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Public Disclosure Authorized C'- Public Disclosure Authorized C)~~~CC- -- - ht h;\ - '- Public Disclosure Authorized _,m'4>;~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~.......tottt <:__ . ........ ,_7)...' ~~~~P7P~~~~~~~~~~~~~PP~~~~~~ A. Public Disclosure Authorized Reducing Vulnerability and Increasing Opportunity About This Book Orientationsin Development was launched by the World Bank's Middle East and North Africa Region in 2001 to share analysis of the multifaceted development issues facing the region and to offer practical and innovative solutions. From managing scarce water resources to preserving cultural heritage to enacting policies that promote equitable growth and reduce poverty, the re- gion confronts a broad range of challenges. Each contribution in this series seeks to deepen the knowledge on these topics and enrich the policy debate among development practitioners both within the region and worldwide. Cover design by Naylor Design, Inc., Washington, D.C. Photos by Guillermo Hakim. ORIENTATIONS IN DEVELOPMENT SERIES Reducing Vulnerability and Increasing Opportunity Social Protection in the Middle East and North Africa * The World Bank Middle East and North Africa Region i) 2002 The International Bank for Reconstruction and Development / The World Bank 1818 H Street, NW Washington, DC 20433 All rights reserved. 1 2 3 4 04 03 02 The findings, interpretations, and conclusions expressed here are those of the author(s) and do not necessarily reflect the views of the Board of Executive Directors of the World Bank or the gov- ernments they represent. The World Bank cannot guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply on the part of the World Bank any judgment of the legal status of any territory or the en- dorsement or acceptance of such boundaries. Rights and Perniissions The material in this work is copyrighted. No part of this work may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or in- clusion in any information storage and retrieval system, without the prior written permission of the World Bank. The World Bank encourages dissemination of its work and will normally grant permission promptly. For permission to photocopy or reprint, please send a request with complete information to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, USA, telephone 978-750-8400, fax 978-750-4470, www.copyright.com. All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, World Bank, 1818 H Street NW, Washington, DC 20433, USA, fax 202-522-2422, e-mail [email protected]. ISBN 0-8213-5145-1 Library of Congress Cataloging-in-Publication Data has been applied for. Contents Foreword xi Acknowledgments xiii Acronyms and Abbreviations xv Executive Summary 1 I. The Challenges of Social Protection: Identifying Risks and Vulnerable Groups in the MENA Region 21 1.1. Assessing Social Risks in the MENA Region 22 The Constraints to Sustainable Growth 22 The Constraints to Full Employment 28 Demographic Factors and Growing Demand for Basic Services and Infrastructure 35 1.2. Identifying Vulnerable Population Groups 39 Population Trends in the MENA Region 39 Poverty 41 Vulnerable Population Groups 44 II. Assessing Current Formal and Informal Mechanisms for Social Protection 47 2.1. Managing Social Risks 47 2.2. Informal Mechanisms 49 Managing Portfolios of Crops, Livestock, and Off-Farm Employment 49 Kinship Networks and Families 50 Religious Charitable Contributions 51 Migration 52 Neglect of Human Capital 54 2.3. Formal Mechanisms outside the Traditional Social Protection System 56 Education and Training 56 v vi Contents Health 58 Price Regulations and Subsidies 60 2.4. Formal Public Mechanisms within the Traditional Social Protection System 63 ALMPs: Job Search Assistance, Vocational Training, Wage Subsidy Programs, and Microfinance 63 Social Insurance: Pensions and Unemployment Insurance 67 Social Assistance Programs: Public Works and Safety Net Programs 74 Ill. Strengthening the Social Protection System: Setting Priorities and Reallocating Resources 83 3.1. The Key to Lower Risks: Improving Efficiency in Economic Management 83 Macroeconomic Management 84 Good Governance 84 Labor Market Reforms 84 Eliminating Price Distortions 85 Strengthening Regulatory Institutions 86 3.2. Reducing Vulnerability: Improving Efficiency in Education and Health Expenditures 86 Education and Training 87 Health 87 3.3. Mitigating and Coping with Risks: Redefining Priorities for the Social Protection System 88 Reforming Pension Systems 90 Reducing Government Involvement in ALMPs and Microfinance 93 Selectively Strengthening Risk-Coping Mechanisms 95 IV. The World Bank's