IMF DEPARTMENTAL PAPER OPPORTUNITY FOR ALL PROMOTING GROWTH AND INCLUSIVENESS IN THE MIDDLE EAST AND NORTH AFRICA Catriona Purfield, Harald Finger, Karen Ongley, Bénédicte Baduel, Carolina Castellanos, Gaëlle Pierre, Vahram Stepanyan, and Erik Roos INTERNATIONAL MONETARY FUND Copyright ©2018 International Monetary Fund Cataloging-in-Publication Data Joint Bank-Fund Library Names: Purfield, Catriona. | Finger, Harald. | Ongley, Karen. | Baduel, Bénédicte. | Castellanos, Carolina. | Pierre, Gaëlle. | Stepanyan, Vahram. | Roos, Erik. | International Monetary Fund. Title: Opportunity for all : promoting growth and inclusiveness in the Middle East and North Africa / an IMF team led by Catriona Purfield with Harald Finger, Karen Ongley, éB nédicte Baduel, Carolina Castellanos, Gaëlle Pierre, Vahram Stepanyan, and Erik Roos. Other titles: Promoting growth and inclusiveness in the Middle East and North Africa Description: Washington, DC : International Monetary Fund, [2018] | | Includes bibliographical references. Identifiers: ISBN 9781484361177 (paper) Subjects: LCSH: Economic development—Middle East. | Economic development—Africa, North. | Middle East—Economic conditions. | Africa, North—Economic conditions. Classification: LCC HC415.15.O663 2018 The Departmental Paper Series presents research by IMF staff on issues of broad regional or cross-country interest. The views expressed in this paper are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management. Publication orders may be placed online, by fax, or through the mail: International Monetary Fund, Publication Services P.O. Box 92780, Washington, DC 20090, U.S.A. Tel. (202) 623-7430 Fax: (202) 623-7201 E-mail: [email protected] www.imfbookstore.org www.elibrary.imf.org Contents Acknowledgments .......................................................................................................... vii Groupings and Abbreviations ......................................................................................... ix Executive Summary ........................................................................................................ xi I. Introduction .............................................................................................................. 1 II. The Path toward Higher, More Inclusive Growth ..................................................... 9 III. Creating Jobs for Millions ��������������������������������������������������������������������������������������� 17 IV. How to Include the Excluded? ................................................................................ 43 V. How Can Governments Enable Higher Inclusive Growth? ...................................... 73 VI. Conclusion ............................................................................................................... 97 References .................................................................................................................... 101 Figures Figure 1.1. MENA Real GDP Growth ..............................................................................2 Figure 1.2. Gini Coefficient for MENA Countries ............................................................2 Figure 1.3. GDP Per Capita Growth..................................................................................2 Figure 1.4. Population Living in Multidimensional Poverty ...............................................3 Figure 1.5. Growth Projections ..........................................................................................3 Figure 2.1. Decomposition of Real GDP Per Capita, 2000–14.........................................10 Figure 2.2. Countries Creating Fiscal Space by Reorienting Spending ..............................11 Figure 2.3. Countries Creating Fiscal Space by Increasing Revenues .................................11 Figure 2.4. Countries Fostering Private Sector Development and Labor Market Policies for Private Sector Job Creation and Youth and Women Inclusion .................................12 Figure 2.5. Control of Corruption ....................................................................................13 Figure 3.1. Working-Age Population and Labor Force Projections ....................................19 Figure 3.2. Breakdown of Age 15+ Population in Selected MENA Countries, 2016 .........20 Figure 3.3. Labor Force Participation ...............................................................................21 Figure 3.4. Unemployment Rate ......................................................................................21 Figure 3.5. Employment to Population Ratio ...................................................................22 Figure 3.6. Public Private Sector Wage Gaps .....................................................................24 Figure 3.7. Level of Education of Unemployed Youth.......................................................24 Figure 3.8. Breakdown of Workforce by Skill Level ..........................................................26 Figure 3.9. Distribution of Formal Private Sector Firms by Size ........................................27 Figure 3.10. Annual Employment Growth by Firm Size ...................................................27 Figure 3.11. Share of Total Net Job Creation ....................................................................27 Figure 3.12. Labor Productivity ........................................................................................28 Figure 3.13. Foreign Direct Investment ............................................................................30 iii Figure 3.14. Competitiveness Pillars .................................................................................32 Figure 3.15. Firms’ Credit Relationship with the Financial Sector ....................................33 Figure 3.16. Constraints to Doing Business, Relative to Comparators ..............................35 Figure 3.17. Labor Market Regulations ............................................................................37 Figure 3.18. Educational Levels and Test Scores ...............................................................38 Figure 4.1. Income Inequality Has Been Relatively Favorable ...........................................45 Figure 4.2. Poverty Has Been Declining ...........................................................................45 Figure 4.3. Poverty Headcount Is Still Significant .............................................................45 Figure 4.4. Multidimensional Poverty Remains Significant ...............................................45 Figure 4.5. Perception of Economic Fairness and Future Prosperity ..................................46 Figure 4.6. Benefit Incidence and Coverage for Social Safety Nets ....................................47 Figure 4.7. Importance of Connections in Getting Jobs....................................................49 Figure 4.8. Financial Access Is Insufficient ........................................................................50 Figure 4.9. Borrowing from Financial Institutions Is Low .................................................50 Figure 4.10. Youth Unemployment Is Very High ..............................................................51 Figure 4.11. Educational Attainment ................................................................................52 Figure 4.12. Labor Force Participation by Gender ............................................................53 Figure 4.13. Unemployment Rate by Gender ...................................................................53 Figure 4.14. Countries in the Region Where Married Women Cannot Perform an Action Equally as Men .................................................................................................54 Figure 4.15. MENA Refugees by Country of Origin ........................................................56 Figure 4.16. Number of Refugees by Country of Origin and in Host Countries ...............57 Figure 4.17. Global Islamic Banking Assets ......................................................................61 Figure 4.18. Total Microfinance Assets in MENAP Countries ..........................................61 Figure 4.19. Mobile Phone Access and Mobile Banking ...................................................62 Figure 4.20. Female Share of Public Sector Employment ..................................................69 Figure 4.21. Women’s Representation in Government ......................................................70 Figure 5.1. Perception of Inclusiveness .............................................................................75 Figure 5.2. Public Support for Redistribution ...................................................................75 Figure 5.3. Fiscal Balances and Government Debt ............................................................75 Figure 5.4. Social Spending by Region .............................................................................77 Figure 5.5. Social Protection Spending, Bottom 40 Percent ..............................................78 Figure 5.6. Population with Less than Four Years of Education, Ages 20–24 ....................78 Figure 5.7. Public Investment ...........................................................................................79 Figure 5.8. Diesel and Gasoline Subsidies .........................................................................80 Figure 5.9. Student Performance Compared to Education Spending ................................81