The World Bank's recently published report, Middle East and North Africa Economic Developments and Prospects: Investing for Growth and Jobs, shows that job creation is not so much an issue related to economic growth as it is to policy. Niveen Wahish talks to , World Bank chief economist for the Middle East and North Africa Region (MENA), about some of the report's findings and about policy challenges the region faces. Why have jobs not been created in Egypt and other oil importing countries in the MENA region, despite having experienced growth? There are a couple of reasons why this may be the case. When oil exporters grow, they have extra revenue from oil which has in part been used to create government jobs. That is more difficult in oil importing countries because when the country is growing it is not necessarily the government that is getting the money, so creating the jobs is more difficult. There are also other issues faced by oil importing countries that may distort their economies. One is the issue of fuel subsidies. They promote the movement of industries to fuel-intensive sectors, because relative to the rest of the world, fuel is cheaper and so you can produce those types of goods more efficiently than others. The problem is that those precise industries do not tend to be labour intensive industries, so resources are not necessarily going to the industries that create the jobs. There is also the issue of a skills mismatch, in the sense that the skills people are developing at university are not necessarily the skills that the private sector is looking for. Where oil importing countries have done well is in services which have accounted for a large share of value-added growth and also a large share of jobs growth. This includes trade, tourism and logistics. These industries have actually done quite well. When we look at other resource-rich or middle- income countries, the countries that have done well at creating jobs have tended to be much more focussed on the manufacturing sector. That seems to be the missing link. How can we explain that in developing oil exporting countries, there hasn't been much growth, but jobs have still been created? This is in part due to the response of the informal sector. In Yemen, for example, unemployment is low because there are jobs in agriculture which the population can resort to. Would you characterise growth in the MENA region as "jobless growth"? Overall, the MENA region is doing very well in terms of job creation. The only region that is better off in this respect is Africa. Even East Asia is doing worse, though that is understandable because countries in the region are producing more capital intensive goods, and capital to create value added products uses fewer workers. So I would not call growth in the region jobless growth, except maybe in the Gulf Cooperation Council (GCC). Jobless growth tends to hit industrial countries more. What we need to bear in mind though is that you have this rapidly growing young population. As such the amount of growth you would need to create jobs for them is just much higher than amount of growth needed to create jobs in a country where the population growth rate is flat. In manufacturing, there is still much room for growth. Of all the jobs created by foreign direct investments (FDI), only 20 per cent have been in manufacturing, yet that proportion has created 55 per cent of FDI-related jobs. Meanwhile, 30 per cent of FDIs are going to mining, but mining only creates seven per cent of FDI-related jobs. I believe the region could do great if it allocates more investments to manufacturing. So how can the region do that? One relevant factor is the investment climate. Right now, conditions are different from 30 years ago, when Asia started growing. There is such competition for entry into the job-creating sectors that an effort really has to be made in order to ensure an industry is doing well, or some other country will take that FDI. And Egypt is well-placed to attract FDIs because it is a big country. It is very enticing for a company to come into Egypt where there is a domestic population to service, while it is also close to both Europe and Asia. It has both a great location and a great size. It is just a matter of getting the policies right. But won't the global economic situation affect the flow of FDIs into the MENA region, as well as MENA exports? Of course, but whatever is going to happen globally is not going to happen forever. Attracting jobs is not a short run challenge but a medium- to long-term challenge. In the very short run the only thing you can do is create jobs through infrastructure projects. Some infrastructure projects require large machinery rather than people, so how can they create jobs? For one, maintenance tends to be more labour intensive. There is also housing and roadwork to do, and that enables people willing to work for low wages to come forward. It is not a good idea to offer high wages, as that would further distort the economy. The report also mentions high quality verses low quality jobs. At this point isn't it better to just create jobs and look for quality later? I think you can do both at the same time. One of the issues in terms of job quality is that of formal verses informal jobs. Bear in mind that the informal sector is useful because it is creating jobs, so you do not want to do anything to deter it. What you want to do is to make it easier for that informal sector to become formal, because by having a big informal sector not paying taxes, you are actually putting a bigger burden on the formal sector, which makes it harder to expand as fast as they would otherwise. So, somehow easing that transition from informal to formal is important. In general, creating jobs right now is more important than the quality of those jobs, but quality is a long term issue of moving jobs to the private formal sector. What would the term quality encompass? Formal jobs are usually considered high quality because workers receive pensions and are part of a social security system, while they have chances for promotion and training. Government jobs often fall into that category because they offer many benefits. Yet those benefits tend to distort the job market, because they discourage people from taking other jobs. In some ways, the informal sector can be a good thing because it can provide flexibility for women with children; it can also be something you do at home. It is not always the case that informal jobs are worse. How would you classify Egypt? It is not an emerging economy, nor is it low-income. I would define it as a middle income country and it is at the starting line of emerging countries, and it depends on whether it can jump over that line or not. And I am very hopeful as Egypt has much potential. When we look at the statistics, we see there has been a strong return to business as usual, making up for the output lost during the first three months of this year. Waiting for political stability to return right now is vital because investment is the problem. Investors do not like to invest in uncertain environments. Why are subsidies a cause for concern? They weigh heavily on the budget and they do not do much to stimulate the economy, nor do they stimulate job creation. In addition they do not necessarily protect the poorest in the most efficient way. If the goal is quality, giving cash transfers to society's most disaffected is a much better way to making sure everybody has access to food and housing. By continuing to hand out the same percentage of GDP, and implementing a different distribution system for public works programmes and cash transfers, the state would be better equipped to protect the poor while stimulating the economy in a labour intensive way. Prices are skyrocketing: how can you make sure cash transfers do not lose their value? The point is more to do with targeting. You can have the amount of cash transfers vary somewhat insofar as long as food prices continue to fluctuate, but only the poorest members of society should have access to cash assistance. This is a difficult issue because middle income people do not have much money either, and that is not going to be easy for them. Such a transition would have to be a phased out process. Hopefully in future, food prices will stabilise.
