A strong education system, with high enrollment rates and effective teaching methods, creates a capable workforce. Mathematics and science instruction prepares graduates particularly well for work in business. A number of recent initiatives, such as a crowd-sourced funding site and angel investor projects, demonstrate a widespread entrepreneurial spirit.

Despite these upsides, Lebanon is plagued by a number of problems. High government debt leads to macroeconomic instability. Poor communications and transportation infrastructure, prevalent corruption, and physical security concerns stymie growth. Geopolitical instability, both domestically and in neighboring Syria, exacerbate the precariousness of the situation. Lebanon will not be able to cash in on its human capital until it addresses these systemic concerns.

Egypt (107th globally)

(This report does not reflect the most recent political developments in Egypt.) A period of political instability and transition has had a profound impact on the economy. Two positive developments are that political favoritism seems to have declined and corporate ethics seem to have improved since the political shift.

However, the impact of the January 25 revolution has been largely disruptive. Chief among these negative outcomes have been systemic issues, such as deteriorated government efficiency and tenuous security. A bad macroeconomic environment—caused by inflation, a fiscal deficit, and public debt—has only gotten worse. With a population dependent on subsidies, fiscal consolidation poses a challenge. Meanwhile, inefficient labor markets and insufficient domestic competition further diminish the potential for productivity.

Algeria (110th globally)

At first glance, Algeria seems to have the makings of a competitive economy. A large country, it has a sizable domestic market to go with considerable natural resources. Its low government debt leads to a relatively stable macroeconomic environment, while good school enrollment rates create a reasonably well-educated population.

In spite of these promising conditions, a number of factors cripple the economy and prevent Algeria from capitalizing on its advantages. Chief among these disabling forces is pervasive corruption in government bureaucracy. Drawn-out procedures for starting a business and time-consuming tax payment requirements illustrate this inefficiency. High tariffs and barriers to foreign direct investment prevent Algeria from getting the benefits of international trade and business. Moreover, limited access to finance and a non-trustworthy financial system hamstring private sector growth.

Libya (113th globally)

As Libya emerges from internal strife and political instability, it can look to its oil reserves as a solid foundation for growth. Further, it boasts some infrastructural and technological advantages, including a reliable electricity supply and widespread use of mobile phones. Meanwhile, the population appears to trust politicians, which promises to facilitate future political stability.

A handful of key factors hold Libya back from achieving growth. Several of these factors are in the form of shortcomings by the government. For one thing, the quality of the education system is woefully inadequate. For another, government regulation, exemplified by the inflexibility of wage determination, creates inefficiency in the labor market. Meanwhile, government spending on subsidies and public wages has given rise to concerns about inflation. And anti-monopoly laws are not sufficiently developed or enforced. Finally, the availability of financial services is limited. These issues must be addressed to facilitate private sector growth.

Note: The rankings listed below are out of the total of 144 countries that the Global Competitiveness Index 2012-2013 evaluated. Syria was excluded from the report because of current circumstances, while Tunisia was excluded because of a structural break in the data.

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