Youth Employment in Arab Resource-Endowed Economies

Regional Agenda A New Vision for Arab Employment Youth Employment in Arab Resource-Endowed Economies

Project Update

First Quarter, 2014 Contents

3 Introduction

4 Dynamics and Vulnerabilities of the Current Employment System

9 Insights from the Session at the World Economic Forum Annual Meeting 2014

9 Next Steps

10 Annex: Acknowledgements

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The views expressed are those of certain participants in the discussion and do not necessarily reflect the views of all participants or of the World Economic Forum.

REF 200614

2 A New Vision for Arab Employment Introduction

In light of the long-term economic aspirations of the Arab world as well as the current social context, addressing the employment challenge is at the top of policy and business agendas. Generating economic opportunities for the youth is a particularly high-stake issue, with Middle East and North Africa recording the world’s highest youth unemployment rate at 27%. There is a clear need to develop action-oriented partnerships that will deliver job opportunities in the quantity and quality and at the pace necessary to address the urgency of the challenge. This requires an extraordinary increase in collaboration, innovation and commitment.

Initiated by the World Economic Forum and its Middle East and North Africa Business Council in May Hala Hanna 2013, the New Vision for Arab Employment initiative provides a neutral platform to facilitate these Senior Programme Manager and Global partnerships. It brings together government, business and civil society leaders at the highest level to Leadership Fellow, share knowledge and best practices, as well as advance common action for creating employment in Middle East and North the Arab world. Africa The initiative recognizes the diversity of the Arab region, and aims to address the challenge in all Arab countries. The first project of the initiative,Youth Employment in Arab Resource-Endowed Economies, which started in August 2013, seeks to advance institutional reforms that will sustainably increase productive youth employment in resource-endowed Arab economies. Developed in collaboration with key stakeholders, using the World Economic Forum’s Strategic Foresight approach, the project generates new insights on the root causes of youth unemployment and provides a framework for better-informed decision-making and more effective policy reforms. The goal of this approach is to encourage implementation on a structural level.

Between August and December 2013, the Youth Employment in Arab Resource-Endowed Natalie Hatour Economies project engaged leaders from business, government, civil society and academia in a Associate Director, consultation process. Insights emerging from this consultation have nurtured the development of Strategic Foresight a system map analysing the reasons, underlying dynamics and vulnerabilities of the employment situation in Arab resource-endowed economies.

At the World Economic Forum Annual Meeting 2014, a session convened business and government leaders to explore policy interventions to sustainably increase the number of young people productively employed in the private sector, using the system map as a framework. Discussions contributed to creating a common understanding of the youth employment challenge in Arab resource-endowed economies and led to the prioritization of policy interventions, which will be taken forward by the Middle East and North Africa Business Council and through the Employment, Skills and Human Capital project, which is a global effort of the World Economic Forum. The next phases will address the Arab economies that are non-resource endowed.

About the Middle East and North Africa Business Council

The Middle East and North Africa Business Council is the primary gathering of foremost business leaders from the Middle East and North Africa, helping the World Economic Forum steer and structure its initiatives and programmes related to the region. The leading initiative of the council is the New Vision for Arab Employment, launched in recognition of the importance of business and government leaders’ interest in solving one of the region’s top challenges.

Step 1: Perspectives and Step 3: Synthesis and Step 2: Exploration of Insights Analysis Implications January 2014 August – December 2013 February – September 2014

High-Level Strategic Dialogues World Economic Forum Annual Stakeholder Consultation Meeting 2014, Davos-Klosters, In-Country Dialogues in January 2014 Resource-Endowed Arab Economies

A New Vision for Arab Employment 3 Dynamics and Vulnerabilities of the Current Employment System System Map

Public productivity constraints Political pressures class, (middle youth, Local youth youth Local employed in and guaranteed comfortable jobs public-sector Protective parents, Protective and governments teachers Budget Budget constraints

