Countries in the Middle East and North Africa (MENA) must break with business as usual if they are to deal with widespread unemployment and create good jobs for the hundreds of millions of young people who will join the labour force in coming decades. The current approach – which relies on a state-dominated model that countenances ‘cronyism’ over competition – yields economic growth that is a tiny fraction of what is needed to meet the legitimate aspirations of MENA youth.

With government coffers empty, new and sustainable engines of growth must replace the large public expenditure programmes that provided most jobs in the past. The inability of the system to meet the demands of young people has already triggered waves of protests in the region, which only promise to worsen unless things change.

Leaders in the region must take decisive actions collectively to remove roadblocks to genuine private sector development – the only sustainable way to support growth and unleash the potential of young people and women. A regional approach will not only make it easier to deal with the removal of these roadblocks but also unleash the potential of a large single market, much like the European Union.

Two important tasks underlie any programmes to revitalise their economies. Governments must add to their quivers growth policy arrows that:

• Create large-scale economic opportunities by undertaking an all-out effort to harness digital technologies that bring their countries into the twenty-first century – an effort that will require an ambitious programme similar to the one that the United States undertook in 1961 to make a manned landing on the moon by the end of the decade.
• Promote free and fair competition to end the cosy and stifling relationship between governments and well-connected firms that results in economies in which profits accrue less to genuine productive activity and more to economic rents and to monopoly pricing.

Of course, before the region can embark on such an ambitious plan, it must achieve macroeconomic stability. Indeed, a tendency to delay stabilisation and to tolerate overvalued exchange rates has perpetuated these rentier economies, with their dependence on imports and a top-down, crony-dominated economy.

Even achieving macro stability will not be easy. It is a task many governments have pursued – such as exchange rate devaluations, tax hikes and subsidy cuts – often to little effect, following the wave of protests in 2011 that were called the Arab Spring and the persistent drop in oil prices that began three years later.

But even if authorities do achieve a level of stability, without modernisation and fair competition, the region will remain unable to reduce uncertainty and attract vital foreign direct investment. To do that requires governments to pull out the new policy arrows say by 2022 to help revitalise the regional economic systems through technology and a change in governance.

The policies are self-enforcing and complementary. More competition will help with innovation, and more technology will help instil more market contestability – that is, making it easier for firms to enter and exit specific sectors.

Digital moonshot

The late US President John F Kennedy’s herculean effort to send a man to the moon helped unleash an extraordinary winning spirit that went well beyond the space sector that built and launched the lunar craft in July 1969. A digital moonshot would aim to propel MENA into the so-called Fourth Industrial Revolution, which integrates technology into the sinews of everyday economic activity. Such a moonshot would help promote a bottom-up approach to development in a region where top-down approaches have long been the rule.

MENA countries already have the ingredients needed to jump to a much more productive service sector and, in the process, modernise more traditional sectors such as agriculture and agribusiness. MENA countries have highly educated young men and women and the backbone needed to construct a widely available and affordable high-speed internet.

Yet the region ranks near the bottom globally in terms of affordability and quality of internet, and the percentage of the population that has access to it. In many countries in the region, young people can use social media to voice their grievances against governments, but cannot conduct e-commerce or other economic activities that are common in the rest of the world.

It is time to empower a young MENA generation to join their global counterparts in the collaborative effort and spirit of the start-up world. That means they must have access to high-speed internet and digital payments, such as PayPal or AliPay, to enable them to integrate economically within and between countries. Countries in the region need to work on removing the constraints on the telecoms and finance sectors that are partly the result of the efforts by dominant firms to stop improvements in delivery of payments and other financial innovations via the internet.

Governments should consider setting 2022 as the deadline for making high-speed internet, digital and mobile payments affordable and available to all.

Building on these foundational elements, will permit the emergence of new actors and domestic platforms – including in e-commerce and ride-sharing – which will disrupt a number of paralysed segments of the economy, such as transport and logistics. That will boost free trade within and between countries and help improve other lagging areas.

The growth of platforms and additional activities will require new skills. Some of them can be learned on the job, but many will have to be taught. That will require a reconfiguration of the education system to train students for the private sector rather than for jobs in the public sector.

Promoting fair competition

But creating a modern digital sector is not enough. The MENA countries must also revamp the regulatory apparatus to ensure privacy and to limit attempts by incumbent, well-connected firms to continue to abuse their dominant positions to constrain competition, which stifles the economy.

The region also performs poorly in data disclosure and public administration transparency. The blurry ownership of the economy makes for distrust as citizens become suspicious about the genuine nature of the existing private sector.

That sense of a lack of open markets, coupled with the lack of open governments, has stalled these economies. Indeed, the discretion with which public officials operate is prone to corruption, often making life miserable for non-connected firms and citizens, especially the poorest members of society.

Moreover, state-owned enterprises deliver poorly such public services as water, electricity and waste management. That poor management has angered protestors because citizens are often asked to pay more without any improvement in the quality of services.

But reforms here will be difficult because authorities have created a constituency that will resist them: a huge number of excess employees. The authorities use the utilities as employers of last resort, sometimes adding jobs as electoral ploys to gain votes.

A region that has invested in education, health and infrastructure must now consider ‘investing in transparency’. It is often said that transparency is the best disinfectant. At a time when corruption is one of the most important grievances of the population, a commitment to radical transparency would go a long way toward persuading the population that the state is no longer attempting to maintain a rentier public sector.

In addition to changing the foundation of the economy, the region needs to enforce competition policy in ways that lead to actual change in the market structure of the economy, which would liberate investment, quality services, innovation and employment.

Three actionable moves constitute the second arrow of growth policy for the region. Authorities must ensure:

• Radical transparency of governments and disclosure of data on firms and households.
• Competitive neutrality for all firms – without exception.
• Independence and accountability of both authorities charged with ensuring competition as well as those who regulate economic sectors.

The benefits of more open, yet regulated markets can be far reaching. Indeed, the tenets of the Sherman Act of 1890, which sought to end anti-competitive behaviour in the United States, resonates today in the debate over how to handle tech giants such as Facebook, Google and Amazon.

If the US experience is a guide, then the social tensions that have arisen in the MENA region are deeply rooted. To eradicate the underlying causes, the state must be able to rise above the fray and put state-owned enterprises and existing private sector firms on the same footing when it comes to public subsidies, taxes, debt and access to public markets.

An outright privatisation programme will not work. Without fixing the economic governance at both national and regional levels, privatisations merely change public monopolies to private ones. Unless the independence, competency and accountability of the regulatory apparatus are reinforced, no reform will yield good developmental outcomes.

Even when private foreign firms have entered sectors such as banking and telecoms, the expected benefits did not result when regulators failed to instil competition and tolerated collusion – tacit, or even overt. Balancing open markets with an independent and accountable regulatory apparatus will go a long way to restoring the trust of MENA citizens in both markets and the state.

The bottom line

If MENA leaders commit to a digital moonshot and to promoting fair competition by 2022, they will set the stage for broad-based and bottom-up economic integration in a region that is the least integrated in the world. Together, MENA constitutes a large domestic market and tapping into that pent-up demand – by promoting a genuine private sector with regional regulatory bodies – will contribute to the peace and prosperity of a region that is in a dire need of both.