John Sfakianakis* comments on the controversial UNDP Arab Development Report issued earlier this month Earlier this month the United Nations Development Programme (UNDP) published its first human development report for the Arab world. The report shows that Arab states have made definite progress in human development over the past 30 years. Life expectancy has increased by about 15 years; mortality rates for children under five years of age have fallen by about two thirds; adult literacy has almost doubled and women's literacy has trebled. Access to safe water is higher, and dire poverty is lower than in most other areas of the developing world. However, the report's subtitle, "creating opportunities for future generations", is telling of much- needed change. Political pluralism is still missing from most of the region, economic growth is unbalanced and society is far from meritocratic. The report highlights, quite rightly, that the pattern of economic growth in the region in the last three decades was highly dependent and sensitive to oil. Together with low efficiency of physical capital and poor labour productivity this resulted in uneven growth. Over the period 1975-1998, the average annual rate of growth was 3.3 per cent compared to the world average of 2.9 per cent. These figures could be considered respectable but hardly impressive. Additionally, growth has not been continuous, rather characterised by wild fluctuations. Arab countries saw very strong growth, of around 8.6 per cent, between 1975-1985, followed by a huge decrease, of 0.7 per cent, between 1985- 1990. This returned to more modest rates of 3.3 per cent between 1990-1998. Up until the early 1990s, fluctuating growth patterns in the Arab world mainly reflected movements in the oil market, on which they strongly depended. However, since the early 1990s, the price of oil and GDP growth have fluctuated less and the correlation between the two has weakened. Although the report highlights this, analysis on this trend is missing. A second factor that explains the fluctuating nature of economic growth is agricultural production. The report asserts that sharp variations in agricultural output have had less effect on GDP growth rates since 1993. The dwindling correlation between oil prices, agricultural output and GDP growth in the 1990s raises important questions for future research and debate among economists. Click to view caption Declining GDP growth has also negatively affected long-term investment patterns. From 1975- 1980, a 27.3 per cent (gross fixed-capital formation relative to GDP) was experienced, declining in all subsequent years, eventually reaching 21.9 per cent between 1990-1998. Qualitative investment (the efficiency with which productivity from physical capital is used) is also important. It seems that the Arab world witnessed low levels of investment efficiency with variation within the region. Oman was the most efficient of all, followed by Egypt, Jordan and Syria. The least efficient were Algeria, Saudi Arabia, Mauritania, Sudan and Djibouti. The report quite clearly states that unless there are significant improvements in the efficiency of fixed- capital investment, strong growth cannot be expected. Although this is hardly the only issue that needs addressing, it would be a good start. Some suggest that the Arab world is in a league of its own, distant from financial globalisation. Foreign Direct Investment (FDI) contributions to the Arab world from 1975-1998 were a paltry 0.8 per cent on average. For East Asia and the Pacific rim, the comparable figure was around 1.7 per cent. The three countries in the Arab world that have received the highest inflow of FDI are Egypt, Morocco and Tunisia. However, the report fails to mention that, in the case of all three countries, FDI flows have not been continuous or stable. In the case of Egypt, FDI has dropped considerably in the past two years. Even if investment is more efficiently allocated, the labour force would still have to be more productive. According to the UNDP, low levels of productivity and growth are partly explained by the educational lag that Arab countries face when compared with the Asian Tigers. Again, a quantitative increase of education is not the solution. Education has to increase in qualitative ways, something the report doesn't emphasise. For example, would primary and secondary students in Egypt benefit by having longer school-hours, or by having smaller classrooms, better equipped university labs and libraries with more books? Overall, the Arab population has witnessed modest, if any, welfare improvements. This has been due to high population growth, 2.8 per cent on average, during the past 25 years. As a result, real per capita income for the period 1975-1998, grew at a snail-like 0.5 per cent per annum, indicative of stagnation rather than growth. As the report rightly points out, the average increase globally was more than 1.3 per cent a year. Clearly, income in the Arab world fell dramatically compared to the rest of the world. More alarmingly, the average Arab citizen's real income (in terms of purchasing power) was one- seventh, compared to one-fifth in 1975, of the average OECD citizen. Analysis of poverty and income inequality in the Arab world is a complex and frustrating task. Lack of accurate data, coupled with governments that are highly sensitive to the issues, have hindered economists from forming a precise picture of what is happening. The report states that MENA (Middle East and North Africa) countries have had a low incidence of extreme poverty, with less than 2.5 per cent of the population living on, or below, $1/day. However, it is doubtful that this has been achieved. On income inequality, the report highlights the differing views on the issue. According to a UNDP report, the Arab world has comparatively low income inequality by international standards. However, the report asserts that others have indicated that income inequalities in Egypt, Iraq and Jordan have increased significantly in the last two decades. According to a report by the Economic and Social Commission for Western Asia (ESCWA), the income share of the richest rose from 27 per cent to 28 per cent in urban areas and from 21 per cent to 28 per cent in rural areas, in Egypt between 1980/81 and 1990/91. Unemployment is another problematic area. Arab governments continuously underestimate unemployment data. According to the UNDP, most Arab countries suffer from double-digit unemployment. If unemployment is to be reduced to a manageable level by the year 2010, a minimum of five million jobs will have to be created every year. Until now, the much-vaunted rise of the private sector has failed to produce badly needed jobs. A partial solution to the employment problem that was not covered in the report might lie in changing the structure of opportunities. This would involve giving politically impotent, yet value-added powerful, small-to-medium-sized firms a chance. Last but not least, the report fails to mention the Palestinian economy. Although Palestine does appear in the statistical abstract at the end of the whole report no analysis is offered in the main discussion. An omission that is hard to miss. * The writer is a research fellow at Harvard University's Centre for Middle Eastern Studies.