Education Education driven dynamics Incentive driven dynamics Securing social stability between contract Social locals and government

Protected local local Protected youth relying on government the

Youth unemployment

Non- nationals and leaving entering not Non-nationals filling filling Non-nationals the majority of jobs private-sector Ensuring economic Ensuring economic prosperity between contract Economic non-nationals country and

Social tensions System map depicting the employment system in Arab resource-endowed economies and its vulnerabilities System map depicting the employment system in Arab resource-endowed Limited integration integration Limited and rights of non-nationals Entrance of non-nationals country the in Current pressures on the system, which impact its stability and sustainabilityPotential pressures on the system, which might impact its stability and sustainability in the future Productivity decrease in private the sector Figure 1: Figure Summary of Dynamics and Vulnerabilities

The system map and description of its dynamics reflect the most dominant stakeholders’ views and understandings of the situation of youth employment in Arab resource- endowed economies expressed throughout the consultation process and during the session at the World Economic Forum Annual Meeting 2014.

The employment system in Arab resource-endowed economies serves two purposes: securing social stability and ensuring economic prosperity. To this end, the system relies on two parallel sub-systems, the first one representing the relationship between the state and its citizens, and the second one depicting the relationship between non-national workers and their host countries. While these sub-systems operate side by side, following different dynamics, their outcomes are closely linked to each other. As social stability cannot be sustainably ensured without economic prosperity, and vice versa, both sub-systems must be well-functioning for the whole employment system to be a success.

One sub-system is aimed at securing social stability and based on the interplay of protective authorities and a dependent youth. The other sub-system intends to ensure economic prosperity by providing economic benefits for non-national workers whose rights and integration in society remain limited.

Pressures represent current and future threats to the stability and sustainability of the system. Four of these pressures – political pressures; decrease in private- sector productivity; social tensions; and departure of non-nationals – are not yet hindering the functioning of the system. However, the two other pressures – public productivity constraints and budget constraints – are seen by stakeholders as already threatening the sub-system aimed at securing social stability, as some governments are no longer able to provide enough public- sector employment opportunities to absorb the youth bulge.

A New Vision for Arab Employment 5 Securing Social Stability: The Social Contract

The social contract aims to provide citizens with services Political pressures and rests on the government’s ability to secure its citizens’ (middle class, well-being. The social contract is reflected in the caring youth, women) and protective relationship established between authorities – government, parents and teachers – and young people, generating two dynamics:

Protective parents, governments and teachers Education-driven dynamics Education driven dynamics The educational system does not stimulate enough independent and creative thinking and is designed primarily to provide citizens with the skills needed to take Securing social up public-sector positions. Protected by their parents Protected local stability youth relying on and teachers, young people grow up in an environment the government Social contract between where their current and future needs are answered for, government and locals perpetuating a culture of dependency on authorities.

Incentive Young people in turn seek comfortable and secure driven dynamics public-sector jobs. Local youth employed in guaranteed and Incentive-driven dynamics comfortable public-sector jobs Governments’ commitment to providing secure and well-remunerated jobs attracts young people to the public sector, elevating their expectations and limiting

their appetite for risk in a context in which the ecosystem Budget Public constraints productivity for entrepreneurship is still nascent. Additionally, the constraints absence of a comprehensive tax system levied on the private sector, while financially advantageous, limits its ability to contribute to wealth redistribution and hurts its image with the local population. This strengthens the role of the government as the employer of choice.

Young people in turn economically rely on the government and accept its authority.

The social contract might be further destabilized if it becomes unaffordable for the public budget or if the size of the public sector increasingly undermines its productivity and hinders the efficient delivery of public services. The stability of the social contract might also be threatened if political pressures emerging from citizens’ increasing awareness and changing demands and expectations unfold against the current protective system. The latter might be triggered by rising economic constraints due to inflation, particularly for the middle class, as well as by the emergence of new leadership structures, notably a broadening range of influencers, accelerated by social media.

