Abu Dhabi last week hosted SALT, the global thought leadership forum fostering collaboration at the intersection of finance, technology and geopolitics. The conference gathered world-class financiers from North America as well the top players from the region. In a session on the future of private investing, a speaker mentioned two impediments to investing in the region: One being security, the other being the lack of investment opportunities.
One major problem the Arab world faces, which few talk about, is the lack of a productive sector. Though we always talk about unemployment and lack of opportunities for the youth, few mention its root cause. The rentier economy systems that have plagued our societies have crippled the private sector and hindered innovation. The rigid and archaic legal system did not create an attractive ecosystem for investments. Additionally, the natural resources were a blessing and a curse. Governments feel they can dig wealth from the ground and don’t have to create it. The UAE is one exception to this phenomenon, as the government has not solely relied on oil and gas but used the wealth generated from natural resources to diversify its economy. Saudi Arabia is doing the same with its reform program.
The discontent in the Arab world that has led to various uprisings was not driven by ideology or an abstract higher cause. People took to the streets because they wanted jobs, basic services and, most importantly, to live in dignity. The first fold of the problem was that inefficient and corrupt governments were unable to cater to the needs of the growing population. The other fold was that there was no private sector that could also fill this gap.
A report by the UN Economic and Social commission of Western Asia under the title “Rethinking Inequality in Arab States” showed discrepancy between education levels and job opportunities. Young people graduate and then find no jobs. The rentier economy that worked in the 1960s and 70s could no longer provide for the growing population of Arab millennials. Actually, the rentier economy that was put in place, sugar-coated with socialist principles, supposedly aimed at providing equality. However, it resulted in the most unequal societies in the world, with the top 10 percent in Arab states having 61 percent of the wealth. This is to be compared with 36 percent in Western Europe, 47 percent in the US and 55 percent in Brazil.
Though we always talk about unemployment and lack of opportunities for the youth, few mention its root cause
Dr. Dania Koleilat Khatib
The Arab world does not lack talent. We see Arab-born entrepreneurs rising and thriving in the West. However, in the Arab world those entrepreneurs lack the opportunity to realize their potential. We don’t have a system that promotes equity in opportunity. We don t have a legal framework that either encourages entrepreneurship or investments in small and medium-sized businesses or protects investors.
However, the Arab world has a chance to progress. If we look at China, it used the surplus accumulated from the agriculture sector and invested it in light manufacturing. It gradually started going into more sophisticated industries. Today, China is a world leader in technology. Deng Xiaoping and his successors put in place a policy to encourage economic development and foreign direct investment and innovation.
The Arab world is burdened by socioeconomic and political problems that are inter-related. The starting point to solve these problems is to provide a better life for the average individual, and this starts by giving him a decent job through which he can live with dignity. I was surprised by a comment made by one of the protesters in Lebanon, who said that, if he had a job, he would be busy working and wouldn’t be protesting. Corrupt Lebanese politicians who monopolized business opportunities for themselves and their cronies strangled the private sector and hence limited job creation.
The starting point is to promote investments in small and medium-sized businesses. This will boost the productive sector and create jobs. The rentier economy based on profiteering and the oversized and inefficient public sector can no longer create enough jobs or provide a decent income to a growing population. The Arab world needs a robust productive sector. There are plenty of opportunities to explore. The relatively inexpensive labor can be an attractive feature for encouraging investments in manufacturing facilities. Starting with manufacturing, investments can snowball into more sophisticated industries.
When contemplating the Arab world, I can’t help but remember the words of the Lebanese-American philosopher Gibran Khalil Gibran, who said: “Pity the nation that wears a cloth it does not weave and eats a bread it does not harvest.” It is time we stopped pitying ourselves and started working on having a solid productive sector.