P. 1
Arab World Competitiveness Report 2007

Arab World Competitiveness Report 2007

|Views: 331|Likes:

More info:

Published by: World Economic Forum on Aug 16, 2012
Copyright:Attribution Non-commercial

Availability:

Read on Scribd mobile: iPhone, iPad and Android.
download as PDF, TXT or read online from Scribd
See more
See less

07/27/2014

pdf

text

original

World Economic Forum Geneva, Switzerland 2007

The Arab World Competitiveness Report 2007
Sustaining the Growth Momentum

MARGARETA DRZENIEK HANOUZ World Economic Forum SHERIF EL DIWANY World Economic Forum TARIK YOUSEF Dubai School of Government

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

The Arab World Competitiveness Report 2007 is published by the World Economic Forum within the framework of the Global Competitiveness Network.

World Economic Forum Geneva Copyright © 2007 by the World Economic Forum Published by World Economic Forum www.weforum.org All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, or otherwise without the prior permission of the World Economic Forum. ISBN-13: 978-92-95044-02-9

Professor Klaus Schwab, Executive Chairman

EDITORS

Margareta Drzeniek Hanouz, Senior Economist, World Economic Forum Sherif El Diwany, Director, Head of Middle East, World Economic Forum Tarik Yousef, Dean, Dubai School of Government

FROM THE WORLD ECONOMIC FORUM: GLOBAL COMPETITIVENESS NETWORK

Fiona Paua, Senior Adviser Jennifer Blanke, Senior Economist Ciara Browne, Senior Community Manager Thierry Geiger, Economist Irene Mia, Senior Economist Aviva Rajczyk, Team Coordinator
MIDDLE EAST TEAM

Nadia Boulifa, Manager, Middle East & North Africa Daniel Davies, Associate Director Sofiane Khatib, Global Leadership Fellow Karim Sehnaoui, Global Leadership Fellow
AFRICA TEAM

Stéphane Oertel, Global Leadership Fellow

FROM THE DUBAI SCHOOL OF GOVERNMENT:

Paul Dyer, Research Associate We thank Hope Steele for her superb editing work and Ha Nguyen for her excellent graphic design and layout. The terms country and nation as used in this report do not in all cases refer to a territorial entity that is a state as understood by international law and practice. The terms cover well-defined, geographically self-contained economic areas that may not be states but for which statistical data are maintained on a separate and independent basis.

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Contents

Preface...................................................................................................v
Klaus Schwab (World Economic Forum)

2.4 Promoting the Growth and Competitiveness of the Insurance Sector in the Arab World .......................97
Peter Vayanos and Maher Hammoud (Booz Allen Hamilton)

Executive Summary..........................................................................vii
Margareta Drzeniek Hanouz (World Economic Forum), Sherif El Diwany (World Economic Forum), and Tarik Yousef (Dubai School of Government)

2.5 Middle East Transport and Logistics at a Crossroads...............................................................................119
Fadi Majdalani, Ulrich Koegler, and Simon Kuge (Booz Allen Hamilton)

Part 1: Competitiveness in the Arab World: Removing Obstacles to Growth
1.1 Assessing Competitiveness in the Arab World: Strategies for Sustaining the Growth Momentum.............3
Margareta Drzeniek Hanouz (World Economic Forum) and Tarik Yousef (Dubai School of Government)

Part 3: Future Competitiveness of the Arab World
3.1 The Gulf Cooperation Council (GCC) Countries and the World: Scenarios to 2025: Implications for Competitiveness......................................129
Nicholas Davis and Chiemi Hayashi (World Economic Forum)

1.2 Recent US Free Trade Initiatives in the Middle East: Opportunities but No Guarantees..............................21
Robert Z. Lawrence (Harvard University and Peterson Institute for International Economics)

Part 4: Country Profiles
How to Read the Country Profiles...............................................145 List of Countries...............................................................................149 Country Profiles ...............................................................................150

1.3 Will the Current Oil Boom Solve the Employment Crisis in the Middle East?..............................31
Paul Dyer and Tarik Yousef (Dubai School of Government)

1.4 The Gulf Cooperation Council Region: Financial Market Development, Competitiveness, and Economic Growth...........................41
Simon Gray and Mario I. Blejer (Bank of England)

Part 5: Data Tables
How to Read the Data Tables.......................................................205 List of Data Tables...........................................................................207 Data Tables .......................................................................................209

Part 2: Enhancing Drivers of Growth in the Arab World
2.1 Gulf Cooperation Council Health Care: Challenges and Opportunities ..............................................55
Mona Mourshed, Viktor Hediger, and Toby Lambert (McKinsey & Company)

Technical Notes and Sources ......................................................271 About the Authors............................................................................273 Partner Institutes.............................................................................279 Acknowledgments..........................................................................280

2.2 Assessing Travel & Tourism Competitiveness in the Arab World.....................................................................65
Jennifer Blanke and Irene Mia (World Economic Forum)

2.3 Promoting Technology and Innovation: Recommendations to Improve Arab ICT Competitiveness.......................................................................81
Soumitra Dutta (INSEAD), Zeinab Karake-Shalhoub (American University in Sharjah) and Geoffrey Samuels (INSEAD)

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Preface
KLAUS SCHWAB Executive Chairman, World Economic Forum

Since the last edition of The Arab World Competitiveness Report two years ago, the global economic environment has continued to benefit the Arab world economies. Increasing global trade and financial flows have fueled global growth and with it energy demand, which in turn has brought wealth to many economies in the region. Remittances, trade, and investment flows have spread the benefits of high oil prices also to countries that do not export oil. And, despite a precarious geopolitical environment, many economies in the region have grown faster than they had in the previous three decades. Amid this backdrop of economic growth, the Arab world is nonetheless at a critical juncture. Although the region’s economies are currently very dynamic and offer tremendous business opportunities, there is no doubt that improvements to national competitiveness and closer integration with the global economy and within the region are necessary if this growth momentum is to be sustained. The previous edition of this Report called for more intense reform efforts and indeed, many countries have made significant progress in reforming and diversifying their economies. But the economic upturn, which has provided a cushion for reform, can also take off some of the pressure to act. At this point in time, it is key that countries maintain their focus on competitivenessenhancing reforms. Yet though the timing is ripe for reforms, policymakers in many countries remain uncertain on the steps to be taken, the priorities to be addressed, and the effectiveness of measures to implement. Often they also face pressures in support of the status quo, as reform is painful for certain groups in the economy and the benefits are not always immediately visible nor evenly shared. The business sector can play a vital role in the process of reform. As a stakeholder, business can support and advocate competitiveness-enhancing reforms with their governments while highlighting the benefits of a more competitive economy for creating jobs and increasing wealth for all. And, equally importantly, companies can directly contribute to making the economy more competitive by providing education, fostering innovation, and promoting a culture of entrepreneurship and meritocracy. Since its inception four years ago, the World Economic Forum’s Arab Business Council has been at

the forefront of business-led initiatives toward promoting competitiveness in the region.The Arab Business Council is currently composed of 80 Arab business leaders and entrepreneurs who are committed to the mission of “Enhancing Competitiveness of the Arab World” and to helping equip their societies to compete effectively in the global economy and contribute to the development of an equitable regional and global society. The World Economic Forum is proud to present the third edition of The Arab World Competitiveness Report. As part of our Global Competitiveness Report series, this volume is intended to support policymakers and businesses alike in their endeavor to enhance competitiveness in the region.The Report also provides an in-depth assessment of competitiveness of economies in the region vis-à-vis the rest of the world, highlighting strengths and weaknesses of individual countries while offering a tool for assessing the efficiency of measures taken and overall progress. The Arab World Competitiveness Report series serves as a platform for public-private dialogue on issues related to competitiveness, as has been witnessed at the Arab World Competitiveness Roundtable in Doha in 2005 and through the work of several National Competitiveness Councils in the region.These high-level discussions have often used the findings of The Arab World Competitiveness Report as a basis for competitiveness benchmarking and for advancing policy discussions. This is certain to be the case in the Arab World Competitiveness Roundtable, which is held on April 9–10, 2007, in Doha, Qatar. We are grateful to the authors who have generously contributed their time and knowledge to this edition of the Report and to business leaders in the region who responded to our Executive Opinion Survey.We would also like to thank the editors of this Report, Margareta Drzeniek Hanouz, Sherif El Diwany, and Tarik Yousef for their thought leadership and their commitment to the project.We also wish to thank Fiona Paua, who leads the Global Competitiveness Network, and the other members of the team: Jennifer Blanke, Ciara Browne,Thierry Geiger, Irene Mia, and Aviva Rajczyk. Finally, we would like to convey our gratitude to the Arab Business Council and to Qatar Airways for their contribution to this Report.

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Preface

v

Executive Summary
MARGARETA DRZENIEK HANOUZ, World Economic Forum SHERIF EL DIWANY, World Economic Forum TARIK YOUSEF, Dubai School of Government

Buoyed by high oil prices and intensifying global trade linkages, the Arab world is enjoying spectacular rates of growth for the fourth year in a row. Initial reform efforts over the past few decades have contributed to this remarkable result, but the region is still far from realizing its full growth potential. In a global economy characterized by an ever-faster integration of markets—and with it, a more pronounced division of labor—sustaining the current momentum of growth in the region will require an acceleration of economic reforms. The current situation provides an opportune moment for forging ahead with reforms to improve national competitiveness, and initial evidence suggests that policymakers in the region are taking steps to do just that. Over the past few years, the region has seen a number of successful initiatives materialize. Clearly, given the diversity of Arab economies, appropriate measures and priorities will differ significantly across countries. However, the current growth environment provides an opportunity for all regional economies to secure more competitive economic and institutional structures. Against this background, the Arab World Competitiveness Report 2007 seeks to identify tangible solutions to the constraints that limit faster growth. It also proposes strategies for enhancing the competitiveness of selected sectors that have been identified as having high potential.This approach—of dismantling barriers while providing the environment for the development of specific sectors—has proven successful in some countries in the region, such as Bahrain and the United Arab Emirates.The Report seeks to assess how such successes can be emulated by other regional economies. While Part 1 discusses obstacles to growth, Part 2 analyzes measures required to boost growth in a number of sectors in the region.The Report closes with a look into the future in Part 3. In Part 1, the first chapter, by Margareta Drzeniek Hanouz and Tarik Yousef, aims to shed light on the factors and policies that could contribute to enhancing the region’s growth performance by assessing the national competitiveness of Arab countries against international benchmarks.The analysis is based on the World Economic Forum’s Global Competitiveness Index, which is built on the understanding that competitiveness is the set of factors, policies, and institutions that support sustainable gains in productivity and therefore economic

growth in the medium term. Although the chapter follows the methodology of The Global Competitiveness Report, a minor methodological change has been introduced to better account for characteristics of economies highly dependent on natural resources.The results give a detailed picture of the competitive strengths of the region as a whole and those of its the individual countries.They also indicate a set of diverse challenges to be addressed.The rankings, reported in Tables 1a, b, and c below, underscore the diversity of Arab economies. These rankings show the performance of Arab world countries in terms of competitiveness against the relevant benchmarks—economies in other parts of the world at the same stage of development. Many countries show a respectable track record for improving competitiveness in relation to their own past; however, when benchmarked against peers in other parts of the world, many Arab economies—particularly the oil-exporting ones—fall behind. The authors identify a number of challenges that need to be addressed in the near future if competitive performance in the region is to improve and growth momentum is to be maintained. Given the high unemployment in many of the countries and the need to diversify their economies, educational outcomes are particularly worrying.The challenges to improving education differ from country to country.While some countries still struggle with high illiteracy rates, others face the task of better aligning educational systems with the needs of a competitive economy. If left unaddressed, these shortcomings will alter the future development path of the respective economies. High unemployment and a growing population are increasingly putting pressure on governments in the region to overhaul the current labor market model, which in many countries is highly regulated and often relies heavily on the public sector and on migrant workers. More flexibility in employment regulations and increased focus on meritocracy and professional management would be desirable steps in the right direction. The chapter concludes that a number of countries in the region still struggle with macroeconomic imbalances. Non-oil countries struggle with budget deficits and government debt. On the other hand, while the oil exporters are blessed with large budgetary inflows, they need to address high inflation rates resulting from the increased liquidity.

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Executive Summary

vii

Executive Summary

Table 1a: Arab world GCI 2007 rankings in international comparison: Country group 3*
GCR 2007 Country/Economy Rank Score

Table 1b: Arab world GCI 2007 rankings in international comparison: Country group 2*
GCR 2007 Country/Economy Rank Score

viii

Switzerland Finland Sweden Denmark Singapore United States Japan Germany Netherlands United Kingdom Norway Hong Kong SAR Taiwan, China Iceland Israel Canada France Austria Australia Belgium Ireland New Zealand Luxembourg Korea, Rep. Estonia Spain Czech Republic Barbados United Arab Emirates Slovenia Portugal Qatar Hungary Italy Malta Kuwait Cyprus Greece Bahrain Trinidad and Tobago

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40

5.81 5.74 5.73 5.70 5.62 5.62 5.62 5.60 5.57 5.53 5.46 5.45 5.40 5.40 5.38 5.36 5.34 5.32 5.30 5.28 5.22 5.17 5.15 5.12 5.12 4.79 4.72 4.71 4.67 4.64 4.60 4.56 4.53 4.47 4.44 4.42 4.35 4.33 4.30 4.06

Malaysia Chile Tunisia Latvia Thailand Lithuania Slovak Republic Oman South Africa Poland Costa Rica Croatia Jordan Mexico Kazakhstan Mauritius Panama Turkey Russian Federation Jamaica El Salvador Colombia Brazil Argentina Romania Libya Bulgaria Peru Algeria Uruguay Macedonia, FYR Botswana Venezuela Dominican Republic Namibia Ecuador Bosnia and Herzegovina Serbia and Montenegro Albania Suriname

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40

5.13 4.85 4.72 4.60 4.58 4.57 4.57 4.53 4.42 4.33 4.27 4.27 4.25 4.23 4.22 4.22 4.21 4.18 4.13 4.13 4.12 4.09 4.08 4.05 4.04 4.00 4.00 3.99 3.98 3.97 3.92 3.83 3.80 3.78 3.76 3.72 3.72 3.71 3.49 3.45

* Group 3 comprises innovation-driven economies (countries in the 3rd stage of development and those transitioning toward it).

* Group 2 comprises efficiency-driven economies (countries in the 2nd stage of development and those transitioning toward it).

In his comprehensive contribution, “Recent US Free Trade Initiatives in the Middle East: Opportunities but No Guarantees,” Robert Z. Lawrence analyzes potential effects of the free trade agreements recently signed between Arab countries and the United States in light of their goals.The author argues convincingly that the deep nature of the US agreements presents new opportunities for Arab countries, but to take full advantage of these agreements, Arab countries will have to complement them with additional policy measures. For Arab countries to reap the full benefits, improvements in regulatory rules and systems will have to be made. Increased integration within the Arab region, through advancing initiatives such as the Middle East Free Trade Agreement (MEFTA), will also be necessary. But the agreements can also present problems for Arab countries.These difficulties come in three areas: first, in relat-

ing them to agreements with other trading partners (most importantly the European Union); second, in creating political difficulties associated with closer relations with the United States; and third, in undertaking the necessary economic and political adjustments necessary to realize the benefits. In their chapter “Will the Current Oil Boom Solve the Employment Crisis in the Middle East?” Paul Dyer and Tarik Yousef review labor market trends in the region since the onset of the recent oil boom, focusing on job creation, unemployment, and government policies aimed at improving labor market outcomes.The authors note that although unemployment rates for the region as a whole have declined since 2000, the most new jobs have been created in oil-producing countries and remain dependent on public expenditure. Many non–oil producers, in fact, have seen unemployment

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Table 1c: Arab world GCI 2007 rankings in international comparison: Country group 1*
GCR 2007 Country/Economy Rank Score

India Indonesia China Egypt Azerbaijan Philippines Morocco Guatemala Vietnam Ukraine Sri Lanka Syria Armenia Georgia Moldova Pakistan Honduras Mongolia Kenya Nicaragua Tajikistan Bolivia Nigeria Bangladesh Gambia Cambodia Benin Tanzania Paraguay Kyrgyz Republic Cameroon Guyana Madagascar Nepal Lesotho Uganda Zambia Mauritania Burkina Faso Malawi Zimbabwe Mali Ethiopia Mozambique Timor-Leste Chad Burundi Angola

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48

4.47 4.28 4.25 4.09 4.09 4.02 4.02 3.94 3.93 3.91 3.90 3.81 3.78 3.75 3.73 3.69 3.62 3.61 3.61 3.55 3.50 3.49 3.49 3.48 3.45 3.42 3.41 3.40 3.35 3.33 3.32 3.29 3.29 3.27 3.24 3.21 3.21 3.18 3.10 3.09 3.07 3.04 3.00 2.97 2.91 2.64 2.62 2.50

* Group 1 comprises factor-driven economies (countries in the 1st stage of development).

rates rise, a situation reinforced by decreased transfer mechanisms—particularly remittances and migration— between regional oil countries and non-oil countries. The authors also note that Gulf Cooperation Council (GCC) countries continue to face significant problems in employing nationals seeking to enter the labor force. By and large, the authors find, the region will continue to face significant challenges in creating quality jobs for the growing labor force—particularly for young, new entrants and women.The challenges will require moving beyond government-driven labor market interventions

and selective reforms toward comprehensive reforms aimed at inspiring entrepreneurship and private-sector development; faster integration into global trade and investment flows; and rapid progress in educational reform, gender equality, and governance. In their thought-provoking contribution “The Gulf Cooperation Council Region: Financial Market Development, Competitiveness, and Economic Growth,” Simon Gray and Mario I. Blejer explore the current status of financial market development in the GCC region.They argue that the development and strength of the financial sector in the GCC will depend on economic diversification in the Gulf states and the long-term management of petrochemical resources, as well as on the GCC’s ability to serve the needs of the wider region. Otherwise, these economies are not likely to generate sufficient business to maintain the financial sector when oil prices weaken, which may generate strong cyclical swings. However, the authors conclude that the financial sector in the GCC should be able to support continuing broadly based economic development not only in the GCC itself, but in the region more widely.The authors argue that it is to early to ascertain how far any of the GCC financial centers will go toward reaching a global scale. Some aspects of protectionism, such as restrictions on foreign investment and the employment of foreign labor, may work against this goal. Part 2 begins with an analysis of the health services sector. Mona Mourshed,Viktor Hediger, and Toby Lambert, in their chapter “Gulf Cooperation Council Health Care: Challenges and Opportunities,” explore the outlook for health-care services in the region.Their assessment of health trends in the GCC reveals that health-care demand will dramatically increase as a result of population growth, aging, and the changing pattern of health-risk factors.They estimate that by 2025 the demand for treatment will rise by 240 percent, demand for hospital beds will almost double, and the cost of health-care delivery will increase fivefold. Governments are not prepared to meet these challenges through the mainly public health-care delivery systems and will need support from the private sector for both provision and financing.To promote the private sector’s involvement, substantive regulatory and policy changes will have to be made.The two most important challenges in this respect are developing reimbursement systems for publicly funded private health-care services and identifying and enforcing a set of quality standards that will apply to public and private providers. Many opportunities will present themselves to private providers, who will face the choice of either entering government contracts or running their own facilities. Finally, private players will benefit from scale effects by operating in more than one country. The potential to develop the tourism sector in the region, one of the fastest-growing service industries in recent years, is assessed by Jennifer Blanke and Irene Mia

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Executive Summary

ix

CHAPTER 1.1

Assessing Competitiveness in the Arab World: Strategies for Sustaining the Growth Momentum
MARGARETA DRZENIEK HANOUZ, World Economic Forum TARIK YOUSEF, Dubai School of Government

The high energy prices of the past few years have brought the Arab world the highest growth rates in nearly three decades. In the oil-exporting countries, the oil boom has gone hand in hand with surging fiscal and external surpluses, shrinking public debts and raising levels of foreign reserves.This windfall has been shared by the non–oil-exporting countries through investment flows, remittances, and trade.These developments appear to have dramatically transformed the economic prospects of the region, bringing a renewed sense of optimism and overshadowing the heightened geopolitical insecurity of the past few years. As long as energy prices remain at their present high levels, it is safe to suggest that the Arab economies —especially those endowed with substantial oil and gas reserves—could sustain the ongoing prosperity for a while. But therein lies the danger as well.What if oil prices take an unexpected downward dive, as they have done over the past three decades? More worrisome, what if the current prosperity postpones the adoption of structural reforms needed to achieve international competitiveness and sustain the current growth momentum? After all, oil booms have traditionally provided breathing space for governments and delayed the implementation of reform programs. Such concerns about the long-term prospects of the region and the likely trajectory of reform are shared by international observers and, more importantly, policymakers and the general public in the Arab world.Yet only a few regular assessments of economic developments in the Arab world are produced, notwithstanding the increased relevance of the region’s energy resources, financial liquidity, and geopolitics to the stability of the world economy. In addition, the region suffers from serious gaps in the availability of basic economic and financial indicators (see Box 1), not to mention a lack of transparency in policymaking and limited accountability in reviewing outcomes. This chapter makes a contribution toward closing this gap by assessing the competitiveness of Arab economies. Utilizing the results of the most recent World Economic Forum’s Executive Opinion Survey, the chapter benchmarks the competitive performance of Arab countries against selected comparators.The assessment is designed not only to identify present areas of strength and weakness but also to pinpoint areas of reform that should be addressed in the near future.

Methodology The World Economic Forum defines competitiveness as the set of factors, policies, and institutions that determines the level of productivity in a country. Productivity describes how efficiently available resources are used and therefore the growth performance of an economy.Thus what is assessed is the potential of an economy to achieve sustained economic growth over the medium to

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

1.1: Assessing Competitiveness in the Arab World

3

1.1: Assessing Competitiveness in the Arab World

Box 1: Data (un)availability Each quantitative assessment of competitiveness or economic performance in the region relies heavily on available data. In the particular case of the GCI, the data we use need to be collected according to international standards in order to enable a meaningful comparison across countries. Unlike for most other regions in the world, obtaining internationally comparable data is difficult for most countries in the region, in particular for Gulf economies. Often countries do not even collect basic data; for example, accurate year-on-year inflation is hard to obtain for the United Arab Emirates and consequently, real GDP cannot be calculated precisely. Improved data availability would enable policymakers in the region to take more targeted decisions, benchmark their countries against international or regional best performers, and identify best practice in specific areas. It would also aid potential foreign investors in making the strategic choice to take advantage of the growing competitiveness of the region. In this respect, the data obtained through the Executive Opinion Survey provide a rich source of information on countries of the region and an excellent complement to existing data. However, they are no substitute for hard data on economic performance. Regional governments must take steps to develop and enhance their statistical and data collection capabilities. International cooperation, for example at the level of the Gulf Cooperation Council, could also help alleviate this problem.

4

long term.The model controls for the starting level of income and thus predicts that countries with lower per capita income will tend to grow faster because they need to catch up with the more advanced economies. This methodology reflects latest theoretical and empirical research and a long-standing experience with assessing competitiveness.The World Economic Forum conducted the first competitiveness assessment in 1979, and has been continuing this work since then.The methodology has significantly evolved in response to advances in economic research and to the increasing diversity of countries covered by The Global Competitiveness Report, including the expansion of coverage of countries from the Arab world.

In particular, three principles that today govern the assessment of competitiveness have emerged. First, competitiveness of countries cannot be determined by a narrow set of factors but is rather the result of multiple sets of variables and processes that span the entire economy. Second, as the global economy evolves, these factors tend to change and so does their impact. For example, advances in technology such as data processing and Internet capacity have altered the way of doing business. As a result, the diverging economic performance of countries on the two sides of the digital divide has underlined the key role played by ICT in growth and competitiveness. By contrast, inflation is no longer the focus of policy in light of the present global environment of low inflation. And, third, different factors matter in different ways across countries, depending on the stage of development. Although an advanced country such as Japan will have to keep innovating in order to remain competitive, more basic factors such as primary education and law and order matter more for countries that lack the basic conditions for growth, such as Mauritania. Before diving into the structure of the index, it is useful to describe the two types of data that make up its components. Out of the 90 variables that make up the index, 24 are obtained from international organizations such as the United Nations Educational, Scientific and Cultural Organization (UNESCO), the International Monetary Fund (IMF), and the World Bank. By using these sources we ensure that the data and their sources are comparable across countries, a crucial requirement when undertaking international comparisons.We utilized the latest reported figures for each variable.1 The remaining variables come from the Executive Opinion Survey (Survey), undertaken annually by the World Economic Forum in all countries covered by the Report. This Survey is addressed to business leaders in each of the countries to gauge their perceptions of the national business environment.These data are used mainly for assessing crucial determinants of competitiveness for which comparable data do not exist for the entire set of countries covered by the Report. Examples of variables included in the Survey are the quality of public and private institutions and the quality of infrastructure and education, as well as some aspects of market efficiency, business sophistication, and innovation. Although survey data are often criticized for their subjectivity, the use of these data is now widely accepted as it captures perceptions by business leaders of the business environment and, hence, is of great value to policymakers. The determinants of competitiveness are captured by the structure of the Global Competitiveness Index (GCI). Developed by Professor Xavier Sala-i-Martin in cooperation with the World Economic Forum, the GCI has been used since The Global Competitiveness Report 2006–2007 for all competitiveness assessments undertaken by the Forum.The detailed structure of the GCI

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

is presented in Appendix A to this chapter. It groups the factors affecting competitiveness into nine pillars: 1. Institutions The institutional framework has a strong bearing on competitiveness and growth because it shapes incentives in an economy and affects how business, the political sphere, and the remaining society interact with each other. Infrastructure Quality infrastructure reduces the cost of communication, transport, and energy. By rendering business operations more efficient it contributes to lowering the cost of doing business and therefore increases competitiveness. Macroeconomy Macroeconomic stability has come to be recognized as one of the basic preconditions for growth; this has been widely confirmed in theoretical and empirical research. Soaring and volatile prices render the business environment unpredictable, and high interest rates—resulting, for example, from refinancing government debt— increase the cost of credit and investment. Health and primary education The importance of health for competitiveness becomes clear when one considers some African countries, where the HIV/AIDS epidemic affects one-quarter of the working-age population. Although these are extreme cases, almost all economic activity requires a healthy and literate workforce. Prevalent lack of access to basic health services and education reduces not only the overall growth potential, but also forecloses the benefits of economic growth for significant parts of the population. Higher education and training The availability of qualified staff is a precondition not only for innovation but also for adopting technologies from abroad and improving business practice. All these aspects, which are reflected in the structure of the Global Competitiveness Index, become even more crucial when a country climbs up the value chain and moves away from low-cost production and resource extraction toward more efficient processes and more sophisticated products.

6.

2.

3.

Market efficiency This pillar assesses how far goods, labor, and financial resources are allocated to the most efficient use in an economy. In order to function efficiently, goods markets need a certain level of competition, which directs goods toward their best use.Three components can contribute to increasing competition in an economy: efficient antitrust regulation, openness to trade, and regulations that keep market distortions to a minimum. For labor markets, flexibility and efficiency are critical for ensuring that businesses can maintain a workforce that suits their needs at all times. Factors such as flexibility of wage determination and hiring and firing are essential in this respect. Finally, given the link between effective financial intermediation and growth, financial markets are vital for making available credit and other financial products at an appropriate cost. Technological readiness This pillar measures the capacity of an economy to absorb latest technologies and to use them to enhance the productivity of its industries. Consequently, it encompasses the ability to adapt technologies from abroad through technology transfer but also the use and penetration of advanced information and communication technologies, in particular Internet and mobile telephony. Business sophistication The ability to manage a business efficiently is imperative for increasing productivity, particularly at the top end of the value chain. Significant differences in company performance can be explained by looking at the level of management practice. In this respect, supporting the clustering of firms has proven an important vehicle of public policy to enhance the performance of firms. Innovation While technological readiness refers to the adoption of technologies from abroad, the innovation pillar measures the extent to which countries are able to develop entirely new products and services.This is particularly important for countries at the most advanced stage of development because innovation is the only self-sustaining driver of growth for countries that have reached the hightech frontier, while less-advanced countries can still improve their productivity by adopting technologies from abroad.

7.

4.

8.

5.

9.

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

1.1: Assessing Competitiveness in the Arab World

5

1.1: Assessing Competitiveness in the Arab World

6

These nine pillars are grouped into three subindexes. The first subindex, called basic requirements, comprises institutions, infrastructure, macroeconomy, and health and primary education.The second subindex covers efficiency enhancers and includes higher education and training, market efficiency, and technological readiness; the third subindex, innovation factors, includes business sophistication and innovation.To capture the notion that the set of drivers of competitiveness evolves as a country develops, different weights are given to the subindexes depending on the stage of development of the country. Countries are categorized according to the following three stages of development: the factor-driven stage, the efficiency-driven stage, and the innovation-driven stage.The factor-driven first stage of development describes an economy that competes on natural resources or the abundance of low-cost labor. As countries develop, wages rise and businesses need to increase their efficiency to remain competitive, as the country moves into the second stage of development. Finally, in high-wage countries such Japan or the United Kingdom, businesses can be competitive only if they develop cutting-edge products and employ sophisticated techniques in producing and selling them. Since data on wage levels are difficult to obtain, we use GDP per capita as a proxy to define the thresholds for each of the stages of development. All countries with a GDP per capita below US$2,000 are considered to be factor-driven; countries with a GDP per capita between US$3,000 and 6,000 are considered to be in the efficiency-driven stage; and innovation-driven countries are those whose GDP per capita lies above US$17,000. Countries that fall in between these thresholds transition smoothly from one stage to the other. This year’s Arab World Competitiveness Report features an improvement to the methodology used to assess the competitiveness of oil-producing economies and other countries in the region that rely heavily on resource extraction.To classify the countries into stages of development, we have added a second criterion that measures the extent to which countries are factor-driven.We proxy this by the share of exports of primary goods in total exports (goods and services) and assume that countries that export more than 50 percent of primary exports are to a large extent factor-driven.The stage of development for these countries is adjusted downward depending on the country’s exact share of primary exports— the higher the share the stronger the adjustment and the closer the country will move to stage 1. For example, a country that exports 95 percent of primary products and falls into stage 3 based on its income is now placed in the transition phase between stage 1 and 2. Both criteria—per capita income and the share of primary exports—are weighted identically and the stage of development is not adjusted for countries with less than a 50 percent share of primary exports.Table 1, which presents the shares of primary exports as percentage of

Table 1: Primary exports as share of total exports for Arab world countries
Country Share of total exports (percent)

Algeria Bahrain Egypt Jordan Kuwait Libya Mauritania Morocco Oman Qatar Syria Tunisia United Arab Emirates

64 2 9 9 47 86 56 5 71 46 43 7 31

Source: International Trade Centre, World Bank.

total exports for Arab countries, shows that a number of countries in the region are to a large extent factor-driven. Table 2 provides an overview of the distribution of countries covered by this Report into the stages of development.A complete list of all countries can be found in Appendix B.We model the differences between stages of development by giving different weights to the three subindexes.The exact weights are shown in Table 3.

Expanded country coverage In addition to the ten Arab countries covered by the GCR 2006–2007—Algeria, Bahrain, Egypt, Jordan, Kuwait, Qatar, Mauritania, Morocco,Tunisia, and the United Arab Emirates (UAE)—three more—Libya, Oman, and Syria—have been added.With a total of thirteen countries, the geographical coverage of this Report has been expanded beyond the AWCR 2005. In the case of Libya, this study is the first comparative assessment of the country’s competitiveness.
Highly diverse economies

The economies of the Arab world exhibit great diversity in income and structure.The variety is highlighted by the fact that GDP per capita of the wealthiest country, Qatar, is 73 times higher than that of the poorest country, Mauritania. In addition, the economies are characterized by a multiplicity of structures. Some countries have accumulated significant wealth through the extraction of natural resources while others follow more traditional trajectories of development, starting with lowerend manufacturing and slowly moving up the value chain.These differences affect the competitive performance in many ways, the most important being the availability of resources for public investment.Thus, different policy recommendations apply across countries and the international benchmarks required for comparison vary across countries.

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Table 2: Classification of Arab world countries into stages of development
Stage of development Arab world countries Other countries in this stage Important areas for competitiveness

Stage 1 (factor-driven)

Egypt, Mauritania, Syria, Morocco Algeria, Libya, Oman, Tunisia, Jordan

India, China

Basic requirements (critical) and efficiency enhancers (very important) Basic requirements (critical) and efficiency enhancers (increasingly important) Basic requirements (very important) and efficiency enhancers (critical) Same as above, but innovation factors become increasingly important All three areas important: basic requirements, efficiency enhancers and innovation factors

Transition from 1 to 2

Colombia, Thailand, Venezuela

Stage 2 (efficiency-driven)

Turkey, Russian Federation

Transition from 2 to 3

Bahrain

Barbados, Czech Republic, Korea United States, United Kingdom, Japan

Stage 3 (innovation-driven)

Qatar, United Arab Emirates, Kuwait

To take this diversity into account, rankings are presented here divided by these groups of countries.2, These groups facilitate the benchmarking of countries against other comparable economies along a divide built in the model. As noted above, the groups usually represent different levels of development that are accompanied by distinct production structures and levels of wealth.The detailed rankings for the region in the international context are presented in Tables 4a, b, and c.Whenever relevant, we will refer to the rankings in the entire sample covered by The Arab World Competitiveness Report, which comprises 128 countries worldwide.The global rankings of all the countries is provided in Appendix C. As the methodology has been slightly adapted and some of the data updated, we refer to these rankings as the updated Global Competitiveness Index 2007 (GCI 2007).The country profiles at the end of the report provide additional data and information on each of the countries assessed. The United Arab Emirates (UAE) is the highestranked Arab country on the list of the 40 mostadvanced innovation-driven economies in the world (country group 3), coming in at 29th place—ahead of Slovenia and Portugal in this group, which comprises some of the most developed and competitive economies in the sample, including Switzerland, the best performer in The Global Competitiveness Report 2006–2007.The United Arab Emirates is followed closely by Qatar, ranked 32nd within this group, ahead of European countries such as Hungary and Italy. Kuwait and Bahrain are both included on the list toward the bottom of the group, at place 36 and 39 respectively out of 40 economies. The second group of countries comprises 40 countries that are categorized as efficiency-driven, or in transition toward this stage of development.This group is headed by Malaysia and Chile and comprises many emerging economies, including Brazil and the Russian Federation. Several Arab nations are included in this list

Table 3: Weighting of subindexes, based on stage of development
Weights Basic requirements Efficiency enhancers Innovation and sophistication factors

Factor-driven stage Efficiency-driven stage Innovation-driven stage

50% 40% 30%

40% 50% 40%

10% 10% 30%

‘ Source: World Economic Forum, 2006.

at various levels of rankings.Tunisia is the best performer among the Arab world economies in this group, ranking 3rd overall and coming in ahead of some European countries, such as Poland and Latvia.Within the region,Tunisia outperforms Oman, at rank 8 the second-best performer by a fairly large margin. Jordan follows at 13th place, yet still ranks relatively high considering its income.Toward the lower end of the rankings, we find Libya at 26 and Algeria at 29 out of 40 economies. In the group of factor-driven economies (country group 1) headed by India, we find 48 of the less advanced-countries in the world. Apart from Mauritania, which comes in at 38th position, the Arab economies in this group compare rather favorably against the rest of the group and rank in the upper quarter—Egypt ranks 4th, Morocco 7th, and Syria 12th.

The best performers in the Arab world lag behind their peers in terms of competitiveness The four Arab world countries that fall into the group of 40 most-advanced economies—the United Arab Emirates, Qatar, Kuwait, and Bahrain—rank toward the bottom of their peer group in terms of national competitiveness.Weaknesses in innovation and business sophistication—two areas that are relatively more

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

1.1: Assessing Competitiveness in the Arab World

7

1.1: Assessing Competitiveness in the Arab World

Table 4a: Arab world GCI 2007 rankings in international comparison: Country group 3*
GCR 2007 Country/Economy Rank Score

Table 4b: Arab world GCI 2007 rankings in international comparison: Country group 2*
GCR 2007 Country/Economy Rank Score

8

Switzerland Finland Sweden Denmark Singapore United States Japan Germany Netherlands United Kingdom Norway Hong Kong SAR Taiwan, China Iceland Israel Canada France Austria Australia Belgium Ireland New Zealand Luxembourg Korea, Rep. Estonia Spain Czech Republic Barbados United Arab Emirates Slovenia Portugal Qatar Hungary Italy Malta Kuwait Cyprus Greece Bahrain Trinidad and Tobago

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40

5.81 5.74 5.73 5.70 5.62 5.62 5.62 5.60 5.57 5.53 5.46 5.45 5.40 5.40 5.38 5.36 5.34 5.32 5.30 5.28 5.22 5.17 5.15 5.12 5.12 4.79 4.72 4.71 4.67 4.64 4.60 4.56 4.53 4.47 4.44 4.42 4.35 4.33 4.30 4.06

Malaysia Chile Tunisia Latvia Thailand Lithuania Slovak Republic Oman South Africa Poland Costa Rica Croatia Jordan Mexico Kazakhstan Mauritius Panama Turkey Russian Federation Jamaica El Salvador Colombia Brazil Argentina Romania Libya Bulgaria Peru Algeria Uruguay Macedonia, FYR Botswana Venezuela Dominican Republic Namibia Ecuador Bosnia and Herzegovina Serbia and Montenegro Albania Suriname

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40

5.13 4.85 4.72 4.60 4.58 4.57 4.57 4.53 4.42 4.33 4.27 4.27 4.25 4.23 4.22 4.22 4.21 4.18 4.13 4.13 4.12 4.09 4.08 4.05 4.04 4.00 4.00 3.99 3.98 3.97 3.92 3.83 3.80 3.78 3.76 3.72 3.72 3.71 3.49 3.45

* Group 3 comprises innovation-driven economies (countries in the 3rd stage of development and those transitioning toward it).

* Group 2 comprises efficiency-driven economies (countries in the 2nd stage of development and those transitioning toward it).

important for competitiveness of high-income economies—explain part of this and outweigh the significant progress with respect to both macroeconomic stability and the intuitional environment. Boosting innovation capacity will require public and private investment and a structural overhaul of the basic innovation infrastructure. A comparison of the results on innovation indicators with the best performer in this category, Japan, points to areas for improvement (Table 5). Although governments in the region promote innovation by purchasing high-technology products on a priority basis and enforcing intellectual property rights, overall innovation capacity and company spending on research and development (R&D) are significantly behind that of Japan.The quality of their research institutions is far below the world’s best and their outputs

are not valued commercially as the entities have few links with the private sector. Another striking result for these for countries is that they have relatively low rankings on indicators related to health and education when benchmarked against the group of advanced economies. Despite their relative wealth all four countries rank toward the bottom of the group on this pillar, particularly on indicators measuring access to primary education. On the positive side, most of these countries have made significant progress over the past three decades with respect to increasing educational enrollments, demonstrating the capacity to make further advances in the future. Aside from quantitative targets, the quality of outcomes in tertiary schooling needs to be enhanced to reverse the low valuation of educational credentials by the private sector.

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Table 4c: Arab world GCI 2007 rankings in international comparison: Country group 1*
GCR 2007 Country/Economy Rank Score

The United Arab Emirates—strong on macroeconomic indicators and institutions and weak on education and innovation

India Indonesia China Egypt Azerbaijan Philippines Morocco Guatemala Vietnam Ukraine Sri Lanka Syria Armenia Georgia Moldova Pakistan Honduras Mongolia Kenya Nicaragua Tajikistan Bolivia Nigeria Bangladesh Gambia Cambodia Benin Tanzania Paraguay Kyrgyz Republic Cameroon Guyana Madagascar Nepal Lesotho Uganda Zambia Mauritania Burkina Faso Malawi Zimbabwe Mali Ethiopia Mozambique Timor-Leste Chad Burundi Angola

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48

4.47 4.28 4.25 4.09 4.09 4.02 4.02 3.94 3.93 3.91 3.90 3.81 3.78 3.75 3.73 3.69 3.62 3.61 3.61 3.55 3.50 3.49 3.49 3.48 3.45 3.42 3.41 3.40 3.35 3.33 3.32 3.29 3.29 3.27 3.24 3.21 3.21 3.18 3.10 3.09 3.07 3.04 3.00 2.97 2.91 2.64 2.62 2.50

The United Arab Emirates has undergone a remarkable economic transformation in the past decade. Amid security problems elsewhere in the region, the emirates that make up the country have realized some of the highest growth rates in the Arab world through the persistent pursuit of reforms aimed at economic liberalization and diversification. Dubai pioneered the creation of dynamic free-trade zones in the early 1980s, setting an example in good public management for others to follow.Today the country is focused on developing world-class services in areas including finance, health care, and ICT. The outlook for the country is positive on account of a number of strengths.The macroeconomic environment is one of them, with the federal government as well as the emirates having exercised sound economic management.Yet rising inflation (a result of the construction and real-estate boom), high financial liquidity, and the fall in the dollar to which the dirham is pegged are increasingly becoming a concern. Besides the macroeconomic environment, other areas of strength include the very modern transport infrastructure and well-functioning public and private institutions. Labor markets are judged to be flexible and efficient by the business community, especially in regard to the expatriate labor force. One area of concern is the educational system, particularly primary and secondary education.The enrollment rate in primary education ranks 112th in the entire sample, an outcome that could prove detrimental to the country’s plans for greater diversification. Although the United Arab Emirates exhibits a very high teacherpupil ratio, outcomes are not commensurate with the public investment undertaken or the needs and expectations of the business sector.The quality of management schools, ranked 52nd in the complete sample, is perceived as suboptimal.

* Group 1 comprises factor-driven economies (countries in the 1st stage of development).

Table 5: Innovation in selected Arab countries
Quality of scientific research institutions
Country Score (1–7)

Company spending on R&D
Score (1–7)

Universityindustry research collaboration
Score (1–7)

Gov’t. procurement of advanced tech products
Score (1–7)

Intellectual property protection
Score (1–7)

Availability of scientists and engineers
Score (1–7)

Capacity for innovation
Score (1–7)

Utility patents, 2005

9th pillar: Innovation

No. of utility patents per 1,000 inhabitants Score (1–7)

Bahrain Kuwait Qatar United Arab Emirates Average of Arab countries in stage 3 Japan Distance to best performer

2.55 3.86 4.00 3.79 3.74 5.85 2.10

2.26 2.93 3.40 3.40 3.18 6.06 2.88

1.84 2.76 3.11 3.33 2.99 5.17 2.19

3.83 3.23 4.40 4.72 4.15 4.98 0.83

4.08 3.62 4.84 4.80 4.40 5.88 1.49

3.79 4.46 4.14 4.14 4.18 6.25 2.07

2.36 2.47 3.19 2.99 3.02 6.00 2.98

0.0 1.1 0.0 0.7 0.50 236.9 236.35

2.71 3.04 3.51 3.52 3.33 5.90 2.57

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

1.1: Assessing Competitiveness in the Arab World

9

1.1: Assessing Competitiveness in the Arab World

10

Although flexible migration policy allows easy access to expatriate workers, an increasing number of jobs will have to be provided for the growing national labor force.This is going to be difficult if universal basic education is not achieved and vocational training and secondary schooling are not improved. A newly launched strategy to improve educational outcomes, along with initiatives taken to facilitate the presence of international universities, signal a commitment to tackling the problem. GCI results point to weaknesses in market efficiency, in particular with respect to competition for goods and services. Although the United Arab Emirates achieved a good result on the overall issue, entry into markets appears to be constrained by red tape. It still takes 63 days to set up a new business and executives deplore the constraints on foreign ownership. Among 128 countries covered by the entire sample, the United Arab Emirates achieves a low 94th rank in this category. Last but not least, the results on innovation and R&D call for increased investment both from the public and private sectors. UAE businesses have registered only a few patents, and their innovation capacity is not at par with the country’s income level.The survey results point to the reasons behind this, including the low quality of research institutions and a clear shortage of trained scientists and engineers. On the positive side, the government appears ready to prioritize innovation. Intellectual property rights are well protected and the public sector is increasingly promoting innovation through targeted procurement of advanced technology products.
Qatar—excels in macroeconomic outcomes but improvements in infrastructure and business sophistication are needed

infrastructure is necessary—the country ranks only 36th within its group on this category. Compared with other countries in the region, Qatar shows a relatively good track record with respect to education at all levels. It has reached almost universal primary and secondary enrollment. According to UNESCO data, literacy is rising, with 89 percent of adults and 95.9 percent of young people able to read and write.Yet for the country to move ahead, a higher turnout of university graduates will be necessary. Its ranking among the 128 countries on this category is only 77th. As a country with high wage levels, Qatari businesses will have to focus on innovation and increasing business sophistication. In terms of innovation, the picture is mixed although relatively good. Government is clearly protecting property rights well and gives priority to procuring advanced technology products.Yet businesses and research institutions lag behind.The quality of the latter is assessed as relatively low (rank 49 out of 128 countries) and the two main players in innovation miss out on collaboration opportunities. At the same time, appropriately trained staff for research activities is scarce (rank 83 out of 128 countries).
Kuwait—excellent macroeconomic environment with weak outcomes on education and innovation

Despite intensive diversification efforts, the Qatari economy remains heavily dependant on natural resources, with a rising share of gas exports.The second-best ranked economy in the region, Qatar came in 32nd within the group of advanced countries. A small country rich in natural gas reserves, it achieves the highest per capita income in the region and one of the highest in the world. Like other oil-producing countries in the region, Qatar’s macroeconomic stability has benefited from the increased production and export price of oil and gas. Although the country’s fiscal situation has improved markedly, public debt remains high and the dollar’s depreciation, in combination with the soaring housing costs, has put significant upward pressures on inflation. Despite these somewhat worrying trends, Qatar ranks an excellent 4th in the entire sample on the macroeconomy pillar. Rising oil revenues in the past few years have been used to launch large-scale infrastructure projects, including road networks as well as the newly built Doha air- and seaports. Our data show that upgrading the

Kuwait occupies 37th place out of 40 countries included in this group. As in other oil-exporting countries in the region, the macroeconomic environment has markedly improved in the past few years and the country is second to none within the group on the macroeconomy pillar, reflecting the steadily growing budget surplus and growing savings. There is room for improvement with respect to primary education. Although it is already above levels found in most countries in the region, some additional efforts could easily translate into universal education. Similarly, improvements in the quality of higher education would benefit the country’s business sector, enabling it to improve the sophistication of business operations and to enhance the innovation capacity of domestic businesses. One particular aspect highlighted by the Survey is the prevalence of pervasive red tape that negatively affects business operations and makes the entry of new companies difficult. At the same time, businesses find government regulations difficult to comply with, and the country occupies a low 73rd position on the indicator that assesses this category. However, the country boasts very good financial infrastructure with easy access to a wide range of financial services, including loans, equity markets, and risk capital. More than other economies that fall into this group, Kuwait remains sheltered from the international economy and thus foregoes the benefits of competition. Although formal trade barriers are not identified as obstacles, foreign ownership is considered the most

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

restricted of the countries covered (rank 128 out of 128 countries). Both the low level of imports and restrictions on entry by foreign firms further reduce competition in the already very small internal market. Finally, as in most countries discussed here, innovation remains a shortcoming of the Kuwaiti economy. But the assessment of business people stands in contrast to the hard data. Although the business sector provides a very pessimistic assessment of the country’s ability to innovate (rank 112 out of 128), the country has registered the highest number of utility patents in the Arab world, which points to relatively more successful research activity.
Bahrain—good macroeconomic performance and socioeconomic indicators with gaps in higher education and training

Within the sample of 40 countries representing this group, Bahrain achieves a relatively weak 39th rank with only Trinidad and Tobago coming in below. Unlike its neighbors, however, the country is not endowed with significant oil and gas reserves—this in part explains the country’s ongoing drive to promote economic diversification while maintaining macroeconomic stability. As a result of targeted investments since the 1970s, health and education indicators as well as the provision of infrastructure have improved considerably. Most notably, Bahrain is the best-performing country in the region with respect to health and primary education (rank 30 out of 128 countries).The country has stable and efficient public institutions and advanced infrastructure. Bahrain has the highest literacy rate in the region and has made excellent progress with respect to enrollment rates in secondary and tertiary education.Yet business leaders, in their responses to the Survey, indicate that schools could improve the preparation of graduates for positions in the private sector as well as for establishing a strong foundation for innovation. Efforts to attract foreign direct investment (FDI) into more technology intensive sectors appear promising.The potential for attracting technology-intensive activities is considerable given the relatively high capacity of the Bahraini economy to absorb new technologies (rank 43 out of 128 countries) and the performance of Bahrain in terms of use of high-technology products. Bahrain has achieved great regional and international success as a result of the sophistication and openness of its financial markets. Even the United Arab Emirates—its main competitor from the region—scores lower with respect to these two aspects, while countries that have placed less weight on developing the financial sector, such as Qatar or Kuwait, clearly stay behind. But for a country with abundant liquidity, access to loans for national companies remains difficult.

Tunisia, Oman, Jordan, Libya, and Algeria show diverging performance with respect to their peers The second group of countries fall into the efficiencydriven stage of development or are in the process of transitioning to this stage. As noted above, countries in this phase need to focus on higher education and training, market efficiency, and technological readiness to enable businesses to employ labor more productively and pay higher wages. At the same time, the basic enablers—institutions, infrastructure, macroeconomy, and health and primary education are equally important for national competitiveness and should be maintained. And although less important now, innovation and sophistication factors should be kept in mind for the future. The Arab countries in this group are spread across the entire spectrum of rankings. All do well on macroeconomic indicators and most have relatively good institutions. But as in the first group, educational outcomes are below optimal. Most of these countries have the benefit of young populations, which can easily add to the burden of unemployment if job creation is not accelerated. In light of this, the regulation of labor markets—including government hiring and wage-setting practices as well as rules on hiring and firing workers— is a priority.
Tunisia—stable institutions and good educational outcomes but weak infrastructure and financial systems

Ranking third, behind Malaysia and Chile,Tunisia leads the Arab economies in the second group, ahead of some European Union (EU) members such as Latvia and Lithuania.Tunisia’s excellent performance on the index reflects the country’s even performance across most of the indicators and some pronounced competitive strengths, particularly its well-developed public institutions. Great progress in expanding primary education has been made with the provision of universal primary education. Although higher enrollment rates in secondary and tertiary education would enable the country to benefit more from its human capital, the quality of education is assessed as very good, often ranking the country among the top 20 countries covered by the GCR on education indicators. In addition,Tunisian businesses benefit from high levels of business sophistication. Although marketing activities could be enhanced and production processes improved, companies tend to operate at the upper end of the value chain. Index results suggest that the government focuses on enhancing the country’s innovative capacity. It gives priority to procuring advanced technology products, and the quality of research institutions and their collaboration with businesses are assessed as very positive.Yet the country’s capacity in R&D is low, as measured by the number of utility patents.

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

1.1: Assessing Competitiveness in the Arab World

11

1.1: Assessing Competitiveness in the Arab World

Tunisia’s competitiveness could benefit from increased investment in infrastructure, particularly in air transport and telecommunications facilities, which remain below international standards. Private publicpartnerships should be envisaged in light of the need for improved fiscal management. A reduced budget deficit and public debt would also contribute to an improvement in competitiveness and make more funds available for necessary investment in the medium term. Among the factors that will impede future growth, the low efficiency of financial markets and gaps in technological readiness stand out, as do some aspects related to the efficiency of labor markets. In terms of financial markets, the access to finance for local companies, such as loans and local equity markets, could be improved. There is also a need to develop more sophisticated financial products and services as well as to strengthen the overall stability of the sector.
Oman—well-developed institutions and efficient labor markets, but education and sophistication in need of improvement

technologies could boost growth in the country. Given Oman’s stage of development, the country should focus on enhancing efficiency, with innovation and business sophistication playing only a secondary role.Yet, as the country diversifies, those factors will become increasingly important. Omani businesses need to prepare to upgrade their business practices and to adopt the latest management models. Marketing remains underdeveloped and production processes do not reach standards in similarly developed economies.To achieve greater diversification, research and development are going to be increasingly important. Research institutions are in urgent need of upgrading, trained human resources are scarce, and because businesses do not experience high returns to R&D they invest relatively little in developing new products and services.
Jordan—efficient markets and accountable institutions but low ICT use and technological transfers

12

Oman occupies the 8th rank among the second group and is the second-most competitive Arab country in this group.The country’s solid outcomes on macroeconomic indicators (rank 6 out of 128 countries), including a high budgetary surplus and a declining government debt, are a result of the economic reforms started in the early 1990s and focused on diversification and privatization.Today even inflation—a problem in neighboring countries—is under control.Yet savings remain fairly low and may prove insufficient for providing the country with funds for investment. Other strengths in Oman include its well-developed institutions (rank 17 out of 128 countries), both in the public and private sectors. Low levels of corruption and favoritism and an excellent security situation contribute to a good business environment. Improvements with respect to judicial independence and reducing burdens for complying with government regulations would contribute to strengthening Oman’s competitive position. Oman’s commitment to improving labor market outcomes is reflected in the high level of efficiency in its local labor markets.Yet further reforms aiming at rendering the labor markets more flexible will be necessary to help reduce the high unemployment among Omanis. Another way of improving labor market outcomes is through education reforms. Oman’s enrollment rates are not up to international standards at any level of education. In particular, tertiary enrollment rates are lowest in the Gulf region, with only 13 percent of young people of the relevant age group attending universities. In addition to education, a poor showing in technological readiness, business sophistication, and innovation contribute to weakening the country’s position. Efforts to increase the penetration and use of the latest

Ranking 13th within the second group of countries, Jordan achieves a relatively good position in the GCI rankings. Its strong performance is linked to low levels of corruption, transparent and accountable public institutions, and business-friendly regulations that are easy to comply with.This is reflected in its 6th rank among the 40 countries on the institutions pillar. A drawback is the country’s exposure to insecurity, reflecting the threat of terrorism and its proximity to the Arab-Israeli conflict. Unlike many other countries in the region, which remain fairly protected, the Jordanian economy is more open to trade and foreign participation.Yet a number of competitive disadvantages need to be addressed if Jordan is to realize its full competitive potential. Its macroeconomic environment remains one of the most fragile in the world, ranking 106th out of 128 countries because of its high budget deficit and public debt. Labor markets are overly regulated with respect to hiring and firing (rank 92 out of 128 countries), contributing to high unemployment and encouraging brain drain. An area that has recently moved to the center of attention is the country’s ICT and technological readiness.The use of advanced technology, such as computers and the Internet, remains low by international and regional standards. At the same time, the capacity to adapt technology and innovation from abroad remains relatively weak. Focusing on enhancing efficiency by encouraging the transfer of technology, be it through FDI or licensing, would be instrumental for Jordan’s ability to move up the value chain and export more sophisticated products. Currently, the export structure is characterized by low value added products that rely on unskilled labor inputs, such as textiles.

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Libya—excellent macroeconomic indicators but infrastructure is underdeveloped and the quality of education is weak

In the first inclusion of the country in international competitiveness rankings, Libya comes in 26th among 40 countries. Libya has only recently embarked on the process of economic reform and is making efforts to diversify its oil-based economy.Thanks to the recent oil boom, the country excels in macroeconomic indicators, with one of the highest budgetary surpluses and one of the lowest government debts worldwide. Improvements should be made with respect to regulation, which is considered burdensome (rank 99 out of 128 countries) and property rights, which should be better defined and enforced.With the privatization process under way, corporate governance standards will have to be overhauled to provide a good basis for the operations of the private sector, and auditing and reporting standards will need to be strengthened (rank 116 out of 128). Currently, businesses perceive corporate boards to be of little use (rank 127 out of 128 countries). Physical infrastructure is underdeveloped, particularly in the transport sector. And although education is widely available, it is judged to be of low quality by the country’s business sector (rank 114 out of 128 countries). Labor markets display a large degree of inefficiencies related to overregulation, consistent with the reported high unemployment rates. Given the country’s recent history of international isolation, continuing the process of trade and investment liberalization remains a priority. Equally importantly, there is ample room for improvement in the area of technological readiness, as the country does not appear to be taking full advantage of technology that could be made available through technology transfer or licensing. And although not yet essential in view of Libya’s stage of development, innovation and sophistication of business operations are below levels found in countries in a similar stage of development and need to be enhanced.
Algeria—excellent macroeconomic environment in a sheltered and technologically backward economy

regulations such as the functioning of boards and auditing and reporting requirements. Algeria also shows good outcomes on health indicators and has introduced universal primary education, giving it one of the highest enrollment rates in the region. A weak spot remains the low commitment to on-the-job training and the still fairly low quality of the educational system, mainly when it comes to management education. The country is still fairly sheltered from international competition, which limits the efficiency of its domestic markets. In addition, its labor markets remain highly regulated, especially with respect to the wage-setting process and the brain drain, factors that do not bode well for the country’s future. At the same time, a fragile banking system does not fulfill its function of channeling capital into companies efficiently, with access to loans and other financing services limited. Future challenges for the country include investment in technological readiness, including the better use of advanced technology. As a second-stage country, Algeria should focus more intensely on assimilating technology from abroad. Activities in innovative activity are currently constrained by the low quality of local research institutes that collaborate little with business and by limited spending by businesses on research and development.

Algeria ranks a fairly low 29th among the 40 countries included in this group.Thanks to increasing exports of oil and gas, GDP growth has picked up recently and the macroeconomic environment has improved markedly. The government budget has gone into surplus and the public debt was reduced significantly, from 41 percent of GDP in 2001 to only 16 percent in 2005. Progress has been achieved with respect to the overall institutional environment. Government spending is considered relatively efficient by the business sector and government officials are neutral in their decisions. Yet some indications show that corruption needs to be tackled. At the same time, corporate governance is underdeveloped, particularly with respect to oversight

The performance of Egypt, Morocco, Syria, and Mauritania confirms the diversity of these countries The third group of countries comprises the 48 economies with the lowest income in the entire sample. All of them are in the factor-driven stage of development.The ranking is headed by India, Indonesia, and China. Egypt, Morocco, Syria, and Mauritania are the four Arab world countries that fall into this group.With the exception of Mauritania, they perform well with respect to their peers and place in the upper quarter of the group. On average they perform well on infrastructure and, with the exception of Morocco, also on health and primary education. In all countries but Syria, the macroeconomic environment—in particular fiscal and debt management—requires particular attention by policymakers in future. Although attention in the first stage of development should focus on the basic requirements, also very important are higher education and training, market efficiency, and technological readiness.The competitiveness performance is hampered in this group by the low attainment of higher education and low levels of market efficiency. Among the three markets assessed, the labor and financial markets stand out as particularly affected. Rigid regulations limit the scope of job creation by the private sector, while the lack of depth in the financial system constrains company growth.

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

1.1: Assessing Competitiveness in the Arab World

13

1.1: Assessing Competitiveness in the Arab World

Egypt—good institutions and infrastructure but one of the highest budget deficits in the world

14

Among countries in the low-income group Egypt leads the Arab economies, ranking 4th out of 48 countries after China and ahead of the Philippines.The country’s performance shows some pronounced strengths and weaknesses. Public and private institutions are overall in good shape, benefiting from a more technocratic and less corrupt bureaucracy.Yet the country’s businesses, especially in the tourism sector, suffer from the threat of terrorism (rank 105 out of 128 countries). Transport, energy, and communications infrastructure serves the economy well, and good progress has been achieved on primary education with near universal enrollment attained.Yet the quality of education remains low and hardly meets the needs of a growing and dynamic business sector. Although Egypt is one of the most protected economies in the Arab world, competition is relatively intense thanks to the large domestic market. Greater openness through multilateral or bilateral trade agreements would benefit the economy. The country’s competitive potential remains underutilized. Despite the clear strengths outlined, a number of fundamental challenges have to be addressed to boost growth and job creation. A major shift in macroeconomic management could contribute to enhancing growth, including prudent public spending to rein in one of the highest budget deficits in the world (rank 127 out of 128 countries) and limit the soaring government debt (rank 104 out of 128 countries). Inflation is also surprisingly high given the worldwide trend toward increased price stability. The efficiency of all three markets assessed—goods, labor, and financial—remains low. In addition to protectionism, rigid labor regulations contribute to high unemployment. Financial markets are equally in need of enhancement, as they are ill equipped to channel financial resources into the most profitable investments in the business sector. Growth of companies is hampered by limited financial products such as loans and venture capital, and there is ample room to bring greater stability and soundness to the banking sector. Last but not least, the potential of technology and innovation to boost growth remains underutilized. Although in the case of Egypt some technology is acquired through FDI, increased use of advanced general purpose technologies, such as the Internet, mobile telephones, and personal computers could benefit businesses and boost growth, as has been seen in other countries.
Morocco—good infrastructure and efficient markets although human capital needs urgent improvements

out of 128 countries), although terrorism is considered a significant threat.There is room for improvement in corporate governance, particularly in the role of corporate boards and auditing and reporting requirements. The quality of infrastructure is good apart from the telecommunications sector, which is brought down by the low penetration of fixed telephone lines. Morocco does well on indicators of technological readiness, but penetration rates of advanced technologies—including mobile telephones—remain low. Moroccan firms, however, are aggressive in absorbing technology from abroad. Although local firms are sheltered from international competition, there are few barriers to entry facing foreign and domestic firms, and antitrust regulation effectively prevents monopolies. Morocco has embarked recently on an extensive program for enhancing competitiveness by intensifying trade links and promoting sectors with high value added. Such efforts, however, will be frustrated if the development of human capital is not advanced.The country has not achieved universal primary education and secondary schools and universities are not widely accessible. Although only about 11 percent of the relevant age group is enrolled in institutions of higher education, Morocco does well on the quality of educational outcomes especially in math, science, and management training. And at the same time, the low tertiary enrollment does not appear to constrain business activity, as can be seen from the good assessment of the availability of scientists and engineers by businesses. Equally important, a more sophisticated and deeper financial sector could play an important role in closing the financing gap businesses faced by businesses and help accelerate economic development. Access to loans and other forms of finance such as equity markets and venture capital remain very limited.
Syria—low levels of corruption and good socioeconomic outcomes against a weak macroeconomic environment and high levels of protection

Morocco occupies the 7th place among 48 economies in this group.The country’s strengths include the relatively solid institutions with low distortions (rank 48 out of 128 countries) and efficient government spending. Business is little concerned by security issues (rank 47

Syria is the 12th most competitive economy among countries in the lowest stage of development.With a growing population and difficult geopolitical environment, the country is facing many challenges to improving competitiveness. Awareness, since the early 1990s, of the need to diversify the economy has resulted in the launch of many initiatives aimed at reform. The country displays a number of notable strengths. Levels of corruption remain fairly low (rank 43 out of 128 countries) and, in international comparisons, businesses have trust in their political leaders (rank 63 out of 128 countries).The threat of terrorism and organized crime is perceived to be weak (rank 23 out of 128 countries). Infrastructure facilities for telecommunications, energy, and transport are seen as working efficiently with the exception of air- and seaports, which are

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

state owned and subject to cumbersome procedures and regulations and insufficient capacities. Syria displays inferior results on macroeconomic indicators. Despite the current economic boom, the country has a significant deficit and has accumulated considerable public debt, amounting to almost 60 percent of GDP. In addition, inflation peaked in 2005 mainly because of a wage increase in the public sector, inflows of liquidity from Gulf countries, and an appreciation of the currency. Over the past few years, Syria has made great efforts to improve the basic education and health of its population. Infant mortality is lower than in other countries at the same stage of development, and universal enrollment in primary education has been achieved. Enhancing competitiveness has moved to the center of the economic policy agenda in the country, and the GCI results point to a number of challenges in this respect. In particular, secondary schooling and higher education are not widespread and the quality of the educational system is assessed to be below the level necessary to support a growing business sector. In addition, weaknesses persist in market efficiency. High levels of protectionism in goods markets and rigid hiring and firing practices restrict competition in those markets and contribute to the high level of unemployment.The financial sector is in urgent need of upgrading as it currently is unable channel funds into the business sector. It is characterized by an unstable banking system and difficulty in accessing loans and other instruments of corporate financing. Furthermore, much of the potential with respect to using technology to boost growth remains untapped. FDI does not lead to technological transfers and companies’ capacity to adopt technology is limited.This— together with the rather low use of advanced technologies within the business sector and the general population—prevents Syria from taking better advantage of the benefits new technologies offer. Internet use remains very limited (rank 89 out of 128), since the country only recently opened up to this technology.
Mauritania—institutions are a comparative strength against an overall weak performance, in particular high macroeconomic imbalances

As the country with the lowest per capita income in the Arab world, at 38th place out of 48 Mauritania occupies the lowest ranking among the countries within the region.The recent discovery of off-shore petroleum fields will bring strong growth over the next years and make funds available for investment in competitivenessenhancing activities. Not surprisingly, Mauritania suffers from a low assessment on virtually all the pillars of the GCI. Still, a few areas of strength emerge.The country has a relatively independent judicial system (rank 60 out of 128 countries), government officials are not likely to give in

to favoritism (rank 36 out of 128 countries), and regulation is among the least distorting in the world (rank 6 out of 128 countries). Overall, public and private institutions are assessed as functioning fairly well given the country’s level of development. Two more areas stand out for their positive assessment.The first is in labor markets: Mauritania has fairly flexible labor markets with little intervention in business decisions on hiring and firing (rank 3 out of 128 countries), although companies are not entirely free to set wages (rank 99 out of 128 countries). At the same time, there is room for improvement in strengthening the link between pay and productivity and providing incentives, in particular for educated people, to remain in the country (rank 85 and 93, respectively, both out of 128 countries) or to return from abroad. The second positive area is in technological readiness, where adoption of latest technologies is a relative competitive advantage of the country, in particular when seen in light of its level of development. Firms are assessed to be one of the best worldwide with respect to absorption of technology (rank 16 out of 128 countries) and FDI leads to technology transfer (rank 6 out of 128 countries). Most certainly, both indicators have to be interpreted in light of the growing imports of equipment for the extraction of petroleum over the recent years. Against these few positive aspects, the list of relative disadvantages is long. Mauritania is among the worst performers worldwide with respect to the quality of infrastructure and macroeconomic stability.Yet, with targeted investment in new transport, energy, and telecommunications facilities and continued privatization, infrastructure is likely to improve over the next few years. For the macroeconomic imbalances to be corrected, improved fiscal and debt management and prudent use of oil revenues is critical given the country’s limited experience in managing large inflows of funds. Investment in primary education is equally a priority if the country is to maintain competitiveness over the longer term. Although compulsory, primary schooling is below levels that would be necessary for a growing economy, resulting in high illiteracy rates.The population also exhibits one of the worst health profiles in the world, reflected in the low life expectancy (rank 105 out of 128 countries) and high infant mortality (rank 108 out of 128 countries). Fortunately, the country is less affected by the HIV/AIDS epidemic than its subSaharan African neighbors. Any future reform program should include a significant but carefully sequenced liberalization of international trade. Mauritania has the most restrictive trade barriers in the entire sample (rank 128 out of 128 countries) and trade has proven in many instances a powerful means of boosting growth and job creation.