6 A New Vision for Arab Employment Ensuring Economic Prosperity: The Economic Contract

The economic contract, established between non-national workers and their host countries, is needed to enable the social contract. Entrance of non-nationals in the country Non- nationals leaving and not entering The economic contract relies on a large non-national labour force that is allowed to enter the country. Ensuring economic Non-nationals are limited in the rights that they can prosperity Non-nationals filling claim (e.g. temporary residency, limited job security, the majority of Economic contract between private-sector jobs no minimum wage, impossibility to obtain citizenship, country and non-nationals restriction of movement between jobs, no mandatory pension schemes), hindering them from identifying with their host country and integrating into society.

Limited labour rights make non-nationals more Limited integration and rights of attractive hires than locals for the private sector in non-nationals terms of cost and flexibility. In addition, their limited integration incentivizes foreign employers to hire their peers; as a result, non-nationals fill the majority of

private-sector positions. Productivity decrease in Social the private tensions sector

The relationship between non-national workers and their host country can be depicted as an economic contract, as they accept their legal and social situation in return for the economic benefits offered by their employer.

This system suffers from three pressure points. Firstly, easy access to and heavy reliance on low-skilled non-national labour could impact over time the incentives to innovate and invest in technology, leading to a decrease in the private sector’s productivity as the economy develops. Secondly, the large presence of non-nationals coupled with their limited integration can create social tensions jeopardizing the well-functioning of the sub-system. Thirdly, the non- national workforce could unexpectedly and massively emigrate, leaving the local workforce unprepared to take- over.

A New Vision for Arab Employment 7 Reinforcing Dynamics

The dynamics of the social and economic contracts reinforce each other.

The dynamics of the economic contract reinforce the The dynamics of the social contract reinforce the ones ones of the social contract. of the economic contract.

The limited integration of non-nationals provides few The education system and public employment opportunities for trust-building with local citizens, incentive schemes do not prepare local youth for a making it harder for locals to feel comfortable in the private sector driven by competition and flexibility. private sector. Additionally, both the limited rights and In addition, local young people tend to have little lower relative cost of non-nationals limit the social contact with private-sector activities and role models recognition of private-sector employment among growing up, and are by consequence often unaware of locals. Moreover, the ease of access to inexpensive opportunities offered by private companies. labour can hinder investment in more technology- intensive industries or SMEs (e.g. creating taxi As a consequence, the relative availability and companies instead of hiring drivers). attractiveness of non-national workers for private employers is further strengthened. As a consequence, the attractiveness and accessibility of the private sector for locals is weakened, reinforcing their dependency on public- sector employment.

As a result, the two sub-systems are engaged in dynamics which prevent them from integrating with each other. The two labour markets – private and public – are therefore disconnected from each other, relying almost exclusively on two different labour supplies – non-nationals and nationals.

Political pressures (middle class, youth, women)

Non- nationals Entrance of leaving and Protective parents, non-nationals not entering governments and in the country teachers

Education driven dynamics

Ensuring economic Securing social prosperity Non-nationals filling Youth Protected local stability Economic contract between Social contract between country and non-nationals the majority of unemployment youth relying on government and locals private-sector jobs the government

Incentive driven dynamics Local youth Limited integration employed in and rights of guaranteed and non-nationals comfortable public-sector jobs

Productivity Public decrease in Social Budget productivity the private tensions constraints constraints sector

8 A New Vision for Arab Employment Insights from the Session at the World Economic Forum Annual Meeting 2014

Discussions among business and government leaders at Increasing the flexibility of the legislative and regulatory the Annual Meeting 2014 in Davos-Klosters contributed framework (labour laws, including female employment, to creating a common understanding of the youth and regulations related to entrepreneurship and SMEs); employment challenge in Arab resource-endowed developing effective training programmes; and economies. In the second part of the session, discussions leveraging the supply chains of targeted industries to focused on policy interventions to sustainably increase encourage entrepreneurship were identified by participants the number of young people that are productively as the three most strategic policy interventions. This is employed in the private sector. The system map analysis where the “golden triangle” of business, government and provided a framework for identifying the reasons for civil society collaboration is needed to create a virtuous unemployment, exploring the impact of policy interventions cycle of employment creation. and testing their robustness against current and future pressures.

