The country analysis is based on the data used for the computation of the Global Competitiveness Index 2017–2018, published in September 2017. Updates to data sources (e.g., the IMF’s World Economic Outlook) published after that date are not reflected in the numbers presented in this section.
The UAE, Qatar, and Saudi Arabia lead the Arab world ranking in nine, two, and one of the 12 competitiveness pillars respectively, reflecting the relatively better performance of resource-rich countries across all dimensions measured by the Global Competitiveness Index. The bars in Figure 17 show that across four of the twelve drivers of competitiveness the gap between the two best and two worst Arab countries is approximately as large as the gap between the best 20 and the worst 20 performers globally, signaling that the heterogeneity within the region is similar to the one observed across the entire globe: macroeconomic environment (102 percent), labor market efficiency (98 percent), goods market efficiency (90 percent), and institutions (88 percent). The labor market is also the area where the regional median is closest to the bottom of the global distribution, confirming the need for profound reforms in this area across most of the Arab world. Health and primary education levels are satisfactory in most countries in the region, while even regional leaders have a significant lag with respect to the global benchmark when it comes to higher education and training. In terms of innovation there are only two countries, Qatar and the UAE, that have so far made some progress in terms of closing the gap with the global benchmark.
The United Arab Emirates (UAE) (17th in the world) leads the Arab world in competitiveness. Increased diversification makes its economy more resilient and able to weather the double shock of lower oil and gas prices and reduced global trade, and to maintain a stable macroeconomic environment. The resilience of its fiscal policy will be further strengthened in the future because the UAE was, together with Saudi Arabia, among the early adopters of the new VAT agreed upon by GCC members, which was introduced in the country on January 1, 2018. After the slowdown in 2017, the IMF predicts GDP growth to pick up again this year to 3.4 percent, driven also by the good performance of the non-oil economy. To further increase its competitiveness, the UAE will have to speed up progress in spreading the latest digital technologies (36th) and upgrading education (36th). Over the past decade, the UAE has experienced significant improvement across all dimensions of competitiveness and closed the gap with the OECD average in all of them except for higher education and training and (to a small extent) health and primary education. In relative terms (i.e., with respect to the country’s performance across all pillars), innovation, financial market development, and market size are weighing on the UAE’s competitiveness, while the country benefits from strong institutions, good infrastructure, and a good level of health and primary education.
Qatar is the 2nd-most competitive economy in the Arab world, and 25th globally. The drop in oil and gas prices had a significant effect on the country’s fiscal situation, which moved from a fiscal surplus of 10.3 percent (in 2015) to a deficit of 4.1 percent of GDP (2016), while public debt increased from 35.8 to 47.6 percent of GDP in the same years. Yet its macroeconomic environment remains solid at 20th globally and 1st in the region. Qatar’s strengths lie in its solid infrastructure facilities and efficient goods markets. Going forward, the country will have to ensure better access to digital technologies for individuals and businesses, and further strengthen educational institutions. It is important to note that both survey and statistical data reflect the situation prior to the current tensions with neighboring countries. Since 2007, the country has improved its performance across all the pillars of the Index, with the exception of financial market development—which is now one of the factors of relative weakness of Qatar’s competitiveness, together with the average level of innovation and the size of its market. On the other hand, top-quality infrastructure, a favorable macroeconomic environment, and good levels of health and primary education represent the country’s main strengths.
Saudi Arabia ranks 30th in the world and 3rd in the region. Its macroeconomic environment has improved slightly since the 2015 oil price shock, but its financial market efficiency (56th) has suffered from slower credit growth and increased interest rates in 2016. The introduction of the VAT as of January 1, 2018, (together with the UAE, Saudi Arabia is the first country in the GCC to introduce the VAT) will contribute to further securing public finances and diversifying them from oil revenues. The country has stable institutions (26th), good-quality infrastructure (29th), and the largest market in the Arab world (15th globally). Saudi executives see restrictive labor regulations as their most problematic factor for doing business: the labor market is segmented among different population groups, and women remain largely excluded. Another concern is the lack of adequately educated workers: although tertiary enrollment is strong at 63 percent, more efforts are needed to advance the quality of education and align it with economic needs. Over the past 10 years, the country has made progress on the back of an increase in the size of its market (today this is one of its strengths in relative terms) and improvements in technological readiness and infrastructure. Its macroeconomic environment has deteriorated while its labor market efficiency stalled; together with innovation and financial market development, this has become one of its top three weaknesses.