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

1.1: Assessing Competitiveness in the Arab World

15

1.1: Assessing Competitiveness in the Arab World

16

Conclusions This chapter has assessed the competitiveness of 13 Arab countries benchmarked against economies in the same stage of development.The results confirm the diversity of the Arab world and highlight a number of strengths and weaknesses that can inform policy decisions and provide a foundation for enhanced dialogue between the public and private sector. The present findings, along with previous assessments, indicate that many countries show a respectable track record for maintaining and improving competitiveness.Yet, when benchmarked against peers in other parts of the world, many Arab economies fall behind. This applies to a larger extent to the wealthier and more advanced economies; most of the remaining Arab world compares rather favorably when benchmarked against other countries in similar stages of development. In today’s globalizing world economy, the pace of reform will need to be accelerated to avoid the region falling further behind the most dynamic economies in the world, such as Singapore, Malaysia, India, and China. We have identified a number of challenges that need to be addressed to improve the competitive performance and maintain the growth momentum in the region. Given the high unemployment and the need for diversification in many countries, education reform is a high priority. Educational outputs remain mismatched with the needs of the business sector, depriving the economies of the trained talent needed to raise productivity and move up the value chain. Because innovation is the key enabler of future growth, investment in research institutions as well as incentives for the private sector to increase R&D spending will be necessary. High unemployment and rapid labor force growth are putting pressure on governments in the region to thoroughly overhaul the organization and regulation of labor markets that rely heavily on the public sector and migrant workers. More flexibility in employment regulations and increased focus on meritocracy and professional management are steps in the right direction. Although many of these reforms are politically sensitive, the current growth cycle may prove opportune for initiating labor market reforms. Similar considerations apply to goods markets in several countries that remain protected from internal and external competition. When it comes to addressing the challenges outlined in this chapter, the current oil boom is a double-edged sword. Although periods of prosperity provide a window of opportunity for introducing politically challenging reform, they also diminish the pressure for such reforms. Some of the most impressive success stories in the region, including that of the United Arab Emirates, have demonstrated the possibility of sustained and aggressive reforms irrespective of conditions in oil markets.This, however, has often required the participation of the business community and society at large in supporting measures aimed at long-term economic prosperity.

Notes
1 In the case of this Report, we have updated the ICT-related variables as well as data from the Doing Business database of the World Bank, taking into account the latest developments in these two areas. These data were not yet available at the time the GCR 2006–2007 was produced. 2 Countries in transition between stages have been attributed to the next highest stage of development. By doing so, we stress the areas they need to focus on in order to prepare for the future.

References
EIU (Economist Intelligence Unit). 2006a. Country Profile 2006: Mauritania. London: EIU. ———. 2006b: Country Profile 2006: Syria. London: EIU. ———. 2006c. Country Profile 2006: United Arab Emirates. London: EIU. IMF (International Monetary Fund). 2006. Arab Republic of Egypt: 2006 Article IV Consultation—Staff Report; Staff Statement; Public Information Notice on the Executive Board Discussion; and Statement by the Executive Director for the Arab Republic of Egypt. In Country Report No. 08-253. Washington, DC: IMF. World Bank. 2005. Middle East and North Africa Economic Developments and Prospects 2005: Oil Booms and Revenue Management. Washington, DC: World Bank. ———. 2006. Middle East and North Africa Economic Developments and Prospects 2006: Financial Markets in a New Age of Oil. Washington, DC: World Bank. World Economic Forum. 2005. The Arab World Competitiveness Report 2005, ed. A. Lopez-Claros and K. Schwab. Hampshire: Palgrave Macmillan. ———. 2006. Global Competitiveness Report 2006–2007: Creating an Improved Business Environment, ed. A. Lopez-Claros, M. Porter, X. Sala-i-Martin, and K. Schwab. Hampshire: Palgrave Macmillan.

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Appendix A: Composition of the Global Competitiveness Index

This appendix provides details on how the Global Competitiveness Index is constructed. All of the Survey and hard data variables used in this index can be found in the data tables section of this Report with more detailed descriptions.

4th Pillar: Health and primary education
A. Health 4.01 4.02 4.03 4.04 4.05 4.06 4.07 4.08 Medium-term business impact of malaria Medium-term business impact of tuberculosis Medium-term business impact of HIV/AIDS Infant mortality (hard data) Life expectancy (hard data) Tuberculosis prevalence (hard data) Malaria prevalence (hard data) HIV prevalence (hard data)

1st Pillar: Institutions
A. Public institutions 1. Property rights 1.01 Property rights 2. Ethics and corruption 1.02 Diversion of publics funds 1.03 Public trust of politicians 3. Undue influence 1.04 Judicial independence 1.05 Favoritism in decisions of government officials 4. Government inefficiency (red tape, bureaucracy and waste) 1.06 Wastefulness of government spending 1.07 Burden of government regulation 5. Security 1.08 Business costs of terrorism 1.09 Reliability of police services 1.10 Business costs of crime and violence 1.11 Organized crime B. Private institutions 1. Corporate ethics 1.12 Ethical behavior of firms 2. Accountability 1.13 Efficacy of corporate boards 1.14 Protection of minority shareholders’ interests 1.15 Strength of auditing and accounting standards

B. Primary education 4.09 Primary enrollment (hard data)

5th Pillar: Higher education and training
A. Quantity of education 5.01 Secondary enrollment ratio (hard data) 5.02 Tertiary enrollment ratio (hard data) B. Quality 5.03 5.04 5.05 of education Quality of the educational system Quality of math and science education Quality of management schools

C. On-the-job training 5.06 Local availability of specialized research and training services 5.07 Extent of staff training

6th Pillar: Market efficiency
A. Good markets: Distortions, competition, and size 1. Distortions 6.01 Agricultural policy costs 6.02 Efficiency of legal framework 6.03 Extent and effect of taxation 6.04 Number of procedures required to start a business (hard data) 6.05 Time required to start a business (hard data) 2. Competition 6.06 Intensity of local competition 6.07 Effectiveness of antitrust policy 6.08 Imports (hard data) 6.09 Prevalence of trade barriers 6.10 Foreign ownership restrictions 3. Size 0.00 GDP – exports + imports (hard data) 6.11 Exports (hard data)

2nd Pillar: Infrastructure
2.01 2.02 2.03 2.04 2.05 2.06 Overall infrastructure quality Railroad infrastructure development Quality of port infrastructure Quality of air transport infrastructure Quality of electricity supply Telephone lines (hard data)

3rd Pillar: Macroeconomy
3.01 3.02 3.03 3.04 3.05 3.06 Government surplus/deficit (hard data) National savings rate (hard data) Inflation (hard data) Interest rate spread (hard data) Government debt (hard data) Real effective exchange rate (hard data)

(cont’d.)

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

1.1: Assessing Competitiveness in the Arab World

17

1.1: Assessing Competitiveness in the Arab World

Appendix A: Composition of the Global Competitiveness Index (cont’d.)

B. Labor markets: Flexibility and efficiency 1. Flexibility 6.12 Hiring and firing practices 6.13 Flexibility of wage determination 6.14 Cooperation in labor-employer relations 2. Efficiency 6.15 Reliance on professional management 6.16 Pay and productivity 6.17 Brain drain 6.18 Private sector employment of women C. Financial markets: Sophistication and openness 6.19 Financial market sophistication 6.20 Ease of access to loans 6.21 Venture capital availability 6.22 Soundness of banks 6.23 Local equity market access

7th Pillar: Technological readiness
7.01 7.02 7.03 7.04 7.05 7.06 7.07 Technological readiness Firm-level technology absorption Laws relating to ICT FDI and technology transfer Cellular telephones (hard data) Internet users (hard data) Personal computers (hard data)

18

8th Pillar: Business sophistication
A. Networks and supporting industries 8.01 Local supplier quantity 8.02 Local supplier quality B. Sophistication of firms’ operations and strategy 8.03 Production process sophistication 8.04 Extent of marketing 8.05 Control of international distribution 8.06 Willingness to delegate authority 8.07 Nature of competitive advantage 8.08 Value-chain presence

9th Pillar: Innovation
9.01 9.02 9.03 9.04 9.05 9.06 9.07 9.08 Quality of scientific research institutions Company spending on research and development University/industry research collaboration Government procurement of advanced technology products Availability of scientists and engineers Utility patents (hard data) Intellectual property protection Capacity for innovation

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Appendix B: List of countries/economies in each stage of development

Stage 1

Transition from 1 to 2

Stage 2

Transition from 2 to 3

Stage 3

Angola Armenia Azerbaijan Bangladesh Benin Bolivia Burkina Faso Burundi Cambodia Cameroon Chad China Egypt Ethiopia Gambia Georgia Guatemala Guyana Honduras India Indonesia Kenya Kyrgyz Republic Lesotho Madagascar Malawi Mali Mauritania Moldova Mongolia Morocco Mozambique Nepal Nicaragua Nigeria Pakistan Paraguay Philippines Sri Lanka Syria Tajikistan Tanzania Timor-Leste Uganda Ukraine Vietnam Zambia Zimbabwe

Albania Algeria Bosnia and Herzegovina Botswana Colombia Ecuador El Salvador Jordan Libya Macedonia, FYR Namibia Oman Peru Suriname Thailand Tunisia Venezuela

Argentina Brazil Bulgaria Chile Costa Rica Croatia Dominican Republic Jamaica Kazakhstan Latvia Lithuania Malaysia Mauritius Mexico Panama Poland Romania Russian Federation Serbia and Montenegro Slovak Republic South Africa Turkey Uruguay

Bahrain Barbados Czech Republic Estonia Hungary Korea, Rep. Malta Taiwan, China Trinidad and Tobago

Australia Austria Belgium Canada Cyprus Denmark Finland France Germany Greece Hong Kong SAR Iceland Ireland Israel Italy Japan Kuwait Luxembourg Netherlands New Zealand Norway Portugal Qatar Singapore Slovenia Spain Sweden Switzerland United Arab Emirates United Kingdom United States

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

1.1: Assessing Competitiveness in the Arab World

19

1.1: Assessing Competitiveness in the Arab World

Appendix C: Global Competitiveness Index rankings 2007 and 2005*

Country

GCI 2007 rank

GCI 2007 score

GCI 2005–06 rank

Country

GCI 2007 rank

GCI 2007 score

GCI 2005–06 rank

20

Switzerland Finland Sweden Denmark Singapore United States Japan Germany Netherlands United Kingdom Norway Hong Kong SAR Taiwan, China Iceland Israel Canada France Austria Australia Belgium Ireland New Zealand Luxembourg Malaysia Korea, Rep. Estonia Chile Spain Tunisia Czech Republic Barbados United Arab Emirates Slovenia Portugal Latvia Thailand Lithuania Slovak Republic Qatar Hungary India Italy Malta Oman Kuwait South Africa Cyprus Greece Poland Bahrain Indonesia Costa Rica Croatia Jordan China Mexico Kazakhstan Mauritius Panama Turkey Russian Federation Jamaica El Salvador Colombia

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64

5.81 5.74 5.73 5.70 5.62 5.62 5.62 5.60 5.57 5.53 5.46 5.45 5.40 5.40 5.38 5.36 5.34 5.32 5.30 5.28 5.22 5.17 5.15 5.13 5.12 5.12 4.85 4.79 4.72 4.72 4.71 4.67 4.64 4.60 4.60 4.58 4.57 4.57 4.56 4.53 4.47 4.47 4.44 4.44 4.42 4.42 4.35 4.33 4.33 4.30 4.28 4.27 4.27 4.25 4.25 4.23 4.22 4.22 4.21 4.18 4.13 4.13 4.12 4.09

4 2 7 3 5 1 10 6 11 9 17 14 8 16 23 13 12 15 18 20 21 22 24 25 19 26 27 28 37 29 n/a 32 30 31 39 33 34 36 46 35 45 38 44 n/a 49 40 41 47 43 50 69 56 64 42 48 59 51 55 65 71 53 63 60 58

Egypt Azerbaijan Brazil Trinidad and Tobago Argentina Romania Philippines Morocco Bulgaria Peru Uruguay Guatemala Vietnam Algeria Macedonia, FYR Ukraine Sri Lanka Libya Syria Botswana Armenia Dominican Republic Namibia Georgia Venezuela Moldova Ecuador Bosnia and Herzegovina Serbia and Montenegro Pakistan Honduras Mongolia Kenya Nicaragua Tajikistan Albania Bolivia Nigeria Bangladesh Gambia Suriname Cambodia Benin Tanzania Paraguay Kyrgyz Republic Cameroon Guyana Madagascar Nepal Lesotho Uganda Zambia Mauritania Burkina Faso Malawi Zimbabwe Mali Ethiopia Mozambique Timor-Leste Chad Burundi Angola

65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 114 115 116 117 118 119 120 121 122 123 124 125 126 127 128

4.09 4.09 4.08 4.06 4.05 4.04 4.02 4.02 4.00 3.99 3.97 3.94 3.93 3.93 3.92 3.91 3.90 3.89 3.81 3.80 3.78 3.78 3.76 3.75 3.74 3.73 3.72 3.72 3.71 3.69 3.62 3.61 3.61 3.55 3.50 3.49 3.49 3.49 3.48 3.45 3.45 3.42 3.41 3.40 3.35 3.33 3.32 3.29 3.29 3.27 3.24 3.21 3.21 3.18 3.10 3.09 3.07 3.04 3.00 2.97 2.91 2.64 2.62 2.50

52 62 57 66 54 67 73 76 61 77 70 95 74 82 75 68 80 n/a n/a 72 81 91 79 86 84 89 87 88 85 94 97 90 93 96 92 100 101 83 98 n/a n/a 111 106 105 102 104 99 108 107 n/a n/a 103 n/a n/a n/a 114 110 115 116 112 n/a 117 n/a n/a

(cont’d.)

* The 2007 rankings, which are based on the Global Competitiveness Report 2006–2007, are compared with previous year’s data from the Global Competitiveness Report 2005–2006.

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

CHAPTER 1.2

FOREWORD

Recent US Free Trade Initiatives in the Middle East: Opportunities but No Guarantees
ROBERT Z. LAWRENCE, Harvard University and Peterson Institute for International Economics

Recognizing the urgent need of the Arab world to integrate successfully into the global economy, the Arab Business Council commissioned, in 2005, an extensive study of trade as a means to strengthen the economic links among Arab states, focusing, in the first instance, on the US–Middle East free trade agreements (FTAs). Considering the basic questions of potential economic benefits that these agreements have brought to the signatory countries to date, and their benefit to the region as a whole in the long term, the study seems to suggest that these FTAs have considerable potential to bring about both political and economic reforms.The political thrust of these agreements, however, and their primarily bilateral character, have had implications on deeper regional integration. Arab Business Council members agree on the urgent need for better alignment between regional and bilateral trade agreements, incorporating the reduction of nontariff barriers. Moreover, when coupled with financial markets’ liberalization, trade liberalization and integration will help spur investment in Arab states and enable the creation of wealth for future generations, and put them in a position to compete in the global economy on a win-win basis. The following chapter summarizes the main findings of this study. Shafik Gabr Chairman Arab Business Council Mazen Darwazeh Vice-Chairman Arab Business Council Khalid Abdullah Janahi Vice-Chairman Arab Business Council

In 2003, US President George W. Bush proposed creating a comprehensive free trade agreement (FTA) between the United States and the Middle East (MEFTA) by first negotiating comprehensive free trade agreements with countries in the region bilaterally, and then combining these into a single overarching arrangement between the United States and the region as a whole.The US administration has begun to implement this strategy by negotiating FTAs with Morocco, Bahrain, Oman, and the United Arab Emirates (UAE). In addition to the earlier agreements that had been signed with Jordan and Israel (and extended to the West Bank and Gaza), this

This article draws extensively on a study I have recently completed on the topic. For a more extensive discussion and elaboration, see Lawrence (2006).

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

1.2: Recent US Free Trade Initiatives in the Middle East

21

1.2: Recent US Free Trade Initiatives in the Middle East

meant that by 2006, the United States had concluded six FTA arrangements with countries from the region and a seventh with the United Arab Emirates was in sight. The interest of the United States in MEFTA is not primarily economic; rather, it reflects geopolitical and security considerations.The MEFTA initiative reflects the judgment that US policy in the region needs an economic component in order to be effective. By contrast, for Arab countries interest in MEFTA is primarily economic. For Arab countries, the attraction of FTAs with the United States stems primarily from four types of economic advantages they could provide: • First, there are the direct benefits that come from increased trade and investment. FTAs afford preferential access to the large US market that could result in increased exports and investment by both foreign and local firms. FTAs will also improve consumer welfare by reducing domestic prices and increasing competition and choice in the domestic market. • Second, the agreements can be used to improve the trade relations of Middle Eastern countries vis-à-vis other trading partners. FTAs will reduce the trade diversion that results from other preferential arrangements, such as the Euro-Mediterranean (Euro-Med) Association Agreements with the European Union.They will also enhance the region’s bargaining power with other countries that will wish to be accorded treatment similar to that obtained by the United States. • Third, the agreements can help to promote increased regional integration. If several countries in the region sign similar agreements, these can also be used as the basis for deepening regional economic integration.The most ambitious hope is that the US initiative could spur all Arab countries to take these necessary steps with the United States and then with each other; a somewhat less ambitious outcome would be for a select group of countries to launch a regional integration that achieves deep economic integration among those countries who are willing. • Finally, and perhaps most importantly, the agreements can assist with domestic reforms.1 But will these FTA agreements be effective in advancing the goals of those who sign them? Judged by the history of FTAs in the region, some skepticism is probably in order.2 Middle Eastern countries have often grasped the symbols of Arab unity but been unwilling to engage in the fundamental systemic changes that

22

would really make their markets mutually contestable. Foot-draggers have also been able to stall meaningful agreements or have taken steps that deny full implementation. In addition, there are questions about the size of the benefits such agreements might produce because most Arab countries have relatively modest trade and investment links with the United States; the European Union (EU) is a more important trading partner by far. In 2003, for example, EU imports and exports from Arab countries were 4.6 and 3.7 times larger than those from the United States respectively, while the non-oil exports to the United States amounted to around 6 percent of all exports from Arab countries and the United States accounted for only 8 percent of these countries’ imports.3 Nonetheless, what is particularly striking about the agreements signed by Bahrain, Morocco, and Oman is their comprehensive and deep character.They require liberalization—not only for trade in all goods, including agriculture, but also for many services and for foreign direct investment. In particular, the prototypical US agreement requires virtually complete liberalization of industrial and agricultural products, extensive coverage of market access for services, rights of establishment with few exceptions for foreign investment, obligations to protect intellectual property that are more extensive than those in the World Trade Organization (WTO) trade-related aspects of intellectual property (TRIPs) agreement, commitments on government procurement, policy transparency, technical barriers and standards, provisions to adhere to labor, and environmental standards. These requirements, set out in the clauses of the FTA, are all enforced by dispute settlement agreements backed by the possibility of the suspension of concessions and/or payment of monetary assessments.4 The deep character of these agreements reflects the fact that, although the Middle East has been given unique political priority, the United States is also negotiating similar agreements based on a standard template with other countries in many parts of the world.5 The US administration has tried not to depart from this template, partly because it reflects the type of agreement the US Congress will support and partly because it does not want to set a precedent of departing from the framework that other countries can point to. By contrast, with the exception of the Gulf Cooperation Council (GCC), most previous agreements signed by Arab countries—both with the European Union and among each other—have generally dealt only with border barriers such as tariffs and quotas and, even with respect to these, coverage has often been incomplete. Although the countries in the region have made some progress in reducing tariffs, particularly on regional trade, they have failed to deal effectively with nontariff barriers and the liberalization of services and investment. The pan-Arab Greater Arab Free Trade Agreement (GAFTA) for example, covers only trade in goods and

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

remains deficient with respect to rules of origin and implementation.The subregional Agadir Agreement (between Egypt, Jordan, Morocco, and Tunisia) has corrected the rules of origin issue for four countries.6 But Agadir deals only with trade in goods. I will argue in this paper that the deep nature of the US agreements presents new opportunities for Arab countries.To take full advantage of this opportunity, however, they will have to complement the agreements with additional policy measures, both individually and together.The promise of the agreements comes from their ability to be used as a catalyst for increased economic benefits by improving regulatory rules and systems at home and facilitating integration with the rest of the region and the world. But the agreements are not panaceas.They also present problems for Arab countries, first in relating these US agreements to agreements with other trading partners—most importantly the European Union; second in creating political difficulties associated with closer relations with the United States, given problems in the region; and third in undertaking the economic and political adjustments necessary to realize the benefits. In what follows I will explore these issues in greater detail. I will first present some evidence on the need for MEFTA-type agreements by Arab countries. I will then consider whether the particular approach being used by the United States is likely to result in an overarching agreement. Next I consider the relationship between the US agreements and those with the European Union. I then evaluate the potential economic impacts of the agreement, and finally suggest what the US and the Arab countries need to do to maximize the potential benefits from agreements and minimize their negative effects.

The need for change MEFTA seeks to liberalize trade and investment, facilitate domestic reforms, and encourage deeper regional trade arrangements.The Arab economies have both the need and the scope for adopting these policies.The need arises from the challenge of creating employment in the private sector for their growing labor forces; the scope from the poor state of the regulatory environment for private enterprise, particularly with respect to international trade.7 With only a few exceptions, almost all Arab countries have chronic unemployment problems that fail to meet the challenge of providing new labor-force entrants with private-sector employment opportunities. There are many reasons for this, but an important role is surely played by the very weak regulatory environment. Over the past decade, some reforms have been undertaken and per capita economic growth has generally accelerated, but performance still falls short when benchmarked against other countries and against the demand for jobs. According to work done at the World

Bank, which uses a large number of sources, when ranked against other countries, the regulatory regimes and governance institutions in Arab countries do poorly.8 The weakest dimensions of governance in the region relate to the exercise of political freedom and accountability, but the region is also particularly weak in regulatory policy.These results hold true even when income levels are taken into account. With few exceptions, there has been little relative improvement in these regulatory policies over the past decade.9 To be sure, there have been reforms in many Arab countries—but the rest of the world has also been changing, and thus comparatively the Arab countries have not risen in the rankings. By international standards, Arab administrative regimes for doing business in general and conducting trade across borders in particular are extremely burdensome. Even in Gulf states where tariffs are relatively low, trade is seriously impeded by bureaucratic intervention. The current regulatory regimes in many Arab countries impede private-sector entrepreneurship, but they have persisted because they also generate benefits for those who are skilled in operating within the system and those people the system empowers to grant benefits. Altering these regulatory regimes will create new winners and losers, and therefore has important political implications. There is much evidence that the regulatory system has impeded international trade. A large number of studies suggest that, judged by international norms, the countries in the region trade considerably less with each other, with the United States, and with the rest of the world than would be expected.10 In addition, particularly in the Gulf countries, foreign direct investment is unusually low.Trade and regulatory policies form part of the explanation for this weak performance. Once nontariff barriers are taken into account, on average trade protection in the region is higher than in any other region in the world. In addition to indicating considerable scope for improving regulatory policies in Arab countries, the governance measures highlight two challenges for MEFTA. First, there are major differences among Arab countries with respect to regulatory quality and administrative efficiency.The countries with whom the United States has already signed are those with the highest regulatory quality, suggesting that the United States has followed its announced intention to sign agreements with “countries that demonstrate a commitment to openness and reform.”11 The first five Arab countries the United States agreed to negotiate bilateral FTAs with (Bahrain, Jordan, Morocco, Oman, and the United Arab Emirates) rank among the top 8 out of 18 countries in the region in terms of regulatory quality and among the top six when income levels are taken into account. But regulatory policies are much poorer in the rest of the region.This diversity in quality presents

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

1.2: Recent US Free Trade Initiatives in the Middle East

23

1.2: Recent US Free Trade Initiatives in the Middle East

serious problems for comprehensive participation in a single agreement. Second, as already noted, Arab countries uniformly have low rankings with respect to the political governance variables, particularly political accountability.This suggests that if the MEFTA is to become a reality within 10 years, either the pace of political reform will have to accelerate dramatically or major political reforms should not be made a precondition for membership.

24

Will a bottom-up approach work? The MEFTA approach is from the bottom up.The United States aims to first negotiate bilateral agreements, then link them in subregional agreements; only at the end of the process will it construct a single MEFTA. There is clearly a tradeoff between mega-regional initiatives that are built from the bottom up and those that are constructed collectively in a single agreement with all participants simultaneously.The top-down approach has the virtue of allowing for a set of rules that is approved by all and under which all parties operate. But obtaining agreement can be difficult in a collective negotiation with many participants because foot-draggers can stall the process or water down agreements that are actually concluded. Indeed, the recent history of efforts such as Free Trade in the Americas (FTAA) and AsiaPacific Economic Cooperation (APEC) point to the problems in this approach. By contrast, the bottom-up approach permits those most willing and able to move first. It also allows them to tailor the details of their agreements to particular bilateral circumstances.The advantage of the MEFTA, therefore, is that it has allowed for the conclusion of deep, far-reaching agreements that almost certainly could not have been negotiated with universal Arab participation. But the cost of the approach is that it creates a number of overlapping trade regimes that present problems for eventual integration. Even though the United States has followed a boilerplate approach to the agreements, there are still important differences among them, mainly because the US blueprint has evolved over time.The US MEFTA initiative also presents signatories with problems of administering different systems of rules in their trade with the United States, the European Union, their regional partners, and the rest of world.These conflicts are most evident in relation to rules of origin. Producers in Jordan today, for example, have one set of rules of origin when exporting to the United States under the special Qualifying Industrial Zones (QIZ) scheme, another with the US FTA, a third with respect to Arab League partners, and a fourth with the European Union and Arab countries that are part of the Agadir Agreement. The piecemeal approach adopted by the United States thus presents major challenges for eventually establishing a single MEFTA agreement. In particular,

the early FTAs under which Israel, Jordan, and Palestine operate are very different from more recent agreements signed by Bahrain, Morocco, and Oman.This is evident from their length.The US–Jordan agreement is roughly 20 pages long; the more recent FTAs run into hundreds of pages.The agreements with Israel and the Palestinians cover only trade in goods.While the US–Jordan FTA includes services, in contrast with subsequent agreements, it uses a positive list approach. If the United States insists that MEFTA should follow the more restrictive and demanding FTAs that have been negotiated starting with Morocco, the countries with early FTAs will be required to assume major new obligations. This is especially the case for rules of origin, since the FTAs with Israel and Jordan (and the Egyptian QIZ) provide for rules of origin that are considerably less stringent than those in the agreements with Morocco and Bahrain.These differences will make agreement on the final rules more difficult; absent such integration, a hub-and-spoke arrangement centered on the United States could emerge. Alternatively, one could imagine an agreement with variable geometry in which countries have different levels of commitment. The more recent agreements also differ from the earlier agreements with Israel and Jordan in terms of coverage, the nature of the dispute settlement system, and numerous other provisions. A particular challenge for eventual integration and a single MEFTA agreement is presented by Jordan’s unique system for dealing with disputes over rules for labor and the environment, which subjects violations of these rules to the same procedures as violations of other parts of the agreement. In sum, even aside from the obvious political problems of achieving a single MEFTA that includes Israel and all the Arab countries, there are numerous institutional barriers to its full realization. From the standpoint of Arab countries, the bottom-up approach is a mixed bag.The initiative creates tensions among Arab countries because it divides the region by separating countries according to their ability to integrate internationally and their political acceptability to the United States.This offers those most willing and able to negotiate the opportunity to differentiate themselves in both these respects. But for those who are less willing this is a problem. In addition, the bottom-up approach prevents the Arab countries from initially forming coalitions, compelling them each to bargain individually with the United States.The consequence will be initial agreements that reflect their collective interests less. At later stages, however—as an overarching MEFTA begins to emerge—they should find it easier to coordinate their positions. Nonetheless, while the approach that has been selected is possibly less likely to guarantee that eventually a single MEFTA will emerge, it is more likely to ensure that the agreements that do emerge are likely to retain their deep character.

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

The MEFTA has the goal of encouraging regional integration.Yet, in contrast to the European Union, the willingness of the United States to negotiate individually with GCC countries has created tensions for the operation of the common external tariff of its customs union. On the other hand, the fact that agreements have indeed been negotiated separately has created a mechanism for those Gulf states most interested in economic reforms to place competitive pressures on those who are more reluctant to do so. More recent developments have raised some questions about whether the United States will actually be able to sustain the initiative to bring it to completion.12 When Dubai Ports World acquired the Peninsular and Oriental Steam Navigation Company, it obtained control over facilities at six US ports.The officials who sit on the US government interagency committee responsible for reviewing foreign acquisitions for possible threats to national security (CFIUS) viewed the sale as routine and approved it in November 2005. However, the case became highly controversial when stirred up by a company with financial interests in the deal’s failure, and opposition mounted in the US Congress.The acquisition was painted in a highly negative light not only by President Bush’s opponents, who seized on the chance to be tougher than he was on a national defense issue, but also by many in his party. Eventually the Dubai Ports World Corporation responded to the controversy by selling the US port facilities to a US-controlled firm. The entire affair marked a sea-change in the politicization of a process for reviewing foreign direct investment that had previously been routine and technical. It revealed problems with the CFIUS process in general that may require reform.13 It also demonstrated how public fears can make it difficult to distinguish between America’s Arab allies and genuine threats to its national security.This treatment certainly makes it more difficult for Arab countries to view the investment provisions of FTAs as a genuine two-way street.The incident occurred at the same time as the United States and the United Arab Emirates (which includes Dubai) were negotiating an FTA, and it was not surprising that in the immediate aftermath of the affair, the talks were temporarily postponed.14 The affair also affected the passage of the US–Oman FTA in mid 2006.15 Although the US Congress did ratify the agreement, in the House of Representatives the margin of victory was very narrow—221 votes in favor and 205 against.This was very different from the vote on the US–Bahrain FTA, which passed in late 2005 by a vote of 327 to 95. In contrast to the bipartisan support that had characterized votes over earlier Middle East FTAs, the agreement with Oman garnered only 22 votes from Democrats—just 7 more than the very controversial FTA with Central American countries in 2005.The most contentious issue related to ability of

the United States to prevent an Omani firm from operating a US port or other facility.16 The United States had not listed ports services as an exception to the agreement, and several Democrats based their opposition on concerns that the agreement could give Oman the right to challenge national security decisions made by the United States with respect to the operation of ports, despite the fact that the agreement contains national security exceptions. The earlier, overwhelming and bipartisan support in the US Congress for FTAs with Middle Eastern countries reflected political rather than economic considerations. The 2006 US elections, in which the Democrats gained majorities in both houses of the US Congress, make the environment for trade agreements even more uncertain. These events demonstrate, however, that political considerations can be a double-edged sword. Earlier it was political considerations that made FTAs with the Middle East popular; more recently, however, the politics has become problematic.This all highlights the importance of keeping the focus of the MEFTA process on economic issues and avoiding political issues that are better dealt with by other means.

Are the US and European initiatives compatible? Another major challenge is presented by the European initiatives in the region. Like the United States, the European Union has announced its intention to conclude an FTA with the Middle East by 2010.The European Union already has Euro-Med bilateral FTAs with most Arab countries outside the GCC; it has also developed a system for pan-European rules of origin that permits diagonal cumulation among regional members with an FTA (such as Agadir) that uses European rules of origin. The Euro-Med agreements are part of Association Agreements that cover a far broader range of noneconomic issues than the US agreements do, but their trade provisions are more limited: they fail to include services and investment and have serious limitations with respect to agriculture. However, the European Union is now moving to a second phase in which willing partners will be invited to sign plurilateral agreements that cover services and investment.The European Union is also negotiating individualized work programs (Partnership Agreements) with each Middle Eastern country that will support reforms in areas mutually considered to be priorities.17 Countries are also being encouraged to adopt European standards and norms in addition to EU rules of origin. An important issue is whether, in contrast to its earlier initiatives, the recent EU approach will be an effective anchor for reforms.18 The fairly standardized nature of the US FTAs allows reformers to argue that the entire package must be adopted.The requirements for full EU membership were perhaps an even more powerful anchor in the case of the countries that have

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

1.2: Recent US Free Trade Initiatives in the Middle East

25

1.2: Recent US Free Trade Initiatives in the Middle East

recently acceded. But the à-la-carte approach in the EU Neighborhood Policy may make it easier for countries to avoid reforms that are politically difficult. The United States and the European Union share the broad goal of trying to promote economic development in the Middle East and encourage political and social reforms. And in many respects their initiatives are complementary. But there could also be serious problems. For example, if Arab countries use EU rules of origin in their regional arrangements, how could they become eligible for diagonal cumulation under US rules? Would the United States recognize EU rules? Unlikely.Would Arab countries be expected to implement two different sets of rules in the preferential agreements they sign among themselves? Similarly, would the standards they are required to use by the US agreement be compatible with those required by the European Union? These tensions with the European Union are particularly relevant because Arab countries typically have three or four times as much trade with the European Union than they do with the United States, and if forced to chose, Arab countries would probably follow EU rules, thereby limiting the potential regional impact of a US agreement.

26

What economic impact will MEFTA have? The relatively small value of bilateral trade between Arab countries and the United States is also relevant when estimating the likely impact of MEFTA. MEFTA will eliminate all tariffs on trade between the United States and the Arab countries.To start thinking about its effects, therefore, it is helpful to consider the current levels of bilateral trade and the duties that are currently paid.While some Arab countries levy fairly high tariffs on US exports—on average, the rate in 2003 was around 10 percent—the United States generally charges very small duties on imports from Arab countries—just over half a percent in 2003.The predictable results of simulations using both partial and general equilibrium models of freeing this trade therefore are that (1) the impact is fairly small and (2) in most Arab countries imports from the United States increase by more than exports to the United States. Estimates of far less than 1 percent of GDP for the increase in welfare generated are quite typical in conventional simulations. However, capturing only the static effects of eliminating tariffs on goods may seriously understate the impact of the agreements.The additional effects of reducing nontariff barriers and the liberalization of services trade and foreign investment should not be ignored. Simulations of these additional effects suggest they could be large.19 According to estimates using Tunisia and Egypt as examples, liberalization of foreign investment in services that is generalized to all trading partners could boost welfare by almost 10 percent of GDP.20 In addition, simulation models typically assume that the structure of trade will remain unchanged.They

therefore capture only the responses induced to the goods that are currently traded.This has yielded quite misleading results. Kehoe, for example, evaluated the performance of so-called applied general equilibrium models on the impact of the North America Free Trade Agreement (NAFTA) and found that these models “drastically” underestimated its trade effects, particularly in sectors in which originally there was little trade. Similarly, the International Trade Commission studied the potential free trade agreement between the United States and Jordan and totally missed the explosion in that country’s exports of clothing to the United States as a result of special trade concessions it was granted by the United States.21 As Jordan and more recently Egypt’s experience with the QIZ demonstrates, however, trade agreements could change the trade structure by inducing new export products and thereby generate effects that conventional modeling will ignore. Jordanian exports to the United States increased from US$72.8 million in 2000 to a stunning US$1.267 billion in 2005, and the exports were so large that the bilateral balance of trade shifted from a Jordanian deficit of US$239 million in 2000 to a surplus of US$624 million in 2005. Similarly, Egyptian QIZ exports to the United States have grown very rapidly between 2004 and 2006. Most significantly, however, the models fail to consider the effects these agreements could have in altering the trade regimes and regulatory policies in Arab countries.The more recent US agreements with Arab countries are extremely comprehensive.They require members to assume obligations that in many respects go much further than the obligations contained in WTO agreements.There are provisions freeing all foreign direct investment and all services, with exceptions listed (a negative list).There are agreements with respect to policy transparency, government procurement rules and practices, the operation of customs, and the enforcement of intellectual property protection and labor and environmental laws.WTO rules for sanitary and phyto-sanitary standards and technical regulations are included in the agreement and the provision. If Arab countries adopt and implement these provisions with respect to the United States there could be fundamental changes in the nature of their trade regimes. Improvements in the operation of customs, the transparency of policy, procedures used for government procurement, the laws for intellectual property and other regulatory practices such as standards based on science will change the system not only for US trade and investment but for all foreign and domestic firms who trade in these countries. Opening services trade to foreign investors will heighten competition, which could generate important improvements in productivity.These key potential benefits from US agreements are, by their very nature, difficult to measure. But there are reasons to believe they could be considerable provided the appropriate

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

complementary domestic policy steps are taken.These benefits, however, will require domestic leadership that takes advantage of the opportunities that are created. In this respect, the deep nature of the US agreements is a great advantage. Most of these benefits could be achieved by countries that individually sign deep bilateral FTAs and complement them with domestic reforms. If such reforms and liberalization are achieved by some Arab countries individually, their neighbors will automatically benefit from their more open regimes—even absent formal agreements with countries from the region or the United States.Thus, as long as individual countries implement these agreements, the overall initiative seems worthwhile even if the difficulties of eventual consolidation are considerable. An important concern in Arab countries relates to the inclusion of issues such as labor and environment in these agreements. In these areas, however, the specifics of the agreements need to be examined carefully. The agreements do not require adherence to specific environmental and labor standards.22 Instead, the countries commit in general terms to promote workers’ rights and protect the environment, and the agreements emphasize the enforcement of domestic environmental and labor laws and not weakening environmental laws or reducing domestic labor protection in order to encourage trade or investment. Moreover, when it comes to enforcement, the agreements stress that “the parties retain the right to make decisions regarding the allocation of resources to enforcement with respect to labor (or environmental) matters determined to have higher priorities.To be sure, these obligations are backed by the agreements’ dispute settlement procedures and cases can be brought where enforcement failures affect trade. However, if one party is found guilty of such infractions and fails to come into compliance, the other side may not be entitled to retaliate using trade protection. If either country is found by a panel to be in violation of its enforcement obligations it can be subject to a monetary assessment. Moreover, such an assessment cannot exceed US$15 million and the funds are not necessarily paid to the other party but may instead be used to help improve compliance. In sum, concerns that these provisions could be used to deny countries benefits are likely to be exaggerated.

from US intervention in Iraq and the friction between Israel and its neighbors far outweighs the political benefits the United States could obtain from the initiative. Nonetheless, the MEFTA initiative provides both the United States and its Arab partners with opportunities to take additional measures that could yield much greater benefits.While trade agreements provide opportunities, they do not guarantee results.They can contribute to positive economic and political outcomes but need to be accompanied by other policies and actions by the private sector.
The United States

Recommendations By itself, under current conditions the impacts of most individual agreements and even an overarching MEFTA are likely to be modest for three reasons. First, the current trade and investment links between the United States and the Middle East are relatively weak. Second, the regulatory and business environments in many Arab countries continue to impede the global integration of these economies. And third, the negative political fallout

For the United States, the principal challenges are sustaining the initiative politically, keeping the focus of the initiative on trade and investment issues, improving some of the specific rules of the agreement, introducing mechanisms that will facilitate integration among its Middle Eastern partners, and achieving a political settlement of the Arab–Israeli conflict. Paradoxically, the United States will reap greater political benefits if, to a greater degree than it has done so far, it keeps MEFTA on a strictly economic track. MEFTA should be focused on maximizing the economic benefits it can bring to Arab countries.The criteria for MEFTA membership should be the capacity to implement and benefit from the agreement.The use of MEFTA as a bargaining chip to induce internal political reforms and changes in other policies, however well intentioned, is likely to backfire.This is likely to be difficult though in an environment in which Democrats who oppose trade agreement are especially likely to bring political considerations into the debate. Particularly in the more recent agreements, the United States has appropriately insisted on FTAs that achieve much deeper integration than the WTO requires of its members.This approach entails the liberalization of all merchandise trade including agriculture, services (with exceptions) and foreign direct investment, and credible dispute settlement provisions.The depth of the MEFTA agreements ensures that the agreements are not merely symbolic; it also promotes their use as an anchor for domestic reforms.The agreements should not be watered down in an effort to attract more reluctant members. It is better to have comprehensive bilateral and subregional agreements than weaker agreements to which all countries subscribe. However, improvements could be made with respect to the more protectionist provisions of the agreements relating to restrictive rules of origin and excessive intellectual property protection.The United States should not be imposing intellectual property rules that cannot be justified as measures to stimulate innovation in Arab countries but can be justified only as measures to maximize the incomes of US pharmaceutical and other companies. MEFTA has recently run into security concerns that have been provoked by the Dubai Ports affair.

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

1.2: Recent US Free Trade Initiatives in the Middle East

27

1.2: Recent US Free Trade Initiatives in the Middle East

28

The agreements need clearer national security exception provisions that prevent opponents using national security as a pretext for rejecting the agreements. Since the number of agreements has now reached a critical mass, more attention also needs to be paid by the United States as to how they can be integrated. In particular, a mechanism for diagonal cumulation needs to be developed to allow value-added in any of the countries to be combined to meet rules of origin requirements. Ideally this would be done on the basis of the relatively straightforward rules of the US–Israel agreement.The United States should also work with the European Union to craft common rules of origin or mutual recognition of each other’s rules. Consideration should also be given to developing regional, rather than bilateral, dispute settlement mechanisms. Given its political objectives, the United States should make a separate FTA agreement with Palestine a high priority.The current coverage of the West Bank and Gaza under the US–Israel FTA is inadequate and does not meet Palestinian needs for increased international engagement and domestic institutional reforms. In particular, the failure to cover investment is a serious gap.To be sure, the United States currently faces difficulties in dealing with the Hamas administration, but eventually a US–Palestine FTA is a key building block for a MEFTA that lives up to its potential. Finally, a comprehensive MEFTA arrangement is unlikely absent an acceptable settlement of the Arab–Israeli conflict.The United States is unlikely to sign a comprehensive agreement with the region that does not include Israel. It is difficult, however, to imagine several Arab countries agreeing to a comprehensive arrangement that does include Israel.The political interest that the United States has in the region provides unique opportunities for those seeking to use agreements as a stimulus to reform. But from the region’s standpoint, it should also be acknowledged that the political nature of the US interest creates problems as well as opportunities. It is not easy to adopt policies for domestic economic reform and increased international integration in the first place.Whatever the long-run payoff may be, reforms and trade liberalization create losers as well as winners. In this context, it is only too easy for opponents to wrap their opposition in nationalist and religious flags.The debate over free trade becomes particularly difficult and charged when it is conflated with the debate over relations with the United States and/or Israel.
Arab opportunities

Arab countries that have signed agreements with the United States should use them as an opportunity to undertake additional reforms in their domestic policies to improve the business regulatory environment, to undertake additional measures to improve their international competitiveness, to enhance Arab regional integration by extending the MEFTA provisions and coverage

to each other, and to coordinate negotiations with the United States and promote trade and investment liberalization with extraregional trading partners. Finally, countries that have not signed such agreements need to carefully weigh the implications of participation and, where these are deemed positive, prepare carefully to be in a position to join. The agreements themselves improve domestic regulatory policies by requiring measures such as greater regulatory transparency, better government procurement procedures, technical and health standards based on science, improvements in customs procedures, and better intellectual property enforcement. Countries should build on these measures to reduce the excessive red tape associated with domestic and foreign business transactions. Simply signing MEFTA is insufficient.To exploit its potential, domestic-based firms need to be competitive. Private firms need to change their corporate strategies to confront competitors both at home and in the United States. Governments, too, need to adapt their policies to encourage domestic and foreign investors to take advantage of the improved access to the US market. The fact that several countries in the region are willing to make the extensive commitments required by US FTAs suggests that there is scope for deeper integration agreements in the region based on the provisions. GAFTA and Agadir, for example, are limited to trade in goods. MEFTA breaks new ground for many countries by including extensive obligations in services, foreign investment, standards, and dispute settlement. Agreements should also be used as a means of developing regional integrative institutions. Countries that have signed agreements with the United States independently need to think about coordinating their negotiating strategies with respect to how these agreements can now be linked. Strategies for achieving diagonal cumulation and perhaps broader participation in dispute settlement are examples. The agreements should be used as a basis for negotiating other bilateral and plurilateral agreements with trading partners outside the region. By signing an agreement with the United States, countries indicate a more general commitment to deeper, comprehensive international integration. Any country willing to adjust to free trade and investment with the largest developed economy could surely make similar adjustments in its trade and investment with other countries. Countries that have not yet joined need to weigh their options carefully. Some countries in the region are not yet at a stage where they can assume the kinds of obligations required by these FTA, and some might decide the costs of doing so are greater than the benefits. But inevitably the laggards will experience pressures to enhance their reforms to match those in neighboring countries.

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

The US approach is standardized. Once they are eligible, the United States gives countries a take-it-orleave-it choice.This means they need to understand the fine print of the agreement.The agreements have not been crafted to exploit individual country weaknesses, but it does mean that countries need to do their homework and understand the full nature of the obligations they are assuming.Trade expertise is essential. In sum, while the agreements create enhanced opportunities for economic benefits, at the end of the day, the payoffs to these agreements are highly contingent on governments and the private sector taking other measures.

19 See Hoekman and Konan (2005). 20 See Konan and Kim (2004). 21 See USITC (2000). 22 The Moroccan agreement, for example, states that the parties “shall strive to ensure” that its labor laws are enforced and consistent with the right of association, the right to organize and bargain collectively, the prohibition on forced labor, a minimum age of employment, and acceptable work conditions.

References
DasGupta, D., J. Keller, and T.G. Srinivasan. 2002. “Reform and Elusive Growth in the Middle-East—What Has Happened in the 1990s?” World Bank Middle East and North Africa Working Paper Series 25 (June). Washington, DC: World Bank. Fawzy, S. 2003. “The Economics and Politics of Arab Economic Integration.” In Arab Economic Integration: Between Hope and Reality, eds. A. Galal and B. Hoekman. Cairo and Washington, DC: Egyptian Center for Economic Studies and Brookings Institution. Galal, A. and R. Z. Lawrence. 2005. “Anchoring Reform with a USEgypt FTA.” IIE Policy Analyses in International Economics 74. Washington, DC: Institute for International Economics. Graham, E. M. and D. M. Marchick. 2006. US National Security and Foreign Direct Investment. Washington, DC: Institute for International Economics. Hoekman, B. 2005. “From Euro-Med Partnership to European Neighborhood: Deeper Integration à la Carte and Economic Development.” ECES Working Paper 103 (July). Cairo: Egyptian Center for Economic Studies. Hoekman, B. and D. Konan. 2005. “Economic Implications of a USEgypt FTA.” In Anchoring Reform with a US-Egypt FTA, ed. A. Galal and R. Z. Lawrence. IIE Policy Analyses in International Economics 74. Washington, DC: Institute for International Economics. Kaufmann, D., A. Kraay, and M. Mastruzzi. 2005. Governance Matters IV: Governance Indicators for 1996–2004. Washington, DC: World Bank. Available at www.worldbank.org/wbi/governance/pubs/govmatters4.html (accessed September 15, 2006). Kehoe, T. J. Forthcoming. “An Evaluation of the Performance of Applied General Equilibrium Models of the Impact of NAFTA.” In Frontiers in Applied General Equilibrium Modeling: Essays in Honor of Herbert Scarf, ed. T.J. Kehoe, T. N. Srinivasan, and J.Whalley. Cambridge, UK: Cambridge University Press. Konan, D. E. and K.E. Kim. 2004. “Beyond Border Barriers: The Liberalization of Services Trade in Egypt and Tunisia.” The World Economy 27 (9): 1429–47. Lawrence, R. Z. 2006. Middle East Trade Agreement: A Circle of Opportunity? Washington, DC: Peterson Institute for International Economics. Nabli, M. K. 2005. “Restarting Arab Economic Reform.” In The Arab World Competitiveness Report 2005. Hampshire: Palgrave Macmillan. Noland, M. and H. Pack. 2006. The Arab Economies in a Changing World. Washington, DC: Institute for International Economics. Schott, J. J., ed. 2004. Free Trade Agreements: US Strategies and Priorities. Washington, DC: Institute for International Economics. Soderling, L. 2005. “Is the Middle East and North Africa Region Achieving Its Trade Potential?” IMF Working Paper 05/90. Washington, DC: IMF. Tovias, A. and M. Ugur. 2004. “Can the EU Anchor Policy Reform in Third Countries? An Analysis of the Euro-Med Partnership.” European Politics 5 (4): 395–418. USITC (US International Trade Commission). “2000 Economic Impact on the United States of a U.S.–Jordan Free Trade Agreement.” ITC Investigation no. 332–418. Washington, DC: US International Trade Commission.

Notes
1 See, for example, Galal and Lawrence (2005). 2 For an excellent review of Arab regional efforts see Fawzy (2003). 3 See Lawrence (2006, pp 95–6). 4 The agreements also exclude commitments on agricultural subsidies and antidumping rules—the former because these can be dealt with only in a multilateral context since the United States seeks reciprocal concessions from partners such as the European Union, and the antidumping rules because of strong domestic political resistance to weakening them. 5 See Schott (2004) for an analysis of the US FTA strategy. Other agreements negotiated by the United States have included NAFTA (with Mexico and Canada), CAFTA (with Central America), and agreements with Chile, Singapore, Australia, and the Dominican Republic. Negotiations have concluded with Colombia and Peru and are ongoing with Thailand, the South African Customs Union, South Korea, and Malaysia. 6 Agadir uses EU rules of origin issue to take advantage of EU provisions that allow value-added in any of the countries to count toward meeting the rule of origin for exporting to the European Union (a so-called diagonal cumulation). The agreement is an important and positive example of the way in which agreements outside the region can form the basis for improved regional integration. 7 See Nabli (2005), Noland and Pack (2006), and Yousef (2004). 8 See Kaufmann et al. (2005). 9 See DasGupta et al (2002). 10 These studies are surveyed in Lawrence (2006, Chapter 2); see also Soderling (2005). 11 See Zoellick (2003). 12 For a more complete discussion, see Graham and Marchick (2006). 13 See Graham and Marchick (2006) Chapter 6 for a discussion of possible reforms. 14 On March 10, the United States Trade Representative announced that the fifth round of FTA talks between the United States and the United Arab Emirates, which had been scheduled to begin on March 13 in Abu Dhabi, would be postponed. 15 The US Congress can be counted on to interpret a vote on a bilateral FTA as a referendum its more general views of that country. This has made certain bilateral FTAs especially contentious. The NAFTA debate, for example, introduced all kinds of issues relating to Mexico many of which were not directly linked with trade. Likewise, the vote on CAFTA in 2005 generated controversies relating to human and labor rights and passed by a mere 217 for and 213 against in the US House of Representatives. 16 Labor rights issues were another source of opposition. 17 For a more complete discussion, see Hoekman (2005). 18 For an excellent analysis of the earlier agreements, see Tovias and Ugur (2004).

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

1.2: Recent US Free Trade Initiatives in the Middle East

29

1.2: Recent US Free Trade Initiatives in the Middle East

Yousef, T. M. 2004. “Development, Growth and Policy Reform in the Middle East and North Africa since 1950.” Journal of Economic Perspectives 18 (3): 91–116. Zoellick, R. B. 2003. “A Return to the Cradle of Free Trade.” Washington Post Op Ed, June 23.

30

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

CHAPTER 1.3

Will the Current Oil Boom Solve the Employment Crisis in the Middle East?
PAUL DYER, Dubai School of Government TARIK YOUSEF, Dubai School of Government

At the 2003 annual meetings of the International Monetary Fund and the World Bank in Dubai, the World Bank released a flagship report on labor markets in the Middle East and North Africa (MENA).1 The report described an unprecedented job creation challenge facing the region. By 2020, according to the report, an estimated 100 million jobs would have to be created to employ new entrants and reduce unemployment to sustainable levels.To create these jobs, the region would have to maintain average annual economic growth rates of 6 to 8 percent between 2000 and 2020, far higher than the average 3.6 percent growth witnessed over the 1990s.The report went even further, suggesting that if MENA countries were to replicate the job creation record of the 1990s in the present and next decade, reasonable estimates indicate that unemployment rates would rise significantly across the region. Since the report’s publication, however, much has changed in the region’s economic outlook. Most importantly, oil prices—which had been forecast in 2002 to stay at or below US$25 a barrel for the foreseeable future—rose to $29 a barrel in 2003 and $53 a barrel in 2005. For many countries, this unexpected and dramatic rise in oil prices has been reflected in rising personal incomes and government revenues.Thus, regional GDP growth improved from 2.9 percent in 2002 to an estimated 6.0 percent in 2005.2 Growth in 2006 was forecast at 5.6 percent and is projected to remain higher than 5.0 percent for the foreseeable future.3 In turn, the region has seen higher rates of job creation and declining rates of unemployment for the first time in almost two decades. Even the estimates of regional labor supply have been revised, with overall labor growth rates projected to be lower than the original estimates provided in 2003.5 Given these changes, the relevant question becomes whether MENA’s labor market pressures have suddenly become manageable. More precisely, has the current oil boom solved the unemployment crisis facing the region? This chapter reviews recent developments in MENA’s labor markets, focusing on job creation, unemployment, and government policies aimed at improving labor market outcomes. Rather than providing an exhaustive survey of the issues at the individual country level, the chapter tackles the subject from a regional perspective. As such, it will be organized around a set of stylized facts that make up the important components of a general story.

Labor force growth and participation rates As of 2005, the labor force in MENA stood at nearly 120 million persons, accounting for some 56 percent of the working-age population (ages 15–64) and 35 percent of the total population. Average annual growth rates for the regional labor force between 2000 and 2005 averaged 3.6 percent a year (Figure 1).The rate of growth in

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

1.3: Will the Current Oil Boom Solve the Employment Crisis in the Middle East?

31

1.3: Will the Current Oil Boom Solve the Employment Crisis in the Middle East?

Figure 1: Labor supply trends in MENA: 2000–10

s Participation rates
59 58 57

Labor force growth

Working-age population growth
4.5 4.0 3.5

Participation rate (%)

55 54 53 52 51 50 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

2.5 2.0 1.5 1.0 0.5 0.0

Source: ILO, 2005.

32

MENA is higher than in other developing regions, and higher than ever recorded in such areas as Latin America and East Asia. Although labor force growth remains high, the rates of growth are declining. Having experienced substantial fertility declines in the 1980s, much of the region witnessed peak labor force growth rates in the 1990s. Rates of growth will continue to decline to an average of 3.1 percent a year between 2005 and 2010 and 2.1 percent a year between 2010 and 2020. Absolute numbers of new entrants are currently peaking, at just above 4 million new entrants a year—a number that will decline, albeit slowly, to nearly 3.9 million by 2010 and 3.1 million by 2020. Labor force growth trends in MENA are driven largely by demographics, with the working-age population growing at a rate of nearly 3.0 percent a year between 2000 and 2005. A general rise in labor force participation rates has accompanied the growth of the working-age population in MENA in recent decades. In fact, while working-age population growth has fallen, the rise in labor participation rates has largely countered potential decreases in labor force pressures. Changes in participation by women in particular have driven much of this growth. In 2000, the participation rate among women in MENA was about 27.5 percent. By 2005, it had increased to nearly 30.5 percent.The participation rate among men, on the other hand, has remained fairly consistent, rising from 79.3 percent in 2000 to 79.8 percent in 2005. Participation by young people has followed a similar trend.Young women’s participation in the labor force increased from 23.5 percent in 2000 to

nearly 24.9 percent in 2005, while that of young men has declined from 54.9 percent to 54.4 percent.

Recent trends in unemployment and job creation With recent economic growth in the region, there has been an increase in job creation and a resultant decline in the overall rate of unemployment.The estimated unemployment rate in the region in 2000 stood at nearly 15.2 percent.5, 6 Currently available and comparable figures put the regional rate of unemployment in 2005 at around 12.7 percent.This decline in unemployment appears modest, but it is nonetheless significant as it suggests that the economies of MENA are not only increasingly able to absorb new labor market entrants but are making strides in reducing overall unemployment as well. Implied employment growth in the region, between 2000 and 2005, averaged 4.0 percent a year, or nearly 19.6 million new jobs in all. Such performance compares rather favorably with the record from the 1990s, when employment growth averaged around 2.5 percent per year and was consistently below labor force growth in every country for which data are available. Despite rising employment growth, however, the unemployment rate in the region remains high. Reducing rates of unemployment while continuing to absorb new workers remains a critical challenge for policymakers across all countries in MENA. Furthermore, evidence suggests that the bulk of job creation in recent years has been temporary in nature and has depended largely on public-sector expenditures.The elasticity of

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Growth rates (%)

56

3.0

Figure 2: Labor market outcomes in individual MENA countries, 2000–05

s Labor force growth
6

s Employment growth

q Unemployment rate
20

5 16 4

12 3 8 2 4

1

0

0

Lebanon

Egypt

Iran

Syria

Tunisia

Jordan

Morocco

Source: ILO, 2005; country sources.

employment with respect to GDP growth between 2000 and 2005 has averaged nearly 0.9, quite high when compared to historical trends in the region or international norms.This figure alone suggests that much of the job creation in MENA has emphasized short-term, government-supported solutions to addressing a long-term systemic problem.To the extent that the new jobs created through government interventions are generally not productive, it is legitimate to ask whether recent advances in job creation are sustainable in the long run, even given continued high rates of economic growth. Specific problem areas continue to plague regional labor markets, particularly in regard to public-sector employment and labor market flexibility. Evidence suggests that public-sector employment has expanded in recent years—even though the region has had historically one of the highest shares of public-sector employment in the world. More importantly, the dominant role of governments in labor markets reinforces the significant queuing for public-sector jobs by educated new entrants. The perpetuation of implicit and explicit guarantees in government hiring, along with mismatched expectations resulting from generous public-sector compensation and benefits policies, have all contributed to the continued preference for public-sector jobs.7 Also, despite some reforms intent on giving more flexibility to firms in hiring workers, regional economies remain among the most restrictive concerning labor market regulations, particularly in regard to dismissing workers.This has inhibited the proactive role private business might have

played in job creation by elevating the perceived costs associated with labor-intensive production.

Unemployment outcomes within the region Regional aggregates mask the variety of experiences in MENA, both in terms of labor force growth and job creation (Figure 2). As might be expected, the oilexporting economies of the region have been able to channel increased government revenues into job creation, a pattern reminiscent of the oil boom in the 1970s. For example, Iran—a country facing relatively high labor force growth at 4.3 percent a year—brought the unemployment rate down from 13.8 percent in 2000 to 11.0 percent in 2005. Based on the reported official figures, the number of employed persons grew by 4.7 percent per year between 2000 and 2004, compared with around 2.1 percent in the 1990s. Likewise, Algeria has witnessed substantial changes in labor outcomes.With labor force growth at nearly 3.9 percent a year, the country has seen reported unemployment rates fall from 28.9 percent in 2000 to nearly 15.3 percent in 2005. (It should be noted, however, that recent reported rates might not reflect the true rate of unemployment in the country, as the government statistics agency has adopted a revised methodology in recent years.8 ) Based on government sources, employment in the country grew at an impressive average annual rate of 7.7 percent per year between 2000 and 2004, or three times the rate of growth registered in the 1990s.

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

1.3: Will the Current Oil Boom Solve the Employment Crisis in the Middle East?

Unemployment rate (%)

Growth rates (%)

33

1.3: Will the Current Oil Boom Solve the Employment Crisis in the Middle East?

Figure 3: Sources of oil-related wealth in Egypt, 1970–2005

25

20

Workers’ remittances Net portfolio equity FDI inflows Official aid Net oil exports

15

Percent of GDP

10

5

0

1970
–5

1975

1980

1985

1990

1995

2000

2005

Source: World Bank, 2006a.

34

Employment and unemployment data from the Gulf Cooperation Council (GCC) countries are limited, a factor that renders an accurate assessment of recent trends problematic. Available data suggest that among nationals, unemployment remains a serious and growing problem despite high economic growth rates. In Saudi Arabia, official unemployment in 2002 was estimated at 4.6 percent, while unemployment among nationals was nearly 8.3 percent. Unemployment among nationals has been estimated at 12.4 percent in Bahrain, 11.6 percent in Qatar, and 10 percent in Oman. Recent data from the United Arab Emirates (UAE) suggests that unemployment among nationals in that country is nearly 15 percent. The skewed nature of employment outcomes in these oil-exporting and labor-importing countries is driven largely by wage differentials, the result of the public-private and national-expatriate segmentation of the labor force.9 Historically, public-sector employment facilitated the distribution of oil wealth and encouraged higher educational attainment by nationals who continue to prefer the slow-growing public sector to the fastgrowing—but low-wage and low-skill—private sector. Bolstered efforts to enforce stricter nationalization employment programs in recent years seem to be creating incentives for manipulating the labor force rolls as much as for creating jobs among nationals. Labor outcomes for regional non-oil producers and net oil importers have been quite different. Rising costs associated with fuel—both in terms of input costs for businesses and budget constraints for governments still

holding on to costly fuel subsidies—have imposed increased burdens on these economies. Furthermore, in contrast to the last oil boom in the region, transfers between oil economies and non-oil economies in the region are comparatively weak. In the past, non-oil economies benefited from high labor remittances and direct aid from the oil economies (Figure 3). Although intraregional tourism and portfolio equity flows have grown in recent years, workers’ remittances and aid have been limited.10 Perhaps the biggest contrast between the regional impact of the previous and the current oil booms concerns the role of labor migration in the non-oil economies. Although migration provided an important outlet for workers in these countries during the 1970s, the last two decades registered a deceleration in the net inflows of Arab workers to the oil economies that has not been reversed in recent years.The negative effects of lower oil revenues after 1985 and the first Gulf War were reinforced by the replacement of workers from the region with migrants from Asia as well as efforts in the GCC countries to nationalize the labor force.11 Thanks to the investments in education by both the labor-sending and labor-receiving countries, educated nationals in the oil countries have largely become substitutes for educated Arab migrants. These trends explain the weaker overall ties between oil-price movements and growth outcomes in the region’s non-oil countries (Figure 4). As a result, many of the non-oil countries have seen a slight worsening of labor outcomes in recent years. Unemployment in

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Figure 4: Correlation between real oil prices and economic growth among non-oil economies in MENA

s 1968–1980
0.8 0.7 0.6

s 1980–1992

s 1992–2005

0.5 0.4 0.3 0.2 0.1 0.0 –0.1 –0.2 –0.3

Egypt

Jordan

Morocco

Tunisia

Source: World Bank, 2006a.

Egypt rose from 9.0 percent in 2000 to nearly 11.0 percent in 2005. Economic growth, at 4.9 percent a year, has not created enough jobs to counter Egypt’s labor force growth of nearly 2.7 percent a year. Employment creation averaged only 2.3 percent a year between 2000 and 2005, about the same rate registered in the 1990s. Similarly, Jordan has seen unemployment rates rise from 13.2 percent in 2000 to 14.6 percent in 2005. Employment growth in Jordan has averaged nearly 3.7 percent a year, while its relatively young labor force continues to grow at nearly 4.0 percent annually. Syria, which maintains a sizeable oil-production capacity but is quickly becoming a net oil importer, saw unemployment rates rise from 11.2 percent in 2000 to 12.3 percent in 2005. Actually, the implied employment growth in Syria has been quite high, at 4.3 percent a year, but Syria’s late entry into the demographic transition means that the labor force growth rate in the country has averaged nearly 4.6 percent a year. Likewise,Yemen is currently experiencing labor force growth rates of nearly 4.2 percent a year. Although comparable unemployment rates for Yemen are not available, labor force data suggest that labor force pressures in Yemen will be high in the long term, while oil-driven growth will decline as reserves are depleted. The non-oil economies of Tunisia and Morocco have seen positive employment outcomes in recent years. Unemployment rates fell from 15.4 percent to 14.2 percent in Tunisia and from 22.0 percent to 18.3 percent in Morocco.12 Such declines occurred in Morocco despite weak economic growth resulting from

the expiration of the Multi-Fiber Agreement under the framework of the World Trade Organization (WTO). It should be noted that labor force growth in both countries is relatively low, as Tunisia and Morocco were among the first countries in the region to bring down fertility rates and both experienced peak labor force growth rates in the early 1980s. Between 2000 and 2005, annual rates of labor force growth averaged 3.0 percent in Tunisia (driven largely by increases in participation rates rather than demographic trends) and 2.1 percent in Morocco. Annual employment growth rates during the same period averaged nearly 3.4 percent in Tunisia and 3.0 percent in Morocco.

Unemployment outcomes for women and youth One common factor among countries in the MENA region is that women bear a disproportionate share of poor labor market outcomes. Rising participation rates for women, due in part to higher educational attainment by women and to the employment of educated workers by governments, mean that the female labor force is growing more rapidly than the male one. Growth rates for the female labor force between 2000 and 2005 averaged nearly 5.1 percent a year.This is up from the 1990s average of 4.6 percent a year, and although expected rates of female labor force growth are expected to fall to 3.9 percent a year by 2010, this is still 1.5 percentage points higher than male labor force growth. Still, regional economies continue to face problems finding productive employment for many of these

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

1.3: Will the Current Oil Boom Solve the Employment Crisis in the Middle East?

Average correlation coefficient (rolling 8-year periods)

35

1.3: Will the Current Oil Boom Solve the Employment Crisis in the Middle East?

36

women because of dwindling opportunities in the public sector and limited access to paid employment in the formal private sector, and, more generally, because of gender norms related to occupational segregation in the labor market.13 As a result, unemployment rates for women in MENA are nearly twice that of men, averaging nearly 21 percent while those for men average only 11 percent.These rates imply that nearly 6.6 million women are seeking but not able to find gainful employment.They make up nearly half of the unemployed while accounting for less than 27 percent of the total labor force. Prospects for young, new entrants in the region are also weak, and even in higher-growth countries young workers face difficulties in securing jobs. Unemployment rates among young people (ages 15–24) are more than double those of the total labor force. In recent years, the regional youth unemployment rate has remained above 30 percent. Rates range from 23.2 percent in Iran to 47.4 percent in Algeria. Recent estimates put youth unemployment in the United Arab Emirates, among nationals, at nearly 60 percent. Regionwide, first-time job seekers continue to make up more than 50 percent of the unemployed, further confirming that unemployment in MENA is essentially a labor-market insertion phenomenon for youth. Young workers face difficulties in securing jobs around the world, given a general lack of experience and, often, high wage expectations. However, the situation in MENA is particularly acute because of the scale of the problem. Currently, those ages 15–24 make up nearly 26 percent of the labor force and 35 percent of the working-age population.They amount to more than 26 million potential workers, with nearly 8 million of them unable to find formal employment.There are long-term problems associated with this: evidence suggests that negative experiences in securing a job at a young age may trigger long-term disillusionment with employment prospects, a factor that may lead to higher rates of discouraged workers in the future.

Future prospects for unemployment in MENA Although labor supply pressures in MENA are easing, both in terms of rates of growth and the flows of new entrants, labor force growth will remain high by historical and international standards. Given the expected growth of the regional labor force, the region’s economies will have to create around 54 million jobs within the next 15 years, or 3.6 million jobs a year, to meet the demands of new entrants alone.Within the next 20 years, some 70 million jobs will have to be created to meet these needs. In addition, resolving the current unemployment situation requires the creation of an additional 15 million jobs.These job creation requirements do not take into account the growing problem of underemployment in the region.

