Middle East and North Africa
Large parts of the Middle East and North African region continue to be affected by geopolitical conflict and turbulence. Yet the emphasis has shifted. Some North African economies, such as Egypt and Tunisia, are slowly stabilizing and are starting to focus on economic reform. Structural reforms and improvements to business environments will help restore the still-shaken investor confidence in countries in transition in the region. Other economies, such as Libya and Lebanon, remain affected by conflict or unrest within their own borders or in neighboring countries. At the same time, some small, energy-rich economies continue to perform well in the rankings, building on their resource-driven wealth to undertake structural reforms and invest in competitiveness-enhancing measures. These endeavors will help drive private-sector employment that, in turn, is necessary to provide sufficient numbers of gainful and sustainable jobs for the countries’ populations.
The United Arab Emirates takes the lead in the region, moving up to 12th position this year. To some extent this overall ranking improvement is technical and due to the fact that data on tertiary enrollment are no longer available. At the same time, the country’s successful bid for Expo 2020 and its strong drive toward reforms have anchored many initiatives to enhance competitiveness. These efforts are paying off: its institutional framework, infrastructure, macroeconomic stability, and ICT use have all improved. Overall, the country’s competitiveness reflects the high quality of its infrastructure, where it ranks an excellent 3rd, as well as its highly efficient goods markets (3rd). A strong macroeconomic environment (5th) and some positive aspects of the country’s institutions—such as strong public trust in politicians (3rd) and high government efficiency (5th)—round out the list of competitive advantages. Going forward, putting the country on a more stable development path will require further investment to boost health and educational outcomes (38th on the health and primary education pillar). Raising the bar with respect to education will require not only measures to improve the quality of teaching and the relevance of curricula, but also measures to provide stronger incentives for the population to attend schools at the primary and secondary levels. Last but not least, further promoting the use of ICTs and a stronger focus on R&D and business innovation will be necessary to diversify the economy and ensure that economic growth is sustainable going into the future.
Qatar falls three places to 16th position. Although the country benefits from high levels of macroeconomic stability and efficient goods and financial markets, as well as high levels of physical security, it will have to step up its efforts to improve a number of areas in order to achieve a more diversified economy. Improving educational outcomes, especially participation in primary and tertiary education; fostering the use of ICTs; and further opening the country up to foreign trade will be necessary to increase productivity in non-hydrocarbon sectors. At a more fundamental level, Qatari businesses would benefit from reduced administrative barriers to set up businesses and from upgrading the transport infrastructure.
Saudi Arabia (24th) loses four positions in this year’s edition, based on a less positive assessment of its quality of education and level of domestic competition. The country will need to enhance competitiveness to further diversify its economy and create sufficient number of jobs for the growing workforce. Overall, its competitiveness benefits from high levels of macroeconomic stability (4th) with low debt and a budget that is consistently in comfortable surplus. The country also benefits from the largest market size among the Gulf Cooperation Council (GCC) economies (20th). Yet Saudi Arabia also faces important challenges going forward. For example, health and education do not meet the standards of other countries at similar income levels (50th). In light of the need to create jobs, further emphasis should be placed on education and labor market reforms. Room for improvement remains in particular with respect to higher education and training (57th), where Saudi Arabia’s assessment has weakened in recent years. Business leaders consider that the quality of education could be improved especially with respect to training in management (78th) and math and science (73rd). Labor market efficiency (64th) could also be improved, and reform in this area will be critical for Saudi Arabia, given the growing number of young people who will enter its labor market over the next several years. More efficient use of talent—in particular, enabling a growing share of educated women to work—and better education outcomes will increase in importance as the country attempts to diversify its economy, which will require a more skilled and educated workforce. Last but not least, although some progress has been recorded recently, the use of the latest technologies such as ICTs can be enhanced further (45th), especially as this is an area where Saudi Arabia continues to trail other GCC economies.
Israel retains the 27th position in this year’s GCI. The country’s main strengths remain its world-class capacity for innovation (3rd), which rests on innovative businesses that benefit from the presence of some of the world’s best research institutions (3rd), support by the government through public procurement policies (9th), and a favorable financial environment for start-ups (availability of venture capital is assessed at 9th place). Yet for the country’s innovation-driven competitiveness strategy to be successful and viable going into the future, Israel will have to address some basic competitiveness challenges. Israel’s institutions are in need of continued upgrading (43rd) and a stronger focus on raising the bar in education is needed. If not addressed, poor educational outcomes—particularly in math and science (79th) and in primary schools (86th)—could undermine the country’s innovative capacity over the longer term. Room for improvement also remains with respect to the macroeconomic environment (50th), although improvements have taken place between 2012 and 2013 as the fiscal deficit and public debt were reduced. At the time of writing, the security situation in the country is once again fragile, which could potentially affect the country’s economy, although this has not been the case in the recent past.