Participants aligned on the structural reasons of youth unemployment in most Arab resource-endowed economies, noting that the system does not apply to all resource-endowed economies. They highlighted labour laws, critical thinking, entrepreneurship and the creation of small and medium enterprises (SMEs), and employees’ motivation as key elements of the problem. Participants identified inflation, a shrinking middle class and changing leadership concepts as key pressures on the current system.

Next Steps

The outcomes of the session at the Annual Meeting With the momentum created by the MENA Business serve as a basis for a deepened exploration of policy Council on employment issues, the World Economic Forum interventions. Members of the project board, government has taken the issue of employment and skills to a global leaders and other participants have committed to level with the creation of a global project on Employment, further driving policy actions aimed at reducing youth Skills and Human Capital. unemployment. High-level strategic dialogues will be held in resource-endowed economies in 2014, to take specific policy interventions forward. In the meantime, the project board will hold regular virtual meetings to develop these interventions.

A New Vision for Arab Employment 9 Annex: Acknowledgements

The project team would like to thank members of the project board, participants in the stakeholder consultation and in the session at the World Economic Forum Annual Meeting 2014 for contributing so generously their time, energy and insights.

Members of the Project Board

Majid Jafar Chief Executive Officer Crescent Petroleum Mohammed H. Al Mady Vice-Chairman and Chief Executive Officer Saudi Basic Industries Corporation (SABIC) Samer S. Khoury President, Engineering and Construction Consolidated Contractors Company (CCC) Salem Ben Nasser Al Ismaily Chairman Public Authority for Investment Promotion and Exports Development (PAIPED) Iyad Malas Chief Executive Officer Majid Al Futtaim Holding LLC Houssam Mahmoud Chief Executive Officer Al Dahra Agriculture

Ammar Aker Chief Executive Officer Paltel Group Mazen S. Darwazeh Vice-Chairman and Chief Executive Officer, Hikma Pharmaceuticals Plc Middle East and North Africa Mohammed Alshaya Executive Chairman Alshaya Group

Participants in the stakeholder consultation and select participants from the session at the Annual Meeting

Mustafa Abdel-Wadood Partner and Chair of the Management Executive The Abraaj Group Committee Muna AbuSulayman Partner Directions Consulting Ammar Aker Chief Executive Officer Paltel Group Omar K. Alghanim Chief Executive Officer Alghanim Industries Patrick Allman-Ward Chief Executive Officer Dana Gas PJSC Mohammed Alshaya Executive Chairman Alshaya Group Thomas Andersson Professor International University of Entrepreneurship and Technology Rabea Ataya Chief Executive Officer Bayt.com Inc Lulwah Ayyoub Research Coordinator, Human Capital Ministry of Labour, Saudi Arabia Development Pasha Bakhtiar Chief Executive Officer ES Bankers (Dubai) Ltd Waleed Al Banawi Director Banawi Industrial Group Arup Banerji Director, Social Protection and Labour The World Bank Yousef Al Benyan Executive Vice-President, Corporate Human Saudi Basic Industries Corporation (SABIC) Resources Samer Bohsali Partner Booz & Company Henri Chaoul Chief Investment Officer Al Khabeer Capital Jay Cziraky Member of the Board Move One Inc. Mazen S. Darwazeh Vice-Chairman and Chief Executive Officer, Hikma Pharmaceuticals Plc Middle East and North Africa Rola A. Dashti Minister of Planning and Development and Minister of State for National Assembly Affairs of Kuwait (2012-2014) Rajeeb Dey Chief Executive Officer Enternships.com Reenad Al Enazi Researcher Medical Informatics Department, KSU University Fadi Ghandour Founder and Vice-Chairman Aramex International Wadie Habboush President and Chief Executive Officer Habboush Group Habib Haddad Chief Executive Officer Wamda Mona Hammami Senior Manager Office of the Crown Prince of Abu Dhabi Mohammed Al Hawi Head of Innovation The Executive Office

