Staying Competitive in the Next Economic Model: Key Challenges for the Arab World
MARGARETA DRZENIEK-HANOUZ and ATTILIO DI BATTISTA, World Economic Forum
Over the past several decades, the economies of the Arab world have experienced alternating successes and challenges, partially driven by the fluctuations in energy prices (Figure 1) and the political tensions that have torn some of these countries. Natural resources have played a particularly important role in the region, affecting resource-rich countries, such as the economies of the Gulf and Algeria, differently from those that are resource poor—the rest of North Africa and the Levant.1
The Arab world is composed of a set of very diverse economies, which includes some of the richest countries in the world and others where conflicts have made it difficult to satisfy even basic needs. Even the oil wealth that has benefited part of the region for many years has been used quite differently in different countries, with some becoming early movers toward ambitious diversification policies and investment plans in infrastructure and technology, and others lagging behind.
These differences are reflected in today’s situation and crystallized by the Global Competitiveness Index (Figure 2). The gap between resource-rich and resource-poor countries is particularly large when it comes to infrastructure and the macroeconomic environment, but even within these groupings distinctions can be made between countries whose macroeconomic situation has proved more resilient to energy price fluctuations (e.g., the United Arab Emirates, Qatar) and others that have been faced with bigger challenges.
In spite of all differences, most countries in the region will have to address some common challenges in the medium-long term and work toward similar objectives: increasing the private sector’s role in the economy, transitioning toward a more diversified and less oil-based economic structure, creating opportunities and leveraging the potential of an extremely young population, and preparing for the difficulties and opportunities posed by the Fourth Industrial Revolution.
This chapter provides an overview of how the competitiveness performance of the Arab countries has evolved over the past 10 years in the areas where the most progress has been made and those where reform has been slower. It then frames the current challenges faced by the region in the context of the broader global trends and the risks that those trends pose for the Arab countries. For each of the main challenges, the chapter puts forward recommendations stemming from conversations with local stakeholders and grounded in previous literature and collected data. Finally, a short description of the competitiveness landscape of each of the 12 countries included in the analysis is provided.