Available data for 2000 and 2005 suggest that the region created 19.6 million jobs in that time period, averaging some 3.9 million new jobs a year.This suggests that MENA countries have made progress in addressing the employment challenge facing the region. In fact, if the regional economy as a whole is able to maintain current rates of growth over the next decade as well as maintaining its current employment elasticity, unemployment rates as a whole could drop to nearly 7 percent by 2010. A more sustainable elasticity rate—the average for MENA over the past 15 years has been about 0.7 instead of the current 0.9—suggests that unemployment would decline to 10 percent by 2010 and to around 5 percent by 2015. However, continuing to create jobs at current rates for the long term depends on many factors, including continued high rates of economic growth and maintained high oil prices. It also depends on the region’s ability to translate labor market interventions into longterm employment as well as the sustainability of labor absorption in economies with high labor market rigidities and a heavy reliance on public-sector employment. One should also note that this focus on the quantitative aspects of job creation does not address the quality of jobs being created, a matter of great importance in the region given the rapid advances in educational attainment and the high wage expectations of first-time job seekers. Furthermore, the current rate of job creation may not apply across all MENA countries. Projected economic growth and recent labor market outcomes suggest that oil-producing governments may be able to manage the job creation challenge with public expenditures and targeted job creation programs. Although these jobs might not be productive ones, they would reduce the pressures associated with labor supply growth and unemployment.The evidence, however, shows that the non-oil economies of the region will continue to face long-term difficulties in securing needed job creation, difficulties that require them to take more substantive steps toward reforming their labor markets and enhancing the dynamism of their economies.

Policies for promoting employment creation Beyond the effects of the current oil boom, research on labor markets in MENA in the last decade has produced a wealth of recommendations on how policymakers can expand job creation and reduce unemployment in a more sustainable manner. Among the most important are rationalizing the role of the public sector and reducing rigidities in labor market regulations, both of which aim to encourage the private sector to become a more effective engine for job creation. Other tools at hand are active labor market policies, interventions that aim to alleviate particular imbalances in the labor market. And in the labor-importing countries of the GCC,

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

recommendations include the nationalization policies that have been utilized to affect the structure of labor markets. Public-sector employment in the region remains high. According to recent World Bank estimates, the public sector accounts for a third of all regional employment, compared with 18 percent worldwide (with the exception of China).14 Public employment ranges from a low of 10 percent in Morocco to more than 70 percent for the GCC countries (for nationals). As a result, the fiscal burden of the public-sector wage bill in MENA is one of the highest in the world. More importantly, the perpetuation of employment guarantees in government hiring and the mismatched wage expectations noted above perpetuate market segmentation and crowd out the private sector from the labor market. The private sector in MENA is also discouraged from hiring workers because of the restrictiveness of labor market regulations. Labor market regulations are meant to protect workers from unfair treatment at the hands of employers. However, overly restrictive regulations protect established workers at the expense of new entrants and women. Reducing the costs and restrictions to firms that result from restrictions on types of legal contracts, costly mandated severance packages, and expensive—often nontransparent—legal proceedings related to layoffs would increase incentives for private firms to hire more and invest in labor-intensive sectors such as manufacturing and services. In 2003, the World Bank reported that MENA countries maintain some of the most restrictive labor market regulations in the world, with a labor market restrictiveness index value in the region averaging 48.8 out of 100.15 According to the most recent figures, the region has improved, ranking an average 35.8 out of 100 in 2006. But reforms in this area have largely focused on improving the ease of hiring workers by expanding the power of businesses to hire temporary workers, while strictures on firing workers largely remain in place. For example, Egypt’s score for the ease of hiring a worker fell from 33 to 0; however, its score for the ease of firing a worker actually rose from 61 to 100. Asymmetrical reforms of labor regulations do little to change firm behavior in hiring, as firms still face high, long-term labor costs unless they are given the flexibility to dismiss workers during cyclical downturns or when the firm needs to reorganize its production inputs to remain competitive. In MENA, as in other regions that lack functioning national unemployment insurance systems, active labor market policies (ALMPs) constitute a major instrument for tackling labor market dislocations. ALMPs are programs that encourage job creation through the use of job search assistance, training and retraining programs for youth and dismissed workers, and direct job creation schemes through public works programs. A growing number of countries in MENA are turning to ALMPs.

As of 2003, spending on such programs in MENA accounted for some 1.3 percent of GDP, up from 1.1 percent in 2000 and 0.8 percent in 1995.16 Data on the effectiveness of such spending, in terms of job creation or long-term sustainability of job creation, are not available. Internationally, ALMPs have proven to be effective means by which policymakers can help workers navigate economic shocks and cyclical downturns. However, as long-term job creation schemes, they are expensive and largely ineffective. Employment services such as job search and training have proven to be marginally effective.Wage subsidies and public works programs may actually have long-term negative effects on wages and employability for participants. Furthermore, the programs require careful targeting to ensure that those most in need of such programs actually receive the benefits that these programs do provide.This is impossible without close impact analysis, both ex ante and ex post. Most countries in MENA do not have adequate mechanisms to assess the impact of ALMPs. The effective use of sector-specific reforms and programmatic interventions, such as labor market regulation reforms and ALMPs, are important mechanisms. However, their usefulness depends on knowledge of the groups within the labor force that are most in need, careful targeting of these groups by policymakers designing interventions, and comprehensive assessment of their effectiveness and efficiency. Policymakers should also keep in mind that the returns from such programs are arguably short term and weak in comparison with systemic economic reforms that are driven by improvements in the dynamism and competitiveness of the business environment.

Nationalization policies in the Gulf Cooperation Council Governments in the GCC countries are increasingly employing labor nationalization policies by using quotas and increased restrictions on work permits for expatriates, as well as subsidies for the hiring of nationals.These efforts have been especially intense in Bahrain, Oman, and Saudi Arabia, where strong pressures on labor markets have led to rising unemployment among nationals. Kuwait, Qatar, and the United Arab Emirates have recently stepped up efforts to nationalize the labor force, and active labor market policies for nationals are likely to gain momentum and become codified into law in these countries. These policy initiatives appear to have produced tangible results.17 In Bahrain, Kuwait, Oman, and Saudi Arabia the share of nationals rose in the past decade from 65 percent to about 80 percent in the public sector and from 25 percent to 32 percent in the private sector. The number of expatriate workers in the public sector fell in both relative and absolute terms because of strict replacement policies. Job nationalization in the private

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

1.3: Will the Current Oil Boom Solve the Employment Crisis in the Middle East?

37

1.3: Will the Current Oil Boom Solve the Employment Crisis in the Middle East?

38

sector, where it occurred, appears to have been in response to government pressure—ranging from moral persuasion to more direct policies such as fees on migrant labor—to accelerate nationalization of the labor force. It is difficult, however, to separate the effects of labor force nationalization policies from overall economic and policy conditions. Moreover, there are reasons to believe that certain policies might be counterproductive. Administrative measures—such as mandatory quotas for nationals and restrictions on non-nationals in certain sectors—may increase employment among nationals in the short term, but such restrictions raise costs for private firms through increased wages and administrative costs. Moreover, they encourage rent seeking and job diversion. Nationals reporting themselves as self-employed, for example, may merely be sponsoring expatriate workers who run establishments on their behalf. Efficiency and effectiveness concerns constrain the scope of adopted active labor market strategies to promote nationalization of the labor force and reduce unemployment. As with most ALMPs, the current policies—and those under consideration—are not a panacea to the structural problems in labor markets.To the extent that the preferences for expatriate labor are driven by skill mismatches, as is widely reported, targeting the wage differentials or providing subsidies for hiring nationals may not be sufficient to overcome the demand for expatriates. Under these circumstances, imposing quotas may cause more damage to the private sector, while take-up rates for wage and employment subsidies would be modest.

economic diversification; and rapid progress in educational reform, gender equality, and better governance.18 Whether countries in the region will embrace such comprehensive reforms in the face of high oil prices remains to be answered.

The conventional wisdom revisited One of the most important messages emerging from the 2003 World Bank report on labor markets in MENA concerned the need for addressing the orientation of development policies in MENA instead of attempting piecemeal, partial solutions to addressing structural problems. In particular, although the report argued that the reform of labor markets and use of direct interventions such as ALMPs to improve employment outcomes are necessary components of policy reforms, they are not sufficient for addressing the scope of the employment challenge facing the region. In other words, the current battery of policies employed by governments in the region is unlikely to provide a long-term solution to the regional employment crisis. Instead, the solution to MENA’s long-term employment challenge lies in accelerating the broadbased transformation of its economies to strengthen the core drivers of job creation and economic growth. As the conventional wisdom of a few years ago argued, this requires greater entrepreneurship and private-sector development; faster integration into global trade and investment flows; less dependence on oil and greater

Conclusions The current oil boom in MENA appears to have altered prospects for resolving much of the region’s unemployment crisis. Overall unemployment rates have declined, with regional growth stimulating job creation at a rate that sees employment growth outstripping the growth of the labor force. Coupled with prospects of high future oil prices and economic growth, current labor market trends suggest that unemployment will continue to decline and the regional economy as a whole will be able to absorb new entrants.These positive outcomes, however, are contingent on continued high oil prices and continued effectiveness of government-led interventions for generating new jobs. The first of these assumptions is beyond our ability to forecast, although we have witnessed several boomand-bust cycles in oil prices over the past three decades. The second assumption—that government-led interventions will continue to be effective in creating jobs—as we argued here, is doubtful and perhaps even undesirable, as it reinforces the dominance of states in MENA’s economies and is unlikely to bring about the desired outcomes of sustainable creation of long-term productive employment. More worrisome, as we have noted, is the fact that the present exceptional conditions in oil markets have not been shared by all countries in the region, and non-oil producers in particular still face serious and growing unemployment problems.Thus, the region as a whole has little choice but to move forward with comprehensive reforms that will improve the competitiveness of their economies and strengthen the role of the private sector.

Notes
1 See World Bank (2004a). 2 See World Bank (2005). 3 Referenced economic growth data, including recent trends and prospects, are taken from the World Bank (2006a). 4 Referenced labor force and population data are from ILO (2005). 5 See World Bank (2004a) 6 Unemployment rates reported herein are based on official country sources. 7 See Assaad (2002). 8 A recent study by ECOTechnics (2005) in Algeria suggests that unemployment in 2004 in Algeria was closer to 25 percent. 9 See Girgis et al. (2003). 10 See World Bank (2006a). 11 See Yousef (2005a).

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

12 Reported unemployment figures for Morocco reflect urban unemployment. Total unemployment in Morocco in 2005 has been estimated at 11.0 percent. 13 See World Bank (2004b). 14 See World Bank (2005). 15 See World Bank (2006b). 16 World Bank staff estimates. 17 See Girgis et al. (2003). 18 See Yousef (2005b).

References
Assaad, R., ed. 2002. The Egyptian Labor Market in an Era of Reform. Cairo: The American University in Cairo Press. ECOTechnics. 2005. Activité et emploi en Algérie en 2004. Algiers: ECOTechnics. Girgis, M., F. Hadad-Zervose, and A. Coulibaly. 2003. “A Strategy for Sustainable Employment for GCC Nationals.” World Bank, Processed. Washington, DC: World Bank. ILO (International Labor Organization). 2005. Economically Active Population Estimates and Projections. Geneva: ILO. Available online at http://laborsta.ilo.org. World Bank. 2004a. Unlocking the Employment Potential in the Middle East and North Africa: Toward a New Social Contract. Washington, DC: World Bank. World Bank. 2004b. Gender and Development in the Middle East and North Africa: Women in the Public Sphere. Washington, DC: World Bank. World Bank. 2005. Economic Developments and Prospects: Oil Booms and Revenues Management. Washington, DC: World Bank. World Bank. 2006a. Economic Developments and Prospects: Financial Markets in a New Age of Oil. Washington, DC: World Bank. World Bank. 2006b. Doing Business 2007: How to Reform. Washington, DC: World Bank. Yousef, T. 2005a. “The Changing Role of Labor Migration in Arab Economic Integration.” In The Arab Economic Integration: The Challenges and the Horizons, ed. A.Bolbol and S. Braikan. Abu Dhabi: Arab Monetary Fund. Yousef, T. 2005b. “Structural Reforms, the Investment Climate and Private Sector Development in the Arab World.” The Arab Competitiveness Report 2005. Hampshire: Palgrave Macmillan, 21–32.

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

1.3: Will the Current Oil Boom Solve the Employment Crisis in the Middle East?

39

CHAPTER 1.4

The Gulf Cooperation Council Region: Financial Market Development, Competitiveness, and Economic Growth
SIMON GRAY, Centre for Central Banking Studies, Bank of England MARIO I. BLEJER, Centre for Central Banking Studies, Bank of England

Developed, well-balanced economies today have, or have access to, developed financial markets. Causality probably goes in both directions: poor countries will lack the free resources needed to support a developed financial market, but it is hard to imagine the process of economic development if the financial markets are suppressed. What is happening in the Gulf Cooperation Council (GCC) region to promote financial market development? And how is this likely to be affected in the future by oil price–induced changes in wealth, and by the planned currency union? The GCC countries—Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates— account for less than 15 percent of the population of Arabic-speaking countries (see Table 1),1 but (with oil prices at current high levels) for some 70 percent of the area’s GDP and around 90 percent of the region’s stock market capitalization (though only 30 percent of the number of listed companies).While there are wide variations in GDP per capita in the GCC region, even the lowest is still twice the level of the next-wealthiest Arabic-speaking country (see Table 2).The relative wealth of the GCC region is in large part a product of its petroleum resources (see Table 3). But it would be unfair simply to dismiss these countries as rentier economies with no significant diversification or scope for economic development outside that supported by the petroleum sector. Some GCC countries are making clear attempts to develop niche markets or exploit relative advantages, both in the real economy and in financial markets.This paper looks at the GCC countries in order to explore their attempt to gain competitiveness by developing and enhancing the financial sector, and touches on the relationship between the financial sector and the real economy.We will look at these issues particularly in the light of monetary policy choices and the planned GCC monetary union.

Table 1: Population (millions)
Country 1995 2000 2005

GCC Bahrain Kuwait Oman Qatar Saudi Arabia United Arab Emirates Non-GCC
Source: IMF, 2006.

25.3 0.6 1.6 2.1 0.5 18.1 2.4 171.6

29.5 0.7 2.2 2.2 0.6 20.5 3.2 192.5

34.6 0.7 2.9 2.4 0.8 23.1 4.7 214.3

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

1.4: The GCC Region: Financial Market Development, Competitiveness, and Economic Growth

41

1.4: The GCC Region: Financial Market Development, Competitiveness, and Economic Growth

Table 2: GDP per capita, current prices (US$ thousands)
Country 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

GCC Bahrain Kuwait Oman Qatar Saudi Arabia United Arab Emirates Non-GCC Lebanon Libya Other (pop weighted)
Source: IMF, 2006.

9.9 16.5 6.3 12.5 7.6 17.2

10.1 17.3 6.6 16.0 7.9 17.8

10.2 18.5 7.2 17.4 8.5 19.7

10.2 13.7 7.4 21.6 8.7 19.9

9.7 11.4 6.5 18.5 7.5 17.1

10.0 13.4 7.1 21.1 8.1 18.2

11.9 17.0 8.9 28.5 9.2 21.6

11.7 15.1 8.8 27.3 8.7 19.7

12.1 15.8 8.8 28.9 8.8 19.9

13.7 18.1 9.3 33.0 9.8 21.8

15.3 20.2 10.4 37.6 11.1 24.1

18.4 26.0 12.7 43.1 13.4 27.7

21.4 31.3 15.5 53.5 15.4 35.1

3.0 5.8 1.1

3.6 6.5 1.1

4.1 7.0 1.1

4.8 7.5 1.1

5.1 5.4 1.2

5.0 5.9 1.2

4.9 6.6 1.3

4.9 5.6 1.3

5.3 3.5 1.2

5.6 4.2 1.2

6.0 5.3 1.2

6.0 6.7 1.3

6.0 8.3 1.5

Table 3: Oil production per capita (barrels per day)
Country 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

GCC Bahrain Kuwait Oman Qatar Saudi Arabia United Arab Emirates Non-GCC
Source: OPEC, 2005; IMF, 2006.

0.55 0.25 1.34 0.39 0.64 0.45 0.97 0.03

0.54 0.25 1.27 0.41 0.76 0.44 0.89 0.03

0.53 0.29 1.18 0.42 0.76 0.44 0.88 0.02

0.50 0.29 0.91 0.42 0.78 0.42 0.84 0.03

0.51 0.29 0.90 0.41 1.12 0.42 0.79 0.03

0.46 0.27 0.83 0.41 1.04 0.38 0.68 0.03

0.47 0.27 0.90 0.40 1.04 0.40 0.67 0.03

0.45 0.27 0.84 0.39 0.98 0.38 0.61 0.03

0.39 0.27 0.72 0.36 0.83 0.33 0.51 0.03

0.44 0.27 0.83 0.33 0.94 0.38 0.56 0.02

0.45 0.26 0.83 0.30 1.00 0.39 0.54 0.03

0.46 0.25 0.90 0.29 0.96 0.40 0.51 0.03

42

The development and strength of the financial sector will depend both on economic diversification in the GCC and the long-term management of petrochemical resources, and on the sector’s ability to serve the needs of the wider region.We conclude that the financial sector in the GCC should be able to support continuing, broadly based economic development not only in the GCC itself, but also in the region more widely. In view of the planned monetary union in the GCC by 2010, some comparisons are also drawn with the experience of the monetary union in the euro area. The euro area has found that the different currencies prevailing before the introduction of the euro constituted just one of many barriers to financial market integration, and there may be lessons for the GCC from this experience. But it may, conversely, be the case that a measure of financial market integration in the region beyond the GCC may be possible without wider monetary union.

Fixed exchange rates The GCC countries have pegged their exchange rates to the US dollar before the planned monetary union in 2010. Most of these countries had adopted a pegged exchange rate prior to agreeing on the timetable for monetary union; since 2003 all have adopted this policy. The choice effectively constrains the day-to-day (or

even year-to-year) freedom of monetary policy action for the member countries. Domestic interest rates are largely a function of US dollar interest rates, with variations of up to 30 basis points from time to time.2 In fact, exchange rate stability is a policy choice broadly adopted by nearly all the Arabic-speaking countries, including two of the three that do not produce oil—Jordan and Lebanon.3 In common with many central banks around the world, central banks in Arabic countries that adopted exchange rate stability as a policy find that this is an effective way of providing credibility to the domestic currency and delivering low price inflation, at least in tradable goods. A stable nominal exchange rate does not necessarily deliver full domestic price stability.The GCC countries, together with most countries in the region (and indeed many commodity exporters elsewhere in the world), have found that increased export earnings resulting from the substantial increase in oil prices over the past three years, along with—in some cases—an increase in either remittances or capital inflows or both, has increased the real wealth of the country. In the absence of nominal exchange rate adjustment, relatively high inflation in nontradables (property, and some services where skilled labor supply cannot easily respond to increased demand) has been prevalent.4 And there is of course some feedthrough from nontradables to tradables.

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Figure 1: Inflation: Annual percent change

18 16 14 12 10

Bahrain Kuwait Oman Qatar Saudi Arabia United Arab Emirates Non-GCC average, excluding Iraq

8 6 4 2 0 –2

1994

1996

1998

2000

2002

2004

2006

Source: IMF, 2006. Note: Iraq is excluded because hyperinflation in the early 1990s and relatively high inflation over the past two years distorts the picture for non-GCC countries.

Inflation certainly appears to be positively correlated to oil prices in the GCC region. Domestic demand is boosted when oil prices are high, and incomes are therefore higher; and this feeds through to higher inflation.5 In the last few years this has helped to push inflation in two GCC countries above the average of the non-GCC Arabic-speaking nations. However, because pegged exchange rates provide a degree of stability to prices and price expectations, thus far the rise in inflation associated with higher demand (to some extent, a real exchange rate adjustment) does not appear to be a problem.6 The rising level of inflation does, however, raise an important question for these countries: will the increase in the real exchange rate, reflecting oil wealth, damage competitiveness? This can be particularly important as the oil sector typically employs a relatively small number of people—perhaps 1 percent of the workforce—while continued rapid population growth means that the labor force is showing strong growth. Currently, a large part of the native population of the GCC countries is employed by state organizations, while a predominantly male immigrant workforce—in some countries this accounts for more than half of the population—supplies the labor needs of much of the private sector, whether in construction, shops, or hotels. (Oman is an exception to this, having promoted a policy of “Omanization” since 1988, encouraging and training locals to replace expatriates in both the public and private sectors.) But a strongly growing native population will make it increasingly difficult

for the state to provide meaningful work, which in turn indicates that economic diversification and competitiveness will become more important in the years ahead. At the same time, the fixed exchange rate in the GCC countries has some important benefits. Given that it is a fully credible monetary policy regime in view of the substantial level of foreign exchange reserves held by the relevant central banks (and also by their respective governments in various forms of stabilization funds held offshore), US dollar markets can be used as a proxy for some domestic financial markets. Derivatives markets scarcely exist in the GCC countries. In some cases, this is because they are simply not needed: a foreign exchange forward contract against the US dollar would not be worth buying when the market is fully convinced that the exchange rate will not change in the future. A foreign exchange forward contract against the euro or other currencies might be useful; but the US dollar-euro forward market is a perfect proxy, and being a very liquid market is relatively cheap to use. Similarly, the more complex interest and exchange rate derivative products —futures, options, and so on—can make use of the very liquid US markets without any exchange rate risk.Thus, although it may appear that this area of the financial market is undeveloped, the GCC countries have pretty much full access to a liquid market in these products: the monetary policy decision to peg the exchange rate has allowed an effective outsourcing here. It would be difficult to argue that economic development is in any way being held back by the absence of domestic

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

1.4: The GCC Region: Financial Market Development, Competitiveness, and Economic Growth

Percent

43

1.4: The GCC Region: Financial Market Development, Competitiveness, and Economic Growth

derivatives markets; and, as equity markets develop, albeit slowly, the local exchanges are keen to be able to offer derivative products to match them. This benefit, of buying-in the provision of derivatives, is not available to all the other currencies in the region. In some cases, exchange controls restrict the ability of players in the economy to use offshore financial services. In others, the weaker (though not necessarily weak) balance of payments position means that domestic interest rates have to be higher than the US dollar equivalent, and US markets can therefore be only an imperfect proxy.

for global business. As with tourism, they can invest in infrastructure and modern, top-quality equipment (for example, airplanes) in a way that other countries in the region cannot, and in this way can gain competitive advantage leveraged off their strong financial situation.

44

The real economy This paper will not dwell at length on the real economies of the GCC countries, but will be restricted rather to a few observations. The high per capita GDP and the relatively inhospitable climate mean that the GCC countries are unlikely to be able to compete in certain global markets, such as those relying on cheap labor or fertile soil,7 or on non–petroleum natural resources.8, 9 This contrasts with, for instance, Egyptian cotton production, which can provide employment in agriculture and in upstream manufacturing. In tourism, the GCC cannot compete with the history of ancient Egypt or some of the ancient cities in the Levant and North Africa. That said, the GCC countries can of course import relatively cheap labor in order to support a construction boom. In some cases this does strengthen competitiveness, for instance by improving infrastructure, including the provision of top-quality hotels.The United Arab Emirates is developing a niche in certain areas of tourism, taking advantage of its investment strength to develop some top-of-the-market resorts: the Burj Al-Arab hotel is internationally known. And Oman, leveraging off its history and geographical diversity, is also developing niche tourist markets. Here the competitiveness of the GCC region is supported by its ability to invest in high-quality infrastructure. Internet cafés abound in the region from Morocco to Syria, but connection speed and reliability are better in the GCC.The GCC countries also have something to offer to each other: significant differences in culture and governance mean that intraGCC travel can generate business—which may be as simple as an evening trip across the causeway between Bahrain and Saudi Arabia. There is also scope for attracting transit, or entrepôt, trade, whether for physical goods—the Dubai gold market is well known, but the range of goods traded is much wider and attracts entrepreneurial merchants from many countries (Russian is often heard in the Gulf region)—or as a hub for airlines. It is not possible for every country to host a regional hub; but by developing high-class airport facilities and running attractive airline operations, the GCC countries are able to compete

Financial services In many countries, the first financial markets to develop are those for foreign exchange and government securities. But, as noted earlier, there is relatively little need for foreign exchange trading when the exchange rate is fixed and when local banknotes can be used in neighboring countries fairly easily.10 And strong government revenues mean that the GCC governments have little need to borrow at present, so the supply of government securities is bound to be restricted (though several of the regional central banks issue their own securities).The foreign exchange and securities markets in the GCC are consequently relatively thin. In this, again, there is a clear contrast with most other countries in the region, where foreign exchange trading flourishes—in some cases to bypass exchange controls—and where governments are much more likely to have a borrowing need (government securities market liquidity is weak in most of the nonGCC Arabic-speaking countries, for other reasons). For most central banks around the world, developing robust payment systems is seen as part of their monetary and financial stability remit. Preserving the external value of the currency, and providing high-quality banknotes, is a key part of this. But noncash payment services are also important. Developing a culture of financial intermediation may help in the development of financial markets more generally.The jump from keeping savings in physical assets, such as gold, to an intangible investment in corporate equities is a big one. It may be facilitated by familiarity with reliable financial intermediaries. In this, the GCC countries and their neighbors may have the same goals, but the wealthier countries are more likely to see widespread use of financial intermediation and to see a high enough volume of transactions to justify the development of noncash payment systems. In the GCC, there is a much stronger demand for the more sophisticated financial services than there is in their more cash-based neighboring economies.There is also sufficient volume of business—a product of higher levels of consumption as well as of savings—to justify the cost of building the infrastructure.The cafés in the Khan el-Khalili or al-Hamidiyeh souks may be more picturesque than the sea fronts in Kuwait or Abu Dhabi, but in the latter the air-conditioning works, pricevisibility is good, and you can pay with a credit card. Statistics support the picture of financial sophistication in the GCC countries as being much higher than that of their non-GCC Arabic-speaking neighbors. Cash in circulation as a percentage of GDP tends to fall with the growth of financial intermediation, and the figures

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Table 4: Currency in circulation (percent of GDP)
Country 1995 2000 2005

GCC Bahrain Kuwait Oman Qatar Saudi Arabia United Arab Emirates Non-GCC Lebanon Other (excluding Iraq, pop weighted)
Source: IMF International Financial Statistics.

7 5 4 4 5 8 4

6 4 4 4 3 7 4

4 4 3 3 2 6 4

6 14

6 13

5 14

for GCC countries are significantly lower than they are in neighboring counties—4–5 percent in GCC countries compared with 14 percent in the non-GCC area—with the (not surprising) exception of Lebanon (see Table 4). Interestingly, the low cash-to-GDP ratio is not solely a function of recent strong growth in GDP reflecting high oil prices—it has been evident over the past decade and more.There are a number of possible explanations for this: it may be that noncash payment systems developed with the increase in wealth after the first oil-price hike; or that wealth is held in forms other than domestic currency cash (whether gold or US dollars); or more possibly it may reflect a different pattern of wealth distribution. For instance, the increase in wealth in past years may have been skewed toward a relatively small part of the population and so has not increased the general demand for cash; and many of the nonnative workforce send a large part of their savings back to their families, rather than holding it in domestic currency.

Stock exchanges The existence of a stock market, or financial sophistication more generally, are of course not sufficient conditions to guarantee economic growth. But it is hard to think of a competitive economy with strong and balanced growth that does not also exhibit a measure of financial market development.There may be a two-way causality here: a wealthier country is more able to generate savings and support financial intermediation—the necessary infrastructure may simply be too expensive for a relatively poor economy—but at the same time, an economy is unlikely to grow strongly without a supporting financial infrastructure.The growth of the financial sector in the GCC countries—not just Bahrain and the United Arab Emirates—promises well for the future of these economies (although some financial services can be outsourced to the United States and other financial centers, others are more efficiently produced domestically). GCC countries are taking advantage of oil wealth in order to promote diversification.

Again, high oil production by itself does not mean strong capital market growth, but there does appear to be a reasonable correlation between higher oil production per capita and stock market capitalization.This relationship is stronger than the relationship of total oil production vs. market capitalization: beyond a certain point, more income may not generate a need for more locally produced goods and services, and thus there will be no additional need for listed companies. Channeling investment funds in a way that will develop the domestic economy rather than putting them into US government securities, for instance, can occur in a number of ways. It could be that governments, or individuals who have accumulated wealth from the oil or gas sectors, have the vision to make such investments. Or they may choose to employ others—whether as ministers or staff in government, or as private financial advisers—who do have such vision and the skills to implement it. Or the investments can be intermediated by the financial markets—notably stock exchanges, but also investment companies—and possibly drawing in nonresident investors as well as residents.11 There is a real role in the GCC for financial intermediation in taking advantage of the current economic strength of the region for competitive economic development. Data from the regional exchanges indicate that they are rising to the challenge. There has clearly been very strong stock market growth in a number of the GCC countries, as well as in other regional exchanges (see Figure 3). In the GCC countries, stock market activity appears to be associated with sharp movements in oil prices (see Tables 5 and 6 for country details). Turnover in the GCC countries was high in 1997, when oil prices had fallen to a particularly low level; but in the following years—until oil prices rebounded— turnover in the GCC markets was notably lower as a percentage of total Arab market turnover compared with the years of higher oil prices. Some of the trading is speculative—as in any such market—but it is also likely to reflect improved prospects for large infrastructure and service providers when regional income is strong.The sustained high level of oil prices over the past three years has inevitably led to a revision of prospects for investment and demand in the region.The GCC’s share of market turnover in the region has jumped from 60 percent in 2000 to around 96 percent over the past three years. Equities tend to be concentrated in property/ construction and petrochemicals; some of the other listed securities are investment funds operating in the same spheres. It is interesting to note that Egypt, with by far the largest population amongst the Arabic-speaking countries (one-third of the total Arabic-speaking population of the region), also has the largest number of companies listed (around 45 percent of the total) but— reflecting the relative wealth of the country—a low

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

1.4: The GCC Region: Financial Market Development, Competitiveness, and Economic Growth

45

1.4: The GCC Region: Financial Market Development, Competitiveness, and Economic Growth

Figure 2: Oil production per capita vs. market capitalization (percent GDP)

300

GCC

Non-GCC

Market capitalization (percent of GDP)

250

200

150

100

50

0 0.0 0.2 0.4 0.6 0.8 1.0 1.2

Oil production (barrels per day per capita)

Source: OPEC, 2005; IMF, 2006; Arab Monetary Fund, data available at www.amf.org.ae/venglish/default.asp.

46 Figure 3: Stock exchanges: Market capitalization

1,200

1,000

GCC Non-GCC
800

US$ billions

600

400

200

0

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

Source: Arab Monetary Fund; Federation of Euro-Asian Stock Exchanges.

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Table 5: Market capitalization (US$ billions)
Country 1995 2000 2001 2002 2003 2004 2005

GCC Bahrain Kuwait Oman Qatar Saudi Arabia United Arab Emirates Non-GCC

62.0 4.7 14.4 2.0 40.9

97.2 6.6 19.8 3.5 67.2

109.1 6.6 26.7 2.6 73.2

163.3 7.7 35.1 5.3 10.6 74.9 29.8 45.5

305.1 9.7 59.5 7.2 26.7 157.3 44.6 55.8

533.7 13.5 73.6 9.3 40.4 306.3 90.6 87.7

1,131.0 17.4 123.9 12.1 87.1 646.1 244.4 152.2

22.6

51.0

43.1

Source: Arab Monetary Fund, available at http://www.amf.org.ae/venglish/default.asp.

Table 6: Turnover (value traded/market capitalization)
Country 1995 2000 2001 2002 2003 2004 2005

GCC average Bahrain Kuwait Oman Qatar Saudi Arabia United Arab Emirates Non-GCC average

0.21 0.02 0.44 0.11 0.15

0.23 0.04 0.21 0.16 0.26

0.32 0.04 0.44 0.16 0.30

0.34 0.03 0.63 0.11 0.08 0.41 0.04 0.2

0.72 0.03 0.92 0.18 0.12 1.01 0.05 0.2

1.03 0.03 0.70 0.21 0.16 1.54 0.20 0.2

1.21 0.04 0.79 0.28 0.32 1.71 0.57 0.4

0.1

0.3

0.2

Source: Arab Monetary Fund, available at http://www.amf.org.ae/venglish/default.asp.

Figure 4: Stock exchanges: Value traded

1,500

1,200

GCC Non-GCC US$ billions
900

600

300

0

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

Source: Arab Monetary Fund; Federation of Euro-Asian Stock Exchanges.

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

1.4: The GCC Region: Financial Market Development, Competitiveness, and Economic Growth

47

1.4: The GCC Region: Financial Market Development, Competitiveness, and Economic Growth

share of turnover. Indeed, although market capitalization in Egypt has grown strongly over the past three years and turnover has increased, its share of turnover in the region is now only 2 percent. A more efficient capital market infrastructure should make it easier for borrowers and investors to operate; this in turn should support stronger, and more diversified, economic growth. Cross-border activities clearly happen already. GCC investment funds are looking for investment opportunities in the region, especially in the countries with a stronger development need. Importantly, the countries with larger populations—Egypt, Iraq, Morocco, Syria,Tunisia,Yemen—have the lowest per capita GDP figures, and so are likely to be capital importers, neatly matching the (current) capital exporting needs of most or all of the GCC.12 But a greater measure of harmonization and transparency in rules and regulations, mirroring the “common market” approach of the GCC itself, might make it easier for borrowers to link in to investors.

48

Specialization Specialization and relative advantage are key concepts when thinking about competitiveness. But not all countries can successfully specialize in the same area. In the GCC region, two centers stand out as seeking to carve a niche in financial markets: Bahrain (since the mid 1970s, but re-launched more recently with the Bahrain Financial Harbour development since in 2002) and the Dubai International Financial Centre (since 2004). Bahrain initially developed strongly as a financial center to handle recycling the so-called petro-dollars in the early 1970s.The substantial increase in oil prices over the past three years means that there is once again a strong impetus to the growth of financial intermediation services, and both Bahrain and Dubai are benefiting from this.They are not alone in seeking to develop financial centers: Qatar and Saudi Arabia also have plans for Doha and Riyadh respectively. Bahrain has more recently sought to develop a niche as an Islamic financial center, while still working in conventional markets. Issuance of Sukuk bonds by the government was part of this strategy. But Bahrain faces competition here not just from other regional financial centers, but also from markets in Indonesia and Malaysia, and even London, where “Islamic” products have been developed.13 The more recent Dubai International Financial Centre aims to offer a broad range of financial services, and in part aims to attract business by doing this in a free trade zone, offering zero tax rate and allowing full foreign ownership and free repatriation of profits. There is still plenty of scope for other markets to develop. For instance, the Riyadh Stock Exchange is dominant in terms of size, reflecting the larger size of the Saudi economy, and might be able to attract more business from neighboring countries, especially as

currency union looms.This could mirror a pattern seen in other regions, where trading tends to converge to large centralized exchanges, reflecting the fact that dominant investors often have an international portfolio and prefer to trade (and clear) their investments on one regional platform rather than a number of small national exchanges. Future privatizations and large-scale infrastructure investments should provide more assets to be traded on the exchanges. There is certainly more business being generated— notably project finance and wealth management, both at a government and an individual level—and it makes sense to develop local expertise. The strong growth of the financial sector in recent years, stimulated by the oil price increase, has drawn more participants into the market, often from other countries, and has inevitably put some pressure on the labor market.14 The requisite human infrastructure takes time to develop, while cultural differences may make it harder for some centers to attract nonlocals (indeed there are indications that some centers do not particularly want to do so).15 There can be particular difficulties in developing Islamic financial products, since to the normal design and approval process for new products must be added approval by a competent shari’a board. Since there is an element of textual interpretation involved, boards will reach different conclusions about what it acceptable, and they may revise their opinions from time to time. For instance, a savings product was developed in one GCC country that gave (uncertain) prizes to some savers, rather than a fixed return to all; but after operating for some time this was deemed haram. Such uncertainty may make some people reluctant to participate in new markets, thus delaying their development. One question for the region’s financial centers, in view of the strong cyclicality in the markets in recent years (reflecting the importance of the [cyclical] oil sector), is whether the market growth and deepening can be sustained for long enough to train and retain the quantity of skilled professional staff required for the peak times. As the market deepens, this should become less of a problem. One factor that could be important in reducing the strong cyclicality of the GCC markets is the increasing use and sophistication of oil stabilization funds. Kuwait was the first to formalize this, in 1976, and Kuwait’s model may still be the most sophisticated and transparent; but all the GCC countries have a stabilization fund in one form or another.The use of such funds can help to reduce the cyclicality of fiscal operations: budgets are much less likely to respond to short-term movements in the price of oil.This may support a less cyclical pattern of demand growth and so allow for more stable development of the financial markets.

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Taxation The GCC states, in their efforts to attract larger volumes of foreign investment, are increasingly willing to enter into and conclude bilateral foreign investment treaties, including bilateral investment treaties, free trade agreements, and double taxation agreements. In general, taxation rates are low as governments have strong income from petrochemicals. In Saudi Arabia, for instance, no income tax is levied on GCC nationals (others may have to pay income tax), though GCC nationals are subject to zakât.16 Bahrain and the United Arab Emirates are also low-tax countries, where most companies outside the petroleum and petrochemical sectors do not pay tax.There are, at least formally, some taxes on nonresident investments (but also tax incentives provided in certain areas such as the Dubai International Financial Centre). But these do not appear to be a significant problem, and it must be said that the region does not need to import capital.

Currency union: New opportunities? Will the planned GCC currency union have an impact on intra-GCC competition, and on the competitiveness of the region vis-à-vis other regions? The services sector, and in particular the financial sector, may be the area that benefits most from the intra-GCC common market, as the similar nature of output on these economies reduces the scope for intraregional trade in physical goods. Currency union will also mean that monetary operations undertaken by the GCC central banks will need to be harmonized.The current structures are quite varied, with some putting more emphasis on providing incentives for market development than others. Central banks are typically also interested in financial sector stability as well as monetary stability.There is a strong awareness of the need for supervision of banks and other financial intermediaries to meet international prudential standards, and for transparency and clarity in the appropriate legislation, if the financial markets are to be attractive and compete internationally. But more probably needs to be done in this area. Currency union could also raise the opportunity for the region to de-couple the exchange rate from the US dollar, although this is certainly not necessary. In Europe, a number of smaller countries linked their exchange rate to the Deutschemark prior to the introduction of the euro, but now, as part of a larger currency zone, have a floating exchange rate.The parallel with the GCC is not exact, of course. But it is conceivable that, just as high oil revenues are leading to some real exchange rate appreciation in the GCC at present, a future cyclical weakening of the economies might, for competitiveness reasons, make a depreciation attractive. This might be easier to achieve by nominal exchange rate adjustment than by negative inflation (though

negative inflation in property prices and skilled labor rates has a number of precedents). Against the background of the planned currency union in 2010, the recent strong growth in GCC stock exchange trading begs the question: should the financial infrastructure follow the currency harmonization? In general, currency areas require a unified, or at least interlinked, payment system in order to avoid segmentation in liquidity leading to varying interest or exchange rates in different regions.17 But it is less clear whether there should be a regional stock exchange with centralized settlement.Would this support stronger financial development? Should the central banks of the region, and the financial sector authorities more widely, promote such regional integration? There are a number of facets to this question. Reference to a parallel situation in what is now the euro zone may be illuminating. Currency union undoubtedly made it easier for investors in the euro area to broaden their portfolios, since currency risk that had previously inhibited some cross-border investments was eliminated. A number of major financial intermediaries found that they could unify aspects of their investment management, and their dealing rooms.This permits economies of scale, allows for better diversification of risk, and so on. But currency risk does not exist between the GCC countries now: the exchange rates have been firmly pegged to the US dollar, and therefore to each other, for years. A unified currency in the GCC will not affect risk, but it should eliminate some frictional costs—moving from one currency to another— and also some of the costs of segmented liquidity. In other respects, the euro area found that currency union was not a sufficient condition for the free flow of cross-border investments. Stock exchanges, clearing, and settlement systems were not unified just because the currency was.18 Since the introduction of the euro, there have been a wide range of initiatives to break down the barriers. Even legal barriers can take a long time to overcome—do exchange controls, prudential regulations, or restrictions on the nationality of investors constrain cross-border activity? Where the market segmentation reflects an institutional structure in the private sector, the problems can be much greater. If there is to be a single stock exchange, which exchange survives? In which country should it be located? What problems are raised if settlement of a security is not in the same legal jurisdiction as the issuer or as those using it as collateral? Is there a risk that a single infrastructure will so reduce competition that it is in fact bad for the market? These are all questions that will need, at some point, to be addressed by the GCC countries as part of their desire to promote financial sector development. But since many of these questions do not relate directly to the choice of currency, they could be extended beyond the GCC. Is there a case for facilitating crossborder investments throughout the whole region? If

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

1.4: The GCC Region: Financial Market Development, Competitiveness, and Economic Growth

49

1.4: The GCC Region: Financial Market Development, Competitiveness, and Economic Growth

companies in other regional countries wish to raise funds in the capital markets, whether via bonds or equity issuance, could they use a regional exchange instead of their national exchange, or both simultaneously? Some countries in the region still give preferential treatment to investors from other Arab countries. In practice this may simply mean that non-Arab investors have to set up front-companies to make an investment; but it will put off some participants in the market. Regional investors are clearly happy to invest outside the region; most welcome investment from other areas. Economic efficiency and the demands of competition in the global economy may indicate that such artificial barriers should be removed. Some of the GCC authorities may not be fully convinced of this.There is still some legislation that favors nationals in particular, and residents of Arabic-speaking countries in general.There is also some employment legislation that promotes the use of national labor, for instance through differential labor taxes penalizing non-nationals. But this form of protectionism may not have a serious impact on competitiveness. Indeed, one might argue that protectionism has historically worked for countries with a strong economic position, although it demonstrably fails for those who need to compete aggressively to win market share.19

Table 7: Oil dependence, proxied by oil as a percent of total exports
Country 1995 2000 2005

GCC average Bahrain Kuwait Oman Qatar Saudi Arabia United Arab Emirates Non-GCC average
Source: World Trade Organization.

75 72 95 77 78 85 43 16

81 72 93 79 92 91 55 26

79 79 93 83 84 89 47 27

50 Conclusions It may be that the combination of an appreciating real exchange rate (because of higher inflation than in the country of the anchor currency, the US dollar) together with high aspirations of the native population implies a need for increased education and efficiency if the economies are to be competitive—at least in terms of providing attractive employment opportunities for the growing national labor force. Fortunately, oil wealth allows the GCC countries to fund these educational needs and to invest in infrastructure that will boost economic efficiency as well as the quality of life; it is important that this opportunity be well used. The GCC countries have more-developed financial markets than the other Arabic-speaking countries in the region.To some extent, this is a function of greater wealth. But it also reflects clear policies of using (some of) that wealth to promote economic diversification and to strengthen the non-oil economy. In some areas, the GCC makes use of parallel—predominantly US dollar— financial markets, as this is more efficient than trying to create independent domestic markets. But capital markets, investment, and project management services have been developing strongly, and appear sufficiently competitive not only to serve the needs of the GCC but also to export such services to other countries in the region.The planned currency union will enhance the strength of the financial sector, but is unlikely to be sufficient on its own to give a substantial boost to these economies.

The dominance of oil in total GDP (see Table 7) may indicate that economic diversification in some of the GCC countries (Bahrain and the United Arab Emirates are probably furthest along the road of economic diversification) is not sufficient to support a vibrant stock market under all conditions.While oil prices are high, and consequently the prospects for infrastructure investment are good and there is a surplus of capital for investment abroad, the financial sector is likely to thrive. But if oil prices weaken, it is not clear that the rest of the economy would generate sufficient business to maintain the financial sector. All financial sectors will face cyclical peaks and troughs, but the GCC region may for some time have to cope with stronger cyclical swings than other centers.20 This cannot necessarily be avoided, although fiscal smoothing through the wellplanned use of oil stabilization funds can be a powerful countercyclical instrument—but it can be managed more easily with some advance planning. Whether any of the GCC financial centers will be able to become truly global centers is not yet certain. Some elements of protectionism—favoring nationals and restricting the role of foreign investors—may militate against this. Nevertheless, the level of financial sector development and the credibility of the currencies will be important factors in supporting further economic diversification.Without bureaucratic constraints, the financial sector in the GCC will probably be able to support continued broad-based economic development, not only for the GCC countries but also for the entire region. But the development and strength of the financial sector will also depend on economic diversification in the GCC and long-term management of petrochemical resources, as this will reduce exposure to the strongly cyclical oil sector, and on its ability to serve the needs of the wider region.The relationship between the financial sector and the broader economy is symbiotic. For the GCC, this suggests both considerable opportunities and real risks.This is particularly the case if there is insufficient diversification in the real sector, but also if remaining barriers to cross-border activity become more of a constraint.

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Notes
1 The non-GCC Arabic-speaking countries included here are Egypt, Iraq, Jordan, Lebanon, Libya, Morocco, Syria, Tunisia, and Yemen. 2 A sustained spread of more than 25 basis points tends to generate capital flows. 3 Egypt, Morocco, and Tunisia have a more flexible exchange rate policy. The unofficial rate for the Iraqi dinar showed strong movements until 2003; the Iraqi dinar has been very stable from early 2004 until late 2006, when the central bank encouraged an appreciation of the dinar. 4 Banks do lend for property purchase, but in the GCC security often relies on future salaries (civil servants have a job for life) rather than the property itself, so banks are not so exposed to property price shocks as they are in other regions. 5 It is not clear to what extent property prices are reflected in the consumer price index (CPI) data for the region. Anecdotal reports indicate property and skilled labor (services) inflation in recent years in the region has been much higher than the CPI series might suggest. 6 There are, however, indications that official measures of inflation in some GCC countries may understate the real level. 7 The use of desalination plants in a region with limited fresh water supplies and growing demand from a growing population does mean that some agricultural production can take place in addition to the traditional production—for example, a wide variety of dates. 8 For instance, pearl fishing in Bahrain, at one time very important to the local economy, is now a matter of history. 9 If the international response to global warming affects demand for hydrocarbons in future decades, the GCC countries would be well placed to make use of solar energy. 10 . . . and occasionally unscrupulously: a taxi driver in Manama tried once to persuade one of the authors that 10 Saudi riyals was equivalent to 10 Bahraini dinar. 11 Some GCC markets still place restrictions on nonresident investment. 12 Saudi Arabia is the only GCC country with a large population, accounting for some two-thirds of the GCC total. 13 In a speech to the Middle East/North Africa Forum on October 30, 2006, the Economic Secretary to the (UK) Treasury noted: “we also want to do more to make Britain the gateway to Islamic trade and the City a global centre for Islamic finance” (Balls 2006). 14 One employment market website noted in early 2006: “Areas with the greatest demand-supply mismatch reportedly include private banking, corporate finance, compliance and certain specializations within Islamic banking.” 15 See, for instance, comments in Fasano and Iqbal (2003) and Arab Monetary Fund (2003). 16 Zakât is one of the five pillars of Islam—the required giving of a proportion of one’s wealth. The Wikipedia definition is: “The payment of zakât is obligatory on all Muslims. In current usage it is interpreted as a 2.5% levy on most valuables and savings held for a full lunar year, if the total value is more than a basic minimum known as nisab (3 ounces or 87.48g of gold). At present (as of 3 March 2007), nisab is approximately US $1922.40 or an equivalent amount in any other currency.” 17 The United States introduced the Fedwire payment system in order to harmonize the yield curve across the country; the Eurosystem central banks interlinked their wholesale (RTGS) payment systems (in TARGET) in order to ensure that a single monetary policy could be delivered across the whole region. 18 Neither were the retail payment systems. 19 See Chang (2002). 20 See, for instance, Financial Times (2006).

References
Arab Monetary Fund. Available www.amf.org.ae/venglish/default.asp. Arab Monetary Fund. 2003. Contribution of the Arab Monetary Fund to the Development of Arab Capital Markets. June. Abu Dhabi: Arab Monetary Fund. Available at http://www.amf.org.ae/venglish/storage/other/EPI%20DEPT/PUBLICATIONS/Econnomic/Arab%20Capi tal%20Market-Eng.pdf. Balls, E. 2006. Speech to the Middle East/North Africa Forum, London, October 30. Available at http://www.hm-treasury.gov.uk/newsroom_and_speeches/speeches/econsecspeeches/speech_est_301 006.cfm. Chang, H.-J. 2002. “Kicking Away the Ladder: How the Economic and Intellectual Histories of Capitalism Have Been Re-Written to Justify Neo-Liberal Capitalism.” Post-Autistic Economics Review. 15 (September 4), article 3. Available at http://www.paecon.net/PAEtexts/Chang1.htm. Fasano, U. and Z. Iqbal. 2003. GCC Countries: From Oil Dependence to Diversification. Washington, DC: IMF.

Financial Times. 2006. “Gulf Markets.” November 21.
IMF (International Monetary Fund). International Financial Statistics. Washington, DC: IMF. IMF (International Monetary Fund). 2006. World Economic Outlook Database, September 2006. Washington, DC: IMF. OPEC. 2005. Annual Statistical Bulletin 2005. Available at www.opec.org/library/Annual%20Statistical%20Bulletin/pdf/ASB2 005.pdf.

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

1.4: The GCC Region: Financial Market Development, Competitiveness, and Economic Growth

51

CHAPTER 2.1

Gulf Cooperation Council Health Care: Challenges and Opportunities
MONA MOURSHED, McKinsey & Company VIKTOR HEDIGER, McKinsey & Company TOBY LAMBERT, McKinsey & Company

The coming decade will bring significant new challenges to health care in the Gulf Cooperation Council countries. These challenges will require new strategies on the part of government and private health-care players.

Health-care demand in the Gulf Cooperation Council is undergoing fundamental change The Gulf Cooperation Council (GCC) countries— Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates—will face an unparalleled and unprecedented rise in demand for health care over the course of the next two decades.We estimate that total health-care spending in the region will reach US$60 billion in 2025, up from US$12 billion today. No other region in the world faces such rapid growth in demand with the simultaneous need to realign its health-care systems to be able to treat the disorders of affluence. Moreover, although GCC health-care systems are far better than they were 20 years ago, many residents remain unsatisfied with the availability and quality of care at government-run hospitals and clinics. Government agencies mostly lack the managerial skills needed to run health-care facilities, and cash incentives alone haven’t been enough to attract specialists to treat the rising numbers of people with ailments such as heart disease and cancer. Government-run hospitals and clinics are ill prepared for a rapidly growing and aging population, nor are they prepared for the rise in chronic diseases such as diabetes, whose prevalence has grown as countries have developed. To augment services and raise standards of care, some GCC governments have already encouraged internationally renowned academic institutions to set up health-care facilities in their countries. Many more private health-care providers are required, however, to meet future demand. For the most part, GCC governments intend to go on subsidizing robust medical benefits—at least for their own citizens. Governments now shoulder more than 75 percent of this burden, but even those with the deepest pockets may not have enough, in 20 years, to pay for the cost of health care. Most now recognize that they will soon need private-sector help to finance it. Fundamental changes will be required of payors, providers, and government. Private payors that build volume by competing in more than one GCC state are the most likely to succeed. For private providers, the decision must be whether to enter into government contracts to manage public facilities or to open their own. Finally, big changes to government policy and regulation are needed to ensure that private players can attract patients and succeed.The two most important changes are that governments must reimburse their citizens for private as well as public health care, and that independent regulatory bodies must be established to define and enforce quality standards for public and private providers alike.

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

2.1: Gulf Cooperation Council Health Care

55

2.1: Gulf Cooperation Council Health Care

Factors driving health-care demand in the Gulf Cooperation Council

Gulf Cooperation Council health-care demand in 2025

GCC governments have made substantial investments in health-care infrastructure during the past 25 years, building hospitals and clinics and promoting a more modern approach to tackling the infectious diseases, such as malaria and measles, that were once rampant in the region. Although differences exist from country to country, the overall improvement has been impressive. Life expectancy rose from 60.5 years in 1978 to 73 years in 2004; in the same period, infant mortality fell from 69 deaths per 1,000 live births to 18.1 But GCC health-care systems still struggle today. The primary reason is that governments are not equipped to manage health-care providers and feel little pressure to set quality, service, or financial-performance targets. More troubling is that the GCC faces three drivers that will dramatically increase health-care demand in the region: population growth, aging, and unique health-risk factors: • Population growth. Until 2015, the size of the population will increase at a compound annual growth rate (CAGR) of around 3.0 percent, one of the highest in the world. In the longer term, the growth in population will ease back to 1.8 percent CAGR. As a result, total GCC population in 2025 will be almost twice the size it is today. • Aging populations. Older people generally need to seek more medical care and have more expensive health profiles than younger people. Improvements in life expectancy over the past quarter of a century have left the GCC with an increasing number of elderly people requiring care. Combined with the success achieved in reducing infant mortality rates, this demographic segment will continue to grow in the years ahead. In Saudi Arabia, for example, the number of people over 65 will increase more than sevenfold during the next 25 years.2 • Health-risk factors. The GCC shows a unique pattern of risk factors. Among GCC nationals, the prevalence of Type 2 diabetes and obesity is unusually high relative to the rest of the world. For example, a joint study between the UAE Ministry of Health and the World Health Organization in 2001 showed that 25 percent of UAE citizens suffer from diabetes (as compared with an average of 5 to 7 percent globally).This figure rises to an unprecedented level of 40 percent for those aged 60 or above.This prevalence has been described as being of crisis proportions. In addition, the obesity rate for GCC nationals stands at 40 percent, one of the highest in the world.The health complications of both diabetes and obesity will correlate with much higher medical costs in the coming years.

Although demand for health care in the GCC is clearly rising, the extent of this increase and the forces that will drive it have been matters of wide debate.To inform the debate, McKinsey & Company constructed a proprietary model of health-care demand covering each of the six GCC countries across 20 specialties and five age brackets (Figure 1).We believe this model to be unique both in terms of the depth of the data used to build it and the comprehensiveness of the health-care profile. Our model projects a substantial increase in health-care costs, as well as in the number of inpatient and outpatient treatments and hospital beds, over the next 20 years.The model takes into account five drivers of changing demand: population growth, the demographic profile, the development of risk factors, treatment patterns, and medical inflation. The model projects the following by 2025: • Treatment demand. Over the next 20 years, treatment demand will rise in the GCC by 240 percent (see Figure 2). In particular, cardiovascular disease will experience a steep increase (419 percent), as will diabetes-related ailments (323 percent). • Hospital beds. By 2025, demand for hospital beds in the region will more than double, requiring almost 162,000 beds to meet this demand (see Figure 3). Saudi Arabia and the United Arab Emirates will register the greatest percentage increase in demand for hospital beds. • Cost. Health-care delivery in GCC countries will cost about US$60 billion by 2025, increasing fivefold from today (Figures 4 and 5). Cardiovascular disease will become an enormous cost burden on the GCC.Whereas today it already accounts for 12 percent of total health-care expenditure in GCC countries, this will double by 2025.This means that expenditure for cardiovascular diseases will grow at a rate of almost twice that for health care as a whole. In addition, patient expectations in the GCC are rising in parallel to disease-based demand.The McKinsey survey of GCC patient satisfaction shows that higher expectations do not merely reflect generalized discontent, but rather are the result of direct patient experience. Comparing satisfaction levels for public and private hospitals, our survey data of 600 patients show that public hospitals come under substantially more patient criticism than do private hospitals. Survey respondents reported that public hospitals have limited appointment hours, long waiting times, and unattractive and uncomfortable facilities.

56

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Figure 1: McKinsey’s model to estimate disease demand in Gulf Cooperation Council countries

6 COUNTRIES

20 DISEASE GROUPS

5 AGE BRACKETS

• • • • • •

Saudi Arabia UAE Bahrain Qatar Kuwait Oman

X

• • • • • • • • • •

Infectious diseases Maternal and perinatal conditions Nutritional deficiencies Cancer Diabetes Endocrine disorders Mental disorders CNS disorders Sense organ diseases Cardiovascular diseases

• • • • • • • • • •

Non-infectious respiratory diseases Digestive diseases Genitourinary diseases Skin diseases Musculoskeletal diseases Congenital anomalies Dental and gum diseases Road traffic injuries Occupational injuries Other injuries

X

5 age brackets • 0–14 • 15–29 • 30–44 • 45–64 • 65+

SHAPING FACTORS

• • • • •

Population growth Aging Risk factors Treatment pattern Medical inflation

Source: McKinsey & Company.

Figure 2: Projected increase in treatment demand in the Gulf Cooperation Council countries by 2025 (percent)

Cardiovascular Diabetes Sense organ diseases* Musculoskeletal diseases Cancer Other injuries** Genitourinary diseases Mental disorders Digestive diseases Skin diseases 323 293 290 275 249 244 241 233 231

419

Nutritional deficiencies CNS disorders Road traffic injuries Dental and gum diseases Non-infectious respiratory diseases Infectious diseases Occupational injuries Maternal and perinatal conditions Endocrine disorders* Congenital anomalies 142

229 227 227 221 220 216 210 205 185

Average = 240%

Average = 240%

Source: McKinsey & Company. *Primarily eye **Primarily household; not occupational or road traffic

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

2.1: Gulf Cooperation Council Health Care

57

2.1: Gulf Cooperation Council Health Care

Figure 3: Projected demand for hospital beds in the Gulf Cooperation Council countries by 2025 (percent)

Growth in demand for hospital beds across the GCC Number of beds

Growth in demand for hospital beds by country Percent increase required from today to 2025

CAGR*: 3.5%

Bahrain Kuwait

80 110 100 100 145 160 140

CAGR*: 3.8%

161,750

Oman
114,450

Qatar Saudi Arabia United Arab Emirates GCC

65,250

Today

2015

2025

Source: McKinsey & Company. * CAGR is compound annual growth rate.

58 Figure 4: Projected spending growth in the health-care market in the Gulf Cooperation Council countries by 2025 (US$ billions)

57.3

11.9

Today

2025

Source: McKinsey & Company.

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Figure 5: Projected burden of cardiology in the Gulf Cooperation Council countries by 2025 (percent)

100% =

US$ 11.9 billions

US$ 57.3 billions

Others

52

44

6

Genitourinary disease Digestive diseases Maternal & perinatal diseases Infectious diseases Cardiovascular diseases

7 8 10 12

7 7 11

24 12 GCC 2006 GCC 2025

Source: McKinsey & Company. Note: The public sector currently funds approximately 75 percent of GCC health-care spending.

Implications for government and private health-care players As GCC policymakers prepare to grapple with the challenges of this substantial rise in overall health-care demand and costs, as well as with the challenges presented by patients seeking better care, they are increasingly turning to private sector for help with both provision and financing. Finding a private-sector solution requires changing the GCC’s unique system of health-care delivery. In 2005, GCC governments spent about US$9 billion running public health-care facilities and reimbursing their citizens for care received abroad. But the private sector receives no more than 25 percent of all health-care spending in the GCC.The main reason is that, while public care is free, patients must pay for private treatment themselves. Generally, public care is free for nationals. Expatriates pay a fraction of what it actually costs the government to provide care. Private facilities not reimbursed or subsidized by the government therefore have fewer patients and lower revenues than they might otherwise. In one Gulf state, McKinsey experience found that private hospitals not affiliated with the government operate at 10 to 40 percent of capacity, since patients tend to pay private providers for diagnoses and then go to a free public hospital for treatment. Some governments have helped private providers succeed, primarily by engaging them to manage public facilities and then reimbursing them for treating government-funded patients. In the past three years, for

instance, generous cash incentives and a guaranteed number of public patients have been offered to top-rated international teaching hospitals, such as Johns Hopkins and the Cleveland Clinic, to get them to manage or open new facilities.The governments’ hope is that big, branded players will create competition and raise standards of care throughout the region. Generally, governments try to lure these top hospitals to take over the management of public facilities or to open up shop in the GCC in exchange for cash, including payment for a guaranteed number of public patients. In reality, the GCC governments need many more private health-care providers, and they cannot solve the problem by rolling out a red carpet for every single one. It is impractical to guarantee volumes of patients for each private provider—such guarantees are costly and reduce the incentive for providers to raise their quality and compete for patients. Since most private providers compete with public facilities to attract patients, governments must create a system in which both public and private health-care providers issue claims and get reimbursed at equal prices for services rendered.To achieve this goal, a vital first step would be for governments to move away from the current practice of writing large checks to public health-care facilities irrespective of patients treated and services rendered. Most governments acknowledge that such sweeping policy changes are needed, though few have been implemented. GCC policymakers have all hit on the similar solution of seeking to bring the private sector

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

2.1: Gulf Cooperation Council Health Care

59

2.1: Gulf Cooperation Council Health Care

into health-care delivery in order to manage ever-greater demand and provide a better quality of care in a more efficient manner. Based on our interviews and research, we categorize opportunities for local and international private players into three areas: health-care delivery, health insurance, and support services. • Health-care delivery. The GCC governments increasingly want to focus on policymaking and regulation while gradually minimizing their role in health-care service delivery. As such, they are seeking to encourage private provision in areas that are underserved today, as well as to bring private players to manage public health-care facilities. In light of the GCC’s unusual risk-factor profile, substantial opportunity exists in primary care to better manage chronic diseases such as diabetes and obesity before they result in cardiovascular complications. Moreover, some GCC countries are actively seeking private-sector involvement in managing public primary-care facilities. In addition, the GCC lacks experienced hospital management. Increasing and improving hospital services to keep pace with the estimated rise in patient demand represents a significant opportunity for experienced private hospital players. For providers who wish to move forward on their own, our disease-demand profile for 2025 indicates high demand for oncology and cardiology care that could present significant profit opportunities to private health-care providers willing to make larger capital investments in more sophisticated equipment. For example, although oncology will show the fifth-highest demand increase by 2025, few facilities in the GCC are equipped to care for cancer patients. Opportunities will also present themselves in treatment areas where little infrastructure exists today. Our research shows that physiotherapy, renal dialysis, acute rehabilitation, elderly care, home care, occupational therapy, and speech therapy are among the areas in which capital investment is relatively low and potential returns to private providers are high. Finally, outpatient surgery centers (for example, day-cases) are likely to become an important mechanism for reducing the average length of hospital stay and increasing patient throughput. • Health insurance. The GCC governments currently provide the lion’s share of health-care financing today—approximately 75 percent.To lessen the government burden, all GCC countries have recently passed, or are in the process of passing, sweeping health-care insurance legislation. For example, Saudi Arabia and Abu Dhabi have already passed laws requiring employers to purchase private health insurance for their expatriate workers.

