Economic Research Forum (ERF)

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

2510
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

EU climate policy: potential effects on the exports of Arab countries

The carbon border adjustment mechanism aims to ensure that Europe’s green objectives are not undermined by the relocation of production to parts of the world with less ambitious climate policies – but it could impose substantial costs on developing countries that export to the European Union. This column examines the potential impact on exporters in the Arab world – and outlines possible policy responses that could mitigate the economic damage.

Green hydrogen production and exports: could MENA countries lead the way?

The Arab region stands at the threshold of a transformative opportunity to become a global leader in green hydrogen production and exports. But as this column explains, achieving this potential will require substantial investments, robust policy frameworks and a commitment to technological innovation.

Financial development, corruption and informality in MENA

Reducing the extent of informality in the Middle East and North Africa would help to promote economic growth. This column reports evidence on how corruption and financial development influence the size of the informal economy in countries across the region. The efficiency of the financial sector in MENA economies reduces the corruption incentive for firms to seek to join and stay in the formal sector.

Freedom: the missing piece in analysis of multidimensional wellbeing

Political philosophy has long emphasised the importance of freedom in shaping a meaningful life, yet it is consistently overlooked in assessments of human wellbeing across multiple dimensions. This column focuses on the freedom to express opinions, noting that it is shaped by both formal laws and informal social dynamics, fluctuating with the changing cultural context, particularly in the age of social media. Data on public opinion in Arab countries over the past decade are revealing about how this key freedom is perceived.

Climate change threats and how the Arab countries should respond

The Arab region is highly vulnerable to extreme events caused by climate change. This column outlines the threats and explores what can be done to ward off disaster, not least moving away from the extraction of fossil fuels and taking advantage of the opportunities in renewable energy generation. This would both mitigate the potential for further environmental damage and act as a catalyst for more and better jobs, higher incomes and improved social outcomes.

Child stunting in Tunisia: an alarming rise

Child stunting in Tunisia seemed to have fallen significantly over the past two decades. But as this column reports, new analysis indicates that the positive trend has now gone dramatically into reverse. Indeed, the evidence is unequivocal: the nutritional health of the country’s youngest citizens is rapidly deteriorating and requires immediate and decisive action.

Exchange rate undervaluation: the impact on participation in world trade

Can currency undervaluation influence participation in world trade through global value chains (GVC)? This column reports new evidence on the positive impact of an undervalued real exchange rate on the involvement of a country’s firms in GVCs. Undervaluation acts as an economy-wide industrial policy, supporting the competitiveness of national exports in foreign markets vis-à-vis those of other countries.

New horizons for economic transformation in the GCC countries

The countries of the Gulf Cooperation Council (GCC) have historically relied on hydrocarbons for economic growth. As this column explains ahead of a high-level ERF policy seminar in Dubai, emerging technologies like artificial intelligence, blockchain and robotics – what some call the fourth industrial revolution – present a unique opportunity for the region to reduce its dependence on oil and make the transition to a knowledge-based economy.

Shifting public trust in governments across the Arab world

The Arab Spring, which began over a decade ago, was driven by popular distrust in governments of the region. The column reports on how public trust has shifted since then, drawing on survey data collected soon after the uprising and ten years later. The findings reveal a dynamic and often fragile landscape of trust in Arab governments from the early 2010s to the early 2020s. Growing distrust across many countries should raise concerns about future political and social instability.

Egypt’s labour market: new survey data for evidence-based decision-making

As Egypt faces substantial social and economic shifts, understanding the labour market is crucial for designing policies that promote employment and inclusive economic growth. This column introduces the latest wave of the Egypt Labor Market Panel Survey, which provides fresh, nationally representative data that are vital for examining these dynamics.




LinkedIn