Jordan moves back up to 64th place, a rank it held two years ago. The improvement mainly reflects a lower budget deficit and some progress made in education and financial market development. The country is faced with a number of social challenges that require the government’s attention: for example, it must address both unemployment among young people (31.3 percent in 2012) and the consequence of the conflict in neighboring Syria, which has brought high numbers of refugees to Jordan. Nevertheless, Jordan has the potential to benefit more from its geographical proximity to GCC economies and Europe, and recent fiscal reforms have created space for shifting spending toward productivity-enhancing measures. The country has a relatively well educated population (48th), vibrant domestic markets (36th), and its stable and rather efficient institutions (37th) are a strong asset in regional comparison. Boosting economic growth over the longer term will require Jordan’s policymakers to address a number of challenges. According to the GCI, there is significant room for improvement in boosting labor market efficiency (94th), and the full potential of ICTs for improving productivity has not yet been fully exploited (90th). Jordan could also benefit from more openness to international trade and investment, which would trigger further efficiency gains in its domestic economy and facilitate the transfer of knowledge and technology. Tariff barriers remain high in international comparison (107th) and regulatory barriers to FDI remain in place (73rd). And although bank financing appears to be more easily available than in many other countries (Jordan comes in at 25th on ease of access to loans), efforts to further stabilize its banking sector should be continued (103rd).
Morocco moves up to 72nd position this year, partially recovering from last year’s drop. A reduced budget deficit (between 2012 and 2013) and improvements in primary education and innovation support the country’s rise in the rankings. Some aspects of its institutions have improved as well, reflecting Morocco’s relative social and political stability and efforts made over recent years to modernize its business environment, particularly its administrative aspects. Continuing the process of economic diversification, which has already boosted exports and FDI in higher-value-added industries, will be important for the country’s future growth. Building on its competitiveness strengths, such as physical security (39th), some positive aspects of goods markets efficiency (e.g., 32nd on number of procedures to start a business), and a rather solid and efficient banking sector (42nd on soundness of banks), Morocco should continue its successful efforts to address key competitiveness challenges. Necessary measures include boosting education (104th) in terms of both quality and access, and reforming its labor market (111th). With respect to education, making schooling at the secondary and tertiary levels more accessible and attractive to increase enrollment rates in these two segments would ensure that a qualified labor force is available to support economic diversification. In their responses to the Survey, business executives also point out that revising curricula so that skills taught better match the needs of businesses should be a priority. With respect to labor markets, raising the share of women in the labor force would greatly strengthen the talent base available in the country. Last but not least, boosting the use of ICTs among businesses and individuals (84th) would also greatly benefit the country’s competitiveness.
Algeria moves up to 79th position this year. This rise is driven mainly by a sounder macroeconomic environment, which remains the country’s most important competitiveness strength (11th). Yet improvements are also seen in other areas, such as institutions and physical security, albeit from a low level. Some aspects of education also show a positive trend: for example, the quality of education seems to be improving. A major overhaul of the institutional framework and increased focus on the efficiency of the goods, labor, and in particular financial markets will be necessary to put Algeria’s growth on a more sustainable trajectory.
Iran comes in at 83rd, losing one place in comparison to last year’s assessment. The economy is expected to stabilize after two difficult years, mainly driven by external developments. This steadier economic context provides an important opportunity for the country to enhance its competitiveness potential. Iran has to build on its solid macroeconomic positioning, its large market size, and its fairly well educated population. Improvements to its institutional framework and measures to heighten the efficiency of its goods, labor, and financial markets would benefit the country’s competitiveness and provide an important boost to the country’s economic growth in the shorter as well as longer terms.
After dropping for several years in a row, Egypt moves down one place to 119th position in this edition. This assessment points to a certain stabilization in the country following the recent elections. The fragile security situation is improving slightly, although tenacious political and policy instability are undermining the country’s competitiveness and its growth potential going forward. While regaining political stability and investor confidence needs to remain the priority as this Report goes to print, many of the underlying factors that will be decisive for the stability of the country and the cohesion of the society over the medium to longer term are economic in nature. Establishing confidence through a credible and far-reaching reform program is vital to Egypt’s future and to realizing the considerable potential of its large market size and proximity to key global markets. According to the GCI, three areas are of particular importance. First, the macroeconomic environment has deteriorated over recent years to reach 141st position mainly because of a widening fiscal deficit, rising public indebtedness, and persisting inflationary pressures. A credible fiscal consolidation plan, accompanied by structural reforms, will be needed in Egypt. This may prove difficult because of energy subsidies that account for a considerable share of public expenditure. Removing these subsidies may be difficult politically, but there is space for targeting subsidies better in a way that allows for fiscal consolidation while still protecting the most vulnerable. Second, measures to intensify domestic competition (118th) would result in efficiency gains and contribute to energizing the economy by providing access to new entrants. This, in turn, would make the country’s private sector more dynamic, thus fostering the creation of new jobs. And third, making labor markets more flexible (130th) and efficient (139th) would allow the country to increase employment in the medium term and provide new entrants to the labor market with enhanced opportunities.