Role 99 4.1. World Bank Involvement in Social Protection 99 4.2. Directions for the Future 101 Increased Emphasis on Social Insurance 101 Maintain and Expand Levels of Operations on Labor and Training Issues 102 Introduce Innovations in Social Funds and Community Development (Including Gender and Children's Issues) 103 Knowledge Management 104 4.3. Key Partnerships 104 Contents vii Appendixes Appendix 1: Income and Key Human Development Indicators 107 Appendix 2: Labor Market Indicators 121 Appendix 3: Formal Pension System Indicators 129 Appendix 4: Poverty Indicators 135 Appendix 5: Social Protection and Rural Development in Select MENA Countries 139 Appendix 6: Social Safety Nets in Select MENA Countries 151 Notes 155 Bibliography 159 Boxes ES.1 Regional Issues and Strategic Directions 13 1.1 Where Did All the Growth Go? External Shocks, Social Conflict, and Growth Collapses 27 1.2 Globalization and Rising Demand for Social Protection 29 1.3 Transportation and Poverty in the West Bank and Gaza 38 1.4 Success with Policies for Managing Population Growth 40 2.1 Informal Social Support Systems in the West Bank and Gaza 50 2.2 Coping Strategies of Poor Communities in the Republic of Yemen 51 2.3 Coping with Liberalization: Egypt's Small Farmers 55 2.4 Costs of Inadequate Water Supplies for Domestic Use and a Community's Response 62 2.5 International Experience 65 2.6 Community-Driven Development and Microfinance for the Poor in the Republic of Yemen 68 2.7 Public Works Programs in Morocco and Tunisia 75 2.8 Social Fund Operations in MENA 77 2.9 Direct Transfer Programs in Morocco and Tunisia 80 Figures ES. 1 Common Characteristics of MENA Economies 2 ES.2 Significant Differences among MENA Economies 4 1.1 Output Volatility in the MENA Region Has Been Higher Than in Other Regions 23 viii Contents 1.2 Share of Public Enterprises in Economic Activity 25 1.3 Privatization Revenue in the MENA Region 30 1.4 Regional Unemployment in the Early and Late 1990s 31 1.5 Size of Government in the MENA Region 31 1.6 Renewable Water Resources per Capita, by Region 36 1.7 Poverty Rates by Age in Jordan, 1997 45 2.1 Formal Pension Cost and Population Older Than 60 in MENA 70 4.1 Increase in World Bank Lending for Social Protection 100 A2.1 Unemployment in the MENA Region 125 A2.2 Many of the Unemployed Are Young 125 A2.3 Unemployment Rates by Region, 1999 125 Tables 1.1 Percentage of Real GDP Annual Growth Rates for Select MENA Countries 24 1.2 Average Growth of TFP for Select MENA Countries 24 1.3 Govermnent Employment As a Percentage of Total Employment in the 1990s 32 1.4 Percentage of Regional Population and Labor Force Growth Rates, 1990-99 34 1.5 Trends in Fertility, Mortality, and Life Expectancy inMENA, 1970-99 41 1.6 Population Living on Less Than US$1 a Day 42 1.7 Population Living on Less Than US$2 a Day 42 1.8 Percentage of Population below National Poverty Lines 43 1.9 Income Inequality in MENA, 1990s 43 2.1 Worker Remittances in Select MENA Countries, 1970-99 53 2.2 Distribution of International Migrants in Rural Egypt, 1986-87 54 2.3 Total Education Expenditures as a Percentage of GDP 56 2.4 Health Expenditures by Region 59 2.5 Social Sector Expenditures in the 1990s 64 2.6 Job Creation as a Result of Public Works 74 2.7 MENA Social Fund Spending on Target Population 76 2.8 Food Subsidy Expenditure in MENA during 1990-99 81 2.9 Incidence of Food Subsidies by Quintile 82 4.1 Social Protection Projects 1996-2000 100 Contents ix 4.2 Current and Planned Economic and Sector Work for 2001-03 101 Al.1 Population and GNP Growth 108 A1.2 Population and GNP Growth by Region 109 A1.3 Population and Labor Force 109 A1.4 Population and Labor Force by Region 110 A1.5 Access to Education 110 A1.6 Access to Education by Region 111 A1.7 Educational Attainment 111 A1.8 Adult Illiteracy Rate 112 A1.9 Adult Illiteracy Rate by Gender 112 A1.10 Adult Tlliteracy Rate by Region 112 Al.11 Access to Health 113 A1.12 Child Immunization 113 Al.13 Child Immunization by Region 113 Al.14 Health Risk Factors 114 A1.15 Life Expectancy and Mortality 114 A1.16 Life Expectancy and Mortality by Region 115 A1.17 Fertility Transition in MENA between 1960 and 1995 115 A1.18 Water Availability and Access in MENA Countries 116 A1.19 Net Renewable Water Distribution by Region and Per Capita, 1999-2000 116 A1.20 Health Expenditures, 1995-98 117 A1.21 Education Expenditures 117 A1.22 Public Expenditures on Social Sectors 118 A1.23 Functional Expenditures 119 A2.1 Labor Force and Participation Rates 122 A2.2 Labor Force and Participation Rates by Region 122 A2.3 Labor Force and GNP Growth by Region 123 A2.4 Labor Force, Female, 1985-2000 123 A2.5 Labor Force,