Though no more than 10 percent of the population of any one GCC country is covered currently, we expect that this will quickly change.Workers covered under these plans can choose care at either public or private institutions—a system that has the benefit of ensuring that public providers must learn to generate claims in order to be reimbursed by the government. Once private health insurance takes hold, we expect that patient volumes for private providers will rapidly increase as patients are allowed to pursue reimbursed care at private institutions. The policymakers’ objective is to move from a purely public payor system to a mixed public-private payor model. In this regard, all GCC countries face similar needs for international private payors to enter the market to provide health insurance for expatriates today, and ultimately for nationals in the future. Depending on the country, the health insurance opportunity could either be to enter as a stand-alone private player, or to form a joint venture with the government to establish and manage a national payor. • Support services. As governments focus more on policymaking and regulation, they are likely to turn to the private sector for help on several fronts. Such support is necessary for defining the organization functions of the policymaker and regulators and for setting and enforcing minimal regulatory requirements for providers, payors, and medical staff. In particular, we see an opportunity for IT providers to establish systems that report clinical quality and financial data at the procedure, department, and institutional levels, creating transparency for decision makers on current performance and areas for improvement. Little to no experience exists in public health-care institutions with such systems, and so policymakers are seeking the support of either niche international private players or government entities in developed countries that have established similar transparency systems in the past. The experience of private players in the GCC to date, however, suggests that serious challenges exist to capturing these opportunities, particularly during the transition period (the next five to seven years) of the policy changes taking hold in the health-care sector. The main challenges to private players are fivefold: 1. guaranteeing a threshold patient volume, because of the lack of systematic channels and referral systems in the GCC; 2. hiring, training, and retaining a sufficient caliber of clinical staff, because of the high share of expatriate doctors and nurses in the GCC;

60

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

3. agreeing on adequate reimbursement from payors (governments, insurance companies, and individuals), because of the lack of clear pricing systems, free public care for citizens, and complex contracting rules between government and private players; 4. differentiating from competitors in an environment where quality standards are not transparent to patients; and 5. contracting with government to manage public facilities. Government plays a critical role in facilitating these challenges and facilitating the development of private sector.
1. Patient threshold volume

from government delivery of services to governmental payment for services will begin to create a more level playing field for private providers alongside existing governmental providers.
2. Clinical staff

Patient threshold volume is important for two reasons: first, to ensure viable economics, particularly for interventions requiring high levels of capital equipment (for example, heart surgery). Second, the outcomes of many procedures are correlated to volumes—simply, the more of a particular type of procedure a surgeon carries out, the better the outcomes. At present, many private hospitals in the Gulf simply do not have the volumes to carry out more complicated procedures.This is the result of two factors: a lack of referral networks and crowding out by the public sector. Primary care throughout the region is almost exclusively the domain of governments. Although the success of systematized health-care delivery in the area of primary care varies from country to country, in no country has a private model of care based on general practice taken off.Thus patients going private do so in order to go directly to a specialist in whichever clinical area they feel necessary. As such, no one physician truly owns the patient relationship. Private providers entering this space will need to catalyze the creation of a highquality primary-care network in order to capture patients, whether through direct delivery of primary care or by working with existing specialists to create networks. An alternative model would be to follow the model adopted by a few private players in the region to integrate primary care into their hospitals. Crowding out by the public sector is particularly acute for more specialist procedures, as few are able or willing to pay for such procedures.Those that can currently tend to leave the region for treatment at American, European, or Singaporean centers of excellence.The current trend of government-supported brand name centers of care in the Gulf—such as the Teaching Hospital in Qatar supported by Cornell, or Johns Hopkins’ collaboration with the Emirate of Abu Dhabi in cancer at Tawam—will probably make it increasingly difficult for lesser-known private names to distinguish themselves. However, the current trend away

At present, the GCC is unable to produce sufficient numbers of clinical staff to provide health care for its population. As a result, foreign workers can comprise up to 80 percent of physicians in some countries (Figure 6). Existing medical education is now being extended and strengthened by collaboration with European and US medical schools, such as Cornell’s undergraduate medical education program in Qatar and the Royal College of Surgeons of Ireland’s postgraduate facilities in Bahrain. But the numbers of new medical graduates becoming available in the foreseeable future will not keep pace with the GCC’s population increase. Hence reliance on imported physicians and nurses will continue for some time to come. Such large-scale importation of staff poses two challenges. First, private providers will need to meld together staff from very different cultures, with differing medical practices and approaches to patient care. Second, the GCC is viewed by few of these staff as a permanent home, leading to high turnover rates. Staff from developing countries—for example, the Philippines and India—view the GCC as a stepping stone to more lucrative careers in the West, whereas many staff from the West view a tour of service in the Gulf as an opportunity to save funds before returning home. Meeting these challenges will require creating a strong ethos within the provider to make it capable of absorbing newcomers on a regular basis. Private providers can help to make nursing and other medical professions more attractive to local students by creating professionally and financially rewarding career paths for clinicians who stay in the region. Better salaries, substantial investments in professional training and development (such as residencies), and more flexible careers made possible by a greater degree of private-sector participation in the health-care system should all help to attract GCC nationals. For their part, policymakers must find ways to enlist more nationals in the medical profession. GCC governments have had difficulty doing this in the past, particularly in nursing, since many nationals consider it a demeaning profession. However, given the increasing unemployment rates for nationals in the region, it is time to reconsider the attractiveness of the health-care profession to nationals. An estimated 42 percent of the GCC’s local population is currently under the age of 15 and will soon be looking for jobs. Although the public sector has historically employed up to 90 percent of the GCC national workforce, its ability to do so moving forward is limited. Given the high demand growth of the health-care sector—and therefore the increasing

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

2.1: Gulf Cooperation Council Health Care

61

2.1: Gulf Cooperation Council Health Care

Figure 6: Source of human resources in the health-care sector, 2001–02

Expatriate physicians Percent of total Bahrain* Kuwait Oman Qatar Saudi Arabia* UAE GCC 75 69 78 82 30 63 78

Expatriate nurses Percent of total 48 90 55 91 79 96 79

Source: GCC ministries of health. * 2003

62

need for professionals, particularly nurses—policymakers should explore investing in creating vocational training programs for nurses and allied staff and should partner with relevant international training providers.
3. Reimbursement system

As governments fashion their new health-care systems, they will make drastic changes in insurance requirements and eligibility for both nationals and expatriate workers. In the next five to ten years, these governments will likely design basic health benefit packages and provide them free of charge to all nationals. In most GCC countries, the law now requires companies to provide basic health-care benefits (including insurance) for their expatriate workers, who account for 40 to 80 percent of GCC populations (depending on the state). Until recently, expatriates enjoyed virtually free access to public health care, which accounted for as much as 20 percent of its total cost. Because these expatriates have relatively low incomes and governments strictly regulate premiums to make them affordable, insurers competing for market share will likely lose money on basic benefit packages for this population. Unless private insurers have the exclusive right to sell their benefit packages in certain states or regions of the GCC, they’re unlikely to reach the volume necessary to turn a profit. For nationals and the more affluent expatriates, changed insurance and eligibility requirements should open up more opportunities for international health insurers.To give one example, we expect competition to

thrive in the premium-benefit market, which serves nationals and expatriates who want coverage for services excluded from basic packages. Premium policies for dental care or elective plastic surgery or for insurance that covers high-end hotel-style services for the affluent will always be in demand.We estimate that the market penetration of these premium benefit packages, sold at a good profit margin, could reach 4 to 5 percent of the GCC’s population. Further opportunities for international payors will arise from the governments’ lack of experience and skills to build and run complex health insurance businesses. Government administrators will need experienced insurers to process and validate claims, to teach providers to issue claims, and to reimburse them. Governments have two choices until they can effectively transfer the necessary skills to local businesses: they can partner with health insurance companies or temporarily outsource some key functions (such as claims processing and management) to international companies that specialize in settling claims. In the Gulf, few people have experience or skills at the point where health care and finance intersect. For governments and the insurance companies they work with, the biggest challenge will therefore be to find qualified professionals to build and run complex health insurance businesses in the region. To gain the best competitive position, international health insurers and companies that specialize in managing claims must attempt to generate a critical mass of business by striking deals with governments in more than one GCC state. Building more volume by entering several

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

states and regions of the GCC helps insurers from both a financial and a talent management perspective, since they need to justify their investments and deploy scarce talent. By bringing senior, experienced people into the region and making a commitment to coach, train, and transfer knowledge to locals, the payors can make themselves much more attractive to governments searching for partners. For many payors, a winning approach might start with offering an experienced expatriate team an opportunity to lead the majority of all claims-management activity. Over 10 or so years, coaching and training programs in which locals shadow the expatriates could make it possible for governments to manage the business themselves. At that point, though locals would staff the administration, the international insurer could continue to own and oversee the claims-management business. Whether or not the insurer did so, these arrangements might be quite lucrative. GCC governments often pay big money to insurers for hiring and training locals. Over this initial training period, insurers could expect to earn profit margins of up to 5 percent or more on basic health benefit plans for nationals—far above what can be expected from competing in open markets. For governments to encourage the development of such a payor system, they must require all health-care providers, public or private, to gather and report accurate data on their costs and services. Given the current lack of robust data on costs, public health-care systems must embark on long-term efforts to achieve transparency. Governments must also invest substantial sums in IT systems to collect cost data and use these data to inform decisions on reimbursement levels for both public and private providers.
4. Quality standards

enforcing these standards. Because this regulatory body must equally apply and enforce standards to public and private health-care institutions, it should ideally be independent of the ministry of health. In addition, this regulatory body would also be responsible for the licensing and renewal of medical professionals such as doctors, nurses, and allied staff. Although processes do exist today in GCC countries for this function, they tend to suffer from two problems. First, they can be very bureaucratic and take a long time, resulting in providers losing their ability to attract clinical staff from overseas. Second, the criteria for licensure and renewal can be weak when compared with international best practice, resulting in substandard professionals practicing medicine. In small GCC states, regulatory bodies may also choose to guide the strategic capital investments of providers (regardless of ownership). Because a critical threshold of patient volume is required for specialty services in order to maintain quality, it is important that investment in these specialities is carefully monitored so as to prevent excess supply relative to case volume (and therefore a decline in quality). A regulator has the unique ability to manage capacity in these services by deciding whether to grant a provider a license. Conversely, it can encourage providers to offer services in areas with the greatest unmet needs, such as the management of primary-care facilities and hospitals, long-term care, rehabilitation, and dialysis. In short, by establishing a strong regulatory body to define and firmly enforce higher-quality standards for health-care providers and medical professionals, policymakers will build the confidence of patients in the quality of health care, no matter who provides it.
5. Contracting with private providers

Today, GCC patients make their private health-care decisions based on word of mouth, advertising, and the physical external appearance of the institution. Quality standards of providers are neither transparent nor understood by patients, thus high-quality providers can struggle to distinguish themselves in the market. Even worse, patient safety can be compromised by the lack of effective regulation of the health-care sector. Policymakers will have to undertake comprehensive regulatory reform in order to weed out low-quality providers and protect patients. Currently, to the extent that standards exist, they apply to the private sector only and are not applied to public health-care institutions. Moreover, the content of the standards, and their enforcement, tends to be weak and haphazard. In order to raise the quality level of the health-care sector and to allow competent private players to thrive, policymakers must create regulatory bodies that will define a set of comprehensive operational quality and facility standards for all public and private providers.This body would be responsible for licensing, inspecting, and

Hospital and primary-care management skills are in short supply in the GCC. If private institutions have the patience to wade through the bidding process, many can prosper in the Gulf by managing public hospitals and primary-care facilities as well as laboratories and pharmacies. Depending on the deal structure, these private players can earn substantial cash incentives by meeting performance targets for clinical outcomes and care standards. In one GCC state, the government holds an auction when it wants to contract with the private sector.The process starts with a hospital’s current budget, and private companies are invited to bid on how much less funding they could accept while still meeting specified quality and service standards. Another government is currently accepting bids for managing its secondary-care hospitals. That contract would give the winning partner total operational freedom but also full accountability for its performance, as well as a budget that’s only 90 percent of the hospitals’ current level of government-issued block funding. Given similar constraints, a few private

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

2.1: Gulf Cooperation Council Health Care

63

2.1: Gulf Cooperation Council Health Care

players have managed public hospitals much more effectively and efficiently than governments do. For private management of public health-care facilities to become a more widespread reality, governments must improve the way they contract with private players.Too many private players are thwarted in their attempts to take over the management of public facilities, simply because government agencies lack the managerial skills and the data needed to structure deals. Governments regularly send out tenders, but though many providers respond with bids, their questions (for example, about guaranteed patient volumes or prices for services) are seldom answered. Governments may not have considered the goals of an outsourcing effort, and the data may not be available.These unanswered questions have generated a high level of frustration among international healthcare providers, and very few contracts have been signed. Governments will struggle to find the answers to these detailed questions until new reimbursement schemes and more transparent data systems are in place. However, they can immediately increase their chances of attracting more private health-care entities by adopting clear strategies. In short, governments must know exactly what they want from their partners, establish a clear process and timeline, and have competent, well-informed people available to answer questions about the bids.

64 Conclusion Health-care demand and spending are rising sharply in the GCC. Policymakers want the private sector to play a bigger role in their health-care systems, in both the provision and the financing of care.To promote the private sector’s involvement, GCC governments must make major regulatory and policy changes—above all, using public funds to reimburse nationals for the private health-care services they consume, and defining and enforcing a single set of quality standards for both public and private providers.To have the best chance of success, private providers will need to decide whether to enter into government contracts to manage public facilities or to run their own facilities.The private payors most likely to succeed will build volume by competing in more than one GCC state.

Notes
1 See WHO (2006). 2 McKinsey analysis based on Global Insight data.

References
WHO (World Health Organization). 2006. World Health Report 2006: Working Together for Health. Geneva: WHO. Available at www.who.int/whr/2006/en/index.html.

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

CHAPTER 2.2

Assessing Travel & Tourism Competitiveness in the Arab World
JENNIFER BLANKE, World Economic Forum IRENE MIA, World Economic Forum

There is a growing consensus among policymakers and analysts that a very effective means by which Arab countries can achieve sustainable growth is the promotion of trade in services.The Arab world largely missed out on the surge in global trade and investment experienced by developing nations during the 1980s and 1990s, and, to date, the region’s integration in world trade remains low. By modernizing key services such as transport, telecommunications, power, and financial services, countries in the region can tap into the growing global trade in services, the fastest-growing area of international trade. In this regard,Travel and Tourism (T&T) has become an important focal point for policymakers in the Arab world. Over the past several decades, the T&T sector has risen significantly worldwide, becoming an important driver of growth and employment. In 1950, international tourism arrivals totaled 25.3 million; this had grown to 806.8 million by 2005, a nearly 32-fold increase. Many countries in the Arab region have a natural competitive advantage in the T&T sector.The many cultural heritage sites, natural beauty, and warm climate make it an attractive destination for tourists from around the world. Furthermore, its strategic location between Asia and Europe provides a natural stopover point for international travelers and transport vessels.T&T services in the Middle East and North Africa promise to be a major driver of regional economies in the future.

Travel & Tourism in the Arab region The T&T industry has taken on a growing importance in the Arab world, which has experienced a significant increase in tourism over the past decade. According to the World Tourism Organization (UNWTO), the Middle East’s average annual increase in tourist arrivals between 2000 and 2004 was 9.5 percent, the fastest growth of any region and comparable with worldwide T&T growth of 2.7 percent during the same period.1 Importantly, the T&T sector in the Arab world has proven resilient to regional conflict and security concerns. Most recently, the Israel-Lebanon conflict of 2006 saw the tourism industry rebound rapidly after a short-lived decline. Similarly, although the United States experienced a significant decline in tourism following September 11, 2001, this was not the case in the Arab world.Tourism remained strong due in large part to an increase in intraregional tourism.2 Table 1a provides a historical perspective of the industry’s growth in the region over the past decade, showing the evolution of international tourist arrivals and receipts between 1995 and 2005.The table shows the impressive growth in tourism over the decade. Arrivals more than doubled over the period. Specifically, countries such as Algeria, Egypt, Libya, and Saudi Arabia saw a tripling of arrivals and the increase was even more

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

2.2: Assessing Travel & Tourism Competitiveness in the Arab World

65

2.2: Assessing Travel & Tourism Competitiveness in the Arab World

66

impressive in countries such Oman, Syria, and Yemen (albeit in these three cases rising from a low level). In parallel with the arrivals, tourism receipts have also developed positively, especially in Bahrain, Morocco, and the United Arab Emirates, and even more strikingly in Algeria, Libya, and Yemen. The T&T sector is now an important employer in many Arab countries, providing many jobs particularly in the countries of North Africa, Bahrain, Jordan, and Syria. At the regional level, the World Travel & Tourism Council (WTTC) estimates that the T&T sector accounts for 3.7 percent of total employment in the Middle East and 6.3 percent of total employment in North Africa. Both of these figures are expected to rise in the coming decade.3 Table 1b provides information on employment and GDP generated by the T&T industry in 2006 as well as forecasts for these indicators over the coming decade. The table shows that the T&T industry is an important employer in many countries, especially in Bahrain, Jordan, Morocco and Tunisia.The sector’s contribution to employment creation is expected to increase in coming years, particularly in countries that are starting from a low base. In more than half of the countries the predicted rate of employment creation lies above the overall employment growth in the MENA region between 2000 and 2005, which averaged 4.0 percent (see Chapter 1.3 by Dyer and Yousef in this volume).The table also shows the importance of the T&T industry for economic activity, especially in countries such as Bahrain, Egypt, Jordan, Morocco and Tunisia. As the forecast numbers show it is expected to contribute increasingly to overall GDP in coming years across the region. Despite the excellent growth numbers and the positive outlook, there remains significant untapped potential, given the extraordinary growth in world tourism over the same period. In 1990, the Middle East’s 9.6 million arrivals accounted for just 2.2 percent of international tourist arrivals. In the same year, tourist arrivals in all of Africa, including North Africa, were just 15.2 million.4 Today,Travel & Tourism in the Arab world still accounts for only about 6 percent of international tourist arrivals showing the growth opportunities that remain for the sector. The potential for Travel & Tourism in the region should not be underestimated.Within the Arab world, the T&T industry helps to reduce dependency on oil revenues and attracts foreign currency while providing employment opportunities and lowering unemployment. In this context, it is not surprising that many governments in the region have recognized the importance of Travel & Tourism for diversifying and growing their economies and have placed the T&T sector increasingly at the center of regional policymaking.This has led many of them to pursue tourism-friendly strategies, such as improvements in border facilities and an easing of visa requirements. Many countries have embarked on important destination-

Table 1a: Selected Travel & Tourism indicators for Arab world countries: Tourist arrivals and tourism reciepts
International tourist arrivals (thousands) Country 1995 2005 International tourism receipts (US$ millions) 1995 2005

Algeria Bahrain Egypt Jordan Kuwait Lebanon Libya Mauritania Morocco Oman Qatar Saudi Arabia Syria Tunisia United Arab Emirates Yemen

520 1,396 2,871 1,075 72 450 56 n/a 2,602 279 309 3,325 815 4,120 2,315 61

1,443 3,914 8,244 2,987 91* 1,140 149* n/a 5,843 1195* 732* 9,100 3,368 6,378 5871** 336

33 247 2,684 660 121 n/a 2 11 1,296 n/a n/a n/a 1,258 1,530 632 50

178* 920 6,851 1,441 164 n/a 218* n/a 4,617 481 760 6,111 2,175 2,063 2,200 262

Source: UNWTO, various years. *2004 **2003

marketing and promotion campaigns in an effort to better communicate to potential travelers their traditional attributes and emerging offerings. In these efforts, Arab policymakers have increasingly targeted new markets, particularly in Asia and “untapped” parts of Europe.5 The increasing importance of the T&T sector in the region has been accompanied by significant levels of private and public investment in tourism-related infrastructure in recent years, including accommodation, transportation, theme parks, and resorts.This investment has been facilitated in many countries, particularly in the Gulf, by sustained high oil prices.6 The air transport infrastructure in the Middle East is developing rapidly— the number of passengers increased fourfold between 1999 and 2005.To support this demand, airlines are placing substantial aircraft orders, adopting modern reservation and commercial technologies, and investing heavily in primary and secondary airports.7 Overall, it is estimated that capital investment in Travel & Tourism–related infrastructure accounts for more than 10 percent of total investment in the Arab world.8 As well as supporting T&T development, many of the infrastructure improvements resulting from this investment will have important spillover effects, improving overall productivity and economic competitiveness. Given the importance of T&T investment for the Arab world, and the related strategies that many countries have adopted to develop the industry’s potential, an analysis of the factors and policies driving the sector’s competitiveness is highly relevant.This chapter intends to provide such an analysis, focusing on results from the recently launched Travel & Tourism Competitiveness Index.

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Table 1b: Selected Travel & Tourism indicators for Arab world countries: Travel & Tourism industry employment and GDP

T&T industry employment
Jobs (thousands) 2006 estimates Percent of total 2006 estimates Annual growth in percent 2007–16 (forecast) In US$ millions 2006 estimates

T&T industry GDP
Percent of total 2006 estimates Annual growth in percent 2007–16 (forecast)

Country

Algeria Bahrain Egypt Jordan Kuwait Lebanon Libya Mauritania Morocco Oman Qatar Saudi Arabia Syria Tunisia United Arab Emirates Yemen
Source: WTTC, 2006c.

121 38 1,313 147 22 52 50 n/a 1,036 28 7 90 417 271 40 85

1.4 11.0 6.7 8.7 1.9 3.1 3.5 n/a 8.8 3.6 2.0 2.8 7.3 9.0 1.6 1.5

5.2 3.8 1.8 2.6 7.0 5.5 4.1 n/a 3.3 4.3 2.8 3.9 5.1 2.2 5.3 4.9

1,581 1,137 8,374 1,250 923 690 1,092 n/a 5,601 723 524 6,805 1,556 2,760 1,483 308

1.5 8.3 7.9 9.2 1.3 3.0 2.5 n/a 10.1 2.6 1.4 2.0 6.4 9.2 1.1 1.8

7.0 5.8 5.0 4.2 5.9 6.7 7.4 n/a 4.6 5.1 5.2 4.1 3.9 4.7 8.7 4.6

The Travel & Tourism Competitiveness Index The World Economic Forum launched the first Travel & Tourism Competitiveness Index (TTCI) in March 2007. The TTCI aims to measure the factors and policies that make it attractive to develop the T&T sector in different countries.The goal of the Index is twofold. First, by providing a cross-country analysis of the drivers of T&T competitiveness, the study provides the industry with useful comparative information and an important benchmarking tool for making decisions related to business and industry development. Second and more importantly, the analysis provides an opportunity for the T&T industry to highlight to national policymakers the obstacles to T&T competitiveness that require policy attention, enabling dialogue between the private and public sectors about improving the T&T environment at the national level.9 The TTCI measures the T&T competitiveness of 124 economies covering all the world’s regions. It is based on three broad categories of variables that facilitate or drive T&T competitiveness.These categories are summarized into the three subindexes: (1) the T&T regulatory framework subindex, (2) the T&T business environment and infrastructure subindex, and (3) the T&T human, cultural, and natural resources subindex. The first subindex captures those elements that are policy-related and generally under the purview of the government, the second subindex captures elements of the business environment and the “hard” infrastructure of each economy, and the third subindex captures the “softer” human and cultural elements of each country’s resource endowments.

In turn, each of these three subindexes is composed of a number of “pillars” of T&T competitiveness, of which there are 13 in all.These are: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. Policy rules and regulations Environmental regulation Safety and security Health and hygiene Prioritization of Travel & Tourism Air transport infrastructure Ground transport infrastructure Tourism infrastructure ICT infrastructure Price competitiveness in the T&T industry Human resources National tourism perception Natural and cultural resources

Figure 1 summarizes the structure of the overall Index, showing how the 13 component pillars are allocated within the three subindexes. Each of the pillars is, in turn, made up of a number of individual variables.The underlying dataset includes both hard data and Survey data from the World Economic Forum’s annual Executive Opinion Survey. The hard data were obtained from publicly available sources, international T&T institutions, and T&T experts (for example, IATA, the International Civil Aviation Organization, UNWTO,WTTC, and UNESCO).The Survey is carried out among CEOs and top business leaders in all of the economies covered by our research. Since these are the people making the investment

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

2.2: Assessing Travel & Tourism Competitiveness in the Arab World

67

2.2: Assessing Travel & Tourism Competitiveness in the Arab World

Figure 1: Composition of the three subindexes of the Travel & Tourism Competitiveness Index

Travel & Tourism Competitiveness Index
Subindex A: T&T regulatory framework Subindex B: T&T business environment and infrastructure Subindex C: T&T human, cultural, and natural resources

Policy rules and regulations

Air transport infrastructure

Human resources

Environmental regulation

Ground transport infrastructure

National tourism perception Natural and cultural resources

Safety and security

Tourism infrastructure

Health and hygiene Prioritization of Travel & Tourism

ICT infrastructure Price competitiveness in the T&T industry

68

decisions in their respective economies, the Survey provides unique data on many qualitative institutional and business environment issues. The overall score for each country is derived as an unweighted average of the three subindexes.The details of the specific variables included in the TTCI are shown in the appendix to this chapter. For further details on the construction and composition of the Index, see Chapter 1.1 in The Travel & Tourism Competitiveness Report 2007.

The TTCI 2007 results for the Arab world: A regional snapshot Tables 2, 3, 4, and 5 show the rankings and scores of the 10 Arab countries included in this year’s assessment (based on data availability).They include Algeria, Bahrain, Egypt, Jordan, Kuwait, Mauritania, Morocco, Qatar, Tunisia, and the United Arab Emirates (UAE). Scores are on a scale of 1 to 7, with higher scores reflecting stronger performance. For comparison, we also include the top performers from each region, as well as a number of countries that offer interesting comparisons for the region because of size or development level.These comparisons provide an international context to the regional ranking.10 Table 6 displays the best performer in the region for each of the 13 pillars composing the TTCI. For reference, the last line of the table shows the global leader in each pillar out of all 124 economies covered. The regional picture emerging from these results is rather mixed, reflecting heterogeneous T&T performances.

These range from the world-class T&T competitiveness of the top regional performer, the United Arab Emirates (18th), to the much weaker performances of Mauritania (92nd) and Algeria (93rd).The remaining Arab world countries are scattered between these extremes. It is worth noting how the T&T industry impacts the different economies in the region in different ways, as shown in Tables 1a and 1b. For example, annual international tourist arrivals differ significantly from country to country, from the large numbers entering Saudi Arabia (9.1 million) and Egypt (8.2 million) to the much fewer arrivals for smaller countries such as Qatar (732 thousand) and Kuwait (91 thousand). Similarly, the industry’s contribution to national GDP varies from 9 to 10 percent in the cases of Jordan, Morocco, and Tunisia, to as low as 1 to 1.5 percent in the cases of Algeria, Kuwait, Qatar, and the United Arab Emirates. Likewise, the T&T industry has a varied impact on national levels of employment, accounting for nearly 10 percent of total employment in countries such as Bahrain and Tunisia to around 1.5 percent for Algeria and the United Arab Emirates. Moreover,Table 6 allows for some interesting cross-regional analysis at the pillar level. Starting with the T&T regulatory framework, the region has an overall average ranking of 69.4, but individual countries present rather diverse performances. Jordan (29th) and, to a certain extent,Tunisia (42nd) and Morocco (48th) have policy rules and regulations that are quite conducive to T&T industry development, including visa requirements that are not very restrictive, policies that encourage

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Table 2. The Travel & Tourism Competitiveness Index 2007: Arab world and selected comparators
SUBINDEXES OVERALL INDEX Country/Economy Rank Score Regulatory framework Rank Score Business environment and infrastructure Rank Score Human, cultural, and natural resources Rank Score

Switzerland Hong Kong SAR France Spain United Arab Emirates Cyprus Estonia Barbados Malaysia Israel Tunisia Qatar Croatia Mauritius Costa Rica Jordan Bahrain Turkey Morocco Egypt South Africa Kuwait Mauritania Algeria

1 6 12 15 18 20 28 29 31 32 34 36 38 39 41 46 47 52 57 58 62 67 92 93

5.66 5.33 5.23 5.18 5.09 5.07 4.90 4.86 4.80 4.80 4.76 4.71 4.66 4.63 4.60 4.52 4.45 4.32 4.27 4.24 4.18 4.08 3.71 3.67

2 4 13 25 18 29 32 31 27 36 12 34 58 35 39 30 61 53 47 50 59 71 95 89

5.80 5.75 5.34 5.15 5.28 5.09 5.07 5.08 5.12 4.93 5.34 5.04 4.37 4.96 4.80 5.09 4.24 4.45 4.60 4.52 4.35 4.07 3.68 3.81

2 14 5 7 19 23 25 36 27 33 47 39 40 46 52 54 34 63 72 60 44 50 97 93

5.36 4.81 5.10 5.05 4.68 4.50 4.45 4.14 4.44 4.28 3.77 4.10 4.06 3.77 3.66 3.65 4.24 3.49 3.27 3.51 3.81 3.71 2.80 2.82

2 14 28 19 24 3 34 17 57 35 37 49 11 39 20 58 54 48 52 68 96 86 74 97

5.81 5.44 5.27 5.34 5.31 5.62 5.18 5.38 4.84 5.18 5.15 4.99 5.55 5.15 5.34 4.82 4.86 5.00 4.93 4.70 4.37 4.46 4.67 4.37

Table 3. The Travel & Tourism Competitiveness Index 2007: Regulatory framework subindex
PILLARS Regulatory framework Country/Economy Rank Score Policy rules and regulations Rank Score Environmental regulation Rank Score Safety and security Rank Score Health and hygiene Rank Score Prioritization of Travel & Tourism Rank Score

Algeria Bahrain Barbados Costa Rica Croatia Cyprus Egypt Estonia France Hong Kong SAR Israel Jordan Kuwait Malaysia Mauritania Mauritius Morocco Qatar South Africa Spain Switzerland Tunisia Turkey United Arab Emirates

89 61 31 39 58 29 50 32 13 4 36 30 71 27 95 35 47 34 59 25 2 12 53 18

3.81 4.24 5.08 4.80 4.37 5.09 4.52 5.07 5.34 5.75 4.93 5.09 4.07 5.12 3.68 4.96 4.60 5.04 4.35 5.15 5.80 5.34 4.45 5.28

113 62 27 17 72 49 69 47 40 2 30 29 100 26 112 63 48 65 46 45 21 42 51 54

3.37 4.71 5.24 5.40 4.55 4.87 4.59 4.92 5.00 5.76 5.18 5.18 3.69 5.25 3.38 4.67 4.90 4.66 4.94 4.95 5.33 4.98 4.82 4.78

82 77 42 35 52 53 75 32 15 24 30 56 96 20 98 34 64 29 28 40 4 16 61 25

3.66 3.74 4.43 4.63 4.26 4.26 3.79 4.78 5.50 5.11 4.86 4.21 3.35 5.31 3.34 4.67 3.97 4.89 4.97 4.51 6.04 5.47 4.04 5.07

74 61 35 67 63 34 64 28 29 6 69 19 22 26 54 40 43 17 95 46 5 14 56 10

4.18 4.55 5.13 4.40 4.54 5.17 4.54 5.25 5.22 6.07 4.34 5.53 5.38 5.30 4.71 4.95 4.88 5.61 3.77 4.84 6.08 5.64 4.61 5.83

53 61 42 50 66 36 69 30 9 1 7 41 37 62 115 46 81 24 82 21 8 52 54 25

4.91 4.76 5.40 5.05 4.59 5.69 4.50 5.75 6.27 6.62 6.31 5.41 5.67 4.75 3.05 5.25 4.11 5.88 4.10 5.93 6.29 5.02 4.90 5.84

109 81 11 34 57 4 12 28 27 13 53 17 120 21 55 9 15 40 51 3 8 1 54 23

2.92 3.46 5.19 4.54 3.89 5.49 5.18 4.67 4.69 5.18 3.93 5.10 2.28 4.98 3.90 5.24 5.16 4.17 3.99 5.54 5.28 5.59 3.91 4.85

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

2.2: Assessing Travel & Tourism Competitiveness in the Arab World

69

2.2: Assessing Travel & Tourism Competitiveness in the Arab World

Table 4. The Travel & Tourism Competitiveness Index 2007: Business environment and infrastructure subindex
PILLARS Business environment and infrastructure Country/Economy Rank Score Air transport infrastructure Rank Score Ground transport infrastructure Rank Score Tourism infrastructure Rank Score ICT infrastructure Rank Score Price competitiveness in T&T industry Rank Score

Algeria Bahrain Barbados Costa Rica Croatia Cyprus Egypt Estonia France Hong Kong SAR Israel Jordan Kuwait Malaysia Mauritania Mauritius Morocco Qatar South Africa Spain Switzerland Tunisia Turkey United Arab Emirates

93 34 36 52 40 23 60 25 5 14 33 54 50 27 97 46 72 39 44 7 2 47 63 19

2.82 4.24 4.14 3.66 4.06 4.50 3.51 4.45 5.10 4.81 4.28 3.65 3.71 4.44 2.80 3.77 3.27 4.10 3.81 5.05 5.36 3.77 3.49 4.68

101 27 53 44 80 34 49 56 4 12 40 67 62 31 111 60 83 29 30 7 9 78 51 8

2.25 3.95 3.22 3.49 2.71 3.83 3.35 3.17 5.45 4.83 3.59 2.88 3.06 3.91 2.03 3.12 2.66 3.93 3.92 5.17 4.97 2.74 3.34 5.05

78 39 41 93 46 51 58 31 4 2 24 47 43 15 99 53 54 48 35 18 5 27 59 26

3.00 4.21 4.14 2.59 3.98 3.84 3.73 4.48 6.44 6.46 4.94 3.95 4.02 5.58 2.47 3.79 3.78 3.94 4.34 5.42 6.36 4.78 3.66 4.82

114 31 42 36 11 5 85 21 15 70 41 49 52 60 72 38 62 26 48 2 4 45 55 24

1.69 4.18 3.78 4.10 5.73 6.10 2.39 4.84 5.40 2.79 3.79 3.56 3.49 3.14 2.71 3.99 3.11 4.40 3.58 6.80 6.48 3.70 3.30 4.47

118 52 25 45 34 31 74 19 21 16 23 72 53 37 96 59 92 49 70 32 9 69 54 42

1.63 3.00 4.62 3.32 3.79 4.26 2.39 4.86 4.83 4.98 4.78 2.44 2.98 3.69 1.90 2.75 2.02 3.12 2.46 3.93 5.54 2.46 2.95 3.53

9 3 33 42 96 72 5 34 118 31 78 12 29 2 38 20 46 25 48 105 115 23 86 8

5.52 5.84 4.93 4.83 4.09 4.48 5.68 4.92 3.35 4.98 4.32 5.42 5.01 5.89 4.88 5.23 4.76 5.12 4.74 3.93 3.46 5.17 4.21 5.53

70 Table 5. The Travel & Tourism Competitiveness Index 2007: Human, cultural, and natural resources subindex
PILLARS Human, cultural, and natural resources Country/Economy Rank Score Human resources Rank Score National tourism perception Rank Score Natural and cultural resources Rank Score

Algeria Bahrain Barbados Costa Rica Croatia Cyprus Egypt Estonia France Hong Kong SAR Israel Jordan Kuwait Malaysia Mauritania Mauritius Morocco Qatar South Africa Spain Switzerland Tunisia Turkey United Arab Emirates

97 54 17 20 11 3 68 34 28 14 35 58 86 57 74 39 52 49 96 19 2 37 48 24

4.37 4.86 5.38 5.34 5.55 5.62 4.70 5.18 5.27 5.44 5.18 4.82 4.46 4.84 4.67 5.15 4.93 4.99 4.37 5.34 5.81 5.15 5.00 5.31

86 79 42 28 54 49 69 30 32 7 13 63 16 34 101 89 72 19 111 45 1 22 65 29

4.82 4.94 5.32 5.49 5.22 5.24 5.06 5.45 5.42 5.93 5.69 5.13 5.64 5.38 4.19 4.80 5.04 5.60 3.64 5.30 6.25 5.54 5.09 5.47

114 36 2 39 4 5 85 31 96 27 78 34 117 26 1 14 45 41 56 55 62 50 43 3

4.01 5.37 6.56 5.30 6.52 6.48 4.55 5.54 4.42 5.60 4.61 5.51 3.94 5.64 6.58 6.10 5.24 5.28 5.08 5.09 4.88 5.17 5.28 6.53

65 66 68 28 36 31 55 49 9 39 27 86 89 101 110 50 52 75 59 17 6 40 47 80

4.28 4.27 4.25 5.22 4.90 5.15 4.49 4.54 5.95 4.78 5.23 3.83 3.80 3.52 3.23 4.54 4.50 4.08 4.40 5.62 6.30 4.75 4.63 3.92

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Table 6. The Travel & Tourism Competitiveness Index 2007: Top performer per pillar
Price competitiveness of the T&T industry Health and Hygiene Safety and security Natural and cultural resources Human resources ICT infrastructure

Country/ Economy

Algeria Bahrain Egypt Kuwait Jordan Mauritania Morocco Qatar Tunisia UAE
Global top performer

113 62 69 100 29 112 48 65 42 54
Singapore

82 77 75 96 56 98 64 29 16 25
Denmark

74 61 64 22 19 54 43 17 14 10
Finland

53 61 69 37 41 115 81 24 52 25
Hong Kong SAR

109 81 12 120 17 55 15 40 1 23
Tunisia

101 27 49 62 67 111 83 29 78 8
United States

78 39 58 43 47 99 54 48 27 26
Germany

114 31 85 52 49 72 62 26 45 24
Austria

118 52 74 53 72 96 92 49 69 42
Sweden

9 3 5 29 12 38 46 25 23 8

86 79 69 16 63 101 72 19 22 29

114 36 85 117 34 1 45 41 50 3

65 66 55 89 86 110 52 75 40 80

Indonesia Switzerland Mauritania Germany

FDI and foreign ownership, and open bilateral air service agreements. On the other hand, Algeria (113th), Mauritania (112th), and Kuwait (100th) maintain regulations that are among the least Travel & Tourism friendly of all countries assessed. In the related issue of environmental regulations, the Arab world as a whole registers an average ranking of 61.8. Countries such as Tunisia (16th), the United Arab Emirates (25th), and Qatar (29th) have strong levels of environmental protection and are prioritizing the sustainable development of the T&T industry.The rest of the countries are distributed rather uniformly between the 64th rank of Morocco and the 98th rank of Mauritania.This suggests that although sustainable tourism is increasingly finding its place in the policy agendas of countries in the region, it does not yet seem to be a priority for some, such as Algeria (82nd), Kuwait (96th), or Mauritania (98th). The region ranks well with regard to the safety and security environment (a regional average rank of 37.8, the second best among the 13 pillars). Indeed, 7 out of the 10 countries covered are in the top half of the ranking, with the United Arab Emirates (10th),Tunisia (14th), Qatar (17th), and Jordan (19th) having achieved safety and security levels that are among the best in the world. In particular, a number of Arab world countries stand out for their efficient and reliable police services, the negligible business cost of crime and violence, and, in some cases, the low or moderate terrorism risk.This reflects the effectiveness of efforts made by some governments and national actors throughout the region to combat terrorism and increase levels of security. With an average ranking of 55.8, regional health and hygiene standards show some margin for improvement. Aside from Qatar (24th), the United Arab Emirates

(25th), and, to a certain extent, Kuwait (37th), many countries in the region are characterized by limited access to improved drinking water and sanitation and by a rather low physician density. Mauritania, ranked 115th, lags way behind the second-worst performer, Morocco (81st). Improving the regional health and hygiene levels must be considered a priority to increase the region’s T&T competitiveness. With regard to the prioritization of the T&T sector, the overall regional ranking of 47.3 conceals a large variety in country-specific policies and achievements. Outcomes range from that of Tunisia—ranked 1st out of all 124 countries due to its effective, targeted destination-marketing strategies—to Kuwait, which at 120th seems to attach little priority to the T&T sector in its national agenda. Predictably, the largest tourist destinations in the region, Egypt and Morocco, rank quite highly in this category, at 12th and 15th respectively. They are followed by Jordan (17th) and the United Arab Emirates (23rd).The high rankings of these countries demonstrate that there are strong regional examples to be emulated by those countries lagging behind in this area. Looking at the four pillars assessing the state of T&T infrastructure in the region, the average rankings are somewhat mediocre (61.5, 51.9, 56.0, and 71.7 for air transport, ground transport, tourism, and ICT infrastructure respectively). In terms of quality of the air transport infrastructure, there seems to be a clear divide between a few Gulf states, such as United Arab Emirates (8th), Bahrain (27th), and Qatar (29th), which have established themselves into major regional hubs, and the others, particularly Mauritania (111th) and Algeria (101st).These Gulf states have developed high-quality air transport infrastructures, a large number of operating airlines given their size, significant numbers of aircraft

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

2.2: Assessing Travel & Tourism Competitiveness in the Arab World

Ground transport infrastructure

National tourism perception

Policy rules and regulations

Prioritization of T&T strategies

Environmental regulations

Air transport infrastructure

Tourism infrastructure

71

2.2: Assessing Travel & Tourism Competitiveness in the Arab World

72

departures, and international air transport networks that link them to key markets overseas.This demonstrates the potential for the region in the growing air transport sector, which is so critical to overall T&T competitiveness. The ground transport infrastructure presents less regional variance, with the United Arab Emirates (26th), Tunisia (27th), and Bahrain (39th) presenting the most developed and efficient roads, ports, and railways in the Arab world. Most other countries lie in the middle of the rankings, although Mauritania (99th) and Algeria (78th) lag behind the rest. Although most countries are in the top half of the rankings in this area, it is clear that some upgrading of the ground transport infrastructure is warranted to bring the region up to world-class levels. Similarly, the tourism infrastructure is especially well developed in the United Arab Emirates (24th), Qatar (26th), and Bahrain (31st), with good hotel infrastructure, extensive car rental facilities, and ATM networks. On the other hand, Algeria (114th) and, to a lesser extent, Egypt (85th) and Mauritania (72nd) would be well served by upgrading and extending their respective tourism infrastructures. ICT infrastructure is one of the two areas of T&T competitiveness in which the region demonstrates the weakest performance. Indeed, the best regional performers in this pillar are the United Arab Emirates and Qatar, at a mediocre 42nd and 45th position, respectively.The other countries are distributed at the bottom half of the global rankings, and Algeria (118th), Mauritania (96th), and Morocco (92nd) display particularly discouraging standings. Given the importance of ICT adoption—not only for the T&T sector, but for all industries and the economy’s productivity as a whole—a special effort should be made to enhance regional levels of ICT readiness and to upgrade the regional ICT infrastructure. The United Arab Emirates has been in the forefront of ICT progress in the region, investing heavily in ICT infrastructure and launching several cluster initiatives in this sense, including the Dubai Media City, the Dubai Internet City, and the Knowledge Village.11 The price competitiveness of the T&T industry, with an average regional score of 19.8, is the area in which the region is most strongly assessed. Notwithstanding rather high price levels in a number of countries in the region, they are assessed well as a result of low comparative fuel prices and overall tax rates, as well as low ticket taxes and airport charges. Bahrain (3rd), Egypt (5th), the United Arab Emirates (8th), and Algeria (9th) are ranked among the top 10 globally, while the lowest-ranked regional performer, Morocco, still places at a moderately high 46th position. The region ranks 55.6 on average for the quality of its human resources. Once again, we see a large variation in the regional rankings, with 4 out of the 10 countries covered (Kuwait, Qatar,Tunisia, and the United Arab Emirates at 16th, 19th, 22nd, and 29th respectively) in the top 30 and all other countries among the bottom

half of the global rankings. Mauritania lags behind the rest of the Arab world at 101st. It is important to note that education, at all levels, is a particularly problematic area for all countries, including the Gulf states.Tackling this problem will require significant investment in improving the quality of teaching, ensuring that educational institutions perform at international standards and that school curricula reflect the demands of rapidly changing modern economies. On a positive note, a number of national initiatives have been launched to this end. The pillar assessing national tourism perception—with an average regional ranking of 71.8—shows a high degree of diversity among the 10 countries covered.The populations of Mauritania (1st) and the United Arab Emirates (3rd) demonstrate an extremely welcoming attitude toward tourists and international travelers, as well as high degrees of tourism openness. On the other side of the spectrum, tourism perceptions in Kuwait (117th) and Algeria (114th) receive among the weakest assessments of all countries covered, with a perceived lack of openness toward visitors and tourism as a whole. The rather low tourism perception of the latter countries mirrors a similar lack of prioritization of the sector by the respective governments. Improvements in these areas would help them to more fully leverage the enormous opportunities offered by the T&T industry. Finally, the region registers an average rank of 71.8 for its natural and cultural resources.This can be attributed to the relatively few UNESCO World Heritage sites in some countries and to the low percentages of nationally protected land areas throughout the region. Even the best regional performers (Tunisia, Morocco, and Egypt) receive rankings of 40th, 52nd, and 55th respectively. The remaining countries are all in the bottom half of the global rankings.While this demonstrates that for some countries it may be a bit more difficult to attract tourists, it is by no means an obstacle that cannot be overcome given sufficient strengths in the other critical areas of T&T competitiveness, as the T&T success of the United Arab Emirates shows.

The T&T competitiveness of individual Arab countries Having looked at the general picture for the region’s T&T competitiveness, the rest of this chapter will focus on the country-specific T&T performances.The analysis below details particular areas of strength or weakness for each assessed country on the level of subindex, pillar, and individual indicator.
United Arab Emirates

The United Arab Emirates, ranked 18th and with an overall score of 5.09 (out of seven), is the highest-ranked country in the region, well ahead of the second-best regional performer,Tunisia (34th), and performing better than most international comparators.The country

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

demonstrates a rather even performance in all the three TTCI subindexes (18th in the T&T regulatory framework, 19th in the T&T business and infrastructure, and 24th in T&T human, cultural, and natural resources). The United Arab Emirates is characterized by excellent safety and security (ranked 14th), notably for the reliability of the police to protect from crime and the negligible business cost of crime and violence.The country’s air transport infrastructure also gets good marks (8th) due to a well-developed and high-quality air transport network. Indeed, the United Arab Emirates has been at the forefront of the extraordinary growth experienced by the Middle Eastern air transport sector in recent years, with the Dubai airport establishing itself as a primary regional hub.The United Arab Emirates is also rated strongly for its overall price competitiveness (8th), notwithstanding a high price level (the country’s high price level places it 101st), which is offset by extremely low ticket taxes and airport charges, low comparative fuel prices, and low taxation more generally. The country’s tourism perception is strongly rated (3rd), which is explained by the welcoming attitude toward tourists and travelers (5th) and an eagerness of business executives to recommend that important business contacts extend their business trips for leisure tourism in the country (7th).This perception is mirrored by a strong prioritization of the T&T sector in the government agenda (ranked 4th).The country maintains an important presence at the main T&T fairs and events worldwide, and has carried out effective destinationmarketing campaigns (ranked 1st out of all countries covered). Our data show that the United Arab Emirates could strengthen its performance further by focusing on a few remaining obstacles to T&T competitiveness. For example, the country’s regulatory environment (ranked 54th) is not fully conducive to T&T sector development. Regulations limit foreign ownership (93rd), bilateral air service agreements are not assessed as being extremely open (44th), and visa rules remain somewhat restrictive (42nd).We also note inadequate levels of education and training, with extremely low primary (73rd) and secondary (115th) education enrollment. Significant investment will be necessary to improve the quality of teaching and to ensure that educational institutions meet international standards and schools prepare students for rapidly changing modern economies. On a positive note, the United Arab Emirates has started moving toward improving training, with Abu Dhabi establishing an alliance with Singapore’s National Institute of Education for the provision of training services.12 Although the T&T industry does not currently account for a large portion of the UAE economy, it is bound to become increasingly important. Its development has been prioritized by the government, and there has been massive investment in upgrading the tourism infrastructure.The country now enjoys all the facilities

needed to attract and host different types of tourism (cultural, health, and sport).13 The WTTC projects 8.7 percent annual growth of the T&T industry in the United Arab Emirates from 2007 to 2016.
Tunisia

One of the most popular tourism destinations in North Africa,Tunisia ranked 34th in the international ranking and has a score of 4.76. It is the second-best performer within the Arab world after the United Arab Emirates. Tunisia is endowed with rich natural and cultural resources (it is ranked 24th for the number of World Heritage sites, for example).These endowments are boosted by a friendly regulatory framework (ranked 12th), clear and stable environmental regulations (16th), and low levels of crime and violence, including terrorism. Moreover,Tunisia is ranked 1st worldwide for the prioritization of T&T strategies, with high government spending on the sector (7.2 percent of GDP in 2006), highly effective and innovative destination-marketing campaigns, and representation at all the main international T&T fairs and events.This level of prioritization is perhaps not surprising given the importance of the T&T industry for the country’s economy, which accounts for 9.2 percent of GDP, 9 percent of total employment, and 20.2 percent of total exports in 2006.14 Tunisia is assessed as having good ground infrastructure (27th) and hotel facilities (17th). In this respect, recent national programs for upgrading the tourism sector have focused on raising hotel standards, with a pilot project involving 40 hotel units.15 The country also benefits from satisfactory levels of overall price competitiveness (23rd) due to a relatively low cost of living (32nd in purchasing power parity), relatively inexpensive fuel (21st), and taxation that is not distortionary (18th).The country is also endowed with high-quality human resources (22nd) and universal enrollment at the primary school level. It receives excellent marks for the quality of the educational system (11th). On the other hand,Tunisia’s overall T&T performance is hindered by a few elements that, if addressed, could help the country realize its immense T&T potential. In particular, the air transport and the ICT infrastructures ranked 78th and 69th, respectively.These could be upgraded and extended to support a further expansion of the T&T industry. Another competitive disadvantage is health and hygiene, in which Tunisia ranked 52nd.This remains an area of concern, particularly linked to a lack of access to improved drinking water (78th) and a low physician density (66th). Finally, with regard to price competitiveness, the level of ticket taxes and airport charges is extremely high (ranked 103rd) compared with the other countries in the region and most of the 124 countries covered by the Index.

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

2.2: Assessing Travel & Tourism Competitiveness in the Arab World

73

2.2: Assessing Travel & Tourism Competitiveness in the Arab World

Qatar

74

Qatar ranked 36th internationally, with a score of 4.7. It follows closely behind Tunisia, with a somewhat similar assessment in the first two pillars of the Index (34th in T&T regulatory framework and 39th in T&T business environment and infrastructure) and demonstrating a slightly weaker performance in the area of T&T human, cultural, and natural resources (49th). Qatar is perceived to be a safe country with regard to crime and violence (13th), with reliable police services (21st).The country also demonstrates satisfactory health and hygiene conditions (24th), and the access to improved sanitation and drinking water is second to none. Qatar ranks well for human resources (ranked 19th overall), with universal enrollment at the primary level, an educational system that gets good marks for quality (20th), available qualified labor in the country (22nd), and relatively flexible labor markets (23rd). The country is also assessed as having good-quality air transport infrastructure, with many aircraft departures (ranked 8th)—reflecting, in large part, the increase in travelers from Europe, Asia, and Australia in recent years. The overall tourism infrastructure is ranked a reasonably high 26th, due to the prevalence of car rental companies and the network of ATMs (23rd). Qatar also demonstrates good price competitiveness (25th), notwithstanding having one of the highest comparative price levels in the world (115th).This is attributable to its low ticket taxes and airport charges (4th), comparatively low fuel prices (4th), and low taxation (5th). Finally, the Qatari government is seen to be prioritizing the sector (ranked 24th), which is reflected in the high level of government expenditure on the T&T industry (5.5 percent of GDP). In addition to investing in infrastructure, the government has focused its attention on the development of niche markets, including sports, wellness, and educational tourism.16 On a less positive note, policy rules and regulations (65th) are not totally conducive to the development of the T&T sector. In particular, rules on foreign ownership (91st) and visa requirements (85th) are restrictive.There is room for improvement in the quality of ground transport infrastructure, including roads (48th) and ports (42nd). In this context, the government’s focus in recent years on developing and improving roads should be commended.17
Jordan

Jordan ranked 46th in the international ranking, scoring 4.52 out of 7. Its performance across the three subindexes is somewhat uneven. It is assessed as doing quite well with regard to the T&T regulatory framework (30th), but does less well in the T&T business environment and infrastructure (54th) and T&T human, cultural, and natural resources (58th). In particular, Jordan is characterized by excellent safety and security levels. Notwithstanding the 2005 terrorist attacks in

Amman, which are reflected in a high business cost of terrorism (96th), Jordan is perceived as one of the safest destinations in the region, with minor levels of crime and violence (10th) and a reliable police force (10th). Another of Jordan’s strengths is the T&T industry’s price competitiveness, with low comparative fuel prices (7th) and relatively low ticket taxes and airport charges (24th). Considering the importance of the T&T industry for the country, accounting for 9.2 percent of GDP and 8.7 percent of total employment in 2006, it is not surprising that the sector is given top priority in the government’s agenda.This is demonstrated by a number of indicators, such as the government prioritization of the T&T industry (22nd), the considerable level of government T&T expenditure (10.7 percent of total spending)—ranked 7th worldwide and the highest in the region—and the country’s liberal visa requirements (15th). Furthermore, the few restrictions on foreign ownership (20th) and favorable FDI policies represent a conducive regulatory framework for the development of the T&T sector and its openness to foreign investors. Turning our attention to Jordan’s main T&T competitive weaknesses, we find the lack of qualified labor (92nd) to be a major hindrance. Indeed, primary and, to a lesser extent, secondary education enrollment levels (92nd and 59th) are low by international standards.The lack of flexibility of the labor market (90th) and the difficulty in hiring foreign labor (83rd) provide further difficulties to securing a sufficient pool of qualified labor. Another obstacle can be found in the quality of the tourism-enabling infrastructure, which could be upgraded to improve the country’s T&T competitiveness.This is particularly the case for the air transport infrastructure (67th), the railroad infrastructure (75th), and the ICT infrastructure (72nd). Last, there is room for improvement in the area of environmental protection. Jordan’s environmental regulations are not perceived as sufficiently stringent (58th) nor clear and consistent (58th) enough to ensure that the sector develops on a sustainable basis.This concern is echoed by the high level of carbon dioxide damage (96th) and the limited number of nationally protected areas (92nd). The government is actively working toward improving in a number of these areas. It adopted a sixyear National Tourism Strategy in 2004, and created a Strategy Implementation Unit at the Ministry of Tourism and Antiquities, which is based on privatepublic partnership.This strategy stresses the importance of upgrading tourism infrastructure to international standards and places an emphasis on human resources development.18
Bahrain

Bahrain is ranked 47th in the TTCI, just behind Jordan, and receives a total score of 4.45 out of 7. As in the case of Jordan, the T&T sector accounts for a significant

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

percentage of Bahrain’s economy—on the order of 8.3 percent of GDP and 11 percent of total employment. This is captured by the high degree of tourism openness in the country (where it is ranked 11th). Overall, Bahrain’s competitive strengths are to be found more in the area of T&T business environment and infrastructure (34th) than in its human, cultural, and natural resources (54th) or the T&T regulatory framework (47th). More specifically, Bahrain possesses a rather developed air transport (27th) and tourism infrastructure (31st) with a large number of aircraft departures (9th), a relatively extensive international air transport network (28th), ample hotel availability (18th), and relatively widespread car rental facilities (35th). Moreover, the country has good-quality port (26th) and road (29th) infrastructure. Price competitiveness is another notable advantage (3rd), with low taxation, cheap comparative fuel prices (7th), and low ticket taxes and airport charges (5th). Bahrain also performs well in selected education and health and hygiene indicators, with excellent access to improved sanitation and universal primary enrollment. With regard to competitive disadvantages, Bahrain’s T&T competitiveness is pulled down by weakness in two main areas: a lack of prioritization of the T&T industry (81st) and the quality of human resources (79th).With respect to the first issue, Bahrain is represented at few T&T fairs and events (70th) and is assessed as having ineffective destination marketing and branding (107th).The lack of prioritization is also reflected by aspects of the policy environment that are not supportive of Travel & Tourism, such as the country’s relatively onerous visa requirements (85th).This is mirrored by what is perceived as a lack of openness of its citizens toward tourists and travelers (89th). In terms of the country’s human resource base, there is a perceived lack of qualified workers (115th). This is a major hindrance not only for the T&T industry’s growth potential but also for the country’s overall competitiveness. Indeed, relevant reforms and policies could be undertaken to liberalize the labor market, currently assessed as very rigid (104th); to improve the local availability of training (96th); to upgrade the quality of the educational system (ranked at 79th); and to facilitate the hiring of foreign workers (107th) in order to enhance the local pool of talent available in the country.
Morocco

Morocco is characterized by a rich cultural heritage (ranked 24th for the number of World Heritage sites) and a comparatively open and positive attitude toward tourists (35th).These measures of attractiveness are coupled with a favorable policy environment. In this regard, the country gets superior marks in the prioritization of the T&T strategies pillar (15th), with effective destinationmarketing campaigns (19th), strong representation at main international T&T fairs and events (23rd), government prioritization of sustainable development in the T&T sector (18th), and tourism-friendly visa regulations (15th). However, Morocco displays competitive weaknesses in a number of areas.There are some concerns related to health and hygiene (ranked 81st), with a low physician density (93rd) and limited access to improved drinking water (83rd) and improved sanitation (74th). Security is also of concern, particularly the threat of terrorism (88th). With regard to environmental protection, the clarity and stringency of government environmental regulation gets poor marks, although the government seems to be making efforts to develop the industry in a sustainable way. Businesses are not assessed as demonstrating great concern for environmental protection (97th). In terms of moving around the country, the transport infrastructure is somewhat underdeveloped, particularly air transport infrastructure.There are few airports (103rd) and aircraft departures (67th). Some weaknesses can also be found in the ICT infrastructure (92nd), especially the extent of business usage of the Internet (109th), one of the weakest assessments in the region. With regard to human resources, secondary education enrollment rates are low (100th) and the quality of the educational system is assessed as quite poor (91st). On a more positive note, labor markets in Morocco are assessed as more flexible than those in a number of other countries in the region. Considering the importance of the T&T sector for Morocco (accounting for 10.1 percent of GDP and 8.8 percent of total employment in 2006), it would seem that removing some of these obstacles to T&T competitiveness would be extremely important for the country’s economic prospects going forward.
Egypt

Morocco, which together with Tunisia is one of the two main tourism destinations in North Africa (attracting approximately 5.8 million tourists in 2005), ranks 57th overall in the TTCI (with a score of 4.3).The country demonstrates a rather even performance in the T&T regulatory framework (47th) and human, cultural, and natural resources (52nd), while receiving a comparatively weak assessment for the T&T business environment and infrastructure (72nd).

Egypt, a country rich in cultural heritage (with 7 World Heritage sites), ranks a low 58th in the TTCI.This is despite a number of clear strengths beyond its cultural richness. For example, Egypt has excellent price competitiveness, where it is ranked 5th overall with low comparative prices generally, including fuel prices, as well as relatively low ticket taxes and airport charges. Furthermore, the government is seen to be prioritizing the T&T industry, with high government spending on the sector (19th). Also, the government has ensured the country’s presence at major tourism fairs (4th).This level of prioritization is also reflected in policy areas such as

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

2.2: Assessing Travel & Tourism Competitiveness in the Arab World

75

2.2: Assessing Travel & Tourism Competitiveness in the Arab World

the favorable policy on visa requirements (15th) as well as the government’s efforts to develop the T&T industry in a sustainable way (36th). It should be noted, however, that environmental regulations are still not seen as sufficiently stringent and ranked 92nd. Egypt also has some strengths with regard to human resources, particularly the country’s universal primary school enrollment and the relative ease with which companies can hire foreign labor compared with many other countries in the region (27th). However, secondary enrollment remains relatively low by international standards (60th), and the overall quality of the educational system rates poorly (104th).There is also limited onthe-job training provided in the economy (83rd). Other weaknesses include Egypt’s infrastructure, which is somewhat underdeveloped, particularly the tourism infrastructure (85th), with limited hotel room availability (70th), few ATMs for withdrawing cash (87th), and limited rental car choices (66th). Also of concern is the country’s ICT infrastructure (74th), which displays low telephone and Internet penetration rates. In this light, a further upgrading of the quality of the country’s human resources available to work in this sector, as well as the country’s “hard” infrastructure, should be a priority.
Kuwait

76

Last among the Gulf states is Kuwait, which is ranked 67th overall and received a score of 4.1 out of 7. Kuwait is assessed as performing better in the areas measured within the T&T business environment and infrastructure (50th), with more apparent weaknesses in the T&T regulatory environment (71st) and especially in the human, cultural, and natural resources pillar (86th). Kuwait’s T&T performance presents several bright spots associated with good health and hygiene indicators, such as excellent access to improved sanitation and drinking water, as well as extremely low rates of diseases such as HIV.The country is also perceived as extremely safe overall (22nd) despite concerns about the risk of terrorism (71st). Kuwait also has a relatively developed T&T infrastructure, with a satisfactory number of aircraft departures (35th) and airlines operating in the country (43rd), quality roads (27th), and one of the world’s most comprehensive car rental networks.With regard to human resources, Kuwait is assessed as having an extremely flexible labor market. Moreover, the country has strong price competitiveness in the T&T sector (29th overall), with among the lowest levels of ticket taxes and airport charges in the world, coupled with comparatively inexpensive fuel prices (10th) and low taxation more generally (4th). Despite the encouraging picture that emerges from the above analysis, a few serious weaknesses remain to be addressed before Kuwait is able to fully leverage the potential of Travel & Tourism for its overall competitiveness and economic development. A major difficulty

seems to be a lack of prioritization of the industry within the government strategy. Indeed, Kuwait ranks among those countries where the government is seen as prioritizing the sector the least (119th).The country has ineffective destination-marketing and branding strategies (116th), low levels of government T&T expenditure (1.2 percent of total spending, ranked 103rd), and limited participation in international T&T fairs to promote the country for tourism (90th). The lack of prioritization of the sector can also been seen in specific tourism-related policies. For example, Kuwait has among the most restrictive foreign ownership (124th) and FDI (122nd) regulations, and it demonstrates a lack of openness with regard to bilateral air service agreements (119th). Furthermore, the government is not seen to be prioritizing the development of the sector in a sustainable way (111th), with environmental regulations that are seen as neither stringent (81st) nor clear (73rd). The approach of Kuwait’s citizens vis-à-vis tourism is also perceived as quite lukewarm, as indicated by the rank given to their attitude toward foreign travelers (124th—the lowest ranking). The scarcity of clear cultural and natural resources (ranked 107th and 100th respectively for the number of World Heritage sites and nationally protected land areas) might have prevented tourism from featuring as an obvious priority area in Kuwait’s development strategies. This is indicated by a limited contribution of the T&T sector to GDP and total employment (1.3 percent and 1.9 percent respectively in 2006). However, as discussed above, a further expansion of the T&T sector could help the country diversify away from oil dependency and toward a more balanced economic structure, as it is the case in a number of other countries in the region.
Mauritania

The overall T&T competitiveness picture for Mauritania is quite discouraging, with an overall ranking of 92 and low standing in all the three subindexes of the TTCI: it ranks 95th in the T&T regulatory framework, 97th in the business environment and infrastructure, and a slightly more positive 74th position for human, cultural, and natural resources. The country is among the top half of all assessed with regard to safety and security issues (ranked 54th), especially concerning perceived terrorism threats (37th). Mauritania has rather competitive price levels (38th), with low comparative fuel prices (3rd) and low taxes (13th). Moreover, the government and civil society alike show a high degree of openness and interest in developing tourism. Indeed, the T&T sector occupies an important place in the public agenda (33rd), and it is fairly efficiently branded and marketed (31st). Mauritanians appear to value tourism highly.They express an eagerness to recommend visiting business counterparts to extend their trips to get to know the country better (3rd) and have a generally welcoming attitude toward foreign

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

travelers (13th).The country also has an extremely flexible labor market, characterized by flexibility in hiring and firing (3rd) as well as a relative ease of hiring foreign labor (22nd). These trends bode well for the country’s potential to increasingly attract tourism and investments in the T&T sector, but they will need to be complemented by concrete measures and remedial steps in several other Travel & Tourism–related dimensions.To begin, although tourism is seen as a priority area, this is not supported by the regulatory environment. Mauritania has a stringent visa regime (113th) and strict FDI regulations (96th). Also, environmental regulations do not get good marks for their stringency (104th) or their clarity (94th). Furthermore, Mauritania’s T&T infrastructure lags behind the rest of the region and is in serious need of upgrading.This is particularly true for the air transport (111th) and ground transport (99th) infrastructure, as well as the ICT infrastructure (96th). The country also has weak health and hygiene indicators, such as low life expectancy (101st), a lack of physicians (110th), and difficult access to improved drinking water (104th) and sanitation (95th). Furthermore, there are strong prevalence rates of diseases such as malaria (111th) and tuberculosis (109th). The quality of human resources in Mauritania, critical not only for T&T competitiveness but also for the country’s overall development prospects, is poor (101st). Of particular concern is the level and quality of education and training, with extremely low primary (108th) and secondary (115th) enrollment rates, an educational system that is assessed as highly inefficient (110th), and little on-the-job training (121st).
Algeria

Algeria, ranked 93rd in the TTCI, closes the rankings for the Arab world countries, with weak assessments in the T&T regulatory framework (89th), business environment and infrastructure (93rd), and cultural, human, and natural resources (97th) subindexes. Although the country displays a few competitive advantages for the flourishing of a healthy tourism industry, the TTCI’s overall assessment is rather negative and points to the necessity of urgent reforms and measures to set the basis for a competitive T&T sector. In terms of competitive advantages, Algeria is well endowed in cultural and natural beauty (ranked 30th for the number of World Heritage sites), demonstrating that along with its North African neighbors, it has the basis for developing a strong T&T industry. It also benefits from competitive prices in the T&T sector (9th), notably fuel prices (3rd) and taxation levels (32nd). In terms of security, the police force is seen as reliable for protecting from crime. In the area of human resources, Algeria has attained universal primary education enrollment. On the other hand, the development of the T&T sector is scarcely prioritized by the government (82nd),

with a low level of public expenditures allocated to the sector (105th, corresponding to 1.1 percent of total spending). Furthermore, the country has rather ineffective marketing and branding strategies for its T&T sector. This lack of prioritization is also reflected in the general regulatory framework, which is characterized by tight visa regulations (113th), restrictions on FDI (91st), and foreign ownership (84th).The lack of priority given to Travel & Tourism in the public agenda is mirrored by what is perceived to be a comparatively unwelcoming attitude of the society toward foreign visitors (107th). Moving forward, the T&T infrastructure would require important investments to be upgraded and extended, in particular the air transport network (101st), the tourism infrastructure (114th), and the ICT infrastructure (118th). Also, with regard to security, the turbulent recent history of Algeria continues to resonate in the country, with concerns about terrorism (114th) and crime and violence (80th) remaining high. Finally, the labor market in Algeria is assessed as lacking flexibility (the country is ranked 117th for the ease of hiring foreign labor and 100th for rules on hiring and firing workers).With regard to training, secondary enrollment rates remain low (73rd), the formal educational system gets poor marks for quality (92nd), and companies provide limited staff training (98th). Although the contribution of T&T to GDP and total employment is almost negligible (1.5 percent and 1.4 percent respectively), the WTTC forecasts that its contribution will increase dramatically in the coming decade, with an estimated 7 percent and 5.2 percent annual growth in these respective indicators.The great progress made in political stabilization has started to bear fruit in terms of a tourism recovery, with 1.4 million tourists recorded in 2005. Increased attention is being paid by the government to the sector.19 However, as evident from the above discussion, many challenges remain for the country to achieve truly sustainable T&T competitiveness.

Conclusions This chapter has analyzed the Travel & Tourism competitiveness of countries in the Arab world, based upon the results of the World Economic Forum’s new Travel & Tourism Competitiveness Index (TTCI).The analysis has placed the region’s performance in a global context, benchmarking individual countries’ performances against the 124 economies included in the Index, spanning all regions of the world. While the discussion has shown that much still remains to be achieved in order to improve the T&T competitiveness of many countries in the Arab world, there is also reason for optimism.We have seen that some countries within the region have environments that are quite attractive for developing the T&T sector, as measured by the TTCI.These include the United

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

2.2: Assessing Travel & Tourism Competitiveness in the Arab World

77

2.2: Assessing Travel & Tourism Competitiveness in the Arab World

Arab Emirates,Tunisia, and Qatar in particular.These countries can serve as benchmarks for other countries in the region in their efforts to increase their T&T competitiveness. Given the growing importance of the T&T sector for the region as a vehicle for diversifying economies, attracting foreign currency, and easing unemployment, improving the industry’s competitiveness is critical. By highlighting specific success factors and obstacles to T&T competitiveness in the region’s countries, we hope that the TTCI will serve as a useful tool for the business community and for national policymakers to work together to improve the T&T competitiveness of their economies and contribute to improving the growth prospects and prosperity of citizens within the region.

References
Al-Hammarneh, A. and C. Steiner. 2004. “Islamic Tourism: Rethinking the Strategies of Tourism Development in the Arab World after September 11, 2001.” Comparative Studies of South Asia, Africa and the Middle East 24: (1 Spring): 18–27. De Boer, K. and J. M. Turner. 2007. “Beyond Oil: Reappraising the Gulf States.” The McKinsey Quarterly, Web exclusive, January. Available at www.mckinseyquarterly.com. Majali, S. and G. Weston. 2007. “The Challenge of Open Skies in the Middle East: How to Manage Competition in the High-Growth Air Transport Sector.” In The Travel & Tourism Competitiveness Report 2007, ed. J. Blanke and T. Chiesa. Geneva: World Economic Forum. UNWTO (World Tourism Organization). No date. Historical Perspective of World Tourism. Available at www.unwto.org/facts/menu.html. ———. 2005. Tourism Market Trends: Middle East, 2005. Madrid: UNWTO. ———. 2006. Tourism Barometer 4 (3). Madrid: UNWTO. World Economic Forum. 2007. Travel & Tourism Competitiveness Report 2007. Ed. by J. Blanke and Th. Chiesa. Geneva. World Economic Forum. WTTC (World Travel & Tourism Council). 2006a. Middle East: The 2006 Travel & Tourism Economic Research. London: WTTC. ———. 2006b. North Africa: The 2006 Travel & Tourism Economic Research. London: WTTC. ———. 2006c. TSA Research 2006. London: WTTC.

Notes
1 See UNWTO (2006). 2 See Al-Hammarneh and Steiner (2001). 3 See WTTC (2006 a, b). 4 See UNWTO, Historical Perspective of World Tourism. Available at www.unwto.org/facts/menu.html. 5 See UNWTO (2005). 6 See UNWTO (2005).

78

7 See Majali and Weston (2007). 8 See WTTC (2006a, b). 9 The TTCI was developed in close collaboration with Booz Allen Hamilton, the International Air Transport Association (IATA), the UNWTO, and the WTTC. Important feedback was also provided by a number of key companies that are industry partners in the effort: Bombardier, Carlson, Emirates Group, Qatar Airways, Royal Jordanian Airlines, Silversea Cruises Group, Swiss International Airlines, and Visa International. 10 The TTCI includes a more limited number of countries than this Report because of the unavailability of the data at the time of its computation. In this sense, Libya, Syria, and Oman are not assessed in this chapter. 11 See Chapter 2.3 by Dutta, Shalhoub, and Samuels in this Report for a more detailed discussion of the United Arab Emirates’ ICT initiatives. 12 See UNWTO (2005). 13 For an extensive review of the many projects undertaken recently, see UNWTO (2005), page 96-97. 14 See WTTC (2006). 15 See UNWTO (2005). 16 See UNWTO (2005). 17 See UNWTO (2005). 18 See UNWTO (2005). 19 For an extensive review of the projects/measures recently undertaken, see UNWTO (2005, pp. 105–07).

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Appendix A: Composition of the Travel & Tourism Competitiveness Index

This appendix provides details about the construction of the Travel & Tourism Competitiveness Index (TTCI).The TTCI is composed of three subindexes: the T&T regulatory framework subindex, the T&T business environment and infrastructure subindex, and the T&T human, cultural, and natural resources subindex.These subindexes are, in turn, composed of the 13 pillars of T&T competitiveness shown below: namely, policy rules and regulations, environmental regulation, safety and security, health and hygiene, prioritization of Travel & Tourism, air transport infrastructure, ground transport infrastructure, tourism infrastructure, ICT infrastructure, price competitiveness in the T&T industry, human resources, national tourism perception, and natural and cultural resources. These pillars are calculated on the basis of both “hard data” and “survey data.” The survey data comprise the responses to the World Economic Forum’s Executive Opinion Survey and range from 1 to 7; the hard data were collected from various sources. The standard formula for converting each hard data variable to the 1-to-7 scale is
6 x

The variables of each pillar and subpillar are described below. If a variable is one of hard data, this is indicated in parentheses after the description.