Bahrain ranks 44th overall. The country presents a favorable business environment with a good institutional framework (23rd) and modern infrastructures (33rd). Its macroeconomic environment (108th, with a large fiscal deficit) is one of its main weaknesses, together with its small market size (90th globally and the smallest in the region), which is only partially balanced by its openness to international markets. Technological readiness is the area where the country has improved the most since 2007, closing the gap with respect to OECD countries. Innovation and higher education and training have also improved significantly and Bahrain has reduced its distance from the most advanced economies globally. On the other hand, the situation has deteriorated in terms of financial market development and macroeconomic environment, in line with most other countries in the region.
52nd globally, Kuwait suffers from a deterioration of its macroeconomic environment caused by low oil and gas prices. The fiscal balance went into deficit in 2016 (from a surplus of 1.2 percent of GDP to a deficit of 3.6 percent of GDP) with an increase in debt. In order to face the challenges posed by persistently low oil prices, Kuwait will have to increase its innovation capacity by investing in higher education and training and fostering a more inclusive and efficient labor market that allows it to make the best use of its human capital. Unfortunately, across most of these dimensions Kuwait has not improved significantly over the past decade, and in many cases the situation has worsened. In particular, the country’s labor market efficiency dropped by more than one full point, making it one of the areas where it lags the most with respect to advanced economies, together with innovation, higher education and training, and technological readiness.
Oman ranks 62nd, punching above its weight in terms of institutions, infrastructure, and goods market efficiency. The government is passing substantial fiscal reforms to help the economy adjust to the new situation of low oil prices and preserve the sustainability of public finances. These reforms include a cut in fuel subsidies and other distortive fiscal measures, an increase in corporate tax, and the introduction of the GCC-wide VAT system in 2018 for a limited number of products. The country needs to continue efforts to upgrade its education and training systems and fundamentally reform its labor markets, whose efficiency has decreased over the past 10 years. Oman’s performance in innovation and business sophistication has also deteriorated over the same period, making these three areas the three main weaknesses of the country.
At 65th place, Jordan continues to benefit from a fairly stable and efficient institutional system and relatively good infrastructure, innovation, and business sophistication. Over the past year, the government has worked to consolidate the country’s fiscal situation and macroeconomic environment, which have been put under additional pressure by the large influx of Syrian refugees. These efforts have led to higher taxation and increased scrutiny of public spending by the private sector and the public at large. From a long-term perspective, Jordan’s performance has improved across most dimensions of competitiveness, particularly in technological readiness. Among the exceptions, labor market efficiency and financial market development are worth mentioning and today represent two of the main burdens on the country’s competitiveness.
The best-performing country in North Africa, Morocco ranks 71st and this year reaches its highest score since the start of the series in 2007. The country can count on good health and primary education conditions, improved infrastructure, and a favorable macroeconomic environment supported by stable institutions. Over the past decade, Moroccan infrastructure has improved significantly, jumping from 71st in 2010 to 54th today. Advances have been spread across all modes of transport but were particularly large for ports (32nd this year, up 30 ranks over the same period) and roads (43rd, up 45 ranks). The availability of rail infrastructure will be further enhanced with the opening of the high-speed train connection between Tangier and Casablanca this year. Better infrastructure and a decrease in the average import tariff from 18.9 percent to 10.5 percent fostered Morocco’s integration into international trade, which increased the overall level of efficiency in its goods market (58th, up 10 ranks since 2007). The key challenge for the country remains to improve its innovation environment (94th), its higher education and training system (101st), and the efficiency of its labor market (120th). These are the only three areas where the gap with the advanced economies has increased over the past decade rather than declining and, together with ICT and technological readiness (82nd, with slow progress), constitute the conundrum that Morocco needs to address to continue its path of growth and move into higher value-added and innovative sectors.
