Economic Research Forum (ERF)

A moonshot for MENA: laying the groundwork for a modern digital economy

2708
A new economic reality is needed in the Middle East and North Africa (MENA). This column proposes a ‘moonshot’, which, like the US effort to land a man on the moon in the 1960s, can unite people behind a common goal and transform the ways in which governments, companies, international financial institutions and civil societies conduct business. It would transform MENA economies and help to ensure that millions of the region’s young people can find the good jobs they deserve.

In a nutshell

A MENA ‘moonshot’ – an economic approach that embraces innovation and encourages risk-taking and creativity – would involve a collective commitment to achieve parity with advanced economies in information and communications technology by 2022.

The MENA region needs to create a modern broadband internet that covers all countries, including those that are lagging economically.

MENA countries must develop an infrastructure that supports digital money transfer through mobile devices and the internet.

In recent decades, young people in countries in the Middle East and North Africa (MENA) have flocked to universities, but there has not been a commensurate increase in demand for their skills. The perverse result has been that university graduates are more likely to be unemployed than those with less education (see Figure 1). This adds to social unease and retards economies by failing to employ their most educated and potentially highly productive workers.

To change that calculus, MENA must rapidly create a new economic reality that can deliver opportunities for all its young people. The old state-led economic model, which is still entrenched in many MENA countries, has reached its limit and can no longer provide the necessary jobs, let alone high-quality ones.

A growth model based on labour-intensive light manufacturing, such as the one followed by East Asian countries, cannot resolve the problem of unemployed university graduates. Moreover, this growth path may no longer work because new technologies are rapidly changing the nature of manufacturing.

The most promising approach for MENA countries is to adopt a technology-based economic model that embraces innovation and encourages risk-taking and creativity. Such a model can provide opportunities for well-educated workers.

Moreover, high-tech applications, such as job-matching platforms, can help less educated workers to find jobs. This will require the creation of a modern telecommunications system that enables an inclusive digital economy and the financial infrastructure to underpin that economy.

To achieve such an ambitious agenda, countries must mobilise political support and stir the public imagination. They cannot do that if they continue the traditional incremental approach to change. Without a full-blown effort, a generation of MENA youth will be condemned to unemployment or low-productivity, low-wage employment. And the technological gap between the MENA region and the rest of the world will continue to widen.

MENA countries must undertake what might be called a ‘moonshot’ – an all-out effort to achieve a goal named after the massive US effort in the 1960s to land a man on the moon. President John F. Kennedy’s 1961 decision to pursue this objective unleashed an extraordinary collective national effort that achieved its seemingly impossible goal in mid-1969.

A MENA moonshot would involve a collective commitment to achieve parity with advanced economies in information and communications technology by 2022. MENA countries would seek to equal or better OECD countries in terms of their level of access to the internet, capacity to transmit data (bandwidth) and the number of financial transactions carried out electronically.

The effort to create modern telecommunications and payments systems will require specific and bold goals, firm deadlines and cooperation among all elements of society, including the private sector.

Some of the needed elements are in place already. Young people in MENA are digitally savvy in many ways. They are active on social media and they are heavy users of mobile phones. Mobile phone penetration in the region is among the highest in the world (see Figure 2).

But that is about as far as it goes. The quality of internet service in most MENA countries is poor and few people have access to it. Only in sub-Saharan Africa and South Asia is there a lower per capita level of broadband subscriptions and MENA users have a limited amount of bandwidth per subscriber (see Figure 2).

Digital finance is almost non-existent. The poor quality of internet and payments systems hinder the development of a modern economy that creates quality jobs for its citizens (see Figure 3).

But digital infrastructure cannot be brought up to speed without overhauling the region’s regulatory apparatus. Regulators too often see the world through a prudential lens – pre-disposed to limit risks, but blind to catalysing innovation or encouraging competition. Allowing new firms to enter either the telecommunications or financial industries would lower prices and increase quality. But in both sectors, incumbents and regulators make entry difficult and retard innovation (see Figure 4).

Unlike countries in Latin America or Central and East Asia, which have aggressively pushed competition and liberalisation in the telecommunications sector, MENA countries have pursued a very gradual approach to change. As a result, Latin American and Asian countries, which a decade ago had internet speeds and usage comparable to MENA, have not only far surpassed the Arab world, they rival advanced economies.

Regulation has so retarded the growth of digital payments in the region, especially in North Africa, that much poorer countries in East Africa outperform MENA in terms of the diffusion of mobile money. Policy-makers should study Kenya’s model of light but effective regulation, which has fostered the rapid growth of the peer-to-peer payment system, M-Pesa.

In preparing for the moonshot, authorities in MENA should set two bold goals and plan to accomplish them swiftly, say within four years:

  • First, they need to create a modern broadband internet that covers all countries, including those that are lagging economically.
  • Second, countries must develop an infrastructure that supports digital money transfer through mobile devices and the internet.