Subindex A: T&T regulatory framework
Pillar 1: Policy rules and regulations
1.01 1.02 1.03 1.04 1.05 Foreign ownership restrictions Property rights Rules governing foreign direct investment Visa requirements (hard data) Openness of bilateral Air Service Agreements (hard data)

Pillar 2: Environmental regulation
2.01 2.02 2.03 Stringency of environmental regulation Clarity and stability of environmental regulations Government prioritization of sustainable Travel & Tourism

Pillar 3: Safety and security
3.01 3.02 3.03 Business costs of terrorism Reliability of police services Business costs of crime and violence

Pillar 4: Health and hygiene
4.01 Government efforts to reduce health risks from pandemics Physician density (hard data) Access to improved sanitation (hard data) Access to improved drinking water (hard data)

(

country value – sample minimum sample maximum – sample minimum

)

+ 1 4.02 4.03 4.04

The sample minimum and sample maximum are the lowest and highest values of the overall sample, respectively. For some variables, a higher value indicates a worse outcome. For example, higher carbon dioxide damage is bad. In this case we “reverse” the series by subtracting the newly created variable from 8. In some instances, adjustments were made to account for extreme outliers in the data. All of the data used in the calculation of the TTCI can be found in the Data Tables section of the Travel & Tourism Competitiveness Report 2007, available online at http://www.weforum.org/en/initiatives/gcp/Travelan dTourismReport/index.htm. Each of the pillars has been calculated as an unweighted average of the individual component variables.The subindexes are then calculated as unweighted averages of the included pillars. In the case of the human resources pillar, which is itself composed of three subpillars (education and training, availability of qualified labor, and workforce wellness), the overall pillar is the unweighted average of the three subpillars. The overall TTCI is then the unweighted average of the three subindexes.

Pillar 5: Prioritization of Travel & Tourism
5.01 5.02 5.03 5.04 Government prioritization of the T&T industry T&T government expenditure (hard data) Effectiveness of marketing and branding to attract tourists T&T fair attendance (hard data)

Subindex B: T&T business environment and infrastructure
Pillar 6: Air transport infrastructure
6.01 6.02 6.03 6.04 6.05 6.06 Quality of air transport infrastructure Available seat kilometers (hard data) Departures per 1,000 population (hard data) Airport density (hard data) Number of operating airlines (hard data) International air transport network

Pillar 7: Ground transport infrastructure
7.01 7.02 7.03 7.04 Road infrastructure Railroad infrastructure Port infrastructure Domestic transport network

(cont’d.)

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

2.2: Assessing Travel & Tourism Competitiveness in the Arab World

79

2.2: Assessing Travel & Tourism Competitiveness in the Arab World

Appendix A: Composition of the Travel & Tourism Competitiveness Index (cont’d.)

Pillar 8: Tourism infrastructure
8.01 8.02 8.03 Hotel rooms (hard data) Presence of major car rental companies (hard data) ATMs accepting Visa cards (hard data)

Pillar 9: ICT infrastructure
9.01 9.02 9.03 Extent of business Internet use Internet users (hard data) Telephone lines (hard data)

Pillar 10: Price competitiveness in the T&T industry
10.01 10.02 10.03 10.04 Ticket taxes and airport charges (hard data) Purchasing power parity (hard data) Extent and effect of taxation Fuel price levels (hard data)

Subindex C: T&T human, cultural, and natural resources
Pillar 11: Human resources
Education and training Primary education enrollment (hard data) Secondary education enrollment (hard data) Quality of the educational system Local availability of specialized research and training services 11.05 Extent of staff training
11.01 11.02 11.03 11.04

80

Availability of qualified labor 11.06 Hiring and firing practices 11.07 Ease of hiring foreign labor
11.08 11.09 11.10 11.11

Workforce wellness HIV prevalence (hard data) Malaria incidence (hard data) Tuberculosis incidence (hard data) Life expectancy (hard data)

Pillar 12: National tourism perception
12.01 Tourism openness (hard data) 12.02 Attitude toward tourists 12.03 Recommendation to extend business trips

Pillar 13: Natural and cultural resources
13.01 13.02 13.03 13.04 13.05 Number of World Heritage sites (hard data) Carbon dioxide damage (hard data) Nationally protected areas (hard data) Business concern for ecosystems Risk of malaria and yellow fever (hard data)

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

CHAPTER 2.3

Promoting Technology and Innovation: Recommendations to Improve Arab ICT Competitiveness
SOUMITRA DUTTA, INSEAD ZEINAB KARAKE SHALHOUB, American University in Sharjah GEOFFREY SAMUELS, INSEAD

The Middle East has begun to embrace the Internet. During the past six years, the region recorded the largest growth in Internet users among the major world areas as the number of Middle Eastern citizens accessing the Web soared by more than 600 percent, three times the world’s average increase.The mobile telephone market has become a prodigy market, as liberalization across the region has led multiple vendors competing to lower costs and improve performance to attract record numbers of new customers. However, more important than rising Internet access or ringing mobile telephones is official awareness at the highest levels of Middle Eastern governments that it is no longer possible to relegate information and communication technology (ICT) policies to an administrative sideshow. A country’s ICT capabilities can profoundly affect its capacity to innovate and its global competitiveness, as well as improve the socioeconomic prospects of its less-advantaged citizens. Senior-level attention to ICT as a key enabler of innovation has been expressed in different ways in different countries, but a fundamental and salutary change is that these issues now rank as top agenda items.Whether this attention will usher in effective policies, however, remains a debatable issue.

The Middle Eastern technology challenge The international community has confirmed ICT’s potential to enable innovation and to advance a country’s development agenda. Although innovation is often associated with large projects in cutting-edge sectors, such as biotech or nanotechnology, the cumulative effect of small improvements occurring throughout the entire spectrum of economic activity is likely to have an even more pronounced effect on the development process of a country as argued by Mokyr (1990) and Trajtenberg (2006). ICT, the leading general purpose technology of our time is probably the most important enabler of such improvements, which cumulate to innovation in products as well as processes.1 At the same time, a particular characteristic of general purpose technologies is that they entail interdependencies—for example, the use of ICT can also trigger innovation by requiring products and processes to be adapted to the new technology.This in practice is often carried out by small- and mediumsized enterprises (SMEs). Countries that do not use ICT technology intensively forego many opportunities for fostering innovative activity. Recording the world’s highest growth rate of Internet access over the past six years is an encouraging sign that Middle Eastern countries are approaching the technology challenge with much more dedication. However, delay investing in ICT technologies, infrastructure, and human skills has meant the Middle East lags considerably in its development relative to the rest

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

2.3: Promoting Technology and Innovation

81

2.3: Promoting Technology and Innovation

Table 1: Summary of country indicators
NRI rank 2005–06 (out of 115) NRI rank 2003–04 (out of 102) GCI Innovation Rank 2006–07 EIU e-readiness rank 2006 (out of 68) Internet users per 100 population Internet bandwidth (Mbps per 10,000 population) PCs per 1,000 population Broadband subscribers per 1,000 population Secure Internet servers per 1 million population Schools connected to the Internet (percent)

Country

Bahrain Egypt Jordan Kuwait Oman Qatar Syria United Arab Emirates

49 63 47 46 — 39 — 28

— 65 46 — — — — —

101 82 64 81 — 41 — 40

— 55 54 — — — — 30

21.61 4.37 8.11 22.82 7.1 19.93 4.5 33.99

2.75 0.11 0.17 0.32 — 2.5 — 2.69

— 22 55 122 37 190 19 117

— 0.4 0.9 5.4 0 — 0 13.1

— 0.4 3.9 21.1 2.3 — — 40.4

— 66 18 — — — — —

Source: World Economic Forum and INSEAD, 2005; World Economic Forum, 2006, Economist Intelligence Unit, 2006; World Bank, 2006.

82

of the world. Only sub-Saharan Africa posts lower average ICT access and performance standards.2 If Middle Eastern governments are to lift their countries’ technology capabilities to developing and emerging world averages, they will need to make considerable financial and resource investments as well as introduce policy changes to encourage innovation that, in some areas, will rub against long-established business practices. New policies must be carefully considered because their impact and scale are considerable, the issues are complex, and they must coordinate with ongoing development programs to ameliorate pressing socioeconomic, and even political, needs. Prioritizing initiatives is essential. Equally important are designing and supporting processes to implement these initiatives.The cultural and administrative challenges for Middle Eastern economies where state bureaucracies play a prominent role should not be underestimated.This is especially true because technologies and innovative capabilities evolve at everfaster rates. New ways to connect users to the Web, such as WiMax, can potentially extend access to more citizens at more affordable costs. If Middle Eastern governments are to make the right investment and regulatory decisions to encourage innovation, they should engage the private sector from consulting on priorities and technology potential to participating in various forms of public-private partnerships. Public-public partnerships across the region also hold the promise to help governments share experience, expertise, and resources to craft innovative regional approaches that could advance each country’s specific development agenda and priorities.There is considerable potential for regional partnerships by pooling cross-country infrastructure investments, negotiating with vendors, and sharing best practices.The region is home to countries considerably more advanced than their neighbors—such as Jordan,Tunisia, and the United Arab Emirates—in developing and applying technologies.These countries’ shared expertise and experience can greatly assist all

governments in assessing appropriate policies, investment priorities, and innovative development techniques. This chapter will explore the link between ICT and innovation in the region and present an overview of current technology capabilities and issues for a subset of Middle Eastern countries (Western Asia) to indicate the wide variations in the Arab world for this key enabler of innovation.3 The chapter will then link these variations to the results of a recent Arab world executive survey about innovation, present brief case studies of innovationenabling initiatives in the United Arab Emirates and Jordan, and recommend policies to improve ICT performance by stimulating innovative approaches across the Arab world.

Innovation and divides A visitor to the Middle East’s Western Asian region will quickly see vast differences between and within each state. All these countries confront divides—in demographic, economic, social, educational, and natural resource arenas, for example.The digital divide is the most recent, but it mirrors long-standing regional and historical issues because technology touches and reflects so many facets of a country’s economy and society.Table 1 provides a snapshot comparison of each nation’s major ICT statistics. These statistics and rankings have been assembled, compiled, or analyzed by, among others, the International Telecommunication Union (ITU), the World Bank, the United Nations, the Economist Intelligence Unit, and the World Economic Forum. For reasons beyond the scope of this paper, acquiring basic technology and innovation data in developing countries, let alone accurate market statistics, can be problematical.The Middle East is no exception, and various statistical techniques were applied to produce these figures.4 The reason this caveat is not a footnote is because monitoring and evaluating technology development initiatives are essential to discovering what works and what does not. Domestic and cross-country performance

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Table 2: Ranking of Middle Eastern countries according to maturity level in information society, 2005
Legal framework ICT infrastructure Capacity building ICT sector building Commerce and business Arabic content

Country

Policies

Government

Education

Health

Average

United Arab Emirates Bahrain Jordan Kuwait Saudi Arabia Qatar Egypt Lebanon Oman Syria Palestine Iraq Yemen Average
Source: UN-ESCWA, 2005.

3 4 4 3 3 2 3 2 2 2 1 1 1 2.38

3 3 3 2 2 2 2 2 2 1 1 1 1 1.92

4 4 2 3 3 3 2 2 2 2 2 1 1 2.38

3 3 3 2 2 3 3 2 2 2 2 2 2 2.38

3 1 3 1 2 1 2 2 1 1 1 1 1 1.54

3 3 3 2 2 3 2 3 2 2 1 1 1 2.15

3 3 3 3 2 2 2 2 2 2 1 1 1 2.08

4 4 3 3 3 3 2 3 3 1 1 1 1 2.46

3 3 2 3 2 2 2 2 2 2 1 1 1 2.00

3 2 3 2 3 2 3 2 1 2 2 1 1 2.08

3.2 3.0 2.9 2.4 2.4 2.3 2.3 2.2 1.9 1.7 1.3 1.1 1.1 2.14

comparisons require surveys to be conducted in a consistent manner. Government officials and corporate officers are at a serious disadvantage if they cannot refer to reliable, timely data to assess and modify policies. Unfortunately, this is largely not the case today in the Middle East. Notwithstanding the above caveats, the general outlines of the region’s relative technology development can be discerned.The Gulf Cooperation Council (GCC) countries exhibit the highest level of ICT development. A Madar Research study finds these states have more than 40 percent of all Internet users in the Arab world, but only 11 percent of the total Arab population.5 The United Nations Economic and Social Commission for Western Asia (UN-ESCWA) for the past several years has conducted major investigations into the region’s ICT evolution. On a scale of 1 to 4 (with 4 being the highest), the Commission ranked each country’s performance (see Table 2). The GCC subregion scored an average of 2.53 points, compared with the non-GCC Western Asian average of 1.8 points. However, the entire region’s shortfall in comparison with the developed world can be appreciated by observing that developed countries would earn top (4) or nearly top scores in every category. The UN Commission raised a number of important issues the policy recommendations will address, most notably: • There are deficiencies in monitoring and evaluating e-strategies, as well as in financing initiatives. • ICT sector development scores the lowest performance because Western Asian countries have a poor record producing and exporting ICT products and services; there is weak official support for developing the ICT sector; and, until recently, foreign companies have been reluctant to consider investing.

• Improving ICT legislation, regulations, and enforcement are high priorities because most of the region lacks laws and regulations protecting consumers’ confidential information and privacy, national copyright and intellectual property laws are poorly enforced, and inadequate regulatory structures govern the Internet and telecommunications. 83
Technology infrastructure

Technology infrastructure in the Middle East is relatively more advanced because, candidly, it is a less politically contentious issue. Laying cables, stringing wires, and buying boxes are largely a question of finance. By contrast, changing legal, regulatory, and institutional structures requires transforming well-established socio-cultural practices. The region has recently been upgrading connectivity to the global Internet. For example, Internet bandwidth in Egypt increased considerably in one year, from 850 Mbps in 2003 to 2,060 Mbps the following year; Syria raised Internet capacity to 2.1 Gbps by year end 2005.6 The United Arab Emirates has the region’s highest bandwidth capacity at 10 Gbps, according to an Etisalat source. However, Middle Eastern intraregional connectivity is not as well developed, partly reflecting long-standing historical regional relations. Most Middle Eastern Internet traffic is exchanged outside the region through network access points (NAPs) in the United States and other countries, resulting in higher costs and suboptimal performance.The ITU’s Arab Regional Office is seeking to introduce new regional electronic connections by launching a regional US$200 million initiative—NAP for the Arab states—to engineer closer Arab Internet networks.7 However, if the region is to approach ICT infrastructure levels of the developed world, a much higher rate of investment is necessary.The UN Commission

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

2.3: Promoting Technology and Innovation

2.3: Promoting Technology and Innovation

estimates average regional ICT spending, as a percentage of GDP, at 2.87 percent—considerably below the global average of more than 6 percent.8 Reflecting the GCC regional divide, estimated Egyptian ICT 2004 spending was 2.37 percent of GDP; UAE ICT spending was valued at 3 percent; while Bahrain invested twice as much, 6 percent of GDP, to record the region’s highest ICT spending.9 As another sign of limited ICT integration in the economy, Middle Eastern average spending on ICT research, development, and innovation (RDI) is very low as a percentage of GDP even compared with that of developing countries.The Arab region invests 0.2 percent of GDP in RDI; global developing country estimates are 1.6 percent. Developed countries average 2.5 percent of GDP. Jordan is a notable exception, however, allocating a high RDI budget as a major component of its strategy to position the country as a knowledgebased economy.10
Legal and regulatory issues

Table 3: IP protection in the Arab world in international comparison
Country Score Rank on pillar (out of 128 economies)

Algeria Bahrain Egypt Israel Japan Jordan Kuwait Libya Mauritania Morocco Oman Qatar Syria Tunisia United Arab Emirates United Kingdom United States

3.28 4.08 3.55 5.48 5.88 4.21 3.62 2.80 3.25 3.82 5.30 4.84 2.89 4.62 4.80 6.20 5.65

73 48 63 21 12 44 59 94 78 54 23 28 90 32 29 6 17

Source: World Economic Forum, Executive Opinion Survey.

84

The Middle East features an underdeveloped legal and regulatory environment that hinders efficient technology development and innovation. Laws and regulations regarding intellectual property rights (IPRs) and the ICT sector have, for the most part, been created to meet international demands such as WTO requirements, rather than responding to local business or public demand.The critical role of coherent and enforceable laws to encourage ICT investment and development is not widely appreciated in the Middle East. For example, because information privacy and security is not currently required by international entities, no country in the region has ventured independently to impose its own legal protections.11 Most countries have joined several international treaties and enacted some laws pertaining to IPRs. However, respondents to the World Economic Forum’s Executive Opinion Survey, which forms the basis of the Global Competitiveness Report, indicate that the level of IP protection and enforcement varies across countries—yet even the technologically most advanced countries in the region do not reach the levels found in innovationdriven economies such as Japan or the United States (see Table 3). Several international organizations, such as the International Intellectual Property Alliance and the Business Software Alliance (BSA), consider enforcement to be inadequate and have placed several countries on watch lists. Software piracy is the most visible indication of lax regard to IPR.With the exception of the United Arab Emirates, whose strenuous efforts to control piracy earned it a position among the world’s 20 countries exhibiting the lowest piracy rates, other Middle Eastern countries tolerate high piracy levels. Lax IPR enforcement has direct and, perhaps, unanticipated consequences. According to a 2005 study undertaken by the International Data Corporation and

BSA between 2000 and 2004 Egyptian demand for software increased by 48 percent.12 Egypt today hosts the largest regional software sector as a fraction of its IT sector. However, the study estimates the country could nearly double the size of its IT sector by 2009 if it were to reduce its 65 percent piracy rate by 10 percent. The UN Commission notes that, although most Western Asian countries have proposed or are in the process of formulating IPR and ICT legislation, progress is slow.With the exception of Saudi Arabia, which has made strenuous efforts recently regarding IPRs and copyrights, no country has seen major changes in this area since 2003.13 The Commission further observes that no country in the region is in the process of developing regulations and laws regarding consumer privacy and security over the Internet.With the exception of e-banking services, which are largely on e-government sites, no warranties or laws guarantee consumer information privacy.There are no official consumer protection associations and no specific consumer protection laws. However, e-commerce laws have been enacted in Bahrain, Jordan, and the United Arab Emirates. Bahrain, Egypt, and Jordan have also approved electronic signature laws. Most recently, the UAE Electronic Transaction and Commerce Law combined the United Nations guidelines with local qualifications.The United Arab Emirates also passed a Cyber Crime Law to fight misuse of cyberspace and new technologies. Although these new measures construct a sound platform on which to build a regulatory framework, they do not address some important aspects of electronic transactions, such as privacy, jurisdiction, data protection, and domain names.

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Table 4: Personal computer penetration rate in selected countries and regions, 2004
PCs per 100 people (percent)

E-commerce

GCC countries Non-GCC Western Asia members Total Western Asia region World average

11.7 3.5 4.3 12.0

Source: Madar Research Group and Gartner (2005), cited in UN-ESCWA, 2005 p. 73.

Personal computer penetration and digital content

With the exception of the Gulf countries, Middle Eastern personal computer (PC) penetration rates are significantly below the world average (see Table 4). Since 2003, there have been some national campaigns in such countries as Egypt, Jordan, Saudi Arabia, and Syria to encourage citizens to buy computers under a variety of financing schemes and promotions. However, for many citizens, cost remains an issue; more importantly, there is a general shortage of Internet services considered essential by the average user. A scarcity of Arabic digital content on the Web further diminishes the average user’s perceived need to acquire a computer.While the world’s Arabic speakers number 300 million, Arabic Web pages represented only 0.2 percent of total Web pages in 2006, or an estimated 100 million pages compared with approximately 40 billion pages in all other languages. By contrast, Korean Web pages account for 4.4 percent of the Web’s content, although Korea has a population of 45 million.14 The low (10 percent) penetration rates across the entire Middle East limit the commercial incentive to create Arabic pages, as does the expectation of most Arab Internet users that information and Arabic content should be free. Unfortunately, penetration rates are not high enough to justify advertising-supported websites, so a cycle of neglect is perpetuated. Regional governments, to varying degrees, recognize the need to invest in Arabic content, but in most cases such investments take the form of e-government online publications and government information. A previous barrier to finding Arabic content— the lack of a full search engine optimized for Arabic— will likely be removed in early 2007, when a joint Saudi-German project plans to launch the Sawafi search engine. Its anticipated high-powered local Arabic pages searching capabilities will undoubtedly assist the Arabicspeaking Internet users who do not speak English (this was 65 percent in 2005, according to Madar Research).15 But the search engine will of course not create compelling content, so new policy initiatives should be considered to help the private sector produce content to stimulate consumer demand.

E-commerce activity is generally low in the region. In 2004, business-to-business (B2B) e-commerce was estimated at US$9 billion, or 1.45 percent of total regional GDP valued at US$620 billion, in substantial contrast to a global average estimated at 5 percent of GDP.16 Indeed, across the Middle East only 28 percent of firms use the Internet for conducting business, almost a third less than the average 38 percent for the remaining developing world.17 The principal drivers for B2B e-commerce are multinationals that require distributors and agents to use online channels.The second major factors encouraging e-commerce are local and federal governments moving increasing amounts of tender offer and payment activities online. Domestic transactions are expanding at a much slower pace. E-commerce offers the potential to lower costs, increase business opportunities, and stimulate cooperation among business partners and suppliers. However, many Middle Eastern firms—most notably small, domestically owned or nonexporting firms—do not appreciate the value ICT strategies or applications could bring to their business. SME owners see few incentives to change business models and operating procedures when the costs of adopting ICT are significant and known while returns are uncertain.There is also a general lack of alliances between governments and business sectors that would promote B2B e-commerce. According to the UN Commission, this slow take-up is exacerbated by several other issues: • the small number of regional institutions using the Internet in their operations; • a limited set of companies willing and capable of migrating to online purchase and sale transactions; • the paucity of integrated technologies linking electronic purchase applications and back-end systems, particularly enterprise resource planning applications; and • an absence of a legal framework to protect e-commerce (with the exceptions of Bahrain, Jordan, and the United Arab Emirates). A prominent regional exception is the e-commerce marketplace Tejari.com, launched by Dubai World and now franchised in Jordan, Kuwait, Lebanon, Oman, Pakistan, and Saudi Arabia. However, although the trading platform recorded over US$3 billion in transactions by the close of 2006 since its founding six years earlier,18 this represents a small percentage of intraregional trade. Limited Internet access, as well as cultural reasons— that is, when people value holding products before purchasing—have restricted B2C e-commerce. However, as credit card penetration rates increase, online purchasing of products and services not available locally will

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

2.3: Promoting Technology and Innovation

85

2.3: Promoting Technology and Innovation

become more significant. Indeed,Visa International reported a sizable increase in online purchases in 2005, primarily in the Gulf and Saudi Arabia.
E-government

Table 5: UN e-Government Readiness Western Asia rankings
Country 2005 Rank 2004 Rank

Middle Eastern governments are making progress offering citizens e-government services, although, as may be expected, substantial disparities reflect regional inequalities in income and ICT availability. In 2005, Egypt and the United Arab Emirates recorded some of the best world improvements in the UN e-government readiness rankings (see Table 5).The United Arab Emirates merged information and services into a single gateway, while Egypt further improved its e-government central portal. Qatar has made significant investments to enhance e-government capabilities, which likely will accelerate and expand because the government entered into a partnership in late 2006 with the Singapore InfoComm Development Authority to improve ICT in both the public and private sectors. A number of countries have innovative e-government initiatives that could serve as regional best practices to guide the improvement of e-government services.The following examples are merely illustrative: • Bahrain’s smart card technology, as part of a broader e-government strategy, enables such activities as conducting official procedures, accessing money, and recording personal educational and health data. • The Emirates Identity Authority was created as a federal government organization to develop and manage a modern and integrated population registry and identity management system for UAE citizens and residents.The new system will encompass several key technologies, such as smart cards, biometrics, and public key infrastructure. • Bahrain, Egypt, and the United Arab Emirates are leading regional countries offering public information through portals and official sites.
Innovation

United Arab Emirates Bahrain Qatar Jordan Kuwait Saudi Arabia Egypt Oman Syria
Source: UN, 2005.

42 53 62 68 75 80 99 112 132

60 46 80 68 100 90 136 127 137

86

For innovation to spring from the spread and use of ICT technologies, a number of conditions need to be in place in the economy. In the autumn of 2006, Moutamarat, INSEAD, and PricewaterhouseCoopers surveyed executives across the Arab world about their views on innovation.These views provide insight into factors that facilitate and impede innovation; the survey points to areas that need to be addressed to make the economy benefit more from spillover effects ICT generates. Executives were asked a number of questions about their companies’ successes and challenges in innovating. The overall finding was that if businesses are to innovate to become stronger regional and global competitors,

Middle Eastern governments must make a stronger commitment to promote innovation. Executives stated that the most important challenge for successful innovation in the region is the lack of adequate resources (see Figure 1)—both qualified personnel (30 percent of respondents) and financial resources (17 percent). Interestingly very few executives state that internal organizational rigidities hindered innovation in their companies. Firms in the region would innovate more with improvements in market conditions—such as the provision of greater information about market practices and opportunities (11 percent), less restrictive regulatory policies (13 percent), and a lower overall level of economic risk (12 percent). Executives were also asked to rank the countries with the highest potential for becoming the innovation hub for the region (see Figure 2).The United Arab Emirates comes up dominant in the top spot with the support of 42 percent of the respondents.The United Arab Emirates has earned this distinction because of a number of investments it has made in developing its technological and innovation capabilities.The following section provides more details on the innovation strategy of the United Arab Emirates. Other countries in the region should examine their own innovation strategies and market conditions if they wish to emulate the United Arab Emirates and take advantage of the opportunities available in transitioning to a more innovationdriven economy. In terms of sectors, the ICT and the energy, mining, and utilities sectors are ranked as the most innovative in the Arab world by about a quarter of the respondents for each (see Figure 3).There is a lot of potential for innovation in other sectors, such as health care, retail and consumer goods, and financial services.

Case studies of innovative initiatives The instrumental role of Middle Eastern governments in stimulating technology development and innovation is documented in the following two case studies: Since 2000, UAE policymakers have promoted building the Emirates into information-rich societies.

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Figure 1: What are the greatest challenges to your company’s ability to innovate?

Lack of qualified personnel Lack of financial resources Restrictive regulatory policies Economic risks Lack of information on markets Lack of information on technology Lack of access to new markets Lack of physical infrastructure Lack of time to encourage innovation Internal organization rigidities Refused Don’t know 0 5 10 4 4 10 15 20 25 30 5 6 7 8 11 12 13 17

30

Percent of responses

Source: Moutamarat, INSEAD, and PricewaterhouseCoopers survey.

Figure 2: Which Arab country has the greatest potential for becoming the innovation hub for the region?

United Arab Emirates Egypt Saudi Arabia Qatar Jordan Lebanon Tunisia Refused Don’t know
0

42 10 8 6 6 4 3 2 9
10 20 30 40 50

Percent of responses

Source: Moutamarat, INSEAD, and PricewaterhouseCoopers survey.

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

2.3: Promoting Technology and Innovation

87

2.3: Promoting Technology and Innovation

Figure 3: Which industry sector has the highest level of innovation in the Arab world?

Information and communication technologies Energy, mining and utilities Engineering, construction and real estate Travel & Tourism Financial services Retail and consumer goods Health care Entertainment and media Refused Don’t know
0 5 10

24 23 11 9 8 4 3 2 3 12
15 20 25

Percent of responses

Source: Moutamarat, INSEAD, and PricewaterhouseCoopers survey.

88 The UAE case study discussed below describes some of the innovation- and ICT-based initiatives they have pursued to realize their intentions. In the second case study, Jordan, lacking natural resources, has elected to reinvent its educational system through innovative education initiatives. Investing in education was deemed the most appropriate mechanism to improve employment opportunities for the country’s large, youthful population; at the same time, lack of human capital has been identified as the key obstacle to innovating in the region. Jordan, seeking to become an information-work economy, has created a number of cutting-edge ICT-based educational programs through public-private-partnerships that are now exported to other countries.
Case study 1: Innovative policies: The United Arab Emirates success story

The United Arab Emirates has combined innovative government policies and the forces of petro-dollars to redefine its economic landscape.The country’s per capita income is on par with those of leading Western European nations (US$28,581 in 2005). Certain observable parameters indicate that the country has a great potential for becoming a top-notch knowledge-based economy stimulated and energized by a host of innovative initiatives and programs; public- and private-sector entities in the United Arab Emirates have started their journey of focusing on innovation as a driver for further

development and growth. Supportive market mechanisms and policies are fueling the innovation wheel. Currently the country enjoys high levels of broadband Internet penetration, particularly in Dubai (64 percent) and a high mobile telephony penetration rate (close to 100 percent). The country is significant today as a business, technology, education and health-care hub in the region.19 The recent Moutamarat-INSEADPricewaterhouseCoopers survey on innovation places the United Arab Emirates as the forerunner in the region, rating it as the country most likely to become the region’s innovation hub.The survey respondents rated it four times more likely than its closest rival, Egypt, to become the dominating innovation influence in the Arab world. One might argue here that the United Arab Emirates has reached a high-tech frontier and that innovation, one of the pillars of competitiveness, is, if not the only driver, certainly among the self-sustaining drivers of growth and development. Responding to the rapidly growing importance of the United Arab Emirates and riding the wave of innovation in this market, many global corporations are establishing “innovation centers” in that country. One such facility was established by Bayer MaterialScience AG in November, 2006—this is the first development center for high-quality polymer materials in the region to have access to a wide range of options for technical service, the development of new applications, and training for customers and employees.The United Arab Emirates,

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

like many other Arab countries, is concentrating on developing its innovative capacity and providing possible solutions—such as raising awareness of the need to develop an innovative capacity—to many of the hurdles associated with these bold initiatives.The area is witnessing a surge of public- and private-sector cooperation and partnerships to deal with these issues. Unlike any other country in the Gulf, the United Arab Emirates has worked very hard on its technology initiatives.This is manifested in a maturing IT market, which has been estimated to be worth US$1.46 billion as of the end of 2005 and is expected to top the US$2.2 billion mark in 2008.20 Dubai has been in the lime light for the past six years, but, unsurprisingly, Abu Dhabi, the nation’s capital, is currently emerging as the biggest technology spender in the country, with total IT spending in 2005 valued at US$769 million (46.89 percent of the market).21 With regard to the latest advancements related to technology applications in the country, new developments have evolved rapidly, from imaging and archiving solutions to enterprise portal and content management systems.The United Arab Emirates is becoming more advanced very quickly as it is driven by the desires of both private businesses and the government toward a digital- or knowledge-based economy. The first of the technology-intensive innovation initiatives in the United Arab Emirates was Dubai Media City (DMC), launched in November 2000. Next to DMC are Dubai Internet City (DIC) and Knowledge Village.The major goal of the multibillion dollar DMC, DIC, and Knowledge Village complex is to create a cluster of innovation comprising educators, incubators, logistic companies, multimedia businesses, telecommunications companies, remote service providers, software developers, and venture capitalists in one place. DIC is the region’s first technology-innovation zone and is viewed by decision makers in this country as an economic driver not only of Dubai’s economy, but also of the United Arab Emirates as a whole.Today hundreds of high-tech firms are housed in DIC. DMC houses more than 550 media companies, including global giants, along with regional companies and new startups. Companies in this high-tech corridor employ more than 7,000 knowledge workers from all around the world. Another mover and shaker in the high-tech corridor is Knowledge Village; this project is designed to create a wired community to help build the region’s talent pool and advance its move to the knowledge economy. Knowledge Village is located in the Dubai Technology and Media Free Zone with DIC and DMC. By being in the high-tech corridor, Knowledge Village offers its partners the prospect of forging partnerships with the business community and creating a vibrant learning and innovation environment. Currently, Knowledge Village has more than 70 educational and research institutions as partners.

Also worth mentioning is Dubai Silicon Oasis (DSO), which is intended to be one of the world’s leading high-technology parks for the semiconductor and microelectronics industry. DSO is an innovation-driven technology community, housing microelectronics- and optoelectronics-related enterprises, a state-of-the-art microelectronics innovation center (MIC), fabrication plants, research and development centers, and specialized academic institutions and residential areas. The government of the United Arab Emirates has been a key driver in the innovations within the country. The Dubai e-government initiative is an integral component of Dubai Vision 2010, which aims to establish Dubai as a knowledge-based economy by leveraging tourism, IT, media, trade, and services as pivotal industries in an effort to move away from dependence on oilrelated products.The Dubai e-government initiative aims to improve and innovate in government services by using technology as a key enabler for a customer-centric approach to providing government services.To achieve these goals, the Dubai e-government has developed and implemented a number of projects that were successfully completed in the past four years (2002–06). Examples of these projects are ePay, askDubai, mDubai, eIntegrate, eHost and eHost, eJob, eSurvey, and eCitizens. Many Dubai government departments have reached the fifth stage of e-government evolution—seamless integration. A case in point is the eService, which was recently launched between Tejari and the Department of Economic Development (in January 2006); all 50,000 organizations licensed by the department now have automatic access to Tejari LINK—the service that enables online market-making for businesses of all sizes and is facilitated through a quick and affordable onetime registration on the Tejari trading community.This initiative specifically supports SMEs, which are growing at a fast pace.Through Tejari LINK these organizations automatically receive a designated website to ensure a significant Web presence for each company. In addition, they are added to a national online directory, join a message center to facilitate trading leads, and receive space for electronic product showrooms and e-exhibition functionality. Another feather in the cap of Tejari is the creation of specialized subcommunity portals that cater to specific community clusters or industry segments. One such portal is the one created for the more than 5,000 companies located in the Jebel Ali Free Zone Authority (JAFZA), which enables the free zone companies to send and receive trade leads, create online company profiles and product showrooms, and find suitable trading partners through Tejari Exchange.22
Case study 2: Innovative classrooms: The Jordan Education Initiative

Jordan is a small desert country that lacks the oil and natural gas resources found in the Persian Gulf; yet, like its foreign policy, Jordan’s education philosophy has been

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

2.3: Promoting Technology and Innovation

89

2.3: Promoting Technology and Innovation

90

developed with an eye to the country’s unique position in the region. English is taught in all Jordanian public schools, and the country has marketed itself as a safe and open place for foreign college students. Jordan invests a higher percentage of its gross domestic product in education than any other country in the Arab world.24 With a high level of unemployment (estimated between 15 and 20 percent), a young population (34 percent are under 14 years of age, and there is a median age of 23 years), and a low per capita income (US$4,700 in 2005), the political leadership in Jordan is convinced that the real wealth is in young people. It has therefore championed innovation in the educational system in the country through the use of technology.Through the Jordan Education Initiative (JEI), the country’s main objectives are to enable its students to compete globally in the knowledge economy, train teachers and administrators to use technology in the classroom, and guide students through critical thinking and analysis.Today, the JEI is being replicated in Rajasthan, India (launched in November 2005), the Palestinian territories, Bahrain, and most recently Egypt (launched in May 2006), as well as in other countries. The JEI runs parallel to and shares dependencies with two existing national programs in Jordan: (1) the Education Reform for the Knowledge Economy (ERfKE) program, a reform program supported by World Bank; and (2) the National Broadband Learning and Research Network, a nationwide high-speed broadband network connecting all of Jordan’s public schools, universities, community colleges, and community access centers, which reached 1.5 million learners by the end of 2006. The JEI initiative was officially launched in June 2003 by the World Economic Forum’s IT and telecommunications industry governors to transform public education through technology in Jordan. In addition to the Forum, which sponsored the JEI, the initiative has over 45 organizations that include 25 international private-sector partners, especially in the ICT sector; 17 local establishments; and 11 government agencies and NGOs. It has four major objectives: • Improve the delivery of education in Jordan through public-private partnerships. • Unleash the innovation of teachers and students through the effective and efficient use of ICT. • Build the capacity of the local ICT industry. • Create a model of reform that can be used in other developing and emerging countries. Two distinctive features set this initiative apart from others. First, it is an ambitious blueprint that uses technology as a catalyst to innovate in the educational system and accelerate Jordan’s development into a knowledge

economy. Second, it is an application of ICT through a public-private partnership.These partnership arrangements have been win-win situations for the JEI and the country in general. Public schools have benefited tremendously from what the private sector has contributed in terms of skills, innovation, project management, technical expertise, and so on.With the assistance of substantial investments from companies—(financial, in kind, and expert-based) such as Cisco, Computer Associates, Dell, DHL, IBM, France Telecom, Microsoft, Intel, and many others—tremendous improvements were provided to e-Contents, especially in mathematics, science, and English as a foreign language (EFL). As of November 2006, 35 partners had been engaged in deploying the technical infrastructure to 100 Discovery Schools; helping in designing, developing, and/or rolling out five e-Content curricula (in math, Arabic, English, ICT, and science). In February 2006, Math e-Content, which had been piloted in the previous year, was rolled out online to all Discovery Schools. Currently, the initiative is piloting an ICT e-curriculum that will apply technology to subjects such as music, language, and science, rather than teaching technology for its own sake. In terms of the initiative impact, and as of November 2006, 85,000 students, teachers, and principals benefited from the initiative in one form or another. Rewards to private-sector entities are in the form of strengthening their reputation and polishing their image within society, yielding a long-term return on social capital and social investment. For the private sector in particular, an effective educational system is critical for economic growth and social development, in building a skilled labor force, and improving productivity. But the ultimate winner in this educational public-private partnership initiative is the group of students and teachers, especially in public schools, who are having their schools fully wired and equipped and their human resources fully trained and skilled. Another major objective of the JEI initiative is to help the country build a model of education reform and innovation that can be exported to and/or replicated in other developing countries. Currently, the JEI is viewed as a success story and has helped spur off other education initiatives around the world, such as the Rajasthan Education Initiative (begun in November 2005) and the Egyptian Education Initiative (May 2006), among others. Based on the success of the JEI initiative, among other factors, the World Economic Forum is launching a new project—Partnership for Education— with UNESCO, under the auspices of the Forum’s Global Education Initiative (GEI). Notwithstanding the discernible accomplishments of this initiative, unfortunately the JEI still lacks a set of formal performance evaluation criteria for impact assessment in terms of ensuring access, improving quality, and providing the right teaching. Another challenge that has to be addressed is capacity building and cultural change

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

management, both at the micro and macro levels.The role of the private sector does not stop at offering financial and technical support; it really has a role to play in defining the standards of education and in offering internship and training programs.

useful information, best practices, and explore launching public-private and regional initiatives.
Encourage innovation in small- and medium-sized enterprises

Policy recommendations to promote innovation As Middle Eastern policymakers consider how to position and prepare their countries for the future, it is especially important that they consider the process to assess and implement innovations.Technology is evolving at ever more rapid rates and decisions cannot be deferred in the hope that a new more powerful or cheaper technology will make decisions easier.The history of post-war development is a progression of ever more versatile technologies arriving in ever faster waves. If the developed world had waited for the next set of technology inventions to improve investment cost-benefit ratios, the developed economies would not stand where they do today. Estimating cost-benefit ratios of technology and innovations is not a science.The potential for improving economic, social, and educational prospects hinge upon myriad governmental and business decisions, as well as on cultural issues. US companies, as a group, have gained more from technology investments in terms of productivity and innovation than European companies. However, this is an average generalization. Numerous European and Asian companies are world leaders, applying technology to boost innovation levels and, ultimately, performance.They have applied technologies to their unique requirements, and at the same time adapted and changed their business practices in a restless process of assessment and innovative renewal. There is extensive sharing of information, regional initiatives, and collaborative alliances in the developed world. Fast-changing technology introduces novel applications for new and established markets. It is beyond a single major company or government’s capabilities to hazard substantial investments alone, and no sector sees more joint ventures or alliances than ICT. Monopolistic practices are frequently incompatible with keeping pace with, let alone anticipating, chameleon technology evolutions. This pace of change introduces two major challenges for Middle Eastern policymakers: managing the changes innovative technology development requires, and entering into regional and public-private partnerships to defray risks and maximize technology’s potential for supporting innovation and improving the economic prospects of all citizens. It is hoped the following recommendations to stimulate innovation will help policy leaders review strategies and practices most suitable for their country, recognizing that each Middle Eastern country has different economic priorities, cultures, and social dynamics.These differences should not obscure the potential to exchange

SMEs comprise the greatest number of service companies and they employ the largest total numbers of employees in the region. Because of their aggregate prominence, technology take-up among SMEs could bring substantial economic benefits to Middle Eastern countries, provided SMEs can adapt and innovate in their business practices to capture productivity improvements. Unfortunately, SMEs face formidable hurdles in adopting technology and innovating in business practices. Many SME owners and managers assess technology in terms of immediate cost rather than as an investment for innovation, to gain more customers, reduce long-term costs, and improve performance.These attitudes will be difficult to change, but they must evolve if the Middle East is to enjoy the potential economic and social gains stimulated by technological progress. However, in defense of conservative Middle Eastern SME owners and managers, it should be noted they are far from alone in hesitating to use technology beyond basic administrative and accounting functions. Many European SMEs have also been slow to integrate technology into their businesses.24 If substantial numbers of Middle Eastern SMEs are to adopt technology more aggressively, governments must make patient and persistent efforts to change long-settled business methods. In particular, governments should consider the initiatives listed below. Education There simply are not enough ICT professionals available whom SME managers can hire full-time to supervise a company’s technology program. Educational investments are required to provide training and attract students to new ICT career choices. Higher funding to support teachers’ professional development is also needed. For those students who do not choose an ICT career, schools should improve general technology literacy by offering basic business-related technology training and skills as part of the standard curriculum. SME software and providers Many SME applications are not optimized, in terms of language or functions, for Middle Eastern SMEs.The paucity of digital Arabic content and software presents an ideal opening for Middle Eastern countries to sponsor national plans to promote an Arabic software industry. The timing is particularly auspicious with the planned inauguration in 2007 of the Saudi-German fullfeatured Arabic search engine, Sawafi. Software, ranging from tools and packaged software to tailored applications and multimedia tools, is a high-growth industry that can be launched and supported with relatively low capital

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

2.3: Promoting Technology and Innovation

91

2.3: Promoting Technology and Innovation

and financing expenditures.25 Moreover, measures to support and encourage Arabic software development will rebound to the greater benefit of Middle Eastern technology evolution because the software industry will require IPR and patent protection, as well as supporting e-commerce legislation. Furthermore, as more computers are installed in increasing numbers of schools and universities, there will be greater demand for more Arabic content and software to advance e-education initiatives, both at schools and at home. National software and content development programs can also open another venue for regional cooperation. Last, and most importantly, a robust local software industry can help reverse the “Arab brain drain” by offering attractive careers in the Middle East. ICT-related financial incentives Research and development (R&D) in technology-related services and innovative business practices should enjoy R&D tax credits, especially as services command such a large amount of Middle Eastern economic activity.While these R&D tax credits would also benefit large companies, they would encourage SMEs to experiment with introducing new business practices using technology and innovative processes.Tax credits could also be introduced for businesses to purchase computers and software.

Competitive subsidies Competitive bidding to award cash subsidies to technology providers can stimulate private investment by lowering up-front risk. Subsidies help public finances remain within budget because they are not open-ended commitments or based on percentage formulas.Technology providers must meet performance goals to receive payment, which encourages compliance. Moreover, subsidies can be targeted to social or economic priorities, such as improving Internet access in rural areas. Aggregate demand Pooling government departments’ and agencies’ technology purchasing needs and soliciting competitive tenders can stimulate the private sector to invest in new infrastructure and services. For example, governmental crossdepartmental commitments to purchase broadband capacity can limit the commercial risk of installing new networks while reducing the overall cost to the government. However, if demand aggregation is to succeed, departments must coordinate their plans and requirements. Unless officials at the highest administrative levels give forceful direction to support interdepartmental technology purchasing, administrative rivalries will likely scuttle joint departmental tenders. Private funding guarantees Governments can develop loan guarantee schemes, as have been applied in Europe, to encourage private lenders to finance technology investments. However, as Middle Eastern debt markets tend to favor funding working capital, this approach may appeal more to foreign lenders and financial intermediaries than to domestic businesses.
Lower administrative obstacles to encourage investments

92 Public awareness The government should invest in publicity campaigns and organize technology resource centers in business districts to inform and educate SME owners about the innovative potential of new technologies. Financial incentives to encourage SME owners to assess technology options could be offered, for example, by issuing consultancy vouchers.
Introduce innovative financing approaches

Over the past decade, Middle Eastern countries have financed technology infrastructure (with the exception of mobile communications) principally from two sources: government budgetary allocations, primarily through revenues generated by the telecommunications monopolies, and donor and international financial institution programs. However, the scale of investments required to improve technology infrastructure capacity and performance is beyond the ability of these traditional methods in many countries. Even those countries enjoying a surge in oil revenues should consider new financing techniques, because they face so many competing and pressing socioeconomic needs.Technology presents many potential openings to attract investors, unlike such public priorities as improving health care, literacy, and roads. Notable ways to encourage private and foreign investment, especially recommended by the World Bank, include: 26

Middle Eastern states are not alone among developing countries in shouldering a legacy of extensive bureaucracies and administrative procedures. Although some Middle Eastern countries have made significant recent progress in improving the business environment for entrepreneurs, conditions are far from ideal.There is not a single entrepreneur in any country who does not complain about red tape, but Middle Eastern administrative burdens can especially hinder innovative ventures, which, by nature, must adapt at relatively short notice. Perhaps technology can serve as a useful wedge to help governments negotiate administrative reforms.
Public-private partnerships

Regional and national cultural, social, and traditional values strongly influence investment priorities and methods.The Middle East has few successful publicprivate partnerships, or, for that matter, public-public regional initiatives to date. However, there are signs of change. Over the past several years, Egypt, Jordan, and the United Arab Emirates have encouraged investments

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

and partnerships in technology projects. Egypt has convinced international companies, such as Microsoft and Cisco Systems, as well as national companies, to participate in multimillion dollar investments. Jordan has forged partnerships between its software development sector and international companies to increase software exports to developed countries. The large scale and cost of infrastructure investments, the specific technologies, and their implications for future development are all sound reasons for Middle Eastern countries to explore new financing, partnerships, and regional initiatives to share resources and expertise. Public-private partnerships are well suited to long-term technology investments where risk is higher than other opportunities that typically attract private Middle Eastern investors, such as real estate or commercial trading. However, such partnerships require new sets of negotiating and oversight skills for governments to be able to participate effectively. Because the Middle Eastern technology sector is in the early stages of development, foreign companies must participate to transfer knowledge and expertise. Until a full set of IPR and patent protection laws are promulgated and enforcement is raised to the standards of developed countries, attracting foreign partners will be difficult and time-consuming.
Innovate by sharing best practices

Recognizing the importance of regional cooperation, in 2003 the United Nations Development Programme announced an initiative, Information & Communities Technologies for Development in the Arab Region (ICTDAR) to assist all Arab countries improve their ICT capabilities. As previously mentioned, the International Telecommunication Union, Arab Regional Office has also launched an inter-Arab Internet connection project. A promising route to encourage innovative regional projects would commence by developing formal institutional channels to share information about best practices. As these contacts built mutual confidence, more elaborate projects requiring resource commitments could then be planned and considered. Identifying regional projects that respect a member country’s national culture and priorities has not been an issue. Rather, summoning the political will to explore ways that regional cooperation can advance each country’s development agenda remains a concern. Sharing best practices in innovation offers Middle Eastern countries a useful and noncommittal path toward regional cooperation. Invite private-sector innovation by opening markets Recent liberalizations in the Middle Eastern mobile telephone markets have proven the power of competition to introduce new innovative services, lower prices, and stimulate demand. However, main telephone lines remain a monopoly in many countries. Governments should introduce competition to stimulate much-needed private-sector investment and innovations. Opening monopoly main telephone lines to competition is only the start to crafting a new regulatory regime better suited for stimulating innovation. For examples, novel fixed wireless technologies and advanced digital processing techniques could spread Internet connectivity at far more affordable costs to much more of the population.The developed world is in the midst of devising new regulatory approaches for some of these new transmission technologies by replacing individual operator licensing with shared and license-exempt use. Because state-of-the-art digital processing techniques let operators share spectrum without interference, they promise to reduce regulatory burdens and encourage competing vendors to deliver more services to the public and business at more affordable rates.27 Share regulatory and legislative information Regulatory issues are complex in the fast-moving world of technological innovation. Regulators in the developed world regularly share information and analysis to develop policies and monitor developments. Middle Eastern governments should endorse this model of international cooperation.The recently formed Arab Regulators Network is a promising new regional initiative; it has advocated exchanging information and possibly merging pilot projects across the entire Arab region.

The Middle East is home to several innovative initiatives that could serve as models for best regional practices, and possibly extend to other forms of cooperation and mutually beneficial endeavors. For example, Egypt, Jordan, Saudi Arabia, and Syria have recently introduced programs to promote family-owned computers through different types of government-supported financing plans. Foreign technology manufacturers, such as Hewlett Packard and Acer, are beginning to invest in the region, constructing new plants in Saudi Arabia. Innovation parks, clusters, and free trade zones, encouraged and fostered by different types of financial and regulatory incentives, have appeared throughout the Middle East. Information about, and access to governmental programs have been priorities for many countries, and e-government programs hold great promise for advancing the sharing of best practices. However, as a general rule and in contrast to Asia, where National Information Technology Councils share information and experiences, regional sharing of knowledge is not common among Middle Eastern countries. For example, although the League of Arab States identified 19 projects well suited for regional cooperation in 2001—such as establishing technology indicators, developing an Arab regulatory framework, creating a center for digital documentation and archiving heritage, developing access nodes to connect Arab internet networks, and translating and Arabizing ICT terminology— progress has been slow.

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

2.3: Promoting Technology and Innovation

93

2.3: Promoting Technology and Innovation

A viable and enforced legal regime must be in place for the Middle East to accelerate technology development and e-commerce. Governments should share legal research and analysis to speed promulgating laws and regulations to: • protect personal data and information privacy; • protect Internet-related intellectual property, publishing rights, and software applications; • accelerate signing, ratification, and joining international agreements relating to IPR, including the Patent Cooperation Treaty and the Patent Law Treaty; and • accelerate the introduction of e-commerce legislation. Monitor and measure development and innovation within and across countries Middle Eastern strategies differ in many respects, but all share a need to devote more resources to collecting timely data to monitor innovation and development progress.Without reliable data, governments cannot accurately assess progress and refine plans.The UN, the World Bank, the International Telecommunication Union, and regional organizations have embarked on a major project—Partnership on Measuring ICT for Development—to convince all countries to collect a small set of relevant data to render analysis much more accurate and up to date. Middle Eastern countries should strive to track and compile these basic statistics because they will greatly aid monitoring and improving their technology and innovation strategies. Encourage entrepreneurial opportunities such as offshore call centers The global offshore call market—currently valued at between US$40 billion and US$50 billion—is growing rapidly at around 30 percent annually. India has dominated the market, serving US and UK clients, but now continental European companies are seeking to outsource call centers; such centers require multilingual capabilities beyond English.They also prefer call centers that fit more closely, geographically and culturally, with their home base. Middle Eastern call centers that cater to this new market are now appearing. In 2005, A.T. Kearney’s annual ranking of global services locations placed Egypt as 12th, followed by Jordan at 14th and the United Arab Emirates at 20th.28 The strong commercial potential of these locations is best suggested by noting that the 2004 survey included none of these countries. Egypt has encouraged the development of call centers through the support of the Information Technology Industry Development Agency, formed in 2004.This agency, which includes a public-private task force, helps

local and foreign investors secure tax breaks and organize call centers in free trade zones, notably Smart Village in a Cairo suburb. Smart Village is the first of several planned innovation clusters the agency intends to establish. Furthermore, to improve the cost competitiveness of Egyptian call centers, the government has plans to grant the first two licenses for international Voice over IP (VoIP) services.VoIP licenses are an exception in the Middle East as most countries restrict VoIP to protect their main telephone line monopoly revenue. Egyptian support of its nascent call center industry exhibits a number of characteristics important to stimulating innovation: a special agency with public-private participants to oversee developing call centers, tax and other financial incentives to attract domestic and foreign investors, innovation clusters to encourage a favorable environment for technology companies, and flexibility to liberalize telecom regulations to introduce new communication technologies.

94

Conclusion Since 2000 most Middle Eastern countries have made substantial progress designing strategies to integrate and weave the new strands of the information society into traditional social, economic, and cultural patterns.These strategies have begun to yield results. Most countries have seen a surge of mobile telephone use. Increases in Internet access considerably outpaced world average growth. Some countries have enthusiastically embraced e-government initiatives to deepen communications with citizens and deliver government services.The pioneering Tejari e-marketplace has demonstrated e-commerce’s ability to accelerate trading and business activity.The promise of the Internet and computers to improve the lives of less-advantaged citizens has been acknowledged by policymakers as several countries seek to disseminate computers widely through PC financing and distribution programs. If policymakers are to leverage these encouraging developments into innovation and faster progress, they should refine the process to prioritize, implement, and monitor initiatives.The process will also be substantially more robust, innovative, and versatile if more initiatives can include new models of public-private partnerships and regional associations. For in the Middle East, policy will likely play a greater role than technology in setting the pace for how innovation evolves.This is because access to technology is not the bottleneck in many parts of the Middle East, but creating the overall environmental conditions for innovation to thrive remains an ongoing challenge, even in the more developed economies of the region. A top policy priority should be to develop ways to encourage SMEs to invest in technology and innovative business processes, because the wider economic and social benefits could be substantial. Nurturing and

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

supporting the formation of an Arab software industry is a most necessary parallel policy initiative to help SMEs maximize the ways technology could potentially stimulate innovative and more productive business activities. The considerable scale and range of investments required to raise Middle Eastern technology and innovation performance suggests policymakers should now explore new financing methods to build infrastructure and innovation capabilities.These techniques, drawing upon competitive principles and private-sector participation, will challenge conventional attitudes toward the state’s role in the economy, but they hold the promise of unlocking much-needed new funding sources. Novel technologies inevitably bring change, unsettling at times, as economies and societies adapt.This is especially true for many conservative Middle Eastern countries. However, this conservatism can become an ally to innovation if policymakers reduce risk by sharing best practices, encouraging information exchanges, and creating regional innovation ventures.

22 Mr Hijazi described this portal to one of the authors on November 30, 2006. 23 See Zoepf (2006). 24 See EU ICT Task Force (2006). 25 For a detailed analysis of Arab software industry potential, see Mrad (2005). 26 See Wellenius (2006). 27 See The Economist (2004). 28 See A. T. Kearney (2005).

References
ABC Newsonline. 2006. “Search Engine to Target Arabic Speakers.” April 26. Available at www.abc.net.au/news/newsitems/200604/ s1624108.htm. A. T. Kearney. 2005. Global Services Location Index 2005. Available at www.atkearney.com/shared_res/pdf/GSLI_Figures.pdf. BSA/IDC (Business Software Alliance/International Data Corporation). 2005a. Expanding the Frontiers of our Digital Future: Reducing Software Piracy to Accelerate Global IT Benefits. White Paper, December. Available at http://www.bsa.org/idcstudy/. ———. 2005b. Middle East and Africa Report. Available at http://www.bsa.org/idcstudy/.

Notes
1 General purpose technologies are innovations that potentially affect a wide range of industries in the economy. 2 See ITU (2006). 3 One widely used definition of Middle East is the airline industry’s IATA standards, which lists Afghanistan, Bahrain, Egypt, Iran, Iraq, Israel, Jordan, Kuwait, Lebanon, Palestinian territories (West Bank and Gaza strip), Oman, Qatar, Saudi Arabia, Sudan, Syrian Arab Republic, United Arab Emirates, and Yemen (Wikipedia, Middle East, http://en.wikipedia.org/wiki/Middle_East). The subset, Western Asia, comprises Bahrain, Egypt, Jordan, Kuwait, Oman, Qatar, Saudi Arabia, Syrian Arab Republic, and the United Arab Emirates. 4 See World Economic Forum and INSEAD (2005, 2007) for details. 5 See World IT Report (2003), available at www.worlditreport.com. 6 See UN-ESCWA (2005, p. 21). 7 See NAP for the Arab States, International Telecommunication Union, Arab Regional Office. Available at www.ituarabic.org/IPSIDN/Documents/Doc08%20NAP%20FOR%20THE%20ARAB%20STATES.ppt. 8 See UN-ESCWA (2005, p. 34). 9 See UN-ESCWA (2005, p. 34). 10 See UN-ESCWA (2005, p. 30). 11 See UN-ESCWA (2005, pp. 10–15). 12 See BSA/IDC (2005a, b); Middle East and Africa Report, available at www.bsa.org/idcstudy/. 13 See UN-ESCWA (2005, p. 15). 14 See Mrad (2005). 15 See ABC Newsonline (2006). 16 See UN-ESCWA (2005, p. 61). 17 See Poortman (2005). 18 Tejari executive conversation with one of the authors. 19 See Madar (November 2006). 20 See Zawya.com (accessed December 13, 2006). 21 See Zawya.com (accessed December 13, 2006).

The Economist. 2004. “A Brief History of Wi-Fi.” June 10. Economist Intelligence Unit. 2006. The 2006 e-readiness rankings, a white paper from the Economist Intelligence Unit, London. Available at www.eiu.com/site_info.asp?info_name= eiu_2006_e_readiness_rankings. EU ICT Task Force. 2006. Fostering the Competitiveness of Europe’s ICT Industry. EU ICT Task Force Report. November. Available at http://ec.europa.eu/enterprise/ict/policy/doc/icttf_report.pdf . ITU (International Telecommunication Union). 2006. World Telecommunication/ICT Development Report 2006: Measuring ICT for Social and Economic Development. Geneva : International Telecommunication Union. Mokyr, J. 1990. The Lever of Riches: Technological Creativity and Economic Progress. New York: Oxford University Press. Mrad, F. 2005. “Meeting Arab Socio-economic Development through ICT.” Presentation at the School of Computer Science, Carnegie Mellon. Available at www.cs.cmu.edu/~cfr/talks/2005-Feb-4.ppt. Poortman, C. Speech to World Economic Forum in the Middle East on Infrastructure Challenges, May 20, 2005. Trajtenberg, M. 2006. “Innovation Policy for Development: An Overview.” Foerder Institute for Economic Research Working Paper 6-06. Tel Aviv: Foerder Institute for Economic Research. UN (United Nations). 2005. Global E-Government Readiness Report 2005. New York: United Nations. United Nations ICT Task Force. 2005. Measuring ICT: The Global Status of ICT Indicators, Partnership on Measuring ICT for Development. New York: The United Nations Information and Communication Technologies Task Force. UN-ESCWA (United Nations Economic and Social Commission for Western Asia). 2005. Regional Profile of the Information Society in Western Asia. United Nations Economic and Social Commission for Western Asia, October 31. New York: United Nations. Available at www.escwa.org.lb/information/publications/ edit/upload/ictd-05-6.pdf. Wellenius, B. 2006. “Extending Communication and Information Services: Principles and Practical Solutions.” In Information and Communications for Development: Global Trends and Policies, ed. P. Guislain, C. Zhen-Wei Qiang, B. Lanvin, M. Minges, and E. Swanson, pp. 41–55. Washington, DC: World Bank. World Bank. 2006. Information and Communications for Development: Global Trends and Policies. Washington, DC: World Bank.

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

2.3: Promoting Technology and Innovation

95

2.3: Promoting Technology and Innovation

World Economic Forum. 2005. The Global Competitiveness Report 2005–2006: Policies Underpinning Rising Prosperity, ed. A. LopezClaros, M. Porter, and K. Schwab. Hampshire: Palgrave Macmillan. ———. 2006. Global Competitiveness Report 2006–2007: Creating an Improved Business Environment, ed. A. Lopez-Claros, M. Porter, X. Sala-i-Martin, and K. Schwab. Hampshire: Palgrave Macmillan. World Economic Forum and INSEAD. 2005. The Global Information Technology Report 2005–2006: Leveraging ICT for Development, ed. S. Dutta, I. Mia, and A. Lopez-Claros. Hampshire: Palgrave Macmillan. ———. 2007. The Global Information Technolgy Report 2006–2007: Connecting to the Networked Economy, ed. S. Dutta and I. Mia. Hampshire: Palgrave Macmillan. Zoepf, K. 2006. “Jordan’s Ambitious Plan: A Country with Few Natural Resources Hopes to Build its Intellectual Capital by Expanding its Higher-Education System.” Chronicle of Higher Education. 53 (7): A39.

96

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

CHAPTER 2.4

Promoting the Growth and Competitiveness of the Insurance Sector in the Arab World
PETER VAYANOS, Booz Allen Hamilton, Beirut MAHER HAMMOUD, Booz Allen Hamilton, Beirut

Insurance is one of the cornerstones of the modern-day financial services sector. In addition to its traditional role of managing risk, the insurance sector promotes longterm savings and serves as a conduit to channel funds from policyholders to investment opportunities, including mortgage lending. As such, a thriving insurance sector is not only evidence of an efficient financial services sector, but it is also a key enabler of a healthy economy. Insurance in the Middle East and North Africa (MENA) region has traditionally lagged in growth and development relative to other elements of the region’s financial services sector.This is evidenced by the low level of demand as measured by penetration and density levels, undercapitalized supply, and generally underdeveloped legal and regulatory environments. This paper outlines a set of policy recommendations to be adopted to promote the growth and competitiveness of the insurance sector in the MENA region.We begin by reviewing and assessing the existing state of the insurance sector across the region.Thereafter, we examine the key enablers that underpin a successful insurance sector before recommending policy changes to promote the growth and competitiveness of the MENA insurance sector.

Review and assessment The locally admitted insurance market of the MENA region is small and underdeveloped. According to the Swiss Re Sigma report and other publicly available information, the total gross premium income of the MENA region amounted to around US$9 billion in 2005.This compares with US$47 billion for the countries of Middle and Eastern Europe, and US$1,177 billion for the initial 15 countries of the European Union (EU). In terms of share of the world market, the MENA region accounted for roughly 0.26 percent in 2005. Figure 1 compares the size of the insurance markets of major regions of the world. A measure of the development of an insurance sector is insurance penetration, defined as gross premium income (GPI) as a percentage of gross domestic product (GDP).When comparing the MENA region with other regions of the world, this measure reveals the extent to which the MENA market is underdeveloped. In 2005, the level of insurance penetration in the MENA region was approximately 1 percent, compared with an average of 6 to 9 percent in industrialized countries and 2.5 to 4 percent in emerging markets. Figure 2 compares GPI as a percentage of GDP for major regions of the world. To better understand the insurance sector of the MENA region, we assessed the existing state of the market from a demand-and-supply perspective.This assessment revealed a number of findings that are unique to the region. Although there are differences between countries, these findings are present to a greater or lesser degree in each of the countries of the region.

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

2.4: Growth and Competitiveness of the Insurance Sector

97

2.4: Growth and Competitiveness of the Insurance Sector

Figure 1: Gross premium income by region, 2005 (US$ billion)

1,222

1,241 1,177

47 North America Western Europe EU15 Central and Eastern Europe

9 Middle East and North Africa

Source: Swiss Re, 2006b; Bahrain Monetary Agency, 2006j.

98 Figure 2: Gross premium income as a percentage of GDP (2005)

8.97%

8.64%

8.44%

2.66%

1.05%

North America

EU15

Western Europe

Central and Eastern Europe

Middle East and North Africa

Source: Swiss Re, 2006b; Bahrain Monetary Agency, 2006j.

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Figure 3: Gross premium income of MENA countries (US$ billions)

CAGR 2000–05 (percent) 11.1 19.6 18.1 16.2 12.4 12.6 7.1 16.0 5.5 8.9 13.1 17.0
Saudi Arabia United Arab Emirates Kuwait Qatar* Oman Bahrain Lebanon Jordan Egypt Morocco Tunisia Algeria 0.0 0.5 1.0 1.5 2.0

s 2005 s 2004

Source: Swiss Re, 2006b; Booz Allen Hamilton analysis. * Qatar CAGR (compound annual growth rate) is for 2003–05, as 2000 data are not available.

The market is growing and has significant potential for future growth

The markets of the MENA region, albeit small, are undergoing rapid growth. Many countries in the region experienced double-digit growth between 2004 and 2005. Furthermore, this growth has not been limited to the most recent years: between 2000 and 2005, the insurance market in the MENA region grew at a compounded annual growth rate of 12.5 percent. Figure 3 illustrates the size of the market by country for 2004 and 2005, and its growth rates between 2000 and 2005. Further growth is expected during the foreseeable future, fueled by a combination of factors, including: • Macroeconomic growth. Above-average levels of macroeconomic growth will spur the demand for insurance. In particular, many countries in the region, especially the energy-rich countries of the Gulf, are witnessing large investments in infrastructure and growing trade internationally and across the region. Both of these factors will create strong demand for insurance coverage. • Emergence of compulsory insurance classes. The recent introduction of compulsory insurance classes, principally automotive and health insurance, in many countries of the region will drive the demand for insurance on the retail side and make these the largest classes of insurance in the

marketplace. By way of example, we estimate that in Saudi Arabia, by 2009, the combined health and automotive market could represent up to 75 percent of the total insurance market of around US$4 billion. • Privatization and restructuring of government pensions. Government privatization programs will serve as a catalyst for the development of the insurance sector, since entities that were formerly selfinsured will now require insurance coverage. In the future, the expected restructuring of state pension funds and the reduced role of the state in providing pensions will also lead to rising demand for life insurance and long-term savings products. • Growth of financial services. The growth in asset-based financing, such as housing and auto loans, will lead to an increase in the demand for insurance products to mitigate the risks associated with the underlying assets. From a slightly different perspective, the emergence of the capital markets has provided an alternative source of investments for insurance companies. Although the emergence of the capital markets will not in itself drive demand for insurance, the maturing of these markets will provide opportunities for insurance companies to diversify the sources of their investment income.

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

2.4: Growth and Competitiveness of the Insurance Sector

99

2.4: Growth and Competitiveness of the Insurance Sector

Figure 4: Insurance penetration by country (2005)

15

United Kingdom

Insurance penetration (percent)

10

United States

Germany

5
Lebanon Bahrain Jordan Qatar Oman Tunisia Kuwait

Malaysia Spain Morocco United Arab Emirates Egypt Saudi Arabia

0

Algeria

Small (< 1 billion)

Medium (1–10 billion)

Large (10–1,000 billion)

Premium value (US$ billions)

Source: Swiss Re, 2006b; Booz Allen Hamilton analysis.