10 A New Vision for Arab Employment Steffen Hertog Associate Professor London School of Economics and Political Science Leila Hoteit Principal Booz & Company

Göran Hultin Chairman and Chief Executive Officer Caden Corporation Ayman Ismail Assistant Professor and Jameel Chair of American University in Cairo Entrepreneurship, AUC School of Business Salem Ben Nasser Al Ismaily Chairman Public Authority for Investment Promotion and Exports Development (PAIPED) Majid Jafar Chief Executive Officer Crescent Petroleum Yasar Jarrar Partner Bain & Company Inc. Mohamed Husnee Jazeel Chief Executive Officer Al Dabbagh Group Holding Co. Ltd Hisham El Khazindar Co-Founder and Managing Director Citadel Capital SAE Hani Khoja Managing Director Elixir Business Consultancy Samer S. Khoury President, Engineering and Construction Consolidated Contractors Company (CCC) Khalid Al Khudair Chief Executive Officer and Founder Glowork Bernd van Linder Managing Director Saudi Hollandi Bank Andrew N. Liveris Chairman and Chief Executive Officer The Dow Chemical Company Giacomo Luciani Scientific Director of the Master in International Sciences-Po Paris Participants in the session at the AnnualEnergy Meeting Mohammed H. Al Mady Vice-Chairman and Chief Executive Officer Saudi Basic Industries Corporation (SABIC) Vijay Mahajan John P. Harbin Centennial Chair Business University of Texas Hany El Mahrouky Dale Carnegie certified Management Trainer Sami Mahroum Academic and Executive Director, Innovation and INSEAD Policy Initiative Iyad Malas Chief Executive Officer Majid Al Futtaim Holding LLC Mohammed Mosly Deputy Director General Human Resource Development Fund Rainer Münz Head, Group Basic Research Erste Group Bank AG Tilman Nagel Programme Coordinator for Employment German International Cooperation (GIZ) Promotion Aref A. Nayed Director Kalam Research and Media (KRM) Lubna S. Olayan Deputy Chairperson and Chief Executive Officer Olayan Financing Company Eman Akbar Rafay Director E.A.R Enterprise Fahd Al Rasheed Chief Executive Officer and Member of the Board King Abdullah Economic City Joe Saddi Chairman of the Board Booz & Company Peter-Michael Schmidt Adviser German International Cooperation (GIZ) Rowsch N. Shaways Deputy Prime Minister of Iraq Richard Shediac Senior Vice-President Booz & Company Karim El Solh Chief Executive Officer and Director Gulf Capital Pvt. JSC Abdulaziz A. Al Sugair Chairman Saudi Telecom Group Maha K. Taibah Vice Governor of Strategic Initiatives Technical and Vocational Training Corporation (TVTC) Ayman Maamoun Tamer Chairman and Managing Partner Tamer Group 12 A New Vision for Arab Employment A New Vision for Arab Employment 13 Project Team

The Youth Employment in Arab Resource-Endowed Economies project team includes the following individuals at the World Economic Forum:

Miroslav Dusek, Senior Director, Head of Middle East and North Africa Kristel Van der Elst, Senior Director, Head of Strategic Foresight Natalie Hatour, Associate Director, Strategic Foresight Hala Hanna, Senior Programme Manager and Project Manager, Middle East and North Africa Remy Duverney, Senior Community Manager, Middle East and Africa Membership Diane Davoine, Project Associate, Strategic Foresight

Editing: Janet Hill Creative Design: Ruslan Gaynutdinov Illustration: Studio Blackburn

For more information on the initiative or to get involved, please contact Hala Hanna at [email protected]

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