To facilitate modern broadband internet and payments systems, regulators face twin challenges:

  • They must encourage new entrants and enhanced competition.
  • In a region that has been dominated by public banks, they must build trust in the integrity and security of digital finance in a private market.

As President Kennedy’s 1961 decision galvanised the United States, a 2018 MENA moonshot could unite authorities and young people behind a common goal – and transform the ways in which governments, companies, international financial institutions, foundations, civil societies and even foreign governments conduct business and collaborate. It would transform MENA economies and help to ensure that millions of the region’s young people can find the good jobs they deserve.

Figure 1:
Educated but unemployed

Figure 2:
High mobile penetration but low internet penetration

Figure 3:
Poor quality internet and nearly no cashless payment

Figure 4:
High concentration in the telecommunications sector

 

 

Most read

Trust in Lebanon’s public institutions: a challenge for the new leadership

Lebanon’s new leadership confronts daunting economic challenges amid geopolitical tensions across the wider region. As this column explains, understanding what has happened over the past decade to citizens’ trust in key public institutions – parliament, the government and the armed forces – will be a crucial part of the policy response.

Qatarisation: playing the long game on workforce nationalisation

As national populations across the Gulf have grown and hydrocarbon reserves declined, most Gulf countries have sought to move to a more sustainable economic model underpinned by raising the share of citizens in the productive private sector. But, as this column explains, Qatar differs from its neighbours in several important ways that could render aggressive workforce nationalization policies counterproductive. In terms of such policies, the country should chart its own path.

Small businesses in the Great Lockdown: lessons for crisis management

Understanding big economic shocks like Covid-19 and how firms respond to them is crucial for mitigating their negative effects and accelerating the post-crisis recovery. This column reports evidence on how small and medium-sized enterprises in Tunisia’s formal business sector adapted to the pandemic and the lockdown – and draws policy lessons for when the next crisis hits.

Economic consequences of the 2003 Bam earthquake in Iran

Over the decades, Iran has faced numerous devastating natural disasters, including the deadly 2003 Bam earthquake. This column reports evidence on the unexpected economic boost in Bam County and its neighbours after the disaster – the result of a variety of factors, including national and international aid, political mobilisation and the region’s cultural significance. Using data on the intensity of night-time lights in a geographical area, the research reveals how disaster recovery may lead to a surprising economic rebound.

The impact of climate change and resource scarcity on conflict in MENA

The interrelationships between climate change, food production, economic instability and violent conflict have become increasingly relevant in recent decades, with climate-induced economic shocks intensifying social and political tensions, particularly in resource-constrained regions like MENA. This column reports new evidence on the impact of climate change on economic and food production outcomes – and how economic stability, agricultural productivity and shared water resources affect conflict. While international aid, economic growth and food security reduce the likelihood of conflict, resource scarcity and shared water basins contribute to high risks of conflict.

Qatar’s pursuit of government excellence: promises and pitfalls

As Qatar seeks to make the transition from a hydrocarbon-based economy to a diversified, knowledge-based economy, ‘government excellence’ has been identified as a key strategic objective. This column reports what government effectiveness means in terms of delivery of public services, digitalisation of services, and control of corruption – and outlines the progress made to date on these development priorities and what the country needs to do to meet its targets.

A Macroeconomic Accounting of Unemployment in Jordan:  Unemployment is mainly an issue for adults and men

Since unemployment rates in Jordan are higher among young people and women than other groups, unemployment is commonly characterised as a youth and gender issue. However, the majority of the country’s unemployed are adults and men. This suggests that unemployment is primarily a macroeconomic issue challenge for the entire labour market. The appropriate response therefore is coordinated fiscal, monetary, structural and institutional policies, while more targeted measures can still benefit specific groups.

The green energy transition: employment pathways for MENA

The potential employment impacts of green and renewable energy in the Middle East and North Africa are multifaceted and promising. As this column explains, embracing renewable energy technologies presents an opportunity for the region to diversify its economy, mitigate the possible negative impacts of digitalisation on existing jobs, reduce its carbon footprint and create significant levels of employment across a variety of sectors. Green energy is not just an environmental imperative but an economic necessity.

Global value chains, wages and skills in MENA countries

The involvement of firms in production across different countries or regions via global value chains (GVCs) can make a significant contribution to economic development, including improved labour market outcomes. This column highlights the gains from GVC participation in terms of employment quality in Egypt, Jordan and Tunisia. Given the high unemployment, sticky wages and wide skill divides that are common in the MENA region, encouraging firms to participate in GVCs is a valuable channel for raising living standards.

Tunisia’s energy transition: the key role of small businesses

Micro, small and medium-sized enterprises (MSMEs) play a critical role in Tunisia’s economy, contributing significantly to GDP and employment. As this column explains, they are also essential for advancing the country’s ambitions to make a successful transition from reliance on fossil fuels to more widespread use of renewable energy sources. A fair distribution of the transition’s benefits across all regions and communities will secure a future where MSMEs thrive as leaders in a prosperous, inclusive and sustainable Tunisia.