100 • Demographics of the region. The population of the MENA region is generally very young. As the population matures, the demand for insurance products will increase. Despite the recent rapid growth of insurance in the region, the market still has significant potential for future growth. As mentioned above, the level of insurance penetration (GPI/GDP) is very low in the region. Figure 4 provides a comparison of the countries of the MENA region with selected other countries and reveals the sector’s future growth potential. Another indicator of the potential for future growth is the level of insurance density, measured in terms of GPI per capita. In 2005, the insurance density in the Middle East ranged from US$10 to US$440; this compares with a range of US$40 to US$1,000 in Eastern Europe, US$1,400 to US$5,500 in Western Europe, and US$2,400 to US$2,900 in North America. Figure 5 presents a comparison of insurance density for countries in the MENA region against selected other countries.
Life insurance is significantly underdeveloped

versus 1.4 percent for general and health insurance.We believe the reasons for this low level of penetration are: • Shari’a sensitivity. The purchase of life insurance products is strongly influenced by perceptions of whether or not the products are compliant with shari’a. Similar to other conventional financial products, life insurance is perceived to have prohibited elements of uncertainty (gharar), gambling (maiser), and interest income (riba). Uncertainty stems from the notion that the outcome of the insurance contract is not known at the time it is created and varies according to the time of death of the insured. Gambling stems from the notion that the insured may gain large amounts (that is, profit) from the insurance coverage if certain events take place. Interest income stems from the notion that the premiums are invested in non-shari’a-compliant, interest-bearing instruments. • Lack of awareness of life insurance products. A limited awareness of life insurance and its benefits among the citizens of selected countries in the region has limited the take-up of such products. This is partly driven by cultural factors, such as the reliance on the extended family network, and partly by structural factors, such as the provision of generous benefits by the state in the event of death or disability.

Life insurance has historically had limited take-up in the region, resulting in an average level of insurance penetration for life insurance in 2005 of around 0.3 percent

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Figure 5: Insurance density by country (2005)

4,500
United Kingdom United States

3,000

Germany

1,500

Spain

Bahrain Malaysia Kuwait Tunisia Lebanon Jordan Egypt Saudi Arabia Morocco Algeria Oman

United Arab Emirates Qatar

0

15,000

30,000

45,000

GDP per capita

Source: Swiss Re, 2006b; Booz Allen Hamilton analysis.

• Absence of life insurance in related financial services. Until recently, there were few related financial products (such as mortgage lending) that stipulated the purchase of life insurance to settle outstanding obligations in the event of the death or disability of the borrower.
Emergence of takaful as an alternative to conventional insurance

Intermediary distribution channels remain informal

In response to shari’a sensitivity, takaful—a form of insurance that complies with the principles of shari’a— emerged as an alternative to conventional insurance. While there is limited information as to the size and penetration of the takaful market, interviews with market participants and the increase in the number of Islamic insurance companies point to rising demand for takaful.
Fragmented supply base with a large number of small competitors, limited presence of foreign insurers

The role of intermediaries in developing markets is important since they not only increase the distribution of products, but also serve as a means to educate customers about products. Across the region, the level of penetration of brokers and agents varies. In the cases of Lebanon and Saudi Arabia, brokers are very active, especially on the corporate side. In other markets, intermediaries are less active and the business is driven through sales forces tied to companies. The informal conditions under which brokers and agents operate, however, are common across the region. There are a number of reasons for these conditions, including: • Absence of regulatory frameworks to govern intermediaries. Until recently most countries in the region did not have a regulatory framework to govern the activities of agents and brokers.This in turn undermines the credibility of companies and individuals acting in this capacity. • Lack of qualifications, accreditations, and licensing requirements. The absence of these standards undermines the development of intermediaries since there is no way for customers to independently verify the quality of the agent or broker with whom they are dealing.

From a supply perspective, many markets of the MENA region are characterized by a large number of small players when measured by capital employed. Selected countries (including Egypt, Jordan, and Lebanon) have recently introduced legislation to raise the minimum level of capital. However, average levels remain very low when compared with international standards. There is also a limited presence of foreign insurers in the market in terms of market share. Furthermore, many of the international insurers have a narrow focus, particularly on the life side.

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

2.4: Growth and Competitiveness of the Insurance Sector

Insurance density (US$)

101

2.4: Growth and Competitiveness of the Insurance Sector

Bancassurance, or the sale of insurance products through a bank, is a similarly informal channel. Specific challenges facing bancassurance include ensuring adequate training and incentive schemes for bank staff to sell insurance products, implementing systems to facilitate the processing of policies, addressing regulatory issues such as which regulator (banking or insurance) should oversee bancassurance activities, and determining whether conventional banks are able to distribute takaful products. In summary, our assessment has revealed that the market is underdeveloped on both the demand and supply sides.That said, there is significant potential for future growth. Capitalizing on this potential will require regulators and policymakers to address gaps in the underlying enablers of growth.

the International Monetary Fund and the World Bank, acknowledged the comprehensiveness of this regulatory framework.1 At the other end of the spectrum are countries such as Kuwait, Qatar, and the United Arab Emirates (UAE), whose regulations are limited. For example, in the United Arab Emirates, regulations do not require companies to adhere to solvency regulations but rather only meet minimum capital requirements. In the case of Qatar, the law lacks adequate legislation that lays out the rights and obligations of parties entering into insurance contracts. The existence of a robust and comprehensive legal framework is one of the core underpinnings of a healthy insurance market. In addition to building the confidence of local market participants, an established legal framework serves to attract international players and, at a regional level, avoid potential regulatory arbitrage.
Regulatory bodies

102

Evaluation of the enablers of growth The development of an insurance market is a function of the underlying enablers of growth, and the existing state of the market is a reflection of the maturity of these enablers.We believe that there are five types of enablers that shape an insurance market (see Table 1). In order to develop policy recommendations to address the underlying enablers (and consequently promote the growth and development of the market), it is necessary to evaluate the maturity of each of these enablers. Since the state of development of the enablers differs by country, it is necessary to perform this evaluation at the country level. Accordingly, we have reviewed these enablers for nine of the major countries within the MENA region.The results of this evaluation are presented in Appendix A and summarized below.
Legal framework

At the legal and regulatory levels, there is wide variability in the maturity of the frameworks that govern regional insurance markets. Until recently, almost all MENA countries had outdated insurance laws and regulations; some countries had no insurance law at all. Over the past few years, many countries have initiated serious efforts to upgrade their regulatory frameworks, as evidenced by the enactment of new laws.They have strengthened the independence and supervisory capabilities of regulatory entities in line with the core principles of the International Association of Insurance Supervisors (IAIS); they have also issued sector guidance notes covering, for example, governance, market conduct, and risk management. That said, there still remains a wide variation in the comprehensiveness and application of legal frameworks across the region. At one end of the spectrum, Bahrain has a well-established and applied legal framework for insurance activities. In April 2005, Bahrain issued the Insurance Rulebook, which sets out elaborate licensing and operational regulations for both conventional and takaful insurance. A recent report by the Financial Sector Assessment Program (FSAP), a joint venture between

Regulatory bodies operate in tandem with legal frameworks. Not surprisingly, the level of maturity of these bodies is a reflection of the underlying laws and regulations. All the countries surveyed in this study have an insurance regulator, although the form of the regulator varies. In some countries, the insurance sector is supervised by an existing financial services regulator, such as the central bank or capital markets authority. In other countries, the sector is supervised by a government ministry. Our assessment did reveal the existence of more than one regulator with overlapping responsibilities in selected countries, which leads to inconsistent application of the regulations, potential confusion in the marketplace, and unnecessary bureaucracy for market participants. For example, in Saudi Arabia there is an overlap in the area of health insurance between the Council of Cooperative Health Insurance (CCHI) and the Saudi Arabian Monetary Agency (SAMA).This is in addition to existing overlaps between SAMA, the Capital Markets Authority (CMA), and the Ministry of Commerce. Similarly, in Lebanon there appears to be duplication between the activities of the Insurance Control Commission and the Directorate of Insurance Affairs of the Ministry of Economy. The comprehensiveness and effectiveness of regulatory processes, especially supervisory processes, varies considerably across the region. As mentioned above, this is a function of the maturity of the underlying legal and regulatory frameworks. Countries such as Bahrain and Jordan, which have well-developed regulatory frameworks, are either applying or developing risk-based supervision processes that comply with the standards of international bodies such as International Association of Insurance Supervisers (IAIS). Other countries, such as Qatar, Kuwait, and the United Arab Emirates, have less-developed supervisory processes that are more administrative in orientation.

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Table 1: Insurance market enablers
ENABLER ROLE SUPPORTING EVIDENCE

Legal framework

• Protect the rights of policyholders, regulate the activities of market participants, and ensure the financial health of the sector

• Existence of an insurance law appropriate to existing market conditions • Existence of insurance regulations/ implementing guidelines

Regulatory bodies

• Oversee and supervise the sector and ensure the enforcement of laws and regulations

• Existence of an insurance regulator • Evidence of regulatory processes being applied • Evidence of an insurance judicial authority

Nature of competition

• Drives innovation, competitive pricing, and the adoption of best practices

• Evidence of foreign insurers and the extent to which foreign ownership is allowed • Extent of private- sector involvement— market share of private vs. public insurers • Extent to which large, well-capitalized insurers exist

Skills and training

• Assess the risks to be insured • Provide customers with the appropriate products/services • Ensure the availability and development of local skills

• Availability of skilled professionals • Availability of training programs, training institutes, and accreditations

Market-led initiatives

• Drive self-regulation and the development of the industry at the country and regional levels

• Existence and application of insurance standards • Availability of insurance statistics and market data • Existence of professional associations • Existence of industry-level programs to create awareness • Existence of regional forums

Source: Booz Allen Hamilton analysis.

The effectiveness of a legal and regulatory framework is directly correlated to the existence of regulatory bodies to enforce the law.Within the MENA region, there is a need to upgrade the capabilities of selected regulators to ensure comprehensive and consistent enforcement of regulations.
The nature of competition

The insurance markets of the Middle East are generally competitive.This can be measured by the extent to which foreign insurers are present in the market, the level of state involvement through government-owned firms, and the extent to which the market is fragmented. Over the past few years, countries in the region have lifted restrictions and/or moratoriums on the operations of foreign insurers. As a result, the markets of these countries are now open to foreign insurance companies, which are present to various degrees throughout the

region. However, their share of the local market tends to be small; this circumstance can be traced to previous restrictions on market entry, regulations that require insurers to invest a large proportion of premiums in local markets, and the fact that the individual markets of the region may not have been attractive given their small size.With the lifting of restrictions and expected market growth, the level of activity of foreign insurers is expected to grow significantly. Additionally, foreign insurers in many cases have focused exclusively on the life business.This can be ascribed to the fact that local insurers have been less active in this area due to less-developed capabilities and limited demand from nationals owing to shari’a implications. International insurers also benefit from the natural affinity of expatriates who are more inclined to purchase life insurance.

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

2.4: Growth and Competitiveness of the Insurance Sector

103

2.4: Growth and Competitiveness of the Insurance Sector

104

The insurance sector in the Middle East is characterized by a high degree of private-sector involvement. There are notable exceptions, such as Egypt and, until recently, Saudi Arabia. In the case of Egypt, the stateowned insurers command around 75 percent of the non–life insurance market and 60 percent of the life insurance market. However, there are moves afoot to consolidate the activities of the state insurers with a view to ultimately privatizing the resulting entities. Although there is significant involvement of the private sector in the insurance industry, this is offset to some extent by a high degree of market fragmentation. In particular, many markets of the MENA region are characterized by a large number of small players when measured by capital employed. There are a number of ramifications of the current low levels of capitalization. At an overall industry level, this results either in insurance being placed directly outside of the region through international brokers or in the practice of fronting, whereby local insurers retain a small portion of the risk and transfer the remaining risk to their international reinsurance partners. As a consequence of the lack of capacity, risk-management and actuarial capabilities in the region remain underdeveloped, resulting in a disproportionate reliance on international reinsurers to assess the risks and provide appropriate pricing guidelines. At an individual company level, low levels of capitalization limit the resources available to build the required capabilities to serve customers efficiently and effectively. Encouraging the formation of large (but not dominant), well-capitalized insurers is vital to the development of the regional insurance sector, since these companies can invest in the capabilities needed to promote growth. In addition, creating the conditions to attract foreign insurers is important to ensure the transfer of skills and best practices to the region.
Skills and training

and information technology that meet the requirements of four internationally recognized professional designations. The shortage of skills and limited training facilities are perhaps the greatest impediments to the development of the insurance sector in the region.
Market-led initiatives

Across the region, the insurance sector is characterized by a shortage of skills—particularly product development, underwriting, and actuarial skills.The absence of skills clearly affects the development of the sector, specifically in the areas of product innovation, risk assessment, and pricing.This situation is exacerbated by nationalization requirements in some countries, which extend the time required to train and equip staff for key positions, and the availability of highly attractive positions in other areas of the financial services sector. The generally limited number of training institutes and the absence of international accreditations hampers the development of skills. Again, there is wide variability across the region in terms of training facilities. Bahrain stands out by virtue of the Bahrain Institute of Banking and Finance (BIBF), which offers 20 insurance programs —including courses in underwriting, risk management,

Market-led initiatives refer to initiatives at an industry level that seek to develop the sector as a whole.This includes market standards and the availability of statistics to enable insurers to improve product development and pricing, the existence of industry associations to foster cooperation between industry players, and the existence of industry programs to create awareness among the population of the concept and benefits of insurance. Although these initiatives occur at the country level, our assessment also covered efforts to improve coordination among individual regulators and players at the pan-regional level. Across the region, there is a lack of reliable market data. In the markets that do collect data, the data are neither comprehensive nor sufficiently granular to provide insurers with the necessary insights to improve product development and pricing. Almost all of the region’s markets either have an insurance industry association or are in the process of forming such an association.These associations play an important role in promoting the sector by facilitating cooperation between insurance companies and professionals. On the awareness level, there are limited programs in place in the countries of the MENA region. Bahrain and Jordan appear to be the only countries with formal programs in place to promote such awareness. In the case of Bahrain, the Insurance Market Development Committee (IMDC) initiated its first awareness campaign in 2005, which was aimed at increasing insurance penetration using educational messages through a specially created cartoon character, “Taamina.” In Jordan, the Insurance Commission (IC) has launched an awareness campaign consisting of three phases: introducing the role of the IC, raising awareness of the benefits of insurance, and introducing various insurance products to the public. Similarly, there are limited, if any, programs aimed at raising the profile of the insurance industry and attracting university/college graduates and other professionals. On a regional level, pan-regional cooperation has manifested itself in numerous forums, associations, and standard-setting organizations. Each of these bodies aims to foster the development of the regional insurance sector and promote regulatory coordination. At the regulatory level, the Arab Insurance Regulatory Commission (AIRC) was established in September 2006 with the participation of 12 countries. ARIC’s objectives are to provide a forum for Arab insurance commissioners to share expertise and training programs, develop regulatory and supervisory standards,

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

and coordinate their activities with those of international organizations such as the IAIS. At the sector-development level, the General Arab Insurance Federation (GAIF) plays a regional role, with annual recommendations geared toward the development of the insurance markets through initiatives led by the public and private sectors. Finally, regional insurance forums play a positive role by using panels of experts to address issues and emerging trends facing the markets. Key regional forums include the annual Middle East Insurance Forum and, on a Gulf Cooperation Council (GCC) level, the Gulf Insurance Forum, which is organized by the UAE-based Coordination Commission for Gulf Insurance and Reinsurance Companies. However, while there is no shortage of regional bodies, there is limited evidence of coordination among pan-regional bodies, leading to overlapping efforts and diverging priorities. In summary, our evaluation revealed that there are a number of gaps to be addressed at the enabler level. In particular, there is a need to ensure a consistent level of maturity for legal and regulatory frameworks and the concomitant regulatory bodies, as well as to address the shortage of skills in the marketplace.

Policy recommendations to promote growth and competitiveness Policymakers in the MENA region have the opportunity to play a central role in unlocking the growth potential of their respective insurance markets.We have identified a set of recommendations to be adopted by policymakers or regulators that builds on our evaluation of growth enablers and takes into account best practices from other markets.The recommendations will not apply in their entirety to all the countries of the region, given the varied state of development of individual markets.Therefore, we encourage policymakers to select the recommendations that are most applicable to their respective markets. We have grouped our recommendations within the same framework adopted for the evaluation of growth enablers.
Legal framework

Enacting a modern legal framework and designating a special judicial authority to handle insurance-related cases are key requirements to enable market development by protecting the rights of policyholders and regulating the activities of market participants. As noted earlier, there is wide variability in the maturity of legal environments across the region, and a number of countries have underdeveloped legal frameworks. Insurance regulators in such countries should seek to upgrade their legal frameworks and ensure that they reflect international best practices, such as the principles of the IAIS. In addition, policymakers should seek

to establish a specialized insurance judicial authority to resolve insurance disputes in countries where such an authority does not exist. A modern legal framework should regulate all insurance market participants, including insurance companies, intermediaries, and professionals.The regulations covering insurance companies should address a number of areas, including, among others, licensing, product approval, financial reporting, investments, reinsurance, and solvency margins. In addition, and in line with IAIS principles, the regulations should stipulate the minimum internal capabilities of market players, such as governance and risk management.The regulations covering intermediaries and insurance professionals should entail, at a minimum, qualifications criteria, licensing requirements, and a code of conduct. In countries where there is a rapidly growing demand for takaful insurance, the legal framework should also promulgate adequate legislation to address this form of insurance.There are three main challenges in takaful regulation: capital requirements, corporate governance, and consumer protection from misinterpretation. Although the underlying risk is the same, the risk profiles of conventional and takaful insurers are different because the latter has higher operational risk. It is uncertain whether this leads to increased capital requirements for takaful insurance, especially in the Al-Wakalah structure that is predominant in the Middle East. A sound governance system, including risk management and internal control processes, is crucial for meeting these capital requirements. Furthermore, the regulation has to ensure that the shari’a compliance claim of a takaful insurer is valid.To do so, the operations of the shari’a board have to be scrutinized by the regulator. There are two different approaches to the regulation of takaful insurance.While some countries have established a special takaful law, others have modified their existing regulatory frameworks and adjusted them to the specific needs of Islamic insurance.Whether or not there needs to be a separate takaful regulation should depend on the definition of the term insurance in the conventional regulation. Separate takaful-specific regulation is not required where takaful can be interpreted as a subset of conventional insurance. In implementing a legal framework, countries in the region should start from a compliance-based legal framework that involves setting prescriptive rules and guidelines to be complied with by the market.This is a model that is commonly adopted by newly regulated and underdeveloped markets. In such a model, for example, insurance products are subject to form and rate approval by the regulator prior to being sold in the marketplace. In time, and as the market matures, the regulatory framework can move toward a principle-based model that allows regulated entities more flexibility in meeting regulatory requirements. In contrast to the example

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

2.4: Growth and Competitiveness of the Insurance Sector

105

2.4: Growth and Competitiveness of the Insurance Sector

106

above, this model would allow insurance products to be sold in the marketplace immediately after the regulatory filing has been completed. Regulators then would have the authority to intervene at their discretion. A critical component of the legal framework is the establishment of minimum capital requirements to give reasonable assurance that policyholders’ interests will be protected, and capital adequacy requirements (a solvency margin), to ensure that insurers are able to absorb significant unforeseen losses.2 In setting minimum capital requirements, regulators should consider an appropriate amount based on the characteristics of their markets and the insurance classes being regulated. In the case of solvency margins, regulators are encouraged to adopt risk-sensitive approaches. At present, there are two regimes that govern solvency requirements: Solvency I and Solvency II. Countries in the region can pursue a two-stage plan to adopt risk-sensitive solvency margin requirements. Initially, regulators should adopt an easy-to-apply solvency model (for example, Solvency I) and use collected market data to fine-tune the risk factors applied to premiums or claims by insurance class. Over time, regulators can apply more risk-sensitive formulas (for example, risk-based capital) after developing the requisite internal capabilities (in terms of data availability, advanced staff skills in risk assessment, and understanding of key risks in the marketplace) and after fostering the development of insurers’ capabilities (especially in terms of risk measurement). In addition to the above, MENA countries that have not established a dedicated insurance judicial authority should do so.This would require a competent judicial authority staffed with experienced insurance staff and legal professionals who have proficient knowledge and expertise in the field of insurance legislation. The chosen judicial authority can be in the form of a special court or committee that deals with insurance disputes and litigations. Such a court should be independent from the regulatory body.The court should aim to build public confidence through efficiency in handling cases, consistency in interpreting the legislation, independence, and fairness.
Regulatory bodies

In addition, regulators should seek to enhance their capabilities, especially in the area of supervision (including staff and IT). In upgrading supervisory capabilities, regulators should take into account the guidelines set out as part of the IAIS core principles. In general, there are two approaches to supervision: an audit-based (or data-focused) model, under which the regulator focuses on data collection and ensuring compliance with the rules and requirements; and a riskbased model, under which the regulator focuses on early identification of risk, systematic prioritization of risk to allocate supervisory resources to the highest areas of risk, and timely and proportional intervention to help reduce insolvencies. In practice, most international regulatory regimes fall within these two approaches, with developed markets gravitating toward the risk-based model.The choice of the appropriate supervisory approach should be aligned with the development stage of the regulatory body and the legal framework, insurers’ risk-management capabilities, the qualifications of insurance professionals, and the stage of development of the overall financial market. From an implementation perspective, MENA countries should devise and pursue a medium-term plan to apply a risk-based supervision approach.The adoption of such an approach consists of building advanced competencies in five integrated areas, which collectively provide the regulator with a risk-based view of the highest-risk insurers and the areas of greatest concern within such insurers.These areas include financial reporting, solvency monitoring, financial analysis, on-site inspection, and market analysis. In addition to the above capabilities, supervisors should design an intervention framework with clear stages that link the legal framework, supervisory approach, supervisory conclusions, enforcement powers, and actions of the regulator under various market events.The stages of intervention serve as a primary tool to ensure the consistency of supervisory actions and, when they are communicated to the market, they set market expectations in terms of supervisory responses under certain conditions.
The nature of competition

An empowered insurance regulator with well-developed capabilities enables market development by ensuring appropriate market oversight and enforcement of enacted laws and regulations. In parallel with upgrading legal frameworks, policymakers in the region should seek to empower their insurance regulatory bodies.The empowerment of the regulatory body should be constituted in the legal framework, which should address the body’s legal form, ensure its independence, vest appropriate authorities, and clarify any overlapping responsibilities with other governmental entities.

Fostering a competitive environment drives innovation, competitive pricing, and the adoption of best practices, and is a key enabler for the development and growth of insurance markets in the MENA region. The ultimate objective from the standpoint of market growth should be to have a profitable sector adequately serving market demand, with local insurers equipped to withstand the competitive pressures of increasingly liberalized markets. Although the insurance markets in the region are generally competitive, regulators should seek to raise the competitive bar further through higher capital requirements and the introduction of governance and

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

risk-management requirements. In highly fragmented markets, regulators should investigate the option of increasing capital requirements to stimulate market consolidation and increase the level of risk-retention capacity.This in turn would result in larger local companies with the resources to invest in capabilities, and would also reduce the level of fronting. On the governance side, regulators should introduce minimum governance requirements such as the establishment of internal functions (for example, an internal audit), the definition of fit and proper criteria for board members and senior management, the development of policies and procedures manuals, and the formation of an investment policy subject to review and approval by the board. In countries where there is a rapidly growing demand for takaful insurance, regulators should identify, develop, and disseminate risk-management best practices that take into account the contractual relationships of Islamic insurance products.
Skills and training

• Encouraging companies to build up the knowledge of their staff. Regulators can require companies to take a more active role in developing the expertise of their employees by mandating training budgets and staff training programs.These programs would be subject to audits by the regulator to ensure companies’ compliance. As an incentive, regulators can consider subsidizing part of the training budget through a reduction of annual regulatory fees.
Market-led initiatives

Cultivating the growth of a pool of skilled local insurance professionals is paramount to the development of the insurance sector, given the existing acute shortage of skills. Policymakers and regulators should act as catalysts in the development of professional knowledge in three ways: • Setting qualification and accreditation requirements for the insurance profession. In general, it is customary to set minimum requirements for insurance professionals that go beyond general educational attainment and include specialized insurance qualifications. Regulators can influence the market in raising the standards of training programs by adopting internationally accredited programs and selectively approving local programs that meet minimum criteria. • Organizing specialized training programs. Training programs can be organized by the regulator, the industry itself (such as associations of insurance companies and the companies themselves), and by the private sector as the demand for such training increases. In the absence of market-led training programs, regulators should bridge this gap by organizing accredited training programs through affiliations with specialized training institutions (for example, institutes of banking), general academic institutions (such as universities), or leading training institutions in more developed markets. In countries where the demand for takaful products is growing rapidly, regulators need to ensure the availability of training programs to educate the market on these relatively new products.

Promoting the involvement of industrywide bodies, whether at a local or regional level, is a valuable enabler for the development of the market by providing forums for the harmonization of standards and activities, and for the sharing of best practices. By definition, market-led initiatives lie outside the boundaries of regulators’ direct control. Nevertheless, insurance regulators can play a key role in bridging market gaps while stimulating the emergence of more-effective industry-led market development initiatives. In particular, policymakers and regulators can play a valuable role in promoting more active involvement from industry associations, encouraging the adoption of market standards, fostering the availability of granular market statistics, generating consumer awareness of insurance, and raising the profile of the industry to attract new talent. Policymakers and regulators should encourage the formation of industrywide associations as a way to harmonize the representation of market participants. In countries where associations exist, regulators should emphasize the role of the association by channeling regulatory consultation efforts through these bodies or adopting industry standards endorsed by associations. Regulators can also mandate the adoption of internationally accepted accounting standards—such as IFRS 4 issued by the International Accounting Standards Board in 2004—to ensure consistent treatment of insurance contracts and appropriate disclosure. Fostering the availability of insurance market data is a requirement for promoting better understanding of the market and supporting informed decision making. By virtue of their access to market data, regulators should support the publication of accurate, consistent, and up-to-date information on the market. Some countries in the region have made significant improvements in this regard; however, the lack of good market data remains a visible weakness in many MENA markets. In addition to sector-level data, granular statistics (for example, pricing, claims, and loss statistics) are required to support product development and pricing. The private sector can fill this gap by collecting and providing such statistics. For example, a private company in the United States—the Insurance Service Office (ISO)—provides statistical, actuarial, and claims data.The ISO gathers information from insurance companies on

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

2.4: Growth and Competitiveness of the Insurance Sector

107

2.4: Growth and Competitiveness of the Insurance Sector

108

hundreds of millions of policies, including the premiums companies collect and the losses they pay. In the MENA region, regulators should encourage the establishment of such specialized data services organizations and mandate that product pricing decisions be based on relevant market data and statistics. Creating consumer awareness of the advantages of risk coverage provided by insurance products and services is a key enabler to stimulate the demand side. Promoting awareness among retail consumers is particularly important in the GCC countries, where awareness of the benefits of insurance is considered low. Insurance regulators can increase awareness by launching public communication initiatives, publishing educational material, setting up a function to handle inquiries (whether telephone- or Web-based), and encouraging insurance companies to launch informative promotional programs geared at raising consumer knowledge. The programs to raise the level of awareness of life insurance in Malaysia are a good case in point. In 2003 a joint initiative, InsuranceInfo, was launched by Bank Negara (the Central Bank and insurance regulator of Malaysia) and other industry players. InsuranceInfo covers topics such as standard life insurance, annuities, investment-linked insurance plans, and child education plans. InsuranceInfo disseminates this information primarily through its website, as well as through booklets made available in branches of selected insurance companies and articles published in major newspapers.This program has contributed to the development of the life insurance market, which generated premiums of US$4.8 billion in 2005—more than three times those in the entire MENA region. Furthermore, policymakers should seek to promote the industry as a whole to attract talent.This can best be achieved by industry associations targeting university and college graduates through career days, internships in insurance companies, and similar initiatives. At a regional level, it is important that a standardized regulatory and compliance framework exists across the region before attempts are made to create a regional market. As such, policymakers should seek to harmonize the efforts of the many pan-regional bodies to ensure consistent attention on the key issues. Specifically, regional cooperation should focus on promoting financial stability, participating in the global trend toward cooperation and harmonization (for example, Solvency II), improving risk management and corporate governance practices, protecting the integrity of the financial systems from illegal activities, and preventing regulatory arbitrage (that is, offshore entities that seek out the least restrictive regulatory environment from which to operate locally and cross-border). Cooperation among regional insurance regulators would create significant economic advantages for their respective insurance markets. Primarily, active

coordination would accelerate the development of a standardized regulatory framework and harmonize the regulatory compliance requirements, which in turn would enhance the attractiveness of the regional insurance market to international insurance groups and facilitate the formation of regional insurers. In addition, active cooperation among insurance regulators would facilitate the transfer of acquired supervisory knowledge and expertise, and improve the efficiency of supervisory activities by avoiding duplication of supervisory efforts across the region.

Conclusion The insurance markets of the MENA region show significant potential for future growth. Realizing this growth, however, will require policymakers and regulators to address the existing gaps in the underlying enablers of growth. Specifically, selected countries in the region need to upgrade the existing legal and regulatory frameworks and improve the capabilities of regulators. Similarly, there are opportunities to improve the competitive landscape and thereby drive innovation, competitive pricing, and the adoption of best practices by mandating higher capital levels and introducing governance and riskmanagement requirements. Across the region there is a need to address the skills shortage by introducing minimum qualification levels and fostering internationally accredited training programs. And finally, at a market level, the use of industry associations, improvements in market data, and the introduction of consumer awareness programs will go a long way toward the overall development of the sector. In the end, each country will need to chart its own course and take into account local circumstances.The speed of development of individual insurance markets will be a function of how rapidly policymakers and regulators are able to address the individual enablers of growth.

Notes
1 See IMF (2006). 2 AIS core principle number 23.

References
Al-Bayan. 2006. “Arab Insurers, Reinsurers, and Brokers 2005 Ranking.” Al-Bayan Supplement Issue 419. Al-Iktissad Wal-Aamal Group. 2006. The 3rd Middle East Insurance Forum. Event Calendar. Available at www.iktissad.com/events/MEI/3/profile. AME Info. 2006a. “Qatar Financial Center Authority Announces Senior Appointment.” Available at www.ameinfo.com/80929.html. AME Info. 2006b. “Qatar Plans Insurance Association.” Available at www.ameinfo.com/94885.html.

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Bahrain Institute of Banking and Finance. Available at www.bibf.com/home.html. Bahrain Monetary Agency. 2006a. “AAOIFI Standard on Takaful.” The Insurance and Takaful Review11: 5. ———. 2006b. “Bahrain Financial System Robust.” The Insurance Review 9: 4. ———. 2006c. “Bahraini Market Posts Health Growth in ’05.” The Insurance Review 10: 1. ———. 2006d. “BMA Rules on Takaful ‘Unique’.” The Insurance Review 8: 4. ———. 2006e. “Campaign to Promote Insurance.” The Insurance Review 4: 7. ———. 2006f. “CBB Succeeds BMA.” The Insurance and Takaful Review 11: 2. ———. 2006g. “CII Academy in Bahrain.” The Insurance Review 10: 6. ———. 2006h. “Progress on Takaful Association.” The Insurance Review 10: 4. ———. 2006i. “Rulebook in Its Final Stages.” The Insurance Review 4: 4. ———. 2006j. “Local Firms Post Strong Gains.” The Insurance Review 10:2. Bakri, A. “The Law and Practice of Insurance in the State of Qatar.” The Law Offices of Sultan M. Al-Abdulla Advocates and Legal Consultants. Available at www.qatarlaw.com/English/ Articles/qtr.htm. Bank Muscat. 2006. “Oman: Insurance Sector.” Sector Snapshot, July. Business Monitor International. 2006a. “Saudi Arabia Insurance Report Q2 2006.” Industry Reports and Forecast Series. London: Business Monitor International. ———. 2006b. “United Arab Emirates Insurance Report Q2 2006.” Industry Reports and Forecast Series. London: Business Monitor International. Central Bank of Bahrain. “Market Review 2005.” Available at www.cbb.gov.bh/cmsrule/media/pdf/InsuranceReview/InsuranceR eviewBahrain_2005_English.pdf. ———. Available at cbb.complinet.com/cbb/microsite/index.html. Co-ordination Commission for Gulf Insurance & Reinsurance Companies. 2006. The Third Annual Gulf Insurance Forum. Available at http://www.gulfinsurance.org/. Donabie, I. 2006. “Kuwait’s Climb to the Top.” Zawya Article. Available at www.zawya.com/printstory.cfm?storyid= ZAWYA20061121103518. Egyptian Insurance Supervisory Authority. No date. “EISA at a Glance.” Available at www.eisa.com.eg/eisa_at_a_glance.htm. ———. 2006. Monthly Publications. Available at www.eisa.com.eg/publication.htm. Emirates Institute for Banking and Financial Studies. No date. “Insurance Diploma Program.” Available at www.eibfs.com/EIBFS/insurancediploma.aspx. Emirates Insurance Association. No date. Available at www.eia.ae/index.html. FIRST Initiative. 2003. “Review and Drafting of a New Insurance Law.” FIRST Projects. Available at www.firstinitiative.org/Projects/projectdisplay.cfm?iProjectID=168. Ghobril, N. and S. Hawa. 2004. “The Insurance Sector in Lebanon: Overview and Outlook.” Lebanon: Saradar Investment House. Gulf Business. 2006. “Insurance Industry Gathering Momentum.” Zawya Article. Available at www.zawya.com/printstory.cfm?storyid=ZAWYA20061105102522&l=000000061106 Gulf News. 2006. “Report on the Insurance Sector Business in the United Arab Emirates for 2005.” Gulf News. Available at archive.gulfnews.com/articles/06/11/12/10082237.html Insurance Federation of Egypt. “About Us.” Available at www.ifegypt.com/En/IntroFederation.aspx.

Insurance Info. “What Is the Consumer Education Program?” Available at www.insuranceinfo.com.my/index.php?ch=14&pg= 10&ac=15#15. IAIS (International Association of Insurance Supervisors). 2003. “Insurance Core Principles and Methodology.” Available at www.iaisweb.org/358coreprinicplesmethodologyoct03revised.pdf. IMF (International Monetary Fund). 2004. “Kuwait: Financial System Stability Assessment, including Reports on the Observance of Standards and Codes.” Financial Sector Assessment Program (FSAP). Available at www.imf.org/external/pubs/ft/scr/2004/cr04151.pdf. ———. 2006. “Kingdom of Bahrain: Financial System Stability Assessment, including Reports on the Observance of Standards and Codes.” Financial System Stability Assessment, Financial Sector Assessment Program (FSAP). Washington, DC: IMF. Jordan Insurance Commission. 2006a. “Establishing the Arab Insurance Regulatory Commissions Forum.” Press Release. Available at www.irc.gov.jo/doc/press/2005/forumestablishment.pdf. ———. 2006b. “A Step Forward to Enhance Insurance Regulation.” Press Release. Available at www.irc.gov.jo/doc/press/2005/pressreleaseno.4.pdf. ———. 2006c. “Insurance Business in Jordan: Financial Report 2005.” Annual Report. Available at www.irc.gov.jo/doc/Annual2005.pdf. Jordinvest. 2006. “Takaful Insurance in the UAE.” Sector Report. Amman: Jordinvest. Kamunpoori, H. 2006. “Omani Firms Dominate Insurance Sector.” Oman Observer. Available at http://cbooman.org/Omani%20firms.htm. Kuwait Ministry of Commerce and Industry. Insurance Department. Available at www.moci.gov.kw. Lebanon Ministry of Economy and Trade. Insurance. Available at www.economy.gov.lb. Life Insurance Association of Malaysia. 2005. “Life is Precious, Take Care.” Insurance News and Events. Available at www.liam.org.my/cms/general.asp?whichfile=Activities&productid=320&catid=13. Lloyd’s. 2006. “Key Findings: Bridging the Gulf” Available at www.lloyds.com/NR/rdonlyres/446C2989-4B15-4CA9-89EA82B04D01E732/0/ReportMiddleEastSep06.pdf. Oman Economic Review. 2006. “Insurance Poised for Rapid Growth.” Zawya Article. Available at www.zawya.com/printstory.cfm?storyid=ZAWYA20061113102911&l=000000061118 Oman Capital Market Authority. 2006. “Insurance Sector News.” Insurance Quarterly Bulletin 3. Oxford Business Group. 2006a. “Time to Take Risks.” Emerging Jordan 2006: 78–81. ———. 2006b. “Riding a Wave of Growth.” Emerging Dubai 2006: 105–10. Qatar Ministry of Foreign Affairs. “Insurance Companies.” Available at http://english.mofa.gov.qa/details.cfm?id=91. Qatar Embassy. “Insurance Sector.” Available at www.qatarembassy.net/insurance.asp. Saudi Arabian Monetary Agency. Insurance. Available at www.sama.gov.sa/en/insurance/. Swiss Re. 2006a. “Solvency II: An Integrated Risk Approach for European Supervisors.” Sigma. Zurich: Swiss Reinsurance Company. ———. 2006b. “World Insurance in 2005.” Sigma. Zurich: Swiss Reinsurance Company. Thompson, J. 2001. “Risk Based Supervision of the Insurance Companies: An Introduction.” Paper prepared for the World Bank. USAID. “Economic Growth Program in Egypt.” Available at www.usaideconomic.org.eg/front%20end/ir_details_results.asp?ir _id=1.

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

2.4: Growth and Competitiveness of the Insurance Sector

109

2.4: Growth and Competitiveness of the Insurance Sector

Appendix A: Country Evaluation of Enablers

The evaluation of growth enablers at a country level was based on publicly available information. In evaluating the enablers, we adopted the following symbols to reflect the performance of each enabler:
0 1 2 3 Nonexistent Below-average performance/underdeveloped Average performance/basic development level Above-average performance/intermediate development level High performance/advanced development level

• A special court has been established to settle insurance disputes: the Committee for Resolution of Insurance Disputes & Violations. • Overall, as a new regulatory body, ISD is in the process of building up its supervisory capabilities and is expected to become fully operational in 2007.

Nature of competition

1

4

• There are more than 70 insurers in the market, all of which are in the private sector except for the stateowned National Company for Cooperative Insurance (NCCI). • NCCI dominates the market with over 35 percent of market share, focusing mainly on general insurance. This dominance will come under pressure as newly licensed companies will be able to tap public-sector business, which was traditionally accessible only to NCCI. • The majority of existing insurers are based in other countries, mostly Bahrain. In addition, most have low capitalization, relying extensively on reinsuring a significant portion of their risk portfolios. • The recently enacted insurance laws and regulations are expected to stimulate market consolidation (by setting high capital requirements) and foster the development of improved insurers’ risk-management capabilities (by limiting reinsurance levels). • As a result of the new legal framework, which allows foreign insurers to operate in Saudi Arabia, several multinational companies have applied for licenses to establish a local presence. This is expected to bring in international expertise and raise the competitive playing field to a new level.

SAUDI ARABIA Legal framework 2

110

• Until recently the Saudi insurance market was unregulated. In 2002 the Cooperative Heath Insurance Law was enacted, which sets mandatory health insurance requirements for expatriates. An independent government body, the Council of Cooperative Health Insurance (CCHI), was established to regulate the health insurance market. • In 2003 the Cooperative Insurance Companies Law was enacted, which requires all insurance companies to operate under the Shari’a-compliant Takaful insurance model. The insurance law is complemented by the implementing regulations. In October 2006, the Council of Ministers approved the licenses of 13 insurance companies under the new law. • At present the market is in a transition phase whereby existing players are allowed to operate under a grace period ending in the first quarter of 2008. At that point, insurers must either have a license or exit the market. • Overall the insurance legal framework in Saudi Arabia is in its early stages and has yet to be fully implemented and tested.

Skills and training

1

• There is a significant shortage of skills within the industry, and the Saudization requirements mandated by the new law are likely to compound this situation. • At present, there are limited training programs available. The Institute of Banking offers some insurance training, but the programs are not accredited.

Regulatory bodies

1

• The Saudi Arabian Monetary Authority (SAMA) has been entrusted with regulating the insurance sector. SAMA has established a dedicated unit, the Insurance Supervision Directorate (ISD), to carry out its regulatory and supervisory mandate. • At present there is an overlap with respect to health insurance between CCHI and SAMA; this is expected to be clarified in 2007.

Market-led initiatives

1

• At present, the market lacks reliable market statistics, professional associations, and consumer awareness programs needed to develop the market at an overall level.

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Appendix A: Country Evaluation of Enablers (cont’d.)

UNITED ARAB EMIRATES (UAE) Legal framework 1

• The market is competitive with several large local companies in the market. The largest 10 insurers account for around 50 percent of market premiums.

• The UAE insurance market is regulated by the 1984 federal law on Insurance Companies and Agents and Executive Regulation, issued by the Ministry of Commerce. • The existing legal framework is in need of significant upgrading in light of the evolution and rapid growth of the insurance market. For example, the regulations do not require insurance companies to adhere to solvency margins but only to meet a minimum capital requirement. In addition, the regulations require insurers to invest in the local market without putting clear limitations on risks and asset classes. • The United Arab Emirates has initiated work to upgrade the regulatory framework. A special committee, the UAE Insurance Committee, is entrusted with developing and proposing the regulations for the insurance sector. • There is no dedicated insurance judicial authority in the United Arab Emirates. • Overall, the insurance legal framework in the United Arab Emirates has significant limitations that are expected to be addressed in the planned regulations.

Skills and training

2

• There is a shortage of qualified staff, especially among nationals. The law requires that 15 percent of total staff be nationals; at present it is only 6.2 percent. • To support Emiratization, the Supreme Insurance Committee and National Human Resource Development Committee in the insurance sector are implementing a number of insurance training programs to develop the capabilities of nationals. • The Emirates Institute of Banking and Financial Studies also offers a one-year insurance diploma program.

Market-led initiatives

2

• The Ministry of Economy publishes high-level market data. However, there is a significant shortage of granular statistics that would improve the understanding of market performance and profitability. • The Emirates Insurance Association (EIA) plays an industrywide role in promoting the insurance sector by facilitating cooperation between insurance companies, setting standards, providing training to insurance professionals, and promoting insurance awareness. • The Coordination Commission for Gulf Insurance and Reinsurance Companies is a UAE-based entity that promotes coordination among GCC insurance companies.

Regulatory bodies

1

• The sector is regulated by the Insurance Companies Division of the Ministry of Economy. • Existing supervisory processes are undermined by the underdeveloped regulatory framework. • In line with the new regulatory framework, an insurance commissioner position is expected to be established in 2007. • Overall, the capabilities of the regulatory body are underdeveloped as a result of the gaps in the existing regulations. The regulator’s capabilities are expected to be enhanced through the establishment of a commissioner post and the updating of the legal framework.

BAHRAIN Legal framework 4

• In an effort to strengthen its position as a center for Islamic finance operations (including takaful and re-takaful), Bahrain issued the Insurance Rulebook in April 2005. The rulebook sets out elaborate licensing and operational regulations for both conventional and takaful insurance. • A recent report by the Financial Sector Assessment Program (FASP), a joint venture between the International Monetary Fund and the World Bank, acknowledged the comprehensiveness of this regulatory framework. • Overall, Bahrain’s insurance legal framework is well developed and is one of the most-established legal frameworks in the region.

Nature of competition

2

• There are 49 insurers serving the UAE market, including 5 foreign insurers. • Overall, local insurers are privately held although several large players are partially state-owned. • Local companies hold around 75 percent of the non–life insurance market, while foreign insurers are more focused on life insurance. Recently, some foreign insurers have announced their intention to focus on expanding their non–life insurance business.

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

2.4: Growth and Competitiveness of the Insurance Sector

111

2.4: Growth and Competitiveness of the Insurance Sector

Appendix A: Country Evaluation of Enablers (cont’d.)

Regulatory bodies

3

• Since 2002, the insurance sector has been regulated by the Bahrain Monetary Agency (BMA). In September 2006, the BMA was succeeded by the Bahrain Central Bank (BCB) which is mandated with carrying out the activities previously undertaken by the BMA, but with stronger operational independence and wider enforcement powers. • A recent FASP report indicated that prudential supervision is generally effective. However, the report also highlighted the limited resources available to the BCB to implement the supervisory activities promulgated under the Rulebook. • Overall, the regulator is experienced and appears to have well-developed capabilities.

• In 2006, BIBF signed an agreement with London-based Chartered Insurance Institute (CII) to be the exclusive provider of CII training courses in the Middle East.

Market-led initiatives

4

• Bahrain is reinforcing its role as a leading center for takaful by fostering the development of industry associations and professional organizations. For example, the Bahrain-based International Takaful Association (ITA) is currently being formed. It aims to play a leading role in promoting the takaful industry, encouraging cooperation among members of the association and educating the public about the unique features and benefits of takaful. Another example is the Bahrain-based Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), which is responsible for developing standards for the international Islamic finance industry, including takaful. • The Bahrain Insurance Association (BIA) plays an industrywide role in developing the sector. For example, the BIA facilitated the Insurance Rulebook public consultation process by putting in place industry teams that liaised with the BMA to finalize draft modules of the Rulebook. • In 2003, the BMA established the Insurance Market Development Committee (IMDC) to undertake programs to raise awareness about insurance in the market and enhance the image of the Bahrain insurance industry at an international level. In 2005, IMDC initiated its first awareness campaign aimed at increasing insurance penetration using educational messages through a specially created cartoon character, “Taamina.”

Nature of competition

3

• As of 2005, there were 19 insurance companies serving the local market, comprising 11 that are locally incorporated as well as 8 branches of foreign insurers.

112

• The market is led by private-sector insurers. • Local insurers dominate the non–life insurance market with 87 percent market share, whereas foreign insurers dominate the life insurance market with 82 percent market share. • There are three local large insurance players controlling 45 percent of the market. The largest insurer is Bahrain National Insurance with 22 percent market share. Next are the Bahrain Kuwait Insurance Company and Gulf Union Insurance and Reinsurance, with market shares of 12 percent and 10 percent respectively.

QATAR Skills and training 3 Legal framework 1

• Bahraini nationals account for 63 percent of the insurance workforce, one of the highest figures in the GCC. • The Bahrain Institute of Banking and Finance (BIBF) offers 20 insurance programs, including courses in underwriting, risk management, and information technology that meet the requirements of four internationally recognized professional designations. These designations are: Associate of Risk Management of the American Institute for Chartered Property Casualty Underwriters (USA); Associate of the Chartered Insurance Institute (UK); Certificate in IT for Insurance Professionals (UK); and the Professional Insurance Certificate, which is jointly awarded by UK’s Chartered Insurance Institute and BIBF.

• Qatar enacted an insurance law in 1966 that has not been amended since. • The existing law lacks adequate legislation laying out the rights and obligations of parties entering into insurance contracts. An effort is underway to issue a new insurance law in the near future. • Overall, the insurance legal framework in Qatar has serious limitations that are expected to be addressed by the new insurance law.

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Appendix A: Country Evaluation of Enablers (cont’d.)

Regulatory body

1

OMAN Legal framework 3

• The market is regulated by the Ministry of Economy. • The regulator’s capabilities are undermined by the existing legal framework. • Insurance companies in Oman are governed by the insurance law issued by Royal decree in 1979. The law has been updated in 1987, 1995, and 2002. • In addition to the law, the sector is governed by regulations, guidelines, and instruction papers issued by the regulator. These cover corporate governance, code of conduct, and reinsurance management strategies. The regulations were significantly upgraded following the collapse of a local insurance company in 2001. • In 2006, the regulator announced a major update of the insurance law and executive regulations. The draft law and regulations have been sent to insurance companies for their feedback prior to final approval. • Overall, the legal framework in Oman has been upgraded in recent years, and is undergoing an extensive review to better reflect international best practices and address regulatory gaps.

Nature of competition

3

• There are nine companies serving the market, comprising five local companies and four foreign insurers. • The market is led by the private sector. • The market is largely dominated by the few local insurers. The two largest companies, Qatar Insurance and Qatar General Insurance & Reinsurance, hold around 45 percent and 20 percent of market premiums respectively. • Foreign insurers represent a fraction of the marketplace and are estimated to command less than 5 percent market share. • Overall, competition from foreign insurers is expected to remain low and be limited to life insurance, given the strong position of local firms and the relatively small market size. • In 2004, the government amended the Foreign Capital Investment Law to allow foreign investment in the insurance sector. However, it is not clear whether multinational insurers will be attracted, given the size and competitive characteristics of the local market.

Regulatory bodies

2

• The sector is regulated by the Capital Markets Authority (CMA). • The CMA is in the process of implementing the IAIS core principle of supervision.

Nature of competition Skills and training 1

2

• At present, there is a significant shortage of skills in the marketplace, and only a few insurance training programs are available.

• There are 17 insurance companies serving the market, comprising 9 local insurers and 8 foreign players. • The market is led by the private sector. • The market is largely dominated by local companies, which collectively command 80 percent market share.

Market-led initiatives

1

• At present, there is a lack of adequate market data and no existing insurance industrywide entities or professional associations. However, Qatar has indicated plans to set up an association of insurance companies. • The Qatar Financial Center is indirectly leading the effort to foster the development of the insurance sector. For example, as part of its efforts to establish itself as a regional financial center, it has mandated a senior officer with the role of raising awareness of the Middle East’s improved regulatory environment and identifying higher standards for the insurance industry.

• There are three large local insurers in the market. Dhofar Insurance is the largest insurer with 30 percent market share, followed by ONIC and Oman United Insurance, each holding around 15 percent market share. • Overall the market is characterized by overcapacity, which has spurred price competition and negatively affected sector profitability. • Recently a few multinationals, which previously operated in the market through agency agreements, entered the market through joint ventures with local partners.

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

2.4: Growth and Competitiveness of the Insurance Sector

113

2.4: Growth and Competitiveness of the Insurance Sector

Appendix A: Country Evaluation of Enablers (cont’d.)

Skills and training

2

Nature of competition

3

• There is a significant shortage of skills within the industry; Omanization requirements mandated by the law compound this situation. • There are no specialized insurance institutes offering training programs in Oman. • In response, the CMA is playing a key role in identifying training needs and organizing training programs to build the skills of nationals by coordinating training workshops with local and international academic and training institutes.

• The market is served by a total of 21 companies, of which 11 are local companies and 10 are branches of foreign insurers. • he market is led by the private sector. • The market is largely dominated by local companies, which hold over 85 percent of market share, including four large players that hold over 60 percent of the market. Gulf Insurance Company holds the largest market share of 25 percent. • Competition from foreign insurers has been limited by regulatory restrictions. However, this restriction was relaxed in November 2003, and the sector has so far attracted a number of foreign insurers.

Market-led initiatives

2

• The CMA is leading the effort in setting and fostering the adoption of sectorwide best practices through the introduction of guideline papers covering, for example, corporate governance, code of conduct, and reinsurance strategies. • Market data are available mainly through CMA’s publications. • In late 2006, the Oman Insurance Association was under formation.

Skills and training

1

• At present, there is a significant shortage of skills in the marketplace, and only a few insurance training programs are available.

114

Market-led initiatives

1

• At present, only limited market data are available on insurance activities in the country.
KUWAIT Legal framework 1

• In 2006, the Insurance Companies Union was established, with seven local companies as members.

• The insurance law in Kuwait was enacted in 1961. In 2004, FSAP commented on the weaknesses of the existing law and recommended, as a priority, the need to enact a new law. • Overall, the legal framework in Kuwait has significant limitations. A new framework is required to address existing limitations.

LEBANON Legal framework 1

Regulatory body

1

• The sector is regulated by the Insurance Department within the Ministry of Commerce and Industry. • An informal review conducted in 2004 to assess the observance of IAIS core principles indicated that the existing regulations and supervision lacked key elements of a modern supervisory regime. The existing supervisory processes are mostly focused on administrative work (such as licensing) in addition to ensuring the insurers’ compliance with the regulations. • Overall, the existing regulator’s capabilities are undermined by the current legal framework.

• The insurance sector is governed by the Insurance Law issued in 1968. The sector was substantially unregulated until the issuance of an amendment law in 1999 following the bankruptcy of three companies. However, the law remains rudimentary, particularly in the area of solvency requirements; these are fixed at 10 percent of gross premiums. In addition, there is a lack of regulatory guidelines for the sector. • In 2004, the Ministry of Economy and Trade prepared a draft insurance law and regulations that raise the regulatory framework to international best practices and conform to IAIS core principles. The draft law and regulations are pending review and ratification by the government.

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Appendix A: Country Evaluation of Enablers (cont’d.)

• The National Council of Insurance Companies (NCIC) is an advisory body entrusted with proposing sector regulations and reviewing license applications. NCIC is chaired by the Minister of Economy and Trade and consists of 11 other members from the public and private sectors. • Overall, the existing legal framework in Lebanon is underdeveloped. A new and improved draft law and regulations have been prepared, taking into account international best practices; however, it is not clear whether or when they will be implemented.

Skills and training

1

• There is a lack of accredited local insurance training programs. Nevertheless, there are a number of training courses and workshops that are occasionally organized by professional organizations.

Market-led initiatives

2

• Consumer awareness of insurance is among the highest in the region, as evidenced by high insurance penetration rates. • There is a lack of reliable data to support analysis of market performance. • The Association of Lebanese Insurance Companies (ACAL) is active in representing the interests of insurance companies. • The Lebanese Insurance Brokers Syndicate (LIBS) was set up in 1993 to promote the brokerage profession, raise the awareness of the role of brokers, and improve professional standards. • The Lebanese Actuarial Association (LAA) was set up in 2001. The LAA is a member of the International Association of Actuaries (IAA).

Regulatory bodies

1

• The insurance sector is regulated by the Insurance Control Commission (ICC), which was created in 1999 as an independent entity reporting directly to the Minister of Economy and Trade. • There is an overlap and duplication of regulatory activities between the activities conducted by the ICC and the Directorate of Insurance Affairs, which is a department within the Ministry of Economy and Trade. • The Insurance Arbitration Council, which is similar to a small claims court, was set up to handle claims disputes of less than US$50,000, which account for 90 percent of total claims. • Overall, the regulator has basic supervisory capabilities that are mainly focused on ensuring compliance with applicable regulations and close monitoring of distressed companies.

JORDAN Legal framework 3

• The insurance sector is governed by the Insurance Regulatory Act of 1999.
Nature of competition 1

• The market is highly fragmented, with more than 60 privately owned insurers. • The majority of the insurers operating in the market are incorporated in Lebanon. However, several foreign insurance companies are present in the market through strategic partnerships with local companies. • The largest 10 insurance companies hold 65 percent market share in terms of premiums. Only one large company exists, MedGulf, with 27 percent market share, followed by nine medium-sized companies each holding between 3 to 5 percent market share.

• In 2004, the insurance regulator announced its intention to draft new and more exhaustive legislation that improves the consistency of judicial interpretation of insurance contracts and better reflects existing market practices. • The law is complemented by a set of regulations and instructions papers, issued by the regulator, covering a wide range of topics—including financial and technical issues, corporate governance, and market conduct—in line with IAIS core principles. • Overall, the legal framework is developed according to international standards. Ongoing efforts continue to further strengthen the legal framework and address existing regulatory gaps.

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

2.4: Growth and Competitiveness of the Insurance Sector

115

2.4: Growth and Competitiveness of the Insurance Sector

Appendix A: Country Evaluation of Enablers (cont’d.)

Regulatory bodies

3

EGYPT Legal framework 2

• The Insurance Commission (IC) was set up in 1999 as an independent body to regulate and supervise the insurance sector. Since its establishment, the IC has played a leading role in driving and reshaping the sector. • The IC set up an internal Settlement and Inquiries department to handle inquiries and act as the first line in handling disputes through mediation. • Insurance disputes are handled by the Committee for Resolving Insurance Disputes. • Overall, although a relatively young regulator, the IC has made significant progress in developing its capabilities in line with the core principles of the IAIS.

• The insurance sector is regulated by the Insurance Supervisory and Control Act Number 10 issued in 1981, Act Number 91 of 1995, and Act Number 156 of 1998. • The Supreme Council of Insurance was established in 1981 with the objective of discussing and approving sector-related policies. The Council is chaired by the regulator and includes representatives from the public sector, private sector, and academic institutions. • Overall, the insurance legal framework in Egypt has limitations. It is not clear whether there are plans to upgrade the existing legal framework.

Regulatory bodies Nature of competition 2

2

• There are 26 insurance companies in the local market; all but one foreign life insurer are locally incorporated. • No single insurer has more than 10 percent market share, with the largest 10 companies holding around 60 percent of the market. • The non–life insurance market, which represents 90 percent of total market premiums, is dominated by local insurers. The life market is dominated by one foreign company, American Life, which has 53 percent market share.

116

• The Egyptian Insurance Supervisory Authority (EISA) was set up in 1981 as an independent entity reporting to the Ministry of Investment. EISA is entrusted with regulating the insurance sector in addition to government insurance funds, cooperative societies, and private insurance funds. • EISA established the Dispute Settlement Committee to speed up the resolution of disputes outside of the court system. • Overall, starting from an initial focus on ensuring insurers’ compliance, EISA has started a number of efforts to strengthen its risk-supervision capabilities in line with international practices.

Skills and training

2 Nature of competition 1

• The IC has announced a plan to foster the development of local expertise through training programs, and has been active in organizing training forums and seminars in coordination with leading local, regional, and international organizations.

• There are 20 insurance companies in the market. • The market is dominated by the state-owned insurers that command 75 percent of the non–life insurance market and 60 percent of the life insurance market. In particular, the state-owned Misr Insurance alone commands a market share of 44 percent and 29 percent of the non–life and life insurance markets, respectively. • In addition to local companies, there are more than 600 private insurance funds (a form of pension fund) in the market, accounting for 56 percent of life insurance premiums and 30 percent of total insurance premiums. • In recent years, foreign players focused exclusively on life insurance have emerged; this is expected to lead to the overall development of the market and a reduction of the state’s dominance.

Market-led initiatives

2

• IC annual reports contain detailed market data and analysis, which facilitate a good understanding of the market. In addition, the IC is active in conducting market studies and surveys. • The Jordanian Insurance Federation (JIF) is an active organization representing the interests of insurance companies. • The IC launched an awareness campaign consisting of three phases: introducing the role of the IC, raising awareness of the benefits of insurance, and introducing various insurance products to the public.

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Appendix A: Country Evaluation of Enablers (cont’d.)

Skills and training

2

• The Insurance Studies Institute is a local organization active in arranging and participating in insurance-related forums. • In June 2006, EISA announced an initiative to coordinate the job requirements of the insurance industry with the Ministry of Education and develop an educational program that would meet the sector’s requirements. • EISA has announced plans to upgrade the knowledge and expertise of staff of the private insurance funds, given their large stake in the insurance market.

Market-led initiatives

2

• EISA publishes high-level market statistics. In 2006, EISA established a publications unit to publish insurance guidelines, raise awareness, and increase the knowledge of insurance professionals. • The Insurance Federation of Egypt is active in supporting the insurance sector in technical areas such as rating and loss minimization, promoting the sector through knowledge dissemination, and cooperating with EISA in the development of insurance legislation.

Note: See References section in this chapter for sources of this appendix.

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

2.4: Growth and Competitiveness of the Insurance Sector

117

CHAPTER 2.5

Middle East Transport and Logistics at a Crossroads
FADI MAJDALANI, Booz Allen Hamilton, Beirut ULRICH KOEGLER, Booz Allen Hamilton, Düsseldorf SIMON KUGE, Booz Allen Hamilton, Munich

The Middle East region is in the middle of exciting global, regional, and local developments in terms of transport and logistics. Beginning in the first century AD, the Silk Road brought intense trade and substantial wealth to the region, and the fundamental drivers for this traffic have not changed since then.Today, the region is still located halfway on the trade lane between Asia and Europe and provides a multitude of land and sea connections linking those economic mega agglomerates.What has changed since then is the advent of air transport, but even this development plays in favor of the region, as will be explained later. Hence, with the explosive growth of global and regional trade, and especially the trade between Europe and Asia and within the broader region, the Middle East faces unprecedented opportunities to capitalize on the unique strength of its favorable geographic location.

Transport and logistics: A unique opportunity for the Middle East The Middle East region’s excellent geographic location and very good accessibility by air, land, and sea have brought it to the top of the agenda for global logistics as the strong growth of global trade requires efficient transport and logistics structures. Hence, from a global perspective, the region has a set of three unique opportunities. First, the region can benefit from the strong growth of volume in the trade lane between Europe and Asia. Because the Asian region has become a key production and manufacturing region for the rest of the world over the last decade, trade volumes between Europe and Asia have grown significantly, both in air and sea freight. Traditionally, air freight carriers have used a stopover in the Middle East, halfway along this trade lane, to refuel and thus maximize freight loads on their aircraft. Air freight growth on the trade lane therefore translates into growth in stopover traffic.This does not hold true for the majority of shipping volume, however, which is transported via sea freight and does not require a stopover. Second and more important, the Middle East will benefit from the volume growth on the Europe–Asia trade lane as shippers use larger vessels and apply moreadvanced logistics concepts. Both factors are driving the need for hubs along the trade lane—and for making it increasingly favorable for that hub to be right in the middle. Basically there are two logistics concepts around how to organize optimal loading and unloading runs for vessels. In the first instance, the vessel can make a so-called milk run along a set of different ports in the originating region (for example, loading subsequently in Copenhagen, Hamburg, Rotterdam, and finally The Hague), then make the long-distance journey to the destination region, and finally do a similar milk run in

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

2.5: Middle East Transport and Logistics at a Crossroads

119

2.5: Middle East Transport and Logistics at a Crossroads

120

the destination region.This requires the vessel to stop at a multitude of ports, increasing loading time and incurring port-handling fees at each stop, as well as leaving the vessel at less than full capacity over a series of these stops. Although this may be the most cost-effective approach for lesser volumes and smaller vessel sizes, another logistics concept—the hub-and-spoke approach —becomes more favorable as volumes and vessel sizes increase. In this model, the volume from one origination point is loaded onto a vessel irrespective of its destination and then transported to a central node—the “hub.” In the hub, freight to different destination points is unloaded and newly grouped, so that freight to only one destination point is reloaded on each vessel. With respect to the Europe–Asia trade lane, both regions are multicentered and have a broad portfolio of seaports and airports. Hence, if volumes and vessel sizes achieve a certain threshold size, a hub-and-spoke approach is the ideal logistics concept to achieve costeffective transport. However, the hub can be located in the originating or the destination region as well as on any location along the trade lane. Current hubs in Europe are Rotterdam and Hamburg on the port side and London, Amsterdam, and Frankfurt on the airport side. In sea freight, volume and vessel sizes have not yet achieved sufficient scale to make a hub-and-spoke approach cost-effective; for the time being, sea freight will likely continue to make several stops in the regions of origination and destination. In air freight, however, a single hub along the trade lane is the more favorable option because of different economics, freighter sizes, and time sensitivity. Given the already-existing need for a refueling stopover halfway along the trade lane, this situation yields a strong demand for air freight hubs in the Middle East. Finally, there is a third driver of the Middle East as a growth area for global logistics along the Europe–Asia trade lane: the need for multimodal hubs. Historically, shippers have had one fundamental choice to make well before they began transport: did they want to ship their goods quickly and expensively via air freight, or slowly but less expensively via sea freight? Most shippers went—and still are going—for the latter. In doing so, they need to accept larger stocks and a slower speed to market. As product cycles speed up, demand becomes less predictable because of a broader variety of products, and companies manage stock more closely, sea freight transport increases the risk of outdated stock and is seen as an important cost driver. Still, for most goods, a complete airfreight transport remains much too expensive to be viable. Hence, a new transport concept that we call “acceleration in motion,” offering a conversion from sea transport to air transport, becomes more important. Such a service allows the shipper to start with cost-effective sea freight transport; if need arises—from better sales or unexpected additional demand, for example—while the goods are already in

motion, the shipper can manage almost in real time how fast additional supplies will be brought to market. In sum, this allows the shipper to achieve better tradeoffs on speed to market, stock availability, and transport cost. Given the transport lengths and times between Europe and Asia, the Middle East is a natural location to do the sea-to-air transport conversion, for three reasons: 1. The Middle East is already the natural hub for refueling stopovers for the air freight industry. 2. The region is easily accessible by sea and is increasingly becoming a hub for the sea freight industry. 3. “Acceleration in motion,” if done in the Middle East, achieves attractive reductions in transport time—approximately five to seven days—while still conserving the cost-effective sea transport rates for half of the total transport. In fact, Dubai has already made significant infrastructure investments in the integration of its airport and seaport in Dubai.With an annual volume of more than 100,000 tons of freight converted from sea to air, this operation proves the viability of the concept. However, there are a limited number of opportunities to establish global multimodal logistics hubs in the Middle East.To be successful, such a hub must attract enough carriers for volumes to be easily transferred from one carrier to another. Even on a global scale, there are very few true global hubs—these include Los Angeles, New York, Amsterdam/Rotterdam, and Singapore.We predict that, at the most, there is an opportunity to establish two global hubs in the region; one position will soon be taken by Dubai, when the new airport becomes operational and the port expansion is completed. But the Europe–Asia trade lane is not the only opportunity for the Middle East to capitalize on global trade. Its favorable geographic location provides the Middle East with a strong opportunity to establish the leading transport and logistics hubs for the broader region serving northern and middle Africa in the southwest; Pakistan in the east; and the Caucasian countries of the Commonwealth of Independent States (CIS)—such as Kazakhstan,Turkmenistan, and Uzbekistan—in the north.Three key factors act in the region’s favor for such a positioning. First, the Middle East has the advantage of a geographic location with equal proximity to all these markets and very good connectivity by road and short sea transport.The Caucasian CIS markets and middle African markets in particular currently lack accessibility from competing regional logistics centers, such as Europe and South Africa. For example, the Caucasian CIS markets are not yet developed enough to make significant investments in local logistics networks; at the same time, they require very long and complex transport by road

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

and rail if they are directly served from the European logistics centers. However, these markets can be quite easily accessed from the Middle East. Similarly, the northeastern and inner African markets are far away from European and South African regional logistics centers while also easily accessible from the Middle East. Second, the trend for regionalizing logistics and distribution structures drives the allocation of regional headquarters and distribution centers in the Middle East. Global and larger regional industry players in particular are increasingly focused on optimizing their logistics and distributions chains, as they have identified these as key drivers for additional value and profit generation and enhanced customer service. Such optimizations include implementing sophisticated management systems, training regional and local logistics managers, and consolidating stocks formerly managed locally into one regional distribution center. After having restructured the logistics operations according to these principles in their core markets in Europe, North America, and the Far East, they increasingly focus on the secondary markets. In essence, these optimizations yield a strong focus on regional logistics and distribution structures located in the markets with excellent accessibility to all means of transport and the most liberal trade policies. The third factor supporting the allocation of regional logistics and distribution centers for the wider region is the positive economic outlook for consumption and increasing production in the Middle East. Because the Middle East already contains the strongest economies in the broader region, efforts to extend the local production base will provide substantial growth potential for equipment and industrial products.The corresponding population growth and increasing potential for per capita consumption also foster the positioning of the Middle East as a core business market with a need for a strong logistics sector. Even though still limited in numbers, there are more opportunities to establish specific countries or areas as regional logistics and distribution centers. On one hand, a substantial part of this opportunity will be driven by global and larger regional industry players coordinating a mostly global production network. On the other hand, even though there are substantial efforts to grow the domestic production base, the broader region will, for the foreseeable future, still be strongly dependent on global imports, especially with respect to equipment, industrial, and more sophisticated consumer goods. Hence, excellent global accessibility based on an extensive logistics infrastructure of seaports, airports, and road networks will be crucial for the establishment of such regional centers.This already qualifies the global hub locations, such as Dubai, to play a significant role in regional distribution. Beyond these hubs, a few further locations with strong local consumption markets and very good logistics infrastructure—such as the key Arabian Gulf,

Mediterranean, and Red Sea port locations—could qualify to become regional centers.