With the 4th largest market in the region (36th globally), Algeria enters the rankings at 86th place. Since 2015, improvements in many areas of competitiveness have been counterbalanced by a deterioration of its macroeconomic environment due to falling oil and gas prices. The government budget deficit was 11.6 percent of GDP in 2016, compared with a surplus of 0.1 percent three years before. Yet, at 71st globally, this remains one of the areas of relative strength of the country, together with health and primary education levels (71st). Among the other pillars, improvements have been faster in higher education and training, infrastructure, and technological readiness, but the latter two still show the largest gaps vis-à-vis developed countries. In 10 years, Algeria has achieved universal enrollment in secondary education and almost doubled enrollment in its tertiary system (36.9 percent in 2015). However, the quality of education still needs to be improved (105th) as well as the use of on-the-job training schemes (124th). In terms of transport infrastructure, progress over the past decade has been mainly in the railway sector (today at 49th). More Algerians are now connected to the Internet, but (at 98th globally) there has not been significant convergence with advanced economies in technological readiness. The country has not sufficiently addressed the inefficiencies of its labor market (133rd), which has deteriorated further in both absolute and relative terms. Diversifying away from natural resources into higher value-added activities will be key to ensuring sustainable opportunities in the long term. Focusing on innovation and better integration into the global economy will be instrumental in achieving this goal.
Ranking 95th globally, Tunisia’s performance has stagnated over the past years, with no significant movement since the end of the political crisis in 2014. Improving the inefficiency of its labor market remains Tunisia’s key priority for reform, an area where the country has further slipped in recent years and today ranks 135th globally. Its macroeconomic environment also remains challenging, with low gross national savings (13.1 percent) and increasing public deficit (5.7 percent of GDP) and debt (60.6 percent of GDP). The functioning of the country’s markets is hampered by high tax rates (60.2 percent of business profits in 2016) as well as insufficient trade integration, restricted by both non-tariff barriers (119th) and customs procedures (122nd). The quality of institutions has been slowly improving, but inefficient government bureaucracy, corruption, and policy instability are still identified as the three most problematic factors by businesses in the country. Technological readiness is the area that has experienced the largest improvement since 2013, and Tunisia is the country with the most developed use of ICTs in North Africa (81st globally).
Egypt enters the rankings at 100th this year and approaches levels of competitiveness similar to those of 2009 and 2010. In past years, improvements have been particularly sharp in terms of financial market development (77th) and infrastructure (71st). In addition to the opening of the Suez Canal extension in 2015, a number of transport connections have been restored recently, contributing to the expansion in road and railway connectivity. Financial market conditions have benefitted from the flexible currency regime introduced at the end of 2016, while the banking sector weathered the change smoothly and is sufficiently sound (49th). The country will also benefit from its ambitious program of fiscal reforms, which included the introduction of the VAT in 2016 and the phasing out of many fuel and energy subsidies. However, its macroeconomic environment (132nd) suffered from high inflation in the period that immediately followed the stronger-than-expected depreciation of the Egyptian pound. Over the past decade, Egypt’s performance vis-à-vis the advanced economies has increased or remained relatively stable in most dimensions of competitiveness, with the exceptions of infrastructure, financial market development, and market size. The country’s macroeconomic environment experienced the largest deterioration in both absolute and relative terms, and today is the biggest relative weakness of the country, followed by innovation (109th) and labor market efficiency (134th).
Ranking 105th in terms of overall competitiveness, Lebanon is punching above its weight when it comes to business sophistication, technological readiness, and innovation, but it is still burdened by a poor macroeconomic environment and inefficient institutions and labor markets. The situation in neighboring Syria and the large influx of refugees has further drained economic resources and put the national health and education systems under pressure, with an increase in the number of transmittable diseases. ICT use has improved thanks to increased international Internet bandwidth and mobile broadband subscriptions. Deflation has eased, contributing to advance the country’s macroeconomic context.