Transport and logistics: A strategic must for further economic development Beyond the opportunities arising from the rapid growth of global trade and enhanced regional logistics structures, which will be implemented primarily by robust global or larger regional industry players, a strong and sophisticated transport and logistics sector will be essential for the future economic development of countries in the Middle East. There are four economic elements making a strong and efficient transport and logistics sector a strategic necessity: • • • • the the the the enhancement of economic activity, enhancement of industry competitiveness, growth of the industry sector, and generation of sustainable job opportunities.

The enhancement of economic activity

Accessibility of markets is fundamental to enhancing economic activity. In every market—whether local, domestic, regional, or global—easy market access and an efficient flow of goods are essential. If these are not present, industry value is not generated and business potential is foregone. Hence strong and efficient transport and logistics service offerings are essential to provide quick and cost-effective access to markets for domestic trade and manufacturing and enhance economic activity. At the same time, the availability of efficient transport and logistics services is increasingly a key decision criterion for foreign direct investment, in addition to competitive factor costs and availability of skilled resources.This is especially true in industries with sophisticated supply chain requirements, including industrial equipment, automotive, electronics, and downstream petrochemicals.
The enhancement of industry competitiveness

Opening markets and abolishing import customs duties increasingly expose domestic industries to global competition. Hence local manufacturers compete with the global “best in breed” mix of factor costs, skilled labor, production standards, and supply chain excellence. As transport, logistics, and the supply chain service levels of globally distributed production capacities increasingly determine the overall production costs and are a key driver for product variety and customer value generation, the availability of such high-quality services has a major impact on the competitiveness of companies. For the Middle East, these realities have ramifications on two levels. First, the effective removal of import barriers, as promoted by the World Trade Organization, exposes local and domestic markets to global competition; thus Middle Eastern manufacturers face increasing

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

2.5: Middle East Transport and Logistics at a Crossroads

121

2.5: Middle East Transport and Logistics at a Crossroads

competition in their home markets. Second, Middle Eastern manufacturers face stronger competition in their international export markets as global logistics and supply chain services become more sophisticated on a global scale.
The growth of the industry sector

The transport and logistics sector itself provides an attractive opportunity to enhance economic activity. In mature markets, such as those of North America and Europe, the growth of the transport and logistics industry has outperformed overall GDP growth in the last several decades and represents a substantial part of the economy. A key driver for such strong growth potential is the ongoing disaggregation of value chains on the domestic, regional, and global levels. Although this growth potential holds true in most markets, the Middle East’s opportunities globally and in its own broader geographic region, described earlier, make a strong transport and logistics sector crucial for the Middle East in particular.
The generation of sustainable job opportunities

opportunities for the sector—these opportunities are not equally available to all countries in the Middle East. First, certain elements of the sector’s development require preferred geographic locations, such as seaports. Furthermore, certain opportunities, such as the development of a global multimodal hub, are limited in number and require huge infrastructure investments—as can be seen in the historical and current infrastructure investment budgets of Singapore, the Chinese ports, and Dubai. Hence, governments should consider and decide on a set of five building blocks for their transport and logistics sector strategy.They should: • Choose a strategic play for the sector on a global level. • Focus infrastructure investments to fit the chosen sector play. • Adjust policies and regulations to promote sector development. • Optimize government services to meet the demand of the logistics sector. • Promote the development of national transport and logistics champions.
Choose a strategic play for the sector on a global level

122

Finally, besides providing a key building block for growing economic activity in manufacturing and other sectors and hence providing a basis for increasing employment levels, the growth of transport and logistics itself will provide the substantial potential for employment growth for which Middle Eastern countries are eagerly looking. Being a service industry with relatively limited investment requirements compared with other industries, as well as limited automation possibilities, transport and logistics is a labor-intensive economic sector with a strong focus on a less-skilled workforce. And while other industries in the more mature North American and European markets have seen high levels of cyclicality or, even worse, have faced substantial relocation to emerging markets, the transport and logistics sector in most cases has mostly profited from such developments and provided a sustainable basis for employment and employment growth. As in other emerging markets, an additional supporting factor of the industry’s employment potential is the Middle East’s competitive labor cost, which reduces pressure for automation and workforce efficiency. Each of these four economic elements provides rationale enough on its own for the Middle East to position the development of the transport and logistics sector very high on the government agenda; they are even more compelling in combination.

Fundamentally, there are three different strategic plays that governments can pursue for the transport and logistics sector.The options for governments are: • a global multimodal transport and logistics hub, • a regional logistics and distribution hub; or • domestic-focused transport and logistics services. 1. The global multimodal transport and logistics hub strategic play is the most demanding strategy for sector development. It must be built on a preferred geographic location, and it requires huge investments in infrastructure. Furthermore, it requires a multitude of factors that have to be coordinated and strategically aligned; just a few of these factors are: • an economic environment that attracts foreign direct investment by allowing for full ownership of the local entity; • the availability of a large free zone around the port-airport infrastructure, adhering to global quality standards; • a track record indicating that the port and airport operator can manage complex processes smoothly; • highly competitive handling charges; and • the provision of living standards that can meet the demands of a large expatriate community.

Building blocks of a government strategy for the transport and logistics sector As Middle Eastern governments embark on the development of the transport and logistics sector, it should be clear that—although there is generally a broad set of

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

In terms of the airport and port infrastructure, a multimodal hub requires both operations to be playing—in both capacity and utilization—within the top league of their respective segments to provide capacity and attractiveness for several dozens of the global and regional transport carriers and logistics service providers.The only way to compete with the emerging global hub in Dubai and to mitigate the existing scale economies is to have a more preferred geographic location—for instance, Oman on the Indian Ocean, or, to a lesser extent, the greater Jeddah area on the Red Sea. However, as hubs encounter a self-enforcing virtuous circle—that is, the more connections are provided by the hub, the more attractive the hub becomes and the more carriers want to be connected to it—the required number of global multimodal hubs in the Middle East seems to be limited to a maximum of two. 2. In general, the regional logistics and distribution hub strategic play requires the same critical success factors as a global multimodal hub, as key tenants will also be global and larger regional industry and logistics service players. Although the criteria are less demanding in terms of overall size and multimodality, the quality of services and processes must nevertheless adhere to global standards. As can be seen in both the greater Rotterdam/Amsterdam region and in Dubai, global hubs tend to simultaneously become natural regional hubs. As hubs pursue specialization strategies, such as a specific industry focus or a focus on a subregion, the consolidation of the regional logistics and distribution centers into one single location is not as imperative. Hence it seems that a few traditional gateways to the broader region—such as the Nile delta, the Red Sea areas, the Kuwait area, and the northern shores of the Gulf—qualify for such a positioning. Finally, if a country does not have the qualifying factors to meet the criteria of a global or regional hub play, the government should focus its sector strategy on the development of its domestic transport and logistics services.This still requires a demanding setup of appropriate infrastructure, such as excellent connections between the ports of entry/exit and the consumption or production markets in the inner country, as well as the provision of bonded or free zones near the consumption markets.

budget constraints that do not match the qualifying factors for the global or broader regional play need to resist the temptation to establish mega-infrastructure projects that will never become economically viable. Instead, they should focus on a broad set of local developments, providing excellent connections to the global and regional hubs and nurturing the domestic development of the sector. Such a broad set of local development initiatives could be quite easily decided and executed in the smaller Middle Eastern countries, such as Bahrain, the Emirates, or Qatar, with clear decision about ownership. In contrast, a well-coordinated development program in the larger countries, with a multitude of stakeholders and local and regional decision makers, is much harder to pursue. Hence, the ministry of transport should be tasked in such situations to develop an overall transport and logistics master plan, strongly involving policymakers at different levels; the ministry should also be responsible for execution oversight. As in such complex political decision situations, enforcement of the implementation of a coordinated master plan usually is difficult, and the government should consider providing the respective financing budget to create positive incentives to comply with the overall strategy chosen.
Focus infrastructure investments to fit the chosen sector play

3.

The most difficult decision from a government perspective is the correct choice of the strategic play for the sector development agenda.The choice must be based on a thorough and honest assessment of how well it achieves the qualifying factors. Countries with tight

It seems obvious that the development of a global multimodal hub strategy requires a strong and unambiguous focus on the development of a single mega-infrastructure incorporating a world-class integrated airport and port zone. As the development of such a strategic play will span a very long time period, the investment plan and execution of the investment need to be followed through and subjected to regular reviews. In contrast, the ideal development of a regional logistics and distribution hub play is less obvious: it is not easy to measure the competing demands of providing infrastructure against less tangible factors, such as the investment environment. However, it is clear that the infrastructure potential needs simultaneously to allow for very good connections to global hubs and exporting countries and excellent connections to the neighboring regional markets.This requires the establishment of an appropriate road and short sea infrastructure on a regional level. On the level of global connectivity, multimodality is of low importance and port and airport facilities need only to accomplish the requirements of an originating or destination point of a strong trade lane. Finally, a domestic-focused transport and logistics services play requires the most humble infrastructure development plan—although even this is complex, comprising a multitude of local developments.The development of road infrastructure, for instance, should model the actual flow of trade and goods within the country. Additionally, the road and port infrastructures

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

2.5: Middle East Transport and Logistics at a Crossroads

123

2.5: Middle East Transport and Logistics at a Crossroads

should be focused to provide excellent connectivity to the regional hubs.The port infrastructure especially requires a delicate balance to provide efficient handling of short sea transport while simultaneously allowing for dedicated connections to long sea connections. Besides the basic road, seaport, and airport infrastructure development, free zones in the inner country, close to the relevant consumption and production markets, are of significant importance.
Adjust policies and regulations to promote the sector development

and logistics sector. From the perspective of a logistics service provider, customs declaration is a purely transactional process, though it is resource-consuming and time-critical.Thus, optimizing government services requires the provision of processes that are highly automated and seamlessly integrated into the logistics service providers’ order-management system. Hence, governments should pursue the basic principles of e-government, such as provision of Web-based applications, modularity, and thorough and seamless internal automation.
Promote the development of national transport and logistics champions

124

Again, the set of policies and regulations necessary for the development of both global multimodal and regional hub strategies seems to be obvious and can easily be adapted from world-class players such as Rotterdam, Singapore, or Dubai. In essence, these policies and regulations should promote foreign direct investment, provide a liberal economic environment, and allow for full foreign ownership of the respective entities, as competition for tenants happens on a global level and hence needs to adhere to these standards. But which set of policies is appropriate for promoting sector development on a domestic level? Again, the more mature markets in North America and Europe can provide model cases of a clear liberalization strategy with thorough and consistent regulatory oversight. In these markets, liberalization and the removal of market entry barriers have resulted in substantial productivity gains, service level improvements, and volume growth. As global and larger regional service providers compete in other markets on global quality and service standards, their investment and corporate activity should also be actively pursued.This will allow the sector to develop toward such standards and to educate a workforce in the respective business and process areas. Finally, to ensure a level playing field for all industry participants, the government should establish thorough economic regulatory oversight, independent of strategy setting and policy definition.The most prominent examples for such a structure are the postal, road, and railway regulators in the most liberalized markets in Europe.
Optimize government services to meet the demand of the logistics sector

In most Middle Eastern countries, the industry structure of the outsourced transport carriers and logistics service providers is highly fragmented and often not at all well developed—dominated on one side by the leading global transport and logistics service providers and on the other side by a vast number of “mom-and-pop shops,” while lacking a strong base of nationwide, medium-tolarge logistics service providers. Additionally, the outsourcing level of transport and logistics services is still very low across the Middle East compared with global standards, standing at approximately 12 percent;Western Europe, for instance, has outsourcing levels of approximately 25 to 30 percent. Hence, large global industry players especially operate significant transport and logistics businesses.Within such an industry structure, the development of high-quality, efficient transport and logistics processes and structures is substantially hampered: small enterprises do not have the means to establish sophisticated logistics processes and service offerings, whereas industry players focus predominately on their core business, often neglecting the optimization and sophistication potential of the logistics processes. Global players are also often hampered by agent laws in broadening their businesses and bringing more sophisticated concepts and processes to the market. Hence, the development of the transport and logistics sector also requires an industry structure in which medium-to-large logistics service providers play a more prominent role. Even with a liberal market approach, governments can actively promote and influence the development of the industry toward such a target structure using three focused measures: • First, governments can carve out, consolidate, and subsequently privatize the logistics functions of large state-owned industry enterprises. In most Middle Eastern countries, a quite substantial industry base is government-owned. Such governmentowned entities include enterprises such as national oil and basic industry companies in the GCC countries or enterprises in the steel, mining, cotton textile, and retailing industry in Egypt. Most of these enterprises still own substantial transport and logistics operations. For these enterprises, the

The key government services required by the logistics sector fall into three groups: business and equipment licensing, regulatory oversight and competitive regulation, and customs services.The former two have standards similar to those for other industry and service segments; optimization of government services in these areas should be part of a broader economic development program that promotes and fosters entrepreneurial activity. Customs services, however, are substantially different; furthermore, they are essential to foreign trade and hence significantly affect the performance of the transport

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

government could pursue a comprehensive carveout strategy integrating the transport and logistics operations into dedicated entities of substantial size. Once the consolidated entities have been formed and operations have been restructured, privatization could provide the desired medium-to-large logistics service providers ability to compete on a global level. • Second, governments can expand state-owned transport players, such as post offices, railways, and port/airport operators, into the logistics business. In Europe, entities such as the Swiss post, the Swedish post, the German post, and the German rail have successfully embarked on such an expansion strategy to develop a broader transport and logistics service offering. In doing so, they have become substantial players in their respective transport and logistics markets on a domestic, regional, or global level. However, a word of caution is necessary: Almost all of these expansion strategies have been the growth part of a fundamental restructuring program. Because they had previously been performing poorly and sustaining losses, a fundamental restructuring of the core business was necessary before they “earned the right to grow.” • Finally, governments should also pursue a “soft strategy” to promote outsourced logistics and logistics service providers.Two levers are necessary to make such a strategy successful. First, the government—namely, the ministry of transport and the ministry of economic development—should develop a consistent communications strategy toward shippers to promote outsourced logistics and leverage their influence on business leaders to implement these concepts. Second, governments could also award logistics contracts—such as contracts for military logistics, construction, or health care—to those players that provide the most promising platform for becoming a market leader.

Governments of Middle Eastern countries should therefore embark on a well-defined development strategy for the sector, comprising the best choice of a longterm strategic play adapted to each particular country, the appropriate focusing of infrastructure investments, the adjustment of policies and regulations, and the optimization of government services to support the chosen strategic play. Additionally, they should promote the development of national transport and logistics champions. There are several examples of successful implementation of a comprehensive development strategy for the transport and logistics sector in different geographies; these include Belgium, Dubai, the Netherlands, and Singapore. All of these cases are based on a favorable geographic location, a carefully considered strategic play for the sector, and consistent execution over time. From the experience of these cases, it seems obvious that only the interplay of a clear and well-thought strategy with excellent execution will finally achieve the desired results and economic benefits.

Summary and conclusions The Middle East region is favorably located along the substantially growing Europe–Asia trade lane and in the middle of a broader region spanning from northern Africa to the southern borders of Russia and to Pakistan. This provides a broad variety of opportunities for the Middle East to gain a fair share of the global and broader regional transport and logistics business. Additionally, the development of a strong domestic transport and logistics sector is a strategic must for further economic development of the Middle Eastern countries, to enhance their industry competitiveness and to build a strongly contributing and growing sector that provides sustainable employment opportunities.

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

2.5: Middle East Transport and Logistics at a Crossroads

125

CHAPTER 3.1

The Gulf Cooperation Council (GCC) Countries and the World: Scenarios to 2025: Implications for Competitiveness
NICHOLAS DAVIS, World Economic Forum CHIEMI HAYASHI, World Economic Forum

The World Economic Forum has developed three scenarios for the future of the Gulf Cooperation Council (GCC) countries to 2025.1 From the underlying models of economic, social, and political development used to create the scenarios, it is possible to derive forces that will shape the economic environment of the GCC and assess their implications for the competitiveness of the GCC countries over the next 17 years.This chapter introduces the three scenarios for the region from 2007 to 2025 and examines their implications for the future of the GCC countries competitiveness.

What are scenarios? Scenarios are stories about the future. Leading global companies often engage in constructing large-scale scenarios to help formulate their business and investment strategies. Scenarios enhance the robustness of strategies, allow better strategic decisions, raise awareness of the external environment, provide impetus for current action, and increase the speed of response to unexpected events.The World Economic Forum produces a diverse and wide-ranging set of scenarios as part of the World Scenario Series. Previous projects include scenarios for India, Russia, China, the Digital Ecosystem, and Technology and Innovation in Financial Services. Good scenarios are plausible, challenging, and rigorously constructed to address the most critical questions that decision makers need to face.The Gulf Cooperation Council (GCC) and the World: Scenarios to 2025 were developed over a period of one year and involved workshops in Abu Dhabi, Doha, London, Sharm El Sheikh, New York, and Washington, DC.They synthesize the perspectives of many leaders in business, society, government, and academia from both within and outside the GCC countries. Supporting analysis has added insights from multiple stakeholders, and the underlying economic basis is backed by rigorous modeling in conjunction with research partners of this project. For a region as diverse as the GCC, no single set of scenarios can claim to describe all possible futures. Each story that has emerged describes one of many different, plausible futures for the GCC countries. Importantly, they are not predictions but rather possibilities.They are intended to provoke readers, challenging their assumptions about what may happen and providing a useful shared basis for debate.

Notes: The authors would like to thank Johanna Lanitis and Sandrine Perrollaz for their excellent research assistance. The full text of The Gulf Cooperation Council (GCC) Countries and the World: Scenarios to 2025 will be available to Forum members following its exclusivity period with our developing partners. For further information, please contact the World Economic Forum Scenario Team at scenarios@weforum.org.

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

3.1: The GCC Countries and the World: Scenarios to 2025

129

3.1: The GCC Countries and the World: Scenarios to 2025

In developing these scenarios, the Forum closely involved senior executives from leading global companies, as well as thought leaders, scenario practitioners, and public figures.Together they identified the following critical questions: • Will leaders in the GCC countries be willing and able to implement the necessary economic and political reforms and enforce the rule of law, both in public and in private governance? • Can the GCC countries maintain internal order and stability, in particular vis-à-vis a complex and uncertain regional situation? Answering these questions in different ways provides the basis for imagining different futures for the GCC countries based on their progress in implementing economic, political, and social reforms and the various possibilities in terms of regional stability. Both questions are also of vital importance for the evolution of national competitiveness and economic growth.

low on average, particularly at the tertiary level, and the quality of education is in need of upgrading. In the innovation category, all countries with the exception of the United Arab Emirates and Qatar rank in the lower half of the overall sample of 128 countries. A closer look at the results points to the weak quality of local research institutions as well as shortages in qualified staff as the most important reasons behind the lagging R&D performance of the GCC region.This creates an impediment to development and exacerbates other problems associated with importing both foreign workers and technologies. As a result, the way in which education policies are handled by GCC governments will be a significant determinant of the region’s ability to develop as innovation-based economies that do not wholly rely on natural resources. • Leadership and governance. The GCC countries are ruled by traditionally organized family groups, with varying underlying executive, legislative, and judicial models. Leadership and governance will therefore be instrumental in determining the path that the GCC countries will take over the next 20 years. Although much is being undertaken today in terms of reform to improve the efficiency and openness of these systems, the strategies chosen and the rates of change vary between GCC countries. In managing both internal stability and reforms, and thus in determining the structure and strength of institutions, leadership plays a critical role at all levels of GCC government as well as in the private sector. Before discussing the scenarios and their implications in detail, it is useful to take a look at the competitiveness landscape of the GCC countries that emerges in 2007.

130

Key themes of the scenarios The GCC countries have benefited enormously from oil and gas reserves and assets that have generated significant financial liquidity in the six years between 2001 and 2007. Its present wealth poses an interesting question for those interested in the future of the GCC countries, and one that these scenarios seek to address: How can this wealth be put to use to ensure that the GCC countries expand in affluence, and also ensure that they overcome the internal and external pressures that could shift them from the path of sustainable prosperity? In positing three possible futures that address these questions in different ways, two key themes consistently emerge as being crucial to the future of the GCC countries. Both of these directly and indirectly affect the competitiveness of the GCC countries: • Education and innovation. The GCC countries face the challenge that their collective oil reserves, although vast, will not last forever. Nor are oil and gas always a reliable source of wealth—there have been many times when GCC budgets were in deficit and public debt rose as a result of falling energy prices. However, in attempting to diversify away from oil, the GCC countries face a major problem in that their existing skill base for workers is low by world standards, and relatively little research, development, and innovation are occurring in the region. Data from the Global Competitiveness Index indicate that the region significantly lags behind in terms of education and innovation (see Chapter 1.1 of this Report for a more detailed discussion). Enrollment rates in educational institutions remain

Current competitiveness challenges in the Gulf Cooperation Council countries The results of the Global Competitiveness Index highlight a number of competitive strengths and weaknesses for the five GCC countries it covers—Bahrain, Kuwait, Oman, Qatar, and the United Arab Emirates.The Index assesses competitiveness of countries by looking at nine criteria that affect competitiveness: institutions, infrastructure, macroeconomy, health and primary education, higher education and training, market efficiency, technological readiness, business sophistication, and innovation. The average results in these categories are benchmarked against Singapore in Figure 1.2 Not surprisingly, given the current surge in oil prices, members of the GCC display stable macroeconomic indicators. In particular, oil revenues combined with better fiscal management than in previous years fueled budget surpluses and enabled governments to partly repay public debt and increase national savings,

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Figure 1: Results of the Global Competitiveness Index for Gulf Cooperation Council countries benchmarked against Singapore

Institutions
7

q GCC countries*
Infrastructure

Innovation

6 5 4 3

q Singapore

Business sophistication

2 1

Macroeconomy

Technological readiness

Health and primary education Higher education and training

Market efficiency

Source: World Economic Forum. *excluding Saudi Arabia

but this also increased inflation. On average, countries also display well-run institutions with relatively well protected property rights and fairly low levels of corruption. Businesses have trust in the honesty of politicians and consider public spending to be well invested. Efforts to strengthen the financial sector have paid off in the region, and financial markets display, on average, a fairly high level of sophistication. At the same time, however, financial markets are not sufficiently geared toward fueling entrepreneurship, and access to finance for local companies remains difficult in many countries, despite high liquidity levels. In order to realize their full competitive potential, GCC countries should focus on strengthening the availability and quality of educational institutions at the primary, secondary, and tertiary levels, although the performance on educational indicators among GCC countries is very diverse. Some countries lag behind in terms of primary education and display fairly high levels of illiteracy, while other countries need to improve university education. A common problem that occurs across the region, however, is that the educational institutions do not teach young people the skills necessary to succeed in the private sector. In most GCC countries, more openness to domestic and international competition would benefit the economy. Also, the ability to adopt technologies from abroad and the capacity to innovate are on average limited. This is mainly because of the low quality of research

institutions, but also because of the scarcity of qualified staff, such as scientists and engineers.

Overview of competitiveness aspects within the scenarios Three different paths for the GCC countries through to 2025 are represented in Figure 2, displayed as movements through a matrix defined by the key questions above. The resulting scenarios are called Oasis, Sandstorm, and The Fertile Gulf.
Oasis

Oasis describes a scenario where regional stability continues to be a challenge for the GCC countries, which are nevertheless able to achieve substantial institutional reforms in an environment of relatively stable oil prices that have a floor of US$45 per barrel.The GCC countries develop strong identities and work together to coordinate diplomatic and economic policies through technocratic governance and a strong internal market. Overregulation in world markets slows the process of globalization of the world economy to global GDP growth rates of 3–3.5 percent, affecting the GCC countries; nonetheless, these countries are an oasis of stability and prosperity in an otherwise troubled region. By 2025, the countries have all made significant gains in terms of competitiveness, but have done so via a series of top-down reforms and industry policy rather than by focusing on market liberalization.Thus, although health,

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

3.1: The GCC Countries and the World: Scenarios to 2025

131

3.1: The GCC Countries and the World: Scenarios to 2025

Figure 2: Gulf Cooperation Council scenarios to 2025

Regional stability

The Fertile Gulf

Ineffective governance and reforms

Effective governance and reforms

Sandstorm

Oasis

Source: World Economic Forum: The Gulf Cooperation Council (GCC) Countries and the World: Scenarios to 2025.

132

education, and technology have improved substantially, there remain some elements of friction within institutions and markets that are geared toward strategic priorities, and infrastructure investments occasionally suffer from poor planning. Nevertheless, efforts to build the private sector and improve the efficiency of the public sector have paid off in terms of increased business sophistication and reduced costs of bureaucracy and corruption. 2007–12 As tensions rise in the Gulf with regard to Iran and problems persist with sectarian and insurgent violence in Iraq, a new regional body known as the GCC Economic Coordination and Development Board progressively develops a coordinated regional economic strategy to make the most of relatively high oil prices— the “Three Pillars” strategy—that aims at (1) encouraging public-private partnerships, (2) encouraging economic diversification, and (3) improving governance through stronger and more efficient institutions.There is a focus on building the private sector through targeted incentives for domestic and foreign investment, particularly in tourism, business services, and energy-intensive industries such as petrochemicals, aluminum, and steel. Financial markets develop strongly, and there is talk of market consolidation following monetary integration in 2012.

Regional instability

The skills shortage begins to be addressed by educational reform aimed at enhancing human capital in strategic sectors, improving public infrastructure across the region, and implementing on-the-job training through appropriate training schemes.Training programs for nationals in both domestic and international firms are being funded. Because the strategy indicated that high-tech industries should be developed within the oil and gas sector, a public-private partnership to train local engineers has been established. At the same time, a review of educational standards across the six GCC countries has been undertaken, and a plan for regional accreditation of universities has been put in place. Leaders have been encouraged to be role models for private-sector participation; the educational system has reinforced this message.Taken together, all this has contributed to upgrading the image of the professional worker and strengthened meritocracy among the workforce.The GCC region achieves over 5 percent real compound annual growth for the period. 2013–20 Nuclear proliferation causes regional concerns and increases the volatility of the price of oil. Efforts to accelerate economic diversification continue with strategic research and development (R&D) investments,

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Figure 3: Gulf Cooperation Council budget balance: Oasis scenario

120 100 80 60 40 20 0 2005 –20 –40 –60 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Source: PFC Energy.

capturing more of the energy value chain and increasing the world market share of associated industries.The GCC countries work toward possessing some of the leading technologies for oil-field mapping and enhanced oil recovery.The push in R&D is leading to advances in chemicals and starting to spill over to plastics; the GCC is set to become home to a very successful cluster of firms specializing in advanced materials.Top-down economic reform is broadly successful, and—following a significant joint effort on the part of the countries’ leaders—educational standards are established across the GCC countries to create a deeper regional labor market. Another particular focus is the creation of public affairs management colleges to educate a generation of technocrats in order to increase the effectiveness of the public sector. Political reforms progress slowly, with pressures from local populations managed through a combination of financial incentives and partial inclusion through (mostly symbolic) consultative bodies. Real growth over the period is slightly lower, at just under 5 percent, but some economies in the region far exceed this. Despite diversification efforts, government revenues remain dependent on resources and drop significantly around 2011 as oil prices hit a low, but recover in the following years (see Figure 3).

2021–25 Governance structures in 2025 are, in most cases, profoundly different from those in 2007, following 17 years of streamlining the still-dominant public sector. A generation of talented, nationally educated technocrats ensures that, for the most part, GCC national institutions are efficient and effective. Ruling families primarily act as occasional advisers rather than executive leaders, and there is a strong meritocratic culture throughout the public and private sectors.This is created through effective leadership by example and through instilling the merit principles in the educational system. Unemployment, although still important, remains contained below 13 percent overall despite a population that has almost doubled in 25 years. Governments are focused on refining their industry policies—these occasionally fail, but they have been fairly successful in a global environment characterized by solid GDP growth of 3.5 percent.These industry policies have a distorting side-effect of skewing entrepreneurship toward government-favored sectors, and productivity remains below levels of international peers. At the same time, the private-sector benefits from well-enforced corporate governance standards and from world-class financial institutions operating in the region. Oil continues to be the primary source of budget revenue for the GCC countries because oil prices are robust, and

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

3.1: The GCC Countries and the World: Scenarios to 2025

Percent of GDP

133

3.1: The GCC Countries and the World: Scenarios to 2025

budgetary spending is largely contained. Despite a somewhat difficult environment, integration with the global economy continues and there is a strong increase in trade in goods and services. Both trade in goods and trade in services more than quadruple.The politics of the region are not profoundly different from the beginning of the century, but wealth has increased significantly, with GDP per capita hitting levels above US$30,000 in nominal terms. Despite ongoing calls for increased transparency in decision-making, people are generally satisfied with their governments’ management of natural resources and social issues.
Sandstorm

Unemployment, in particular among the young, remains at high levels in most countries. 2013–20 In a depressed global environment, a lack of attention to the causes of internal problems mean that reforms are ineffective. Governments have a tendency to focus on short-term fixes rather than long-term solutions, and they divert the oil revenues that do exist to extensive arms purchases and investment in nonproductive assets. Capital is leaked to Europe. A series of terrorist attacks causes Gulf populations to carefully consider their internal security, and financial markets across the region suffer heavily as a result. Nevertheless, real non-oil GDP recovers slightly to regain the levels prior to the conflict with Iran, and success for Kuwait and United Arab Emirates brings the GCC current account balance back into the black. Labor markets continue to be strongly regulated in favor of national employees, who appear not only often to lack the necessary skills but also to have a less performance-oriented attitude than foreign workers. This in particular affects executive positions in companies. Reforms of government bureaucracies, although undertaken, are only superficially implemented, constituting a major impediment to business. Huge delays and costs for obtaining permits are the rule and government contracts are awarded arbitrarily.The bureaucratic problems intensify after reforms are scaled down in 2015 and 2016. By 2020, businesses consider the inadequately educated labor force and the inefficient government bureaucracy to be the two most problematic factors for doing business. During this time, GCC countries start falling further behind the rest of the world in terms of the adoption and implementation of new technologies, and they have more and more difficulty competing with international players from China and India. Even in the exploration and production of oil, the value added is not captured successfully. And although a few pockets of excellence emerge in selected sectors and countries, reforms are not implemented effectively and a more prosperous and productive private sector does not emerge. 2021–25 The GCC countries are caught in a trap of needing to control their populations out of fear of further unrest, but being thereby unable effectively to create the conditions for renewed growth, despite rising oil revenues. GDP growth in the GCC is stable at annual rates of about 5 percent. Reform efforts remain constrained by the fears of a deteriorating security situation. Access to education remains difficult, and distance learning is the only viable option. At the same time, ICT infrastructure is considered subversive by governments. Meanwhile, thanks to resilient populations making the most of the

134

Sandstorm describes a future where regional instability is a defining factor, affecting the ability of GCC countries to effectively carry out much-needed institutional reforms. In a depressed global environment affected by extremely volatile oil prices, reforms deflate or collapse from a lack of attention to the root cause of internal issues and the tendency for governments to focus on short-term stability at the expense of long-term solutions. Caught in a shifting, violent environment, the GCC countries are blinded, unable to navigate their way out of the sandstorm and identify opportunities for prosperity for their populations, despite the fact that low oil prices from 2011, caused by the global slowdown, offer a wealth of incentives for reform. In terms of competitiveness, the GCC countries find themselves worse off than they were at the beginning of the century, with stagnant and inflexible institutions, eroded and irrelevant public infrastructure, a poorly developed and internationally struggling private sector, and a lack of educational and financial capital with which to rectify the situation. 2007–12 The Gulf region is thrown into chaos in 2009 when the United States undertakes a military strike against Iranian nuclear sites, provoking Iranian missile attacks on US bases in GCC countries along the Gulf and helping to precipitate a global recession. Oil prices stabilize, after an initial drop, when they reach levels as low as US$30 per barrel in 2011 down from US$140 in 2009. In addition, populations in GCC countries react strongly to the deteriorating security situation, resulting in a period of internal instability. GCC governments scramble to head off internal and external threats to their authority. Funds are diverted to military spending at the expense of improving institutions and education. Instead of fostering R&D and creating a long-lasting capital base, investments are directed toward public infrastructure of limited utility, creating only temporary employment. As a result of the political instability, military attacks, and the like, and the failure to support private-sector reforms (negating the influence of fluctuating oil prices), the real economy contracts by 19 percent over the period.

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

globalization of communications, a new sense of identity emerges although the broader humanitarian cost of the economic slowdown (the result of the inability to create the conditions for renewed growth) is considerable— and at least partly avoidable. Succeeding generations hope to make a better start in 2025, but they have far less to work with than they might have had.
The Fertile Gulf

describes the rise of the GCC countries as innovation hubs in a global environment characterized by strong demand for energy and increasing globalization. Regional stability gives the GCC countries the opportunity to focus on enhancing their human capital at all levels, investing heavily in education while proceeding carefully with political and institutional reforms to support their growing economies and societies. High oil prices resulting from sustained demand and global growth provide GCC countries with ample resources. In this way, along the Persian Gulf modern, highly competitive economies make the most of the conditions of globalization, thanks to efficient institutions and markets and a broad base of local, highly skilled workers. 2007–12 Growing tensions and insecurity spur a series of multilateral conferences involving the leadership of GCC countries.The problem of regional violence is addressed at political and cultural levels, resulting in increased regional stability. At the same time, recognizing the importance of education and innovation, a number of GCC governments decide to spend their built-up wealth on educating their people and jump-starting R&D in a radical and dramatic fashion. As a result, a number of huge education and R&D funds emerge, sponsored by private individuals and supported by GCC governments and commercial partners. Encouraging entrepreneurship by creating more business-friendly regulatory and institutional environments through improving corporate law and by significantly reducing the number of procedures required to set up a business were key elements to the success of these reforms. Just as important was the establishment of funds that both incentivize and aid the development of new business ideas, so that the GCC countries effectively begin to emulate the “Silicon Valley” model.The involvement of the private sector in these economic reforms is an important aspect of their success, and is at least partly responsible for compounded real annual growth of over 6 percent for the region as a whole. 2013–20 Less volatile (but still bullish) oil markets do not distract GCC countries from private, non-energy sector development, the success of which reduces national

unemployment while creating an array of sought-after, highly skilled jobs for those coming out of the newly reformed educational system. A series of international bilateral agreements to financially support research projects in exchange for intellectual property rights results in an innovation explosion in the GCC countries, and new R&D firms flood into the region. Incremental improvements in institutions (including strong reforms to property rights in terms of legislation and enforcement) to manage the burgeoning entrepreneurship combined with a more influential business community further support regional development. Public investment in infrastructure is more efficient, and transparency and accountability of public institutions are significantly strengthened, reducing corruption and nepotism. A onelicense approach is introduced in the GCC. Regional infrastructure is developed and it is easier for people to move between countries, thereby rendering the labor allocation more efficient. In some countries, professional ethics are strengthened and the business sector benefits from an increasing participation of women in the labor market. Financial markets in the region are significantly strengthened in terms of sophistication of both products and regulation. Economic expansion continues strongly on the back of monetary integration averaging over 5 percent real growth for the period, with extremely strong growth in Kuwait and the United Arab Emirates. 2021–25 Political reforms, which have proceeded at different stages across the GCC countries, find balance;Western democratic ideals are not directly transplanted. Instead, governments generate their own models of participatory governance over a period of experimentation and increasing engagement with their populations. After a sea change in both attitudes to and the provision of tertiary education, Arab graduates are keenly sought after for positions in finance, engineering, and medical sciences in Asia, Europe, and North America. GCCbased business schools make it to the top 50 in world rankings.Thanks to the improved education and good business climate, unemployment is greatly reduced while the proportion of migrant workers decreases. Credit is widely available to a new generation of entrepreneurs, who drive much of the continuing strong growth in the region. Economic diversification results in a greatly reduced share of oil in GDP, and the GCC countries emerge as an innovation hub, where the constraint of demographics is turned into a world-class asset, enhancing the region’s competitiveness.This looks set to continue with extremely healthy, and growing, positive budget and current balances. Figures 4–7 show the diverging evolution of the main economic indicators in the three scenarios;Table 1 summarizes the impact on the nine categories used to assess competitiveness.

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

3.1: The GCC Countries and the World: Scenarios to 2025

135

3.1: The GCC Countries and the World: Scenarios to 2025

Figure 4: Oil prices

150

Oasis Sandstorm Fertile Gulf

120

US$ (nominal) per barrel)

90

60

30

0 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024

Source: PFC Energy.

136 Figure 5: Real GDP per capita

18,000

Oasis Sandstorm

16,000

Fertile Gulf

14,000

US$ (2000 dollars)

12,000

10,000

8,000

6,000

4,000 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024

Source: PFC Energy.

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Figure 6: Share of non-oil sector in real GDP

100 Oasis 95 90 85 Sandstorm Fertile Gulf

80 75 70 65 60 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024

Source: PFC Energy.

Figure 7: Gulf Cooperation Council budget balance

600 500 400 300 200 100 0 –100 –200 2000 2002

Oasis Sandstorm Fertile Gulf

Current US$ (billions)

2004

2006

2008

2010

2012

2014

2016

2018

2020

2022

2024

Source: PFC Energy.

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

3.1: The GCC Countries and the World: Scenarios to 2025

Percent

137

3.1: The GCC Countries and the World: Scenarios to 2025

Table 1: Qualitative comparison of the trends between 2006 and 2025 based on the Global Competitiveness Index
OASIS SANDSTORM THE FERTILE GULF

1st pillar: Institutions

• Public-sector reform leads to technocrats ruling. National institutions are more effective and less wasteful, but weak areas remain. A focus on topdown reform and implementation means the public sector is still the cornerstone of economic development. • Property rights are strengthened along with the rule of law, but there is still a lack of transparency at high government levels in a number of countries, and the elite still control many of the resources. • Reform of corporate law means that private institutions are stronger and more effective; government remains fairly handsoff vis-à-vis corporations in a bid to encourage privatesector development.

• Corruption and lack of transparency worsen as defense spending rises across the region and political reforms are pulled back. • Property rights remain relatively undeveloped across the region as governments seek maximum control over their populations. • Business reforms needed to survive the global economic downturn were not sufficiently implemented by the governments. • Unaddressed tensions in the region, occasionally spilling over into domestic unrest, lead to reduced security and higher business costs of terrorism. • The GCC remains vulnerable to terrorism and oilprice volatility.

• Governments streamline regulation to reduce red tape, introducing “one-stop shops” and improving coordination between and within ministries. • Despite a rather slow start, GCC countries proactively embark on fundamental and genuine political, legal, and administrative reforms for increased transparency and accountability, accelerated by a push from corporations. This results in lower corruption and improved judicial independence. • Improved regional security lowers the business cost of unrest.

138

OASIS

SANDSTORM

THE FERTILE GULF

2nd pillar: Infrastructure

• Despite attempts to coordinate investment at a regional level, infrastructure development is haphazard among the GCC countries. • Top-down implementation of clear economic strategies means infrastructure improves over time, but lack of transparency and a rigid approach to planning lead to occasional misallocation of resources.

• Scarce resources are not focused toward infrastructure development and lead to poor overall quality. • Tendency to spend vast amounts on public infrastructure projects of limited utility, creating temporary employment rather than a long-lasting capital base.

• Infrastructure development is coordinated and heavily invested both within and among the GCC countries, primarily in partnership with the public sector, resulting in an efficient allocation of budget surpluses toward critical infrastructure to support sustainable economic diversification.

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Table 1: Qualitative comparison of the trends between 2006 and 2025 based on the Global Competitiveness Index (cont’d.)
OASIS SANDSTORM THE FERTILE GULF

3rd pillar: Macroeconomy

• Despite relatively high oil prices, fast-growing populations and government spending results in budget deficits by 2011 in many GCC countries. Strong economic growth internally and robust oil prices return most governments to surplus by 2015, enabling sustained public investment. • GCC monetary integration occurs in 2012, positively influencing regional trade but causing problems for some countries in terms of achieving inflation and fiscal targets, given the economic differences between the GCC countries.

• Oil-price volatility and a failure to diversify away from hydrocarbons means governments struggle to keep their budgets balanced. Government debt grows substantially across the region. • GCC countries experience problems keeping their currencies on their peg due to fluctuations in the value of the US dollar, and monetary integration (scheduled for 2010 and then delayed) is eventually called off.

• Consistently high oil prices and strong global demand in the non-oil sector drives consistent regional budget surpluses. This results in decreasing government debt levels and healthy savings rates. • High inflation rates from strong consumer demand and government spending on infrastructure investment causes concerns, but subsides follow marketdriven increases in the domestic supply of both goods and labor.

OASIS

SANDSTORM

THE FERTILE GULF

4th pillar: Health and primary education

• Gradual improvement in both health care and primary education are the result of large public investment in both areas.

• Deterioration of the healthcare systems in some GCC countries result in reduced life expectancy and higher infant mortality. A failure to address shortcomings in primary curricula and an overall deterioration of the educational system means an ongoing lack of economically relevant skills in the population.

• Modern health infrastructure, skilled staff, and low infant mortality are reinforced by civil society and private-sector involvement. • School curricula are modernized and revised on an ongoing basis, ensuring the relevance of further education.

OASIS

SANDSTORM

THE FERTILE GULF

5th pillar: Higher education and training

• Education standards are established across the region as part of a bid to coordinate skills and training programs. • Governments fund on-thejob training for nationals with both local and international firms and launch a regionwide job search website.

• Lack of funding, restrictions on curricula, and a lack of incentives for achievement mean highereducation standards across the region deteriorate. • Alliances with foreign institutions cease to exist and some leave the region altogether. • The very wealthy send their children abroad, but travel restrictions mean that for the middle class distance learning is the only viable option.

• Government funding is matched by private-sector involvement, with international schools, vocational training, and scholarship schemes expanding regionally. GCC-based business schools enter the top 50 in world ranking. • Exchange programs with secondary schools and universities are encouraged to develop cross-cultural and academic learning.

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

3.1: The GCC Countries and the World: Scenarios to 2025

139

3.1: The GCC Countries and the World: Scenarios to 2025

Table 1: Qualitative comparison of the trends between 2006 and 2025 based on the Global Competitiveness Index (cont’d.)
OASIS SANDSTORM THE FERTILE GULF

6th pillar: Market efficiency

• Marked improvement is seen in markets for goods, labor, and financial products. Reforms are top-down and occasionally subject to overregulation. • Distortions occur because of government-directed industry policy and the existence of sectoral subsidies, leading to capital bias. • Labor markets for GCC citizens are generally open and for the most part are regionally coordinated, with movement of labor greatly improved. • Financial markets occasionally suffer from interference by government interests.

• Market efficiency suffers as governments remain heavily involved with most sectors, using regulation as a barrier to what they see as a security threat from foreign interests. • Restrictions on the movement of people cause inefficiencies in the labor market. • Financial markets are in turmoil because of ongoing regional and increasing domestic instability.

• Favorable market conditions (e.g., increasing foreign ownership) lead to a higher degree of competition and efficiency as governments liberalize their capital accounts. • The introduction of standardized business regulations across the GCC enables the quick expansion of firms to other GCC countries. • Financial markets are strong and self-regulating as the GCC capital markets become a new source of power in the region.

140
7th pillar: Technological readiness

OASIS

SANDSTORM

THE FERTILE GULF

• Most GCC governments sponsor large-scale investments in ICT as part of their drive to improve skills.

• GCC countries continue to lag behind on adopting and implementing new technologies, while governments fail to stimulate the local business elite to invest and improve core ICT assets.

• Privatization of ICT improves quality and access to the Internet, and governments auction the rights to provide wireless access across the GCC.

OASIS

SANDSTORM

THE FERTILE GULF

8th pillar: Business sophistication

• Governments support and monitor a significant proportion of firms within business clusters, directing industry policy toward enhancing strategic sectors such as oil and gas valueadded activities. • Firm strategies in chosen industries are greatly enhanced, and productivity rises. However, some sectors lag considerably.

• Business sophistication is hampered by a lack of skills and the declining competitiveness of local firms.

• The formation of new industry clubs and proliferation of venture capital networks to support entrepreneurship increase inter- and intra-industry knowledge transfer.

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Table 1: Qualitative comparison of the trends between 2006 and 2025 based on the Global Competitiveness Index (cont’d.)
OASIS SANDSTORM THE FERTILE GULF

9th pillar: Innovation

• Innovation mainly focuses on the oil and gas sector. R&D increases significantly, but the bulk of this is directed toward government-sponsored projects. Some protectionism remains in certain areas, with governments citing security concerns.

• Limited innovation is present within the GCC. Most technology is imported, and the little that emerges locally is stifled.

• The GCC countries work hard to catch up oil and gas technologies, but also deregulate in R&D while offering large incentives for investment in the development of new technologies across all sectors • Strong research cooperation with foreign universities boosts the quality of R&D and technology commercialization.

Conclusion: The way forward The GCC countries are currently at a crossroad in terms of their economic competitiveness. Although reforms to date have been, on the whole, well thought out and positively implemented, high oil prices and the resulting boom in revenue may distract governments from the need for further, more painful, reforms. Depending on their decisions now, the GCC countries could remain primarily oil exporters, or they could develop the Arabian Peninsula into an innovation hub that leads the global economy. The competitiveness of GCC countries will depend on how well elements contained in the nine pillars are integrated, embedded, and constantly improved. Given the heterogeneity of countries, it is important to bear in mind that key themes such as leadership, strong and efficient institutions, diversification of the economy, effective primary and job-aligned higher education, the adeptness on technological prerequisites, and the foundation for innovation will play out differently in each county within each scenarios. The stories that the scenarios present, supported by the underlying quantitative research and modeling, clearly indicate that the future of competitiveness for the GCC countries relies heavily on investment in education and innovation, supported by an enabling business environment and well-functioning institutions.While the view from 2007 is that institutional and economic reforms are well underway and look set to continue across the GCC countries, this is by no means certain. In addition, current competitiveness bottlenecks related to workplace skills, access to credit, and innovation must be resolved with effective investment and better incentives for increased productivity as well as improved labor force participation.The scenarios indicate that serious efforts in these areas must be accompanied by a strong leadership that is willing to forge ahead with sometimes unpopular

reforms, using the region’s natural resource advantages to absorb costs of adjustment in the short term in return for improved competitiveness and sustainable economic prosperity in the long term. Having illustrated three plausible futures for the competitiveness of the GCC countries in these scenarios, the next step is to look to indicators that can signal which path the GCC countries are proceeding down. These scenarios suggest that keeping the pulse of the state’s local education, R&D spending, and entrepreneurship could provide a useful indicator for the long-term health of regional economies.The Global Competitiveness Index, which comes to similar conclusions, provides policymakers in the region with a framework of indicators that not only point to competitive strengths and weaknesses as well as areas for potential investment, but can also be used to track progress over time.This Index also provides relevant benchmarks and can inform policy decisions by pointing to international best practice. Another way in which the scenarios can aid economic competitiveness is by opening policymakers up to new opportunities to improve GCC institutions, and to ensure that they are well informed of alternative options and prepared for those times when expectations are not met. GCC countries seem to be on the high road of continued prosperity and improved competitiveness. However it is important that current investments be made wisely to ensure that this continues for the next 20 years and beyond.

Notes
1 The Gulf Cooperation Council (GCC) countries are Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates. 2 Singapore has been selected as a benchmark because it operates at the same stage of development as most of the GCC countries.

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

3.1: The GCC Countries and the World: Scenarios to 2025

141

How to Read the Country Profiles
THIERRY GEIGER, World Economic Forum

The Country Profiles section presents a four-page profile for each of the 13 countries covered by The Arab World Competitiveness Report 2007.

Country Profiles

Algeria
Key indicators
Total population (millions), 2006......................................................................33.4 GDP (US$ billions), 2006 ....................................................................................124 GDP as share of world total (percent)...........................................................0.39 GDP (PPP US$) per capita, 2006 ...................................................................7,612 Current account balance (percent of GDP), 2006........................................24.8 Human Development Indicator rank (out of 177 economies), 2004...........102

Page 1
Key indicators

Source: UNFPA, IMF, UNDP

Competitiveness rankings
Rank within country group 2* (out of 40) Overall rank (out of 128) Score (1–7)

Stage of development 1
Factor driven Transition 1–2

The first section presents a selection of key indicators. Population figures come from the United Nations Population Fund (UNFPA)’s State of World Population 2006, available at www.unfpa.org/swp/2006. Macroeconomic data come from the September 2006 edition of the International Monetary Fund’s World Economic Outlook, available at www.imf.org/weo.The Human Development Index (HDI) ranking is computed by the United Nations Development Programme (UNDP) and is presented in the 2006 edition of the Human Development Report, available at hdr.undp.org.
Competitiveness rankings

Global Competitiveness Index 2007...............29..........76 ......4.0
GCR 2005–06 (out of 117 economies)......................................82 .......3.8 Basic requirements .....................................................7 ...........44 .......4.9 1st pillar: Institutions..................................................21 ...........65 .......3.9 2nd pillar: Infrastructure ...........................................30 ...........80 .......2.9 3rd pillar: Macroeconomy...........................................2 .............2 .......6.2 4th pillar: Health and primary education................12 ...........46 .......6.6

2
Efficiency driven

Transition 2–3

3
Innovation driven

Institutions
7

Innovation

6 5 4

Infrastructure

8

Efficiency enhancers.................................................34 ...........92 .......3.3 5th pillar: Higher education and training................33 ...........86 .......3.5 6th pillar: Market efficiency......................................33 ...........97 .......3.7 7th pillar: Technological readiness .........................36 ...........93 .......2.7 Innovation factors ......................................................32 ...........92 .......3.2 8th pillar: Business sophistication...........................38 .........106 .......3.4 9th pillar: Innovation ..................................................25 ...........77 .......3.1

3

Business sophistication

2 1

Macroeconomy

Technological readiness

Health and primary education Higher education and training

Market efficiency

Gender Gap Index 2006 (out of 115 economies)
* Country group includes the countries in the same stage of development as well as those transitioning toward it.

97
Algeria Factor-driven economies

The most problematic factors for doing business
Access to financing ......................................................13.6 Inefficient government bureaucracy...........................9.2 Corruption.........................................................................8.7 Tax rates ...........................................................................8.5 Tax regulations ................................................................7.9 Inadequate supply of infrastructure ............................7.7 Inadequately educated workforce...............................6.7 Foreign currency regulations........................................6.7 Policy instability...............................................................6.3 Poor work ethic in national labor force ......................6.1 Inflation .............................................................................5.7 Restrictive labor regulations .........................................5.4 Government instability/coups .......................................4.3 Crime and theft ................................................................3.1 0 5 10 15 Percent of responses
Note: From a list of 14 factors, respondents were asked to select the five most problematic for doing business in their country/economy and to rank them between 1 (most problematic) and 5. The bars in the figure show the responses weighted according to their rankings.

20

25

30

This section details the country’s performance on the updated Global Competitiveness Index 2007 (GCI 2007). In the table on the left-hand side, the first column shows the country’s ranks within its country group; the second column shows ranks among the 128 countries covered by the GCI 2007.The third column presents the scores. For more information on the methodology of the GCI 2007 and the notion of a country group, please refer to Chapter 1.1 of this Report. On the right-hand side, the figure shows the country’s performance on the nine pillars of the GCI (blue line) measured against the average scores across all the countries in the same stage of development (black line). Below, where applicable, the Gender Gap Index 2006 rank is reported.1
The most problematic factors for doing business

This figure summarizes those factors seen by business executives as the most problematic for doing business in their economy.The information is drawn from the World Economic Forum’s Executive Opinion Survey 2006. From a list of 14 factors, respondents were asked to select the five most problematic ones, and to rank those from 1 (most problematic) to 5.The results were then tabulated and weighted according to the ranking assigned by respondents.2

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

How to Read the Country Profiles

145

How to Read the Country Profiles

Page 2 This page presents the rank achieved by a country on each of the indicators entering the composition of the updated Global Competitiveness Index 2007 (GCI 2007). Next to the rank, a square indicates whether the indicator constitutes an advantage (blue square) or a disadvantage (black square) for the country.To identify variables as advantages or disadvantages, the following rules are applied: • For those countries ranked in the top 10 in the overall GCI 2007, individual variables ranked between 1 and 10 are considered to be advantages. Any variables ranked below 10 are considered to be disadvantages. • For those countries ranked from 11 to 50 in the overall GCI 2007, variables ranked higher than the country’s overall rank are considered to be advantages. Any variables ranked equal to or lower than the country’s overall rank are considered to be disadvantages. • For those countries ranked lower than 50 in the overall GCI 2007, any individual variables ranked higher than 51 are considered to be advantages. Any variables ranked lower than 50 are considered to be disadvantages. For further analysis, the Data Tables at the end of the Report provide detailed rankings and scores for each of the 89 variables included in the GCI 2007.
The Global Competitiveness Index in detail
I Competitve Advantage I Competitve Disadvantage

INDICATOR

RANK/128

INDICATOR

RANK/128

1st pillar: Institutions
1.01 1.02 1.03 1.04 1.05 1.06 1.07 1.08 1.09 1.10 1.11 1.12 1.13 1.14 1.15 Property rights ...........................................................67 .....I Diversion of public funds ...........................................80 .....I Public trust of politicians ...........................................47 .....I Judicial independence ...............................................65 .....I Favoritism in decisions of government officials ........25 .....I Government spending ...............................................36 .....I Burden of government regulation .............................63 .....I Business costs of terrorism ....................................118 .....I Reliability of police services ......................................34 .....I Business costs of crime and violence .......................83 .....I Organized crime ........................................................70 .....I Ethical behavior of firms ............................................70 .....I Efficacy of corporate boards....................................107 .....I Protection of minority shareholders’ interests ..........38 .....I Strength of auditing and accounting standards .......102 .....I 6.01 6.02 6.03 6.04 6.05 6.06 6.07 6.08 6.09 6.10 6.11 6.12 6.13 6.14 6.15 6.16 6.17 6.18 6.19 6.20 6.21 6.22 6.23

6th pillar: Market efficiency
Agricultural policy costs.............................................15 .....I Efficiency of legal framework ....................................54 .....I Extent and effect of taxation .....................................33 .....I No. of procedures required to start a business*.......10 .....I Time required to start a business* ............................80 .....I Intensity of local competition ....................................98 .....I Effectiveness of antitrust policy ................................59 .....I Imports* ....................................................................94 .....I Prevalence of trade barriers ......................................83 .....I Prevalence of foreign ownership...............................85 .....I Exports*.....................................................................34 .....I Hiring and firing practices ..........................................81 .....I Flexibility of wage determination ............................104 .....I Cooperation in labor-employer relations ....................65 .....I Reliance on professional management .....................66 .....I Pay and productivity ..................................................80 .....I Brain drain................................................................105 .....I Private-sector employment of women ......................74 .....I Financial market sophistication................................125 .....I Ease of access to loans...........................................114 .....I Venture capital availability........................................117 .....I Soundness of banks ................................................124 .....I Local equity market access .....................................112 .....I

2nd pillar: Infrastructure
2.01 2.02 2.03 2.04 2.05 2.06 Overall infrastructure quality......................................72 .....I Railroad infrastructure ...............................................73 .....I Quality of port infrastructure .....................................79 .....I Air transport infrastructure quality .............................93 .....I Quality of electricity supply .......................................70 .....I Telephone lines*........................................................90 .....I

3rd pillar: Macroeconomy
3.01 3.02 3.03 3.04 3.05 3.06 Government balance* .................................................6 .....I National savings rate* .................................................4 .....I Inflation* ..................................................................114 .....I Interest rate spread* .................................................51 .....I Government debt* ....................................................88 .....I Real effective exchange rate* .................................113 .....I

7th pillar: Technological readiness
7.01 7.02 7.03 7.04 7.05 7.06 7.07 Technological readiness...........................................106 .....I Firm-level technology absorption...............................69 .....I Laws relating to ICT ..................................................95 .....I FDI and technology transfer ....................................112 .....I Mobile telephone subscribers* .................................69 .....I Internet users* ..........................................................88 .....I Personal computers*...............................................106 .....I

4th pillar: Health and primary education
4.01 4.02 4.03 4.04 4.05 4.06 4.07 4.08 4.09 Business impact of malaria .......................................65 .....I Business impact of tuberculosis ...............................64 .....I Business impact of HIV/AIDS ....................................58 .....I Infant mortality* ........................................................39 .....I Life expectancy* .......................................................69 .....I Tuberculosis prevalence* ..........................................70 .....I Malaria prevalence*...................................................62 .....I HIV prevalence* ........................................................79 .....I Primary enrollment* ..................................................35 .....I 8.01 8.02 8.03 8.04 8.05 8.06 8.07 8.08

8th pillar: Business sophistication
Local supplier quantity...............................................95 .....I Local supplier quality .................................................99 .....I Production process sophistication.............................85 .....I Extent of marketing .................................................118 .....I Control of international distribution .........................102 .....I Willingness to delegate authority ............................115 .....I Nature of competitive advantage ..............................99 .....I Value chain presence...............................................118 .....I

5th pillar: Higher education and training
5.01 5.02 5.03 5.04 5.05 5.06 5.07 Secondary enrollment*..............................................75 .....I Tertiary enrollment*...................................................75 .....I Quality of the educational system.............................93 .....I Quality of math and science education .....................74 .....I Quality of management schools................................91 .....I Local availability of research and training services..103 .....I Extent of staff training .............................................100 .....I

9th pillar: Innovation
9.01 9.02 9.03 9.04 9.05 9.06 9.07 9.08 Quality of scientific research institutions ..................85 .....I Company spending on R&D ......................................92 .....I University-industry research collaboration...............104 .....I Gov’t. procurement of advanced tech products........36 .....I Availability of scientists and engineers......................21 .....I Utility patents* ..........................................................80 .....I Intellectual property protection..................................73 .....I Capacity for innovation ............................................123 .....I

* Hard data Note: For descriptions of variables and detailed sources, please refer to “How to Read Country Profiles.”

Country Profiles

146

Algeria
Stability Sets Basis for Transition to Efficiency-Driven Economy
SOFIANE KHATIB, World Economic Forum

In an environment characterized by weak institutions, Algeria sets the basis for opening and diversifying the economy. Challenges in the financial sector higher education and technological readiness remain.

Page 3 This competitiveness snapshot was prepared by an expert who was asked to comment on the country’s performance on the updated Global Competitiveness Index 2007 in the light of the recent developments within the country. Most of the authors are affiliated with the Global Competitiveness Network’s local Partner Institutes. Note that all rankings quoted in this section refer to the entire GCI 2007 sample of 128 economies.
10

A

lgeria is enjoying a period of peace, stability, and growth after a decade of political violence and economic stagnation. The military has gradually abandoned its traditional role of power broker, strengthening civilian rule over the country. The President, Abdelaziz Bouteflika, appears to be solidly in charge of public affairs. The government has launched a program of economic development entailing massive investment in infrastructure and a gradual opening of the economy. High oil and gas prices and increased gas output have provided the means: US$60 billion is committed for infrastructure and housing over the next five years, the flagship project being an east–west highway linking the Moroccan and Tunisian borders. This investment is needed, as the current infrastructure environment is a major roadblock to growth (rank 80/128). The government is also gradually liberalizing key economic sectors, such as utilities and infrastructure, so foreign firms have an increasingly active role. But oil and gas industries remain in the hands of the government, and the giant state-owned Sonatrach—one of the world’s largest energy companies—still controls a majority stake in the sector.

Algeria has one of the most stable macroeconomic environments in the world. The economy has benefited from sustained high gas and oil prices and increased gas output, as the hydrocarbon sector accounts for roughly 60% of budget revenues and 95% of export earnings. GDP growth rate is expected to rise from an estimated 5.5% in 2006 to around 6.7% in 2007–08; both trade and current account balances achieved this year record surpluses; and the Algerian Central Bank is building up record foreign exchange reserves. Inflation in 2006, despite a strongly expansionary fiscal policy, was still under control at 3.5%. The government is also leveraging the hydrocarbon revenues bonanza to reduce the external debt burden substantially. A relatively weak institutional framework (rank 65/128), corruption problems, and a heavy bureaucracy slow down government efforts to diversify the economy and to implement its investment program. Indeed, current revenues are well in excess of the economy absorptive capacity, and it seems unlikely that the government will be able to disburse all expected investments. Extremely weak financial intermediation (financial market sophistication rank is 125/128) hampers the development of the private sector. The government is slowly attempting to strengthen the financial sector by providing more transparent regulation and privatizing some of the state-owned commercial banks. There is a relatively high primary education enrollment rate (rank 35/128), but higher education and training systems need to improve (rank 86/128). The high secondary school drop-out rate fuels youth

unemployment, affecting one-third of those aged 16–19. Algeria needs to advance in several areas to prepare for transitioning to an innovation-driven economy in the future. Business sophistication ranks low because of a shortage of management know-how, inefficient production processes, and inadequate corporate governance structures. The low-ranking technological readiness reflects the difficulties of quickly absorbing new technologies and processes to improve competitiveness. Although some structures for innovation are in place, it is not yet enough for innovation to be an efficient contributor to economic growth.

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Country Profiles

Algeria

9

Page 4
GDP (PPP US$) per capita, 1980–2005

FDI inflows (percent of GDP)

Projected

4,000 3,000 2,000 1,000 0 2000 2005 2010

4 3 2 1 0

Foreign direct investment

This figure presents the evolution of foreign direct investment (FDI) inflows into the countries expressed in US$ millions (left axis) and as a percentage of gross domestic product (right axis). Data for 2000 and 2005 come from the United Nations Conference on Trade and Development’s FDI Online Database. Figures for 2010 are projections by the Columbia Program on International Investment and appear in the World Investment Prospects to 2010 Report, available at cpii.columbia.edu/pubs.
Trade

Source: UNCTAD; Columbia University; IMF

Percent of GDP

US$ millions

This figure shows the evolution of gross domestic product per capita valued at purchasing power parity for the country (blue line) and for the region (black line). Data come from the International Monetary Fund’s World Economic Outlook (September 2006) and the World Bank’s World Development Indicators 2006, respectively.

GDP (PPP US$) per capita, 1980–2005
8,000

Algeria MENA

7,000 6,000 5,000 4,000 3,000 2,000

Source: IMF; World Bank

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

Foreign direct investment (FDI)
6,000 6 5

I FDI inflows (US$ millions)

5,000

Trade
Exports by country of destination
Volume, 2005 (percent)

Exports by sector
Volume, 2005 (percent)

France: 15% United States: 36% Canada: 11% Petroleum, petroleum products: 52%

Gas, natural and manufactured: 46%

Brazil: 10% Others: 20% Belgium: 7%

Others: 2%

Total value of exports (US$ millions): 29,998

Trade diversification
Number of exported product groups out of 261

Tariffs
Percent 15 12

2001..................................................................................2.6 2005..................................................................................2.5

I MENA countries I World

9 6 3 0

Average faced tariff
Source: International Trade Centre; UN Comtrade Note: For descriptions of variables and detailed sources, please refer to “How to Read the Country Profiles.”

Average applied tariff

This section provides a snapshot of the country’s trade profile through a number of indicators: • The first figure (top left) shows the breakdown of exports by country or region of destination with the total value of the country’s exports appearing below. • The second figure (top right) presents the breakdown of exports by product group.The adopted classification is the Standard International Trade Classification Rev. 3 (SITC) at the two-digit aggregation level. • The bottom left area features an indicator of the country’s export diversification, expressed as the number of exporting sectors and assuming equal size of each sector, using SITC at the three-digit level. It varies from 1 (no diversification) to 261 (total diversification). It is calculated as the inverse of the Herfindahl Index. • The figure on tariffs (bottom right) indicates the average tariffs faced by the country when exporting to MENA countries and to the rest of the world, as well as the average tariffs applied to products imported from MENA countries and from the rest of the world. Trade data were provided by the International Trade Centre, complemented by data from United Nations Comtrade Database.

Country Profiles

Algeria

11

Notes
1 See the Global Gender Gap Report 2006 published by the World Economic Forum and available at www.weforum.org/gendergap. 2 For more information about the Executive Opinion Survey, see World Economic Forum, The Global Competitiveness Report 2006–2007. Hamsphire: Palgrave Macmillan.

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

How to Read the Country Profiles

147

4: Country Profiles

Algeria
Key indicators
Total population (millions), 2006......................................................................33.4 GDP (US$ billions), 2006 ....................................................................................124 GDP (PPP US$) per capita, 2006 ...................................................................7,612 as share of world total (percent).................................................................0.39 Current account balance (percent of GDP), 2006........................................24.8 Human Development Indicator rank (out of 177 economies), 2004...........102
Source: UNFPA, IMF, UNDP

Competitiveness rankings
Rank within country group 2* (out of 40) Overall rank (out of 128) Score (1–7)

Stage of development 1
Factor driven Transition 1–2

Global Competitiveness Index 2007...............29..........76 ......4.0
GCR 2005–06 (out of 117 economies)......................................82 .......3.8 Basic requirements .....................................................7 ...........44 .......4.9 1st pillar: Institutions..................................................21 ...........65 .......3.9 2nd pillar: Infrastructure ...........................................30 ...........80 .......2.9 3rd pillar: Macroeconomy...........................................2 .............2 .......6.2 4th pillar: Health and primary education................12 ...........46 .......6.6

2
Efficiency driven

Transition 2–3

3
Innovation driven

Institutions
7

Innovation

6 5 4

Infrastructure

150

Efficiency enhancers.................................................34 ...........92 .......3.3 5th pillar: Higher education and training................33 ...........86 .......3.5 6th pillar: Market efficiency......................................33 ...........97 .......3.7 7th pillar: Technological readiness .........................36 ...........93 .......2.7 Innovation factors ......................................................32 ...........92 .......3.2 8th pillar: Business sophistication...........................38 .........106 .......3.4 9th pillar: Innovation ..................................................25 ...........77 .......3.1

3

Business sophistication

2 1

Macroeconomy

Technological readiness

Health and primary education Higher education and training

Market efficiency

Gender Gap Index 2006 (out of 115 economies)
* Country group includes the countries in the same stage of development as well as those transitioning toward it.

97
Algeria Economies in transition from 1 to 2

The most problematic factors for doing business
Access to financing ......................................................13.6 Inefficient government bureaucracy...........................9.2 Corruption.........................................................................8.7 Tax rates ...........................................................................8.5 Tax regulations ................................................................7.9 Inadequate supply of infrastructure ............................7.7 Inadequately educated workforce...............................6.7 Foreign currency regulations........................................6.7 Policy instability...............................................................6.3 Poor work ethic in national labor force ......................6.1 Inflation .............................................................................5.7 Restrictive labor regulations .........................................5.4 Government instability/coups .......................................4.3 Crime and theft ................................................................3.1 0 5 10 15 Percent of responses
Note: From a list of 14 factors, respondents were asked to select the five most problematic for doing business in their country/economy and to rank them between 1 (most problematic) and 5. The bars in the figure show the responses weighted according to their rankings.

20

25

30

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Algeria
The Global Competitiveness Index in detail
s Competitve Advantage s Competitve Disadvantage INDICATOR RANK/128 INDICATOR RANK/128

1st pillar: Institutions
1.01 1.02 1.03 1.04 1.05 1.06 1.07 1.08 1.09 1.10 1.11 1.12 1.13 1.14 1.15 Property rights ...........................................................67 .....s Diversion of public funds ...........................................80 .....s Public trust of politicians ...........................................47 .....s Judicial independence ...............................................65 .....s Favoritism in decisions of government officials ........25 .....s Government spending ...............................................36 .....s Burden of government regulation .............................63 .....s Business costs of terrorism ....................................118 .....s Reliability of police services ......................................34 .....s Business costs of crime and violence .......................83 .....s Organized crime ........................................................70 .....s Ethical behavior of firms ............................................70 .....s Efficacy of corporate boards....................................107 .....s Protection of minority shareholders’ interests ..........38 .....s Strength of auditing and accounting standards .......102 .....s 6.01 6.02 6.03 6.04 6.05 6.06 6.07 6.08 6.09 6.10 6.11 6.12 6.13 6.14 6.15 6.16 6.17 6.18 6.19 6.20 6.21 6.22 6.23

6th pillar: Market efficiency
Agricultural policy costs.............................................15 .....s Efficiency of legal framework ....................................54 .....s Extent and effect of taxation .....................................33 .....s No. of procedures required to start a business*.....110 .....s Time required to start a business* ............................38 .....s Intensity of local competition ....................................98 .....s Effectiveness of antitrust policy ................................59 .....s Imports* ....................................................................94 .....s Prevalence of trade barriers ......................................83 .....s Prevalence of foreign ownership...............................85 .....s Exports*.....................................................................34 .....s Hiring and firing practices ..........................................81 .....s Flexibility of wage determination ............................104 .....s Cooperation in labor-employer relations ....................65 .....s Reliance on professional management .....................66 .....s Pay and productivity ..................................................80 .....s Brain drain................................................................105 .....s Private-sector employment of women ......................74 .....s Financial market sophistication................................125 .....s Ease of access to loans...........................................114 .....s Venture capital availability........................................117 .....s Soundness of banks ................................................124 .....s Local equity market access .....................................112 .....s

2nd pillar: Infrastructure
2.01 2.02 2.03 2.04 2.05 2.06 Overall infrastructure quality......................................72 .....s Railroad infrastructure ...............................................73 .....s Quality of port infrastructure .....................................79 .....s Air transport infrastructure quality .............................93 .....s Quality of electricity supply .......................................70 .....s Telephone lines*........................................................90 .....s

3rd pillar: Macroeconomy
3.01 3.02 3.03 3.04 3.05 3.06 Government balance* .................................................6 .....s National savings rate* .................................................4 .....s Inflation* ....................................................................13 .....s Interest rate spread* .................................................22 .....s Government debt* ....................................................28 .....s Real effective exchange rate* ...................................13 .....s

7th pillar: Technological readiness
7.01 7.02 7.03 7.04 7.05 7.06 7.07 Technological readiness...........................................106 .....s Firm-level technology absorption...............................69 .....s Laws relating to ICT ..................................................95 .....s FDI and technology transfer ....................................112 .....s Mobile telephone subscribers* .................................69 .....s Internet users* ..........................................................88 .....s Personal computers*...............................................106 .....s

4th pillar: Health and primary education
4.01 4.02 4.03 4.04 4.05 4.06 4.07 4.08 4.09 Business impact of malaria .......................................65 .....s Business impact of tuberculosis ...............................64 .....s Business impact of HIV/AIDS ....................................58 .....s Infant mortality* ........................................................90 .....s Life expectancy* .......................................................69 .....s Tuberculosis prevalence* ..........................................59 .....s Malaria prevalence*...................................................66 .....s HIV prevalence* ........................................................28 .....s Primary enrollment* ..................................................35 .....s 8.01 8.02 8.03 8.04 8.05 8.06 8.07 8.08

8th pillar: Business sophistication
Local supplier quantity...............................................95 .....s Local supplier quality .................................................99 .....s Production process sophistication.............................85 .....s Extent of marketing .................................................118 .....s Control of international distribution .........................102 .....s Willingness to delegate authority ............................115 .....s Nature of competitive advantage ..............................99 .....s Value chain presence...............................................118 .....s

5th pillar: Higher education and training
5.01 5.02 5.03 5.04 5.05 5.06 5.07 Secondary enrollment*..............................................75 .....s Tertiary enrollment*...................................................75 .....s Quality of the educational system.............................93 .....s Quality of math and science education .....................74 .....s Quality of management schools................................91 .....s Local availability of research and training services..103 .....s Extent of staff training .............................................100 .....s

9th pillar: Innovation
9.01 9.02 9.03 9.04 9.05 9.06 9.07 9.08 Quality of scientific research institutions ..................85 .....s Company spending on R&D ......................................92 .....s University-industry research collaboration...............104 .....s Gov’t. procurement of advanced tech products........36 .....s Availability of scientists and engineers......................21 .....s Utility patents* ..........................................................80 .....s Intellectual property protection..................................73 .....s Capacity for innovation ............................................123 .....s

* Hard data Note: For descriptions of variables and detailed sources, please refer to “How to Read Country Profiles.”

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

4: Country Profiles

151

4: Country Profiles

Algeria
Stability Sets Basis for Transition to Efficiency-Driven Economy
SOFIANE KHATIB, World Economic Forum

In an environment characterized by weak institutions, Algeria sets the basis for opening and diversifying the economy. Challenges in the financial sector, higher education, and technological readiness remain.

A
152

lgeria is enjoying a period of peace, stability, and growth after a decade of political violence and economic stagnation. The military has gradually abandoned its traditional role of power broker, strengthening civilian rule over the country. The President, Abdelaziz Bouteflika, appears to be solidly in charge of public affairs. The government has launched a program of economic development entailing massive investment in infrastructure and a gradual opening of the economy. High oil and gas prices and increased gas output have provided the means: US$60 billion is committed for infrastructure and housing over the next five years, the flagship project being an east–west highway linking the Moroccan and Tunisian borders. This investment is needed, as the current infrastructure environment is a major roadblock to growth (rank 80/128). The government is also gradually liberalizing key economic sectors, such as utilities and infrastructure, so foreign firms have an increasingly active role. But oil and gas industries remain in the hands of the government, and the giant state-owned Sonatrach—one of the world’s largest energy companies—still controls a majority stake in the sector.

Algeria has one of the most stable macroeconomic environments in the world. The economy has benefited from sustained high gas and oil prices and increased gas output, as the hydrocarbon sector accounts for roughly 60% of budget revenues and 95% of export earnings. GDP growth rate is expected to rise from an estimated 5.5% in 2006 to around 6.7% in 2007–08; both trade and current account balances achieved this year record surpluses; and the Algerian Central Bank is building up record foreign exchange reserves. Inflation in 2006, despite a strongly expansionary fiscal policy, was still under control at 3.5%. The government is also leveraging the hydrocarbon revenues bonanza to reduce the external debt burden substantially. A relatively weak institutional framework (rank 65/128), corruption problems, and a heavy bureaucracy slow down government efforts to diversify the economy and to implement its investment program. Indeed, current revenues are well in excess of the economy absorptive capacity, and it seems unlikely that the government will be able to disburse all expected investments. Extremely weak financial intermediation (financial market sophistication rank is 125/128) hampers the development of the private sector. The government is slowly attempting to strengthen the financial sector by providing more transparent regulation and privatizing some of the state-owned commercial banks. There is a relatively high primary education enrollment rate (rank 35/128), but higher education and training systems need to improve (rank 86/128). The high secondary school drop-out rate fuels youth

unemployment, affecting one-third of those aged 16–19. Algeria needs to advance in several areas to prepare for transitioning to an innovation-driven economy in the future. Business sophistication ranks low because of a shortage of management know-how, inefficient production processes, and inadequate corporate governance structures. The low-ranking technological readiness reflects the difficulties of quickly absorbing new technologies and processes to improve competitiveness. Although some structures for innovation are in place, it is not yet enough for innovation to be an efficient contributor to economic growth.

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Algeria
GDP (PPP US$) per capita, 1980–2005
8,000

Algeria MENA

7,000 6,000 5,000 4,000 3,000 2,000

Source: IMF; World Bank

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

Foreign direct investment (FDI)
6,000 6

FDI inflows (percent of GDP)

3,000 2,000 1,000 0 2000 2005 2010

Projected

4,000

4 3 2 1 0

Source: UNCTAD; Columbia University; IMF

Percent of GDP

US$ millions

s FDI inflows (US$ millions)

5,000

5

Trade
Exports by country of destination
Share of total volume, 2005 (percent)

Exports by sector
Share of total volume, 2005 (percent)

France: 15% United States: 36% Canada: 11% Petroleum, petroleum products: 52%

Gas, natural and manufactured: 46%

Brazil: 10% Others: 20% Belgium: 7%

Others: 2%

Total value of exports (US$ millions): 29,998

Trade diversification
Number of exported product groups out of 261

Tariffs
Percent 15 12

2001..................................................................................2.6 2005..................................................................................2.5

s MENA countries s World

9 6 3 0

Average faced tariff
Source: International Trade Centre; UN Comtrade Note: For descriptions of variables and detailed sources, please refer to “How to Read the Country Profiles.”

Average applied tariff

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

4: Country Profiles

153

4: Country Profiles

Bahrain
Key indicators
Total population (millions), 2006......................................................................0.74 GDP (US$ billions), 2006 ......................................................................................16 GDP (PPP US$) per capita, 2006 .................................................................22,706 as share of world total (percent).................................................................0.03 Current account balance (percent of GDP), 2006........................................20.6 Human Development Indicator rank (out of 177 economies), 2004.............39
Source: UNFPA, IMF, UNDP

Competitiveness rankings
Rank within country group 3* (out of 40) Overall rank (out of 128) Score (1–7)

Stage of development 1
Factor driven Transition 1–2

Global Competitiveness Index 2007...............39..........50 ......4.3
GCR 2005–06 (out of 117 economies)......................................50 .......4.2 Basic requirements ...................................................32 ...........36 .......5.2 1st pillar: Institutions..................................................34 ...........44 .......4.4 2nd pillar: Infrastructure ...........................................35 ...........40 .......4.3 3rd pillar: Macroeconomy...........................................7 ...........13 .......5.5 4th pillar: Health and primary education................27 ...........30 .......6.7

2
Efficiency driven

Transition 2–3

3
Innovation driven

Institutions
7

Innovation

6 5 4

Infrastructure

154

Efficiency enhancers.................................................39 ...........49 .......4.1 5th pillar: Higher education and training................39 ...........65 .......4.0 6th pillar: Market efficiency......................................31 ...........40 .......4.5 7th pillar: Technological readiness .........................37 ...........43 .......4.0 Innovation factors ......................................................40 ...........78 .......3.5 8th pillar: Business sophistication .........................37 ...........55 .......4.2 9th pillar: Innovation ..................................................40 .........104 .......2.7

3

Business sophistication

2 1

Macroeconomy

Technological readiness

Health and primary education Higher education and training

Market efficiency

Gender Gap Index 2006 (out of 115 economies)
* Country group includes the countries in the same stage of development as well as those transitioning toward it.

102
Bahrain Economies in transition from 2 to 3

The most problematic factors for doing business
Restrictive labor regulations .......................................20.4 Poor work ethic in national labor force ....................20.2 Inadequately educated workforce.............................19.0 Inefficient government bureaucracy.........................13.5 Policy instability...............................................................7.9 Inadequate supply of infrastructure ............................7.1 Access to financing ........................................................6.5 Corruption.........................................................................4.2 Inflation .............................................................................0.6 Crime and theft ................................................................0.4 Tax regulations ................................................................0.2 Government instability/coups .......................................0.2 Tax rates ...........................................................................0.0 Foreign currency regulations........................................0.0 0 5 10 15 Percent of responses
Note: From a list of 14 factors, respondents were asked to select the five most problematic for doing business in their country/economy and to rank them between 1 (most problematic) and 5. The bars in the figure show the responses weighted according to their rankings.

20

25

30

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Bahrain
The Global Competitiveness Index in detail
s Competitve Advantage s Competitve Disadvantage INDICATOR RANK/128 INDICATOR RANK/128

1st pillar: Institutions
1.01 1.02 1.03 1.04 1.05 1.06 1.07 1.08 1.09 1.10 1.11 1.12 1.13 1.14 1.15 Property rights ...........................................................48 .....s Diversion of public funds ...........................................47 .....s Public trust of politicians ...........................................48 .....s Judicial independence ...............................................76 .....s Favoritism in decisions of government officials ........56 .....s Government spending ...............................................31 .....s Burden of government regulation .............................32 .....s Business costs of terrorism ....................................102 .....s Reliability of police services ......................................56 .....s Business costs of crime and violence .......................50 .....s Organized crime ........................................................21 .....s Ethical behavior of firms ............................................42 .....s Efficacy of corporate boards......................................74 .....s Protection of minority shareholders’ interests ..........40 .....s Strength of auditing and accounting standards .........28 .....s 6.01 6.02 6.03 6.04 6.05 6.06 6.07 6.08 6.09 6.10 6.11 6.12 6.13 6.14 6.15 6.16 6.17 6.18 6.19 6.20 6.21 6.22 6.23

6th pillar: Market efficiency
Agricultural policy costs.............................................21 .....s Efficiency of legal framework ....................................73 .....s Extent and effect of taxation .......................................1 .....s No. of procedures required to start a business* ......n/a Time required to start a business* ...........................n/a Intensity of local competition ....................................54 .....s Effectiveness of antitrust policy ................................70 .....s Imports* ....................................................................26 .....s Prevalence of trade barriers ......................................16 .....s Prevalence of foreign ownership...............................69 .....s Exports*.......................................................................7 .....s Hiring and firing practices ........................................107 .....s Flexibility of wage determination ..............................29 .....s Cooperation in labor-employer relations ....................89 .....s Reliance on professional management .....................63 .....s Pay and productivity ..................................................75 .....s Brain drain..................................................................24 .....s Private-sector employment of women ....................100 .....s Financial market sophistication..................................30 .....s Ease of access to loans.............................................47 .....s Venture capital availability..........................................56 .....s Soundness of banks ..................................................28 .....s Local equity market access .......................................25 .....s

2nd pillar: Infrastructure
2.01 2.02 2.03 2.04 2.05 2.06 Overall infrastructure quality......................................32 .....s Railroad infrastructure ...............................................93 .....s Quality of port infrastructure .....................................26 .....s Air transport infrastructure quality .............................37 .....s Quality of electricity supply .......................................42 .....s Telephone lines*........................................................46 .....s

3rd pillar: Macroeconomy
3.01 3.02 3.03 3.04 3.05 3.06 Government balance* ...............................................10 .....s National savings rate* ...............................................25 .....s Inflation* ....................................................................39 .....s Interest rate spread* .................................................80 .....s Government debt*....................................................n/a Real effective exchange rate* ...................................25 .....s

7th pillar: Technological readiness
7.01 7.02 7.03 7.04 7.05 7.06 7.07 Technological readiness.............................................39 .....s Firm-level technology absorption...............................53 .....s Laws relating to ICT ..................................................51 .....s FDI and technology transfer ......................................69 .....s Mobile telephone subscribers* .................................12 .....s Internet users* ..........................................................47 .....s Personal computers*.................................................41 .....s

4th pillar: Health and primary education
4.01 4.02 4.03 4.04 4.05 4.06 4.07 4.08 4.09 Business impact of malaria .........................................7 .....s Business impact of tuberculosis ...............................33 .....s Business impact of HIV/AIDS ....................................29 .....s Infant mortality* ........................................................41 .....s Life expectancy* .......................................................45 .....s Tuberculosis prevalence* ..........................................53 .....s Malaria prevalence*.....................................................1 .....s HIV prevalence* ........................................................52 .....s Primary enrollment* ..................................................33 .....s 8.01 8.02 8.03 8.04 8.05 8.06 8.07 8.08

8th pillar: Business sophistication
Local supplier quantity...............................................39 .....s Local supplier quality .................................................57 .....s Production process sophistication.............................48 .....s Extent of marketing ...................................................65 .....s Control of international distribution ...........................47 .....s Willingness to delegate authority ..............................68 .....s Nature of competitive advantage ..............................69 .....s Value chain presence.................................................77 .....s

5th pillar: Higher education and training
5.01 5.02 5.03 5.04 5.05 5.06 5.07 Secondary enrollment*..............................................27 .....s Tertiary enrollment*...................................................56 .....s Quality of the educational system.............................80 .....s Quality of math and science education .....................89 .....s Quality of management schools................................78 .....s Local availability of research and training services....97 .....s Extent of staff training ...............................................60 .....s

9th pillar: Innovation
9.01 9.02 9.03 9.04 9.05 9.06 9.07 9.08 Quality of scientific research institutions ................120 .....s Company spending on R&D ....................................119 .....s University-industry research collaboration...............124 .....s Gov’t. procurement of advanced tech products........60 .....s Availability of scientists and engineers......................99 .....s Utility patents* ..........................................................80 .....s Intellectual property protection..................................47 .....s Capacity for innovation ............................................122 .....s

* Hard data Note: For descriptions of variables and detailed sources, please refer to “How to Read Country Profiles.”

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

4: Country Profiles

155

4: Country Profiles

Bahrain
Beyond the Oil Boom: Challenges in Education and Innovation
SULAF ZAKHARIA, Economic Development Board, Bahrain

Diversification away from oil remains the priority for the Bahraini government, but in order to sustain the current wealth beyond the oil reserves and become a truly innovation-driven economy, the country will have to make more efforts to improve education and enhance innovation.

156

H

igh oil prices, along with strong regional and global economic growth, have significantly strengthened Bahrain’s economic position, resulting in real GDP growth of 7.3% in 2005. Government revenue, which remains heavily dependent on oil, increased by 21% in 2006. This in turn has led to increased public expenditure, particularly in infrastructure and housing. The financial and real estate sectors are also benefiting from the oil boom, with the increased liquidity fueling a real estate boom. Despite record oil prices, Bahrain’s economic reform program remains focused on diversifying away from oil, privatizing, and stimulating domestic and foreign investment by transforming the government’s role from that of operator to that of regulator, removing barriers to market entry, and cutting red tape. The effects of high oil prices and the various reform packages currently being implemented are evident in Bahrain’s most recent GCI rankings. Bahrain’s macroeconomic rank is 13 out of 128 countries; its infrastructure and institutions rank 40th and 44th respectively. Bahrain’s markets are efficient (40th) and its

technological readiness is relatively high (43st). However, Bahrain confronts significant challenges. This is particularly true as it transitions to an innovation-driven economy where the sustainability of its economic growth and its competitiveness will depend on its ability to develop and commercialize innovation and to upgrade business practices. This ability depends on two interrelated factors: Bahrain’s capacity to innovate and the strength of its educational system. These are the two factors on which Bahrain ranks poorly. In innovation, Bahrain needs to upgrade its capacity in universityindustry research collaboration (where it now ranks 124th), its capacity for innovation (122nd), the quality of its research institutions (120th), and company spending on research and development (119th). In order to meet these challenges, Bahrain must have an adequate educational system. Bahrain’s secondary enrollment levels are relatively high (27/128), but graduates currently fail to meet the needs of the business community, which has consistently cited an inadequately educated workforce and poor work ethic in the national labor force as two of the most problematic factors for doing business in the country. To address workforce education, a comprehensive educational reform program is underway geared toward upgrading primary, secondary, and tertiary education. This program includes upgrading curricula and creating new institutions to ensure that training meets labor market needs and is of a standard high enough to create the capacity to innovate within the economy. Other

key components of the program include a quality assurance regulator and extensive teacher training. Labor market reform has significantly reduced market restrictions in an effort to ensure that adequately trained and experienced labor—both Bahraini and foreign—is available to meet labor market demand. Despite considerable challenges, Bahrain is clearly making significant efforts to build its capabilities to move to the innovation-driven stage of its development and improve its competitiveness.

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Bahrain
GDP (PPP US$) per capita, 1980–2005
25,000

Bahrain MENA

20,000 15,000 10,000 5,000 0 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004

Source: IMF; World Bank

Foreign direct investment (FDI)
1,600

1,200 1,000 800 600 400 200 0 Projected

FDI inflows (percent of GDP)

Source: UNCTAD; Columbia University; IMF

2000

2005

2010

Percent of GDP

US$ millions

s FDI inflows (US$ millions)

1,400

9 8 7 6 5 4 3 2 1 0

Trade
Exports by country of destination
Share of total volume, 2005 (percent)

Exports by sector
Share of total volume, 2005 (percent)

Non-ferrous metals: 11% Saudi Arabia: 5% United States: 2% Korea: 1% India: 1% United Arab Emirates: 1% Petroleum, petroleum products: 80% Metalliferous ores and metal scrap: 2% Others: 7%

Others: 93%

Total value of exports (US$ millions): 9,733

Trade diversification
Number of exported product groups out of 261

Tariffs
Percent 10 8

2001..................................................................................4.5 2005..................................................................................4.1

s MENA countries s World

6 4 2 0

Average faced tariff
Source: International Trade Centre; UN Comtrade Note: For descriptions of variables and detailed sources, please refer to “How to Read the Country Profiles.”

Average applied tariff

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

4: Country Profiles

157

4: Country Profiles

Egypt
Key indicators
Total population (millions), 2006......................................................................75.4 GDP (US$ billions), 2006 ....................................................................................103 GDP (PPP US$) per capita, 2006 ...................................................................4,535 as share of world total (percent).................................................................0.50 Current account balance (percent of GDP), 2006.............................................2 Human Development Indicator rank (out of 177 economies), 2004...........111
Source: UNFPA, IMF, UNDP

Competitiveness rankings
Rank within country group 1* (out of 48) Overall rank (out of 128) Score (1–7)

Stage of development 1
Factor driven Transition 1–2

Global Competitiveness Index 2007.................4..........65 ......4.1
GCR 2005–06 (out of 117 economies)......................................52 .......4.1 Basic requirements .....................................................4 ...........64 .......4.6 1st pillar: Institutions....................................................2 ...........50 .......4.2 2nd pillar: Infrastructure .............................................1 ...........56 .......3.7 3rd pillar: Macroeconomy.........................................35 .........111 .......3.7 4th pillar: Health and primary education..................3 ...........51 .......6.5

2
Efficiency driven

Transition 2–3

3
Innovation driven

Institutions
7

Innovation

6 5 4

Infrastructure

158

Efficiency enhancers...................................................6 ...........75 .......3.6 5th pillar: Higher education and training..................7 ...........77 .......3.7 6th pillar: Market efficiency........................................6 ...........66 .......4.1 7th pillar: Technological readiness ...........................8 ...........80 .......3.0 Innovation factors ........................................................7 ...........65 .......3.6 8th pillar: Business sophistication.............................3 ...........57 .......4.2 9th pillar: Innovation ..................................................19 ...........83 .......3.0

3

Business sophistication

2 1

Macroeconomy

Technological readiness

Health and primary education Higher education and training

Market efficiency

Gender Gap Index 2006 (out of 115 economies)
* Country group includes the countries in the same stage of development as well as those transitioning toward it.

109
Egypt Factor-driven economies

The most problematic factors for doing business
Access to financing ......................................................22.5 Inefficient government bureaucracy.........................15.0 Inadequately educated workforce.............................11.1 Corruption.........................................................................9.6 Policy instability...............................................................8.2 Tax regulations ................................................................7.3 Inadequate supply of infrastructure ............................6.5 Inflation .............................................................................6.2 Poor work ethic in national labor force ......................4.6 Tax rates ...........................................................................3.4 Restrictive labor regulations .........................................2.7 Foreign currency regulations........................................1.5 Government instability/coups .......................................1.4 Crime and theft ................................................................0.0 0 5 10 15 Percent of responses
Note: From a list of 14 factors, respondents were asked to select the five most problematic for doing business in their country/economy and to rank them between 1 (most problematic) and 5. The bars in the figure show the responses weighted according to their rankings.

20

25

30

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Egypt
The Global Competitiveness Index in detail
s Competitve Advantage s Competitve Disadvantage INDICATOR RANK/128 INDICATOR RANK/128

1st pillar: Institutions
1.01 1.02 1.03 1.04 1.05 1.06 1.07 1.08 1.09 1.10 1.11 1.12 1.13 1.14 1.15 Property rights ...........................................................58 .....s Diversion of public funds ...........................................44 .....s Public trust of politicians ...........................................51 .....s Judicial independence ...............................................40 .....s Favoritism in decisions of government officials ........48 .....s Government spending ...............................................64 .....s Burden of government regulation .............................74 .....s Business costs of terrorism ....................................105 .....s Reliability of police services ......................................47 .....s Business costs of crime and violence .......................51 .....s Organized crime ........................................................30 .....s Ethical behavior of firms ............................................50 .....s Efficacy of corporate boards......................................80 .....s Protection of minority shareholders’ interests ..........61 .....s Strength of auditing and accounting standards .........72 .....s 6.01 6.02 6.03 6.04 6.05 6.06 6.07 6.08 6.09 6.10 6.11 6.12 6.13 6.14 6.15 6.16 6.17 6.18 6.19 6.20 6.21 6.22 6.23

6th pillar: Market efficiency
Agricultural policy costs.............................................92 .....s Efficiency of legal framework ....................................55 .....s Extent and effect of taxation .....................................37 .....s No. of procedures required to start a business*.......63 .....s Time required to start a business* ............................27 .....s Intensity of local competition ....................................68 .....s Effectiveness of antitrust policy ................................74 .....s Imports* ....................................................................87 .....s Prevalence of trade barriers ....................................107 .....s Prevalence of foreign ownership...............................86 .....s Exports*.....................................................................84 .....s Hiring and firing practices ........................................100 .....s Flexibility of wage determination ................................7 .....s Cooperation in labor-employer relations ....................78 .....s Reliance on professional management .....................89 .....s Pay and productivity ..................................................31 .....s Brain drain................................................................113 .....s Private-sector employment of women ......................38 .....s Financial market sophistication..................................77 .....s Ease of access to loans.............................................82 .....s Venture capital availability..........................................89 .....s Soundness of banks ..................................................95 .....s Local equity market access .......................................55 .....s

2nd pillar: Infrastructure
2.01 2.02 2.03 2.04 2.05 2.06 Overall infrastructure quality......................................57 .....s Railroad infrastructure ...............................................47 .....s Quality of port infrastructure .....................................62 .....s Air transport infrastructure quality .............................57 .....s Quality of electricity supply .......................................54 .....s Telephone lines*........................................................73 .....s

3rd pillar: Macroeconomy
3.01 3.02 3.03 3.04 3.05 3.06 Government balance* .............................................127 .....s National savings rate* ...............................................69 .....s Inflation* ..................................................................112 .....s Interest rate spread* .................................................67 .....s Government debt* ..................................................104 .....s Real effective exchange rate* .....................................5 .....s

7th pillar: Technological readiness
7.01 7.02 7.03 7.04 7.05 7.06 7.07 Technological readiness.............................................67 .....s Firm-level technology absorption...............................60 .....s Laws relating to ICT ..................................................81 .....s FDI and technology transfer ......................................51 .....s Mobile telephone subscribers* .................................94 .....s Internet users* ..........................................................85 .....s Personal computers*.................................................87 .....s

4th pillar: Health and primary education
4.01 4.02 4.03 4.04 4.05 4.06 4.07 4.08 4.09 Business impact of malaria .......................................59 .....s Business impact of tuberculosis ...............................58 .....s Business impact of HIV/AIDS ....................................53 .....s Infant mortality* ........................................................78 .....s Life expectancy* .......................................................82 .....s Tuberculosis prevalence* ..........................................45 .....s Malaria prevalence*.....................................................1 .....s HIV prevalence* ..........................................................1 .....s Primary enrollment* ..................................................41 .....s 8.01 8.02 8.03 8.04 8.05 8.06 8.07 8.08

8th pillar: Business sophistication
Local supplier quantity...............................................35 .....s Local supplier quality .................................................56 .....s Production process sophistication.............................74 .....s Extent of marketing ...................................................90 .....s Control of international distribution ...........................31 .....s Willingness to delegate authority ..............................89 .....s Nature of competitive advantage ..............................62 .....s Value chain presence.................................................44 .....s

5th pillar: Higher education and training
5.01 5.02 5.03 5.04 5.05 5.06 5.07 Secondary enrollment*..............................................61 .....s Tertiary enrollment*...................................................57 .....s Quality of the educational system...........................106 .....s Quality of math and science education .....................96 .....s Quality of management schools................................89 .....s Local availability of research and training services....80 .....s Extent of staff training ...............................................84 .....s

9th pillar: Innovation
9.01 9.02 9.03 9.04 9.05 9.06 9.07 9.08 Quality of scientific research institutions ..................96 .....s Company spending on R&D ......................................99 .....s University-industry research collaboration.................95 .....s Gov’t. procurement of advanced tech products........84 .....s Availability of scientists and engineers......................40 .....s Utility patents* ..........................................................72 .....s Intellectual property protection..................................63 .....s Capacity for innovation ..............................................84 .....s

* Hard data Note: For descriptions of variables and detailed sources, please refer to “How to Read Country Profiles.”

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

4: Country Profiles

159

4: Country Profiles

Egypt
Reforms Are Likely to Increase Competitiveness
AMAL REFAAT, The Egyptian Center for Economic Studies

Recent reforms have been undertaken, but their incomplete nature results in additional challenges in the area of institutions and business sophistication. Yet judging from recently adopted measures, performance is likely to increase in the future, particularly with respect to education, macroeconomy, and the financial sector.

160

F

actors that explain Egypt’s current performance on the GCI vary, but two can be cited as primarily responsible for the current observed outcomes. First, economic reform in recent years has lacked continuity. It picked up momentum in the early and mid 1990s but then slowed (until 2004), eroding some earlier successes. Second, reforms undertaken have not always been aggressive and comprehensive enough to make a “real” difference. The slowdown of economic reform in Egypt toward the end of the 1990s has been a key factor behind its lagging performance on the macroeconomy and market efficiency pillars of competitiveness. As reform lost momentum, the economy’s stabilization indicators—especially its fiscal stance—deteriorated. The fiscal deficit as a share of GDP reached a peak of 10.5% in 2002–03 after declining to less than 1% in 1997–98. Also, between 1997–98 and 2002–03 there was a rise in inflation (from 4.2 to 7.1%) and dollarization (from 17.9 to 19.9% of total liquidity). The efficiency of goods and financial markets has also been affected by stagnating reforms in trade and finance and by the slowdown of privatization. Currently,

Egypt ranks 107 (out of 128 countries) on the prevalence of trade barriers, 95 on the soundness of banks, and 82 on ease of access to loans. Egypt’s low performance on institutions—especially the burden of compliance with government regulations—and on the sophistication of firms’ operations also reflects the inadequate nature of adopted reforms. Attempts to reduce barriers to entry to and exit from the market and to improve the tax system have been made, but it is evident that improving the regulatory environment requires more than just piecemeal reforms. The majority of firms in Egypt remain underdeveloped in their operations and strategies, and their export readiness is very limited despite many business-support programs, suggesting the need for more aggressive reforms. Although Egypt performed relatively well in educational enrollment (with a rank of 41 on primary education and 57 on higher education), the quality of education (104) and the extent of staff training (84) remain problematic. To enhance the quality of its education, Egypt embarked on an education decentralization program in 2000. However, to reap the program’s benefits more fully, the country must remove social or structural obstacles to its success by adopting a strategic communications plan capable of achieving the desired behavioral changes among the main stakeholders of reform. Egypt is expected to advance on the GCI scale thanks to the recent increase of reforms, as long as these reforms continue. A better performance on the macroeconomy is expected with the full implementation of the government’s fiscal consolidation plan, which will reduce

its budget deficit by 1% annually over five years and improve its public debt and inflation performance. The efficiency of the financial market should also improve significantly with progress on financial reforms— such as selling public shares in 10 joint-venture banks, divesting a large state-owned bank, and restructuring half of the private-sector nonperforming loans. Other promising reforms include speeding up the privatization program and significantly streamlining the tax and customs regimes.

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Egypt
GDP (PPP US$) per capita, 1980–2005
8,000

Egypt MENA

7,000 6,000 5,000 4,000 3,000 2,000 1,000

Source: IMF; World Bank

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

Foreign direct investment (FDI)
6,000 7

FDI inflows (percent of GDP)

Projected

4,000 3,000 2,000 1,000 0 2000 2005 2010

5 4 3 2 1 0

Source: UNCTAD; Columbia University; IMF

Percent of GDP

US$ millions

s FDI inflows (US$ millions)

5,000

6

Trade
Exports by country of destination
Share of total volume, 2005 (percent)

Exports by sector
Share of total volume, 2005 (percent)

Italy: 17% United States: 24% Germany: 9%

Petroleum, petroleum products: 29%

Clothing and accessories: 11% Iron and steel: 6% Vegetables and fruit: 6%

France: 7% Others: 36% United Kingdom: 7% Others: 45%

Non-metallic mineral manufactures: 4%

Total value of exports (US$ millions): 9,089

Trade diversification
Number of exported product groups out of 261

Tariffs
Percent 8

2001..................................................................................6.9 2005................................................................................19.1

s MENA countries s World

6 4 2 0

Average faced tariff
Source: International Trade Centre; UN Comtrade Note: For descriptions of variables and detailed sources, please refer to “How to Read the Country Profiles.”

Average applied tariff

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

4: Country Profiles

161

4: Country Profiles

Jordan
Key indicators
Total population (millions), 2006........................................................................5.8 GDP (US$ billions), 2006 ......................................................................................14 GDP (PPP US$) per capita, 2006 ...................................................................5,197 as share of world total (percent).................................................................0.05 Current account balance (percent of GDP), 2006 .....................................–20.7 Human Development Indicator rank (out of 177 economies), 2004.............86
Source: UNFPA, IMF, UNDP

Competitiveness rankings
Rank within country group 2* (out of 40) Overall rank (out of 128) Score (1–7)

Stage of development 1
Factor driven Transition 1–2

Global Competitiveness Index 2007...............13..........54 ......4.3
GCR 2005–06 (out of 117 economies)......................................42 .......4.4 Basic requirements ...................................................15 ...........54 .......4.7 1st pillar: Institutions....................................................6 ...........36 .......4.6 2nd pillar: Infrastructure ...........................................14 ...........53 .......3.9 3rd pillar: Macroeconomy.........................................34 .........106 .......3.8 4th pillar: Health and primary education................22 ...........64 .......6.4

2
Efficiency driven

Transition 2–3

3
Innovation driven

Institutions
7

Innovation

6 5 4

Infrastructure

162

Efficiency enhancers.................................................20 ...........61 .......3.9 5th pillar: Higher education and training................15 ...........54 .......4.2 6th pillar: Market efficiency......................................16 ...........53 .......4.3 7th pillar: Technological readiness .........................27 ...........69 .......3.3 Innovation factors ......................................................18 ...........61 .......3.6 8th pillar: Business sophistication...........................21 ...........67 .......4.0 9th pillar: Innovation ..................................................17 ...........64 .......3.3

3

Business sophistication

2 1

Macroeconomy

Technological readiness

Health and primary education Higher education and training

Market efficiency

Gender Gap Index 2006 (out of 115 economies)
* Country group includes the countries in the same stage of development as well as those transitioning toward it.

93
Jordan Economies in transition from 1 to 2

The most problematic factors for doing business
Tax regulations ..............................................................15.2 Access to financing ......................................................13.8 Inefficient government bureaucracy.........................13.7 Tax rates .........................................................................10.0 Inadequately educated workforce...............................9.5 Poor work ethic in national labor force ......................6.6 Policy instability...............................................................6.2 Corruption.........................................................................6.0 Inflation .............................................................................5.5 Inadequate supply of infrastructure ............................4.9 Restrictive labor regulations .........................................4.4 Government instability/coups .......................................2.7 Foreign currency regulations........................................1.3 Crime and theft ................................................................0.3 0 5 10 15 Percent of responses
Note: From a list of 14 factors, respondents were asked to select the five most problematic for doing business in their country/economy and to rank them between 1 (most problematic) and 5. The bars in the figure show the responses weighted according to their rankings.

20

25

30

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Jordan
The Global Competitiveness Index in detail
s Competitve Advantage s Competitve Disadvantage INDICATOR RANK/128 INDICATOR RANK/128

1st pillar: Institutions
1.01 1.02 1.03 1.04 1.05 1.06 1.07 1.08 1.09 1.10 1.11 1.12 1.13 1.14 1.15 Property rights ...........................................................47 .....s Diversion of public funds ...........................................32 .....s Public trust of politicians ...........................................32 .....s Judicial independence ...............................................38 .....s Favoritism in decisions of government officials ........46 .....s Government spending ...............................................37 .....s Burden of government regulation .............................24 .....s Business costs of terrorism ......................................99 .....s Reliability of police services ......................................11 .....s Business costs of crime and violence .......................11 .....s Organized crime ..........................................................6 .....s Ethical behavior of firms ............................................44 .....s Efficacy of corporate boards......................................72 .....s Protection of minority shareholders’ interests ..........44 .....s Strength of auditing and accounting standards .........48 .....s 6.01 6.02 6.03 6.04 6.05 6.06 6.07 6.08 6.09 6.10 6.11 6.12 6.13 6.14 6.15 6.16 6.17 6.18 6.19 6.20 6.21 6.22 6.23

6th pillar: Market efficiency
Agricultural policy costs.............................................60 .....s Efficiency of legal framework ....................................37 .....s Extent and effect of taxation .....................................51 .....s No. of procedures required to start a business*.......82 .....s Time required to start a business* ............................24 .....s Intensity of local competition ....................................41 .....s Effectiveness of antitrust policy ................................41 .....s Imports* ....................................................................20 .....s Prevalence of trade barriers ......................................47 .....s Prevalence of foreign ownership...............................20 .....s Exports*.....................................................................38 .....s Hiring and firing practices ..........................................92 .....s Flexibility of wage determination ..............................25 .....s Cooperation in labor-employer relations ....................57 .....s Reliance on professional management .....................92 .....s Pay and productivity ..................................................64 .....s Brain drain..................................................................90 .....s Private-sector employment of women ......................96 .....s Financial market sophistication..................................63 .....s Ease of access to loans.............................................62 .....s Venture capital availability..........................................71 .....s Soundness of banks ..................................................64 .....s Local equity market access .......................................35 .....s

2nd pillar: Infrastructure
2.01 2.02 2.03 2.04 2.05 2.06 Overall infrastructure quality......................................40 .....s Railroad infrastructure ...............................................76 .....s Quality of port infrastructure .....................................50 .....s Air transport infrastructure quality .............................49 .....s Quality of electricity supply .......................................35 .....s Telephone lines*........................................................81 .....s

3rd pillar: Macroeconomy
3.01 3.02 3.03 3.04 3.05 3.06 Government balance* .............................................112 .....s National savings rate* .............................................124 .....s Inflation* ....................................................................56 .....s Interest rate spread* .................................................53 .....s Government debt* ....................................................93 .....s Real effective exchange rate* ...................................40 .....s

7th pillar: Technological readiness
7.01 7.02 7.03 7.04 7.05 7.06 7.07 Technological readiness.............................................45 .....s Firm-level technology absorption...............................56 .....s Laws relating to ICT ..................................................64 .....s FDI and technology transfer ......................................64 .....s Mobile telephone subscribers* .................................84 .....s Internet users* ..........................................................67 .....s Personal computers*.................................................70 .....s

4th pillar: Health and primary education
4.01 4.02 4.03 4.04 4.05 4.06 4.07 4.08 4.09 Business impact of malaria .......................................32 .....s Business impact of tuberculosis ...............................31 .....s Business impact of HIV/AIDS ....................................23 .....s Infant mortality* ........................................................72 .....s Life expectancy* .......................................................69 .....s Tuberculosis prevalence* ............................................8 .....s Malaria prevalence*.....................................................1 .....s HIV prevalence* ..........................................................1 .....s Primary enrollment* ..................................................70 .....s 8.01 8.02 8.03 8.04 8.05 8.06 8.07 8.08

8th pillar: Business sophistication
Local supplier quantity...............................................60 .....s Local supplier quality .................................................68 .....s Production process sophistication.............................66 .....s Extent of marketing ...................................................82 .....s Control of international distribution ...........................46 .....s Willingness to delegate authority ..............................78 .....s Nature of competitive advantage ..............................70 .....s Value chain presence.................................................55 .....s

5th pillar: Higher education and training
5.01 5.02 5.03 5.04 5.05 5.06 5.07 Secondary enrollment*..............................................60 .....s Tertiary enrollment*...................................................47 .....s Quality of the educational system.............................45 .....s Quality of math and science education .....................56 .....s Quality of management schools................................77 .....s Local availability of research and training services....63 .....s Extent of staff training ...............................................61 .....s

9th pillar: Innovation
9.01 9.02 9.03 9.04 9.05 9.06 9.07 9.08 Quality of scientific research institutions ..................74 .....s Company spending on R&D ......................................96 .....s University-industry research collaboration.................84 .....s Gov’t. procurement of advanced tech products........86 .....s Availability of scientists and engineers......................26 .....s Utility patents* ..........................................................80 .....s Intellectual property protection..................................43 .....s Capacity for innovation ..............................................75 .....s

* Hard data Note: For descriptions of variables and detailed sources, please refer to “How to Read Country Profiles.”

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

4: Country Profiles

163

4: Country Profiles

Jordan
Moving Toward the Knowledge Economy
AMJAD ATTAR, Ministry of Planning and International Cooperation, Jordan

Jordan started reforms to improve competitiveness by liberalizing the economy and improving the business environment in the country. Their aim is to improve macroeconomic performance, create jobs, and develop sectors in the knowledge economy.

U
164

nder the call for a National Agenda, an initiative to outline an action plan for complete quality and quantity reform for the Jordanian economy and the welfare of its citizens for the next 10 years was issued by a Royal Decree in 2005. The National Agenda steering committee, involving government and private-sector representatives, included—for the first time in the region—a clear mechanism to measure implementation of the initiatives and to assess impact of the reforms. The defined targets for each initiative have to be met over the initiative’s term with priorities reflected in the budget, supported by performance indicators to measure success. With its chief objectives of improving the quality of life of its citizens through income-generating opportunities, improving living standards, and guaranteeing social welfare, the committee defined three significant tracks. The first concerns creating a favorable investment environment and labor policy by reforming governmental policy, stimulating economic development, and improving social welfare and security. The second focuses on the basic rights and freedoms; the last focuses on services, infrastructure, and economic sectors including a safe

affordable transportation network, and universal access to ICT and adequate health-care services. Implementation starts with prioritizing key economic sectors to enhance their competitiveness and appeal to investors. Three phases are projected: Phase I (2007–12): eliminate structural unemployment and reshape the skills of the labor force, significantly enriching labor-intensive industries; progressively raise the knowledge of Jordanians by reforming basic and higher educational systems. Phase II (2013–17): progressively promote more capital-intensive industries and induce the newly educated workforce into value-added jobs. This tilts the country toward productivity growth over the addition of labor, fueling socioeconomic development. Political life is expected to develop by incorporating legislation regulating political development. Phase III (2018 onward): now a world-class competitor in the knowledge economy, focus on evolving selected economic sectors in that economy. Although qualitative goals were clearly set, quantitative objectives for the coming decade were not compromised—for example, achieving an annual real GDP growth rate of 7.2%, converting the public deficit of GDP into a surplus of 1.8%, increasing national savings up to 27% of GDP, and reducing unemployment by creating nearly 600,000 new jobs. Jordan has leaped toward economic competition and trade liberalization. Today the country is considered to be at the forefront of the Middle Eastern liberal economies by overcoming dilemmas of natural

and economic resource scarcity with strong economic ties, signing free trade and association agreements with the United States and the European Union. Jordan also started reinforcing competitiveness and liberalization legislation to establish a healthy business environment. In the context of enhancing its economic competitiveness, Jordan plans to establish an institutionalized body—the Competitiveness Observatory—to monitor and assess its competitiveness status. This will use a set of indicators for each key sector, enabling macro- and microeconomic performance assessment and providing policymakers and businessmen with an accurate essential database that can act as a centralized early-warning system, guiding the Jordanian economy toward prosperity.

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Jordan
GDP (PPP US$) per capita, 1980–2005
8,000

Jordan MENA

7,000 6,000 5,000 4,000 3,000 2,000

Source: IMF; World Bank

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

Foreign direct investment (FDI)
s FDI inflows (US$ millions) FDI inflows (percent of GDP)
1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 2000 2005 2010 14 12 Projected 10 8 6 4 2 0

Source: UNCTAD; Columbia University; IMF

Percent of GDP

US$ millions

Trade
Exports by country of destination
Share of total volume, 2005 (percent)

Exports by sector
Share of total volume, 2005 (percent)

United States: 26%

Iraq: 17%

Clothing and accessories: 25%

Crude fertilizers and minerals: 11% Medicinal and pharmaceutical products: 7%

India: 8% Others: 46% Saudi Arabia: 6% Others: 38% Syria: 5%

Vegetables and fruit: 6% Miscellaneous manufactured articles: 5%

Total value of exports (US$ millions): 4,279

Trade diversification
Number of exported product groups out of 261

Tariffs
Percent 12 10

2001................................................................................17.6 2005................................................................................20.8

s MENA countries s World

8 6 4 2 0

Average faced tariff
Source: International Trade Centre; UN Comtrade Note: For descriptions of variables and detailed sources, please refer to “How to Read the Country Profiles.”

Average applied tariff

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

4: Country Profiles

165

4: Country Profiles

Kuwait
Key indicators
Total population (millions), 2006........................................................................2.8 GDP (US$ billions), 2006 ......................................................................................93 GDP (PPP US$) per capita, 2006 .................................................................16,593 as share of world total (percent).................................................................0.08 Current account balance (percent of GDP), 2006........................................52.5 Human Development Indicator rank (out of 177 economies), 2004.............33
Source: UNFPA, IMF, UNDP

Competitiveness rankings
Rank within country group 3* (out of 40) Overall rank (out of 128) Score (1–7)

Stage of development 1
Factor driven Transition 1–2

Global Competitiveness Index 2007...............36..........45 ......4.4
GCR 2005–06 (out of 117 economies)......................................49 .......4.2 Basic requirements ...................................................30 ...........34 .......5.3 1st pillar: Institutions..................................................32 ...........40 .......4.5 2nd pillar: Infrastructure ...........................................37 ...........46 .......4.1 3rd pillar: Macroeconomy...........................................1 .............3 .......6.1 4th pillar: Health and primary education................39 ...........77 .......6.3

2
Efficiency driven

Transition 2–3

3
Innovation driven

Institutions
7

Innovation

6 5 4

Infrastructure

166

Efficiency enhancers.................................................37 ...........46 .......4.2 5th pillar: Higher education and training................38 ...........60 .......4.1 6th pillar: Market efficiency......................................25 ...........29 .......4.8 7th pillar: Technological readiness .........................38 ...........45 .......3.7 Innovation factors ......................................................34 ...........46 .......3.9 8th pillar: Business sophistication...........................28 ...........33 .......4.7 9th pillar: Innovation ..................................................39 ...........82 .......3.0

3

Business sophistication

2 1

Macroeconomy

Technological readiness

Health and primary education Higher education and training

Market efficiency

Gender Gap Index 2006 (out of 115 economies)
* Country group includes the countries in the same stage of development as well as those transitioning toward it.

86
Kuwait Innovation-driven economies

The most problematic factors for doing business
Inefficient government bureaucracy.........................23.4 Restrictive labor regulations .......................................14.5 Inadequately educated workforce.............................11.8 Corruption.......................................................................11.3 Poor work ethic in national labor force ......................8.0 Access to financing ........................................................7.6 Inadequate supply of infrastructure ............................7.5 Policy instability...............................................................5.4 Inflation .............................................................................2.4 Foreign currency regulations........................................2.1 Tax regulations ................................................................1.8 Crime and theft ................................................................1.7 Government instability/coups .......................................1.5 Tax rates ...........................................................................1.2 0 5 10 15 Percent of responses
Note: From a list of 14 factors, respondents were asked to select the five most problematic for doing business in their country/economy and to rank them between 1 (most problematic) and 5. The bars in the figure show the responses weighted according to their rankings.

20

25

30

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Kuwait
The Global Competitiveness Index in detail
s Competitve Advantage s Competitve Disadvantage INDICATOR RANK/128 INDICATOR RANK/128

1st pillar: Institutions
1.01 1.02 1.03 1.04 1.05 1.06 1.07 1.08 1.09 1.10 1.11 1.12 1.13 1.14 1.15 Property rights ...........................................................55 .....s Diversion of public funds ...........................................28 .....s Public trust of politicians ...........................................44 .....s Judicial independence ...............................................31 .....s Favoritism in decisions of government officials ........78 .....s Government spending ...............................................55 .....s Burden of government regulation .............................73 .....s Business costs of terrorism ......................................74 .....s Reliability of police services ......................................27 .....s Business costs of crime and violence .......................22 .....s Organized crime ........................................................14 .....s Ethical behavior of firms ............................................34 .....s Efficacy of corporate boards......................................94 .....s Protection of minority shareholders’ interests ..........66 .....s Strength of auditing and accounting standards .........36 .....s 6.01 6.02 6.03 6.04 6.05 6.06 6.07 6.08 6.09 6.10 6.11 6.12 6.13 6.14 6.15 6.16 6.17 6.18 6.19 6.20 6.21 6.22 6.23

6th pillar: Market efficiency
Agricultural policy costs.............................................55 .....s Efficiency of legal framework ....................................30 .....s Extent and effect of taxation .......................................5 .....s No. of procedures required to start a business*.......99 .....s Time required to start a business* ............................67 .....s Intensity of local competition ....................................63 .....s Effectiveness of antitrust policy ................................62 .....s Imports* ....................................................................97 .....s Prevalence of trade barriers ......................................25 .....s Prevalence of foreign ownership.............................128 .....s Exports*.....................................................................24 .....s Hiring and firing practices ..........................................41 .....s Flexibility of wage determination ................................9 .....s Cooperation in labor-employer relations ....................27 .....s Reliance on professional management ...................103 .....s Pay and productivity ..................................................49 .....s Brain drain....................................................................9 .....s Private-sector employment of women ......................52 .....s Financial market sophistication..................................41 .....s Ease of access to loans.............................................15 .....s Venture capital availability..........................................27 .....s Soundness of banks ..................................................32 .....s Local equity market access .......................................18 .....s

2nd pillar: Infrastructure
2.01 2.02 2.03 2.04 2.05 2.06 Overall infrastructure quality......................................33 .....s Railroad infrastructure ...............................................80 .....s Quality of port infrastructure .....................................48 .....s Air transport infrastructure quality .............................48 .....s Quality of electricity supply .......................................19 .....s Telephone lines*........................................................62 .....s

3rd pillar: Macroeconomy
3.01 3.02 3.03 3.04 3.05 3.06 Government balance* .................................................1 .....s National savings rate* .................................................1 .....s Inflation* ....................................................................60 .....s Interest rate spread* .................................................42 .....s Government debt* ....................................................12 .....s Real effective exchange rate* ...................................43 .....s

7th pillar: Technological readiness
7.01 7.02 7.03 7.04 7.05 7.06 7.07 Technological readiness.............................................44 .....s Firm-level technology absorption...............................39 .....s Laws relating to ICT ..................................................91 .....s FDI and technology transfer ....................................121 .....s Mobile telephone subscribers* .................................32 .....s Internet users* ..........................................................43 .....s Personal computers*.................................................32 .....s

4th pillar: Health and primary education
4.01 4.02 4.03 4.04 4.05 4.06 4.07 4.08 4.09 Business impact of malaria .......................................34 .....s Business impact of tuberculosis ...............................18 .....s Business impact of HIV/AIDS ....................................20 .....s Infant mortality* ........................................................43 .....s Life expectancy* .......................................................29 .....s Tuberculosis prevalence* ..........................................39 .....s Malaria prevalence*.....................................................1 .....s HIV prevalence* ..........................................................1 .....s Primary enrollment* ..................................................96 .....s 8.01 8.02 8.03 8.04 8.05 8.06 8.07 8.08

8th pillar: Business sophistication
Local supplier quantity...............................................15 .....s Local supplier quality .................................................38 .....s Production process sophistication.............................44 .....s Extent of marketing ...................................................42 .....s Control of international distribution ...........................17 .....s Willingness to delegate authority ..............................63 .....s Nature of competitive advantage ..............................47 .....s Value chain presence.................................................66 .....s

5th pillar: Higher education and training
5.01 5.02 5.03 5.04 5.05 5.06 5.07 Secondary enrollment*..............................................52 .....s Tertiary enrollment*...................................................73 .....s Quality of the educational system.............................63 .....s Quality of math and science education .....................62 .....s Quality of management schools................................60 .....s Local availability of research and training services....54 .....s Extent of staff training ...............................................47 .....s

9th pillar: Innovation
9.01 9.02 9.03 9.04 9.05 9.06 9.07 9.08 Quality of scientific research institutions ..................57 .....s Company spending on R&D ......................................81 .....s University-industry research collaboration.................85 .....s Gov’t. procurement of advanced tech products......102 .....s Availability of scientists and engineers......................64 .....s Utility patents* ..........................................................37 .....s Intellectual property protection..................................59 .....s Capacity for innovation ............................................112 .....s

* Hard data Note: For descriptions of variables and detailed sources, please refer to “How to Read Country Profiles.”

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

4: Country Profiles

167

4: Country Profiles

Kuwait
Competitiveness and Reform in Kuwait
MOHAMMED EL-SAKKA, Kuwait University RAYADH FARAS, Kuwait University

Kuwait has implemented a number of reforms in the past year that aim at enhancing competitiveness. These include political reforms, measures to increase transparency and accountability, and a strengthening of the financial sector. A review of educational systems and innovative capacity is also under way.

168

S

ince the launch of the 2005–06 Global Competitiveness Report, when Kuwait appeared for the first time on the global competitiveness map, interest in the country’s competitiveness enhancers has been increasing. Kuwait’s score in certain areas was shocking. The National Competitiveness Report issued by the Kuwait National Competitiveness Committee (KNCC) established a fast-track list to address the most obvious weaknesses in Kuwait’s competitiveness and enhance its overall scores. Since then, the pace of reform has accelerated. On the political front, two amendments have been introduced to election laws: (1) women are allowed full participation in the political process for the first time; (2) the election districts have been reduced from 25 to 5 to reduce family and tribal effects on elections. This will surely improve the public’s trust in politicians, in which Kuwait is ranked 44 (out of 128). The press laws have also been amended to allow for the establishment of new newspapers, in an attempt to improve Kuwait’s rank in the freedom-of-the-press category, which was 67.1

Two indicators of corruption give negative signals: favoritism in decisions of government officials (79) and wastefulness of government spending (56). Fighting corruption has become a very important issue, resulting in several specific steps. The country has now signed and ratified the United Nations anticorruption agreement; a private society, Kuwait Transparency Society, has been established and appears very active; and Kuwait has signed a memorandum of understanding with the World Bank to establish an anticorruption unit. A special conference about transparency took place in Kuwait in January 2007 to raise public awareness of corruption and explore ways to improve Kuwait’s ranking in this regard. On the economic front, Kuwait has shown greater commitment for enforcing disclosure law by neutralizing the equity holdings of noncomplying shareholders, and is protecting public revenues and interests by ending contracts with private companies. Also there has been an extensive revision of the buildoperate transfer (BOT) form of financing. The parliament has refused to pass a law forgiving citizens’ consumer debts to the banking sector, and is currently refusing to raise public-sector salaries, instead planning to invest surplus public revenues. Finally, an antitrust law will soon be discussed in parliament. Kuwait’s education rankings are low. Its rank in the overall quality of the educational system is 64; in the quality of math and science education is 63, and in the quality of management schools is 61. An extensive revision of the secondary school system is now underway. To

improve the performance of teachers and attract highly skilled ones, salaries have been raised and more attention has been given to math and science education. New private university permits have been granted, releasing pressure on the sole public university and broadening the public’s choices for higher education. The government is currently reviewing the position of the Kuwait Institute for Scientific Research (KISR) and exploring ways to enhance its performance and capacity for innovation. It has reorganized the mobile telecommunications sector by approving the establishment of a third mobile telecommunications company, improving accessibility and competition in this market. Kuwait’s National Competitiveness Report 2006/2007 is now being prepared. Its principle aim is to further improve public awareness of the notion of competitiveness, its importance to Kuwait, and what it takes to enhance it.

Notes 1 This variable is obtained through the Executive Opinion Survey, but is not part of the Global Competitiveness Index. The total number of countries in the sample is 125.

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Kuwait
GDP (PPP US$) per capita, 1980–2005
20,000

Kuwait MENA

15,000 10,000 5,000 0

Source: IMF; World Bank

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

Foreign direct investment (FDI)
600

FDI inflows (percent of GDP)

300 200 100 0 2000 2005 2010

Source: UNCTAD; Columbia University; IMF

Projected

400

Percent of GDP

US$ millions

s FDI inflows (US$ millions)

500

0.45 0.40 0.35 0.30 0.25 0.20 0.15 0.10 0.05 0.00

Trade
Exports by country of destination
Share of total volume, 2005 (percent)

Exports by sector
Share of total volume, 2005 (percent)

Korea: 18% Japan: 23% United States: 14%

Gas, natural and manufactured: 5% Plastics in primary forms: 2% Others: 4%

Taiwan, China: 13% Others: 22% Singapore: 11%

Petroleum, petroleum products: 89%

Total value of exports (US$ millions): 33,505

Trade diversification
Number of exported product groups out of 261

Tariffs
Percent 10 8

2001..................................................................................1.6 2005..................................................................................2.0

s MENA countries s World

6 4 2 0

Average faced tariff
Source: International Trade Centre; UN Comtrade Note: For descriptions of variables and detailed sources, please refer to “How to Read the Country Profiles.”

Average applied tariff

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

4: Country Profiles

169

4: Country Profiles

Libya
Key indicators
Total population (millions), 2006........................................................................6.0 GDP (US$ billions), 2006 ......................................................................................49 GDP (PPP US$) per capita, 2006 .................................................................12,146 as share of world total (percent).................................................................0.11 Current account balance (percent of GDP), 2006........................................47.9 Human Development Indicator rank (out of 177 economies), 2004 ...........n/a
Source: UNFPA, IMF, UNDP

Competitiveness rankings
Rank within country group 2* (out of 40) Overall rank (out of 128) Score (1–7)

Stage of development 1
Factor driven Transition 1–2

Global Competitiveness Index 2007...............26..........73 ......4.0
GCR 2005–06 (out of 117 economies) ....................................n/a.......n/a Basic requirements .....................................................8 ...........45 .......4.9 1st pillar: Institutions..................................................24 ...........75 .......3.8 2nd pillar: Infrastructure ...........................................38 .........100 .......2.5 3rd pillar: Macroeconomy...........................................1 .............1 .......6.9 4th pillar: Health and primary education................31 ...........81 .......6.3

2
Efficiency driven

Transition 2–3

3
Innovation driven

Institutions
7

Innovation

6 5 4

Infrastructure

170

Efficiency enhancers.................................................37 ...........95 .......3.2 5th pillar: Higher education and training................28 ...........73 .......3.9 6th pillar: Market efficiency......................................39 .........121 .......3.4 7th pillar: Technological readiness .........................40 .........115 .......2.5 Innovation factors ......................................................34 ...........97 .......3.2 8th pillar: Business sophistication...........................32 ...........88 .......3.6 9th pillar: Innovation ..................................................35 ...........98 .......2.8

3

Business sophistication

2 1

Macroeconomy

Technological readiness

Health and primary education Higher education and training

Market efficiency

Gender Gap Index 2006 (out of 115 economies)
* Country group includes the countries in the same stage of development as well as those transitioning toward it.

n/a
Libya Economies in transition from 1 to 2

The most problematic factors for doing business
Inadequate supply of infrastructure ..........................13.5 Access to financing ......................................................13.4 Inefficient government bureaucracy.........................12.0 Corruption.......................................................................11.2 Policy instability.............................................................10.5 Restrictive labor regulations .........................................8.8 Inadequately educated workforce...............................8.8 Foreign currency regulations........................................7.7 Poor work ethic in national labor force ......................5.4 Tax rates ...........................................................................4.2 Tax regulations ................................................................2.7 Government instability/coups .......................................0.9 Inflation .............................................................................0.6 Crime and theft ................................................................0.3 0 5 10 15 Percent of responses
Note: From a list of 14 factors, respondents were asked to select the five most problematic for doing business in their country/economy and to rank them between 1 (most problematic) and 5. The bars in the figure show the responses weighted according to their rankings.

20

25

30

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Libya
The Global Competitiveness Index in detail
s Competitve Advantage s Competitve Disadvantage INDICATOR RANK/128 INDICATOR RANK/128

1st pillar: Institutions
1.01 1.02 1.03 1.04 1.05 1.06 1.07 1.08 1.09 1.10 1.11 1.12 1.13 1.14 1.15 Property rights ...........................................................96 .....s Diversion of public funds ...........................................37 .....s Public trust of politicians ...........................................80 .....s Judicial independence ...............................................50 .....s Favoritism in decisions of government officials ........51 .....s Government spending ...............................................72 .....s Burden of government regulation .............................99 .....s Business costs of terrorism ......................................19 .....s Reliability of police services ......................................66 .....s Business costs of crime and violence .......................25 .....s Organized crime ........................................................10 .....s Ethical behavior of firms ............................................69 .....s Efficacy of corporate boards....................................127 .....s Protection of minority shareholders’ interests ..........76 .....s Strength of auditing and accounting standards .......116 .....s 6.01 6.02 6.03 6.04 6.05 6.06 6.07 6.08 6.09 6.10 6.11 6.12 6.13 6.14 6.15 6.16 6.17 6.18 6.19 6.20 6.21 6.22 6.23

6th pillar: Market efficiency
Agricultural policy costs...........................................106 .....s Efficiency of legal framework ....................................50 .....s Extent and effect of taxation .....................................70 .....s No. of procedures required to start a business* ......n/a Time required to start a business* ...........................n/a Intensity of local competition ..................................118 .....s Effectiveness of antitrust policy ................................77 .....s Imports* ....................................................................81 .....s Prevalence of trade barriers ......................................75 .....s Prevalence of foreign ownership.............................126 .....s Exports*.....................................................................47 .....s Hiring and firing practices ........................................126 .....s Flexibility of wage determination ..............................94 .....s Cooperation in labor-employer relations ....................47 .....s Reliance on professional management ...................122 .....s Pay and productivity ................................................122 .....s Brain drain..................................................................91 .....s Private-sector employment of women ......................56 .....s Financial market sophistication................................126 .....s Ease of access to loans.............................................92 .....s Venture capital availability..........................................82 .....s Soundness of banks ................................................122 .....s Local equity market access .....................................124 .....s

2nd pillar: Infrastructure
2.01 2.02 2.03 2.04 2.05 2.06 Overall infrastructure quality....................................109 .....s Railroad infrastructure .............................................120 .....s Quality of port infrastructure ...................................105 .....s Air transport infrastructure quality ...........................113 .....s Quality of electricity supply .......................................78 .....s Telephone lines*........................................................75 .....s

3rd pillar: Macroeconomy
3.01 3.02 3.03 3.04 3.05 3.06 Government balance* .................................................2 .....s National savings rate* .................................................3 .....s Inflation* ....................................................................34 .....s Interest rate spread* .................................................13 .....s Government debt* ......................................................2 .....s Real effective exchange rate* .....................................1 .....s

7th pillar: Technological readiness
7.01 7.02 7.03 7.04 7.05 7.06 7.07 Technological readiness.............................................89 .....s Firm-level technology absorption...............................71 .....s Laws relating to ICT ................................................127 .....s FDI and technology transfer ....................................108 .....s Mobile telephone subscribers* ...............................120 .....s Internet users* ........................................................101 .....s Personal computers*.................................................92 .....s

4th pillar: Health and primary education
4.01 4.02 4.03 4.04 4.05 4.06 4.07 4.08 4.09 Business impact of malaria .......................................74 .....s Business impact of tuberculosis ...............................83 .....s Business impact of HIV/AIDS ....................................82 .....s Infant mortality* ........................................................58 .....s Life expectancy* .......................................................54 .....s Tuberculosis prevalence* ..........................................34 .....s Malaria prevalence*...................................................62 .....s HIV prevalence* ........................................................27 .....s Primary enrollment* ..................................................89 .....s 8.01 8.02 8.03 8.04 8.05 8.06 8.07 8.08

8th pillar: Business sophistication
Local supplier quantity...............................................58 .....s Local supplier quality ...............................................100 .....s Production process sophistication...........................101 .....s Extent of marketing .................................................124 .....s Control of international distribution ...........................19 .....s Willingness to delegate authority ............................116 .....s Nature of competitive advantage ..............................94 .....s Value chain presence...............................................113 .....s

5th pillar: Higher education and training
5.01 5.02 5.03 5.04 5.05 5.06 5.07 Secondary enrollment*..............................................17 .....s Tertiary enrollment*...................................................29 .....s Quality of the educational system...........................123 .....s Quality of math and science education .....................87 .....s Quality of management schools..............................118 .....s Local availability of research and training services....98 .....s Extent of staff training .............................................109 .....s

9th pillar: Innovation
9.01 9.02 9.03 9.04 9.05 9.06 9.07 9.08 Quality of scientific research institutions ..................92 .....s Company spending on R&D ....................................118 .....s University-industry research collaboration.................97 .....s Gov’t. procurement of advanced tech products........97 .....s Availability of scientists and engineers......................72 .....s Utility patents* ..........................................................80 .....s Intellectual property protection..................................95 .....s Capacity for innovation ............................................117 .....s

* Hard data Note: For descriptions of variables and detailed sources, please refer to “How to Read Country Profiles.”

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

4: Country Profiles

171

4: Country Profiles

Libya
Fast Progress after Years of Isolation
OMRAN BUKHRES, National Economic Strategy, Libya RAJEEV SINGH-MOLARES, Monitor Group

Libya will need to continue and accelerate reform if it wants to improve competitiveness. Current priorities focus on spurring entrepreneurship and competition in the domestic economy, making education more relevant to business, and improving the performance of the banking sector.

172

C

oming out of its international isolation, Libya is taking slow but certain steps to improve its competitiveness. For a first-time entrant to the Global Competitiveness Report with a relatively recent tradition of private enterprise, its 83rd rank is a good start. But a lot more needs to be done, and done rapidly, if Libya is to live up to its promise and potential. Libya is already performing well on specific elements of the GCI. Its macroeconomic indicators are robust with prudent fiscal, monetary, and exchange rate policies, which give it the highest rank on macroeconomy. A safe law and order environment means that crime is well under control (ranked 10th on organized crime and 25th on business costs of crime and violence). Libya is weak in overall environment for business and productive enterprise, and several areas require immediate attention. To address these, Libya launched the National Economic Strategy (NES) project in 2005. This project, under the advice and guidance of the Monitor Group, is designing a series of campaigns that address the cross-cutting issues that weaken the business environment. To frame the reform process, the new Libyan Economic

Development Board (LEDB) will lead the fast-track implementation of reforms that address Libya’s core reform priorities of encouraging new business formation, human capacity development, cluster development, and foreign partnerships. To spur domestic entrepreneurship and increase local competition (ranked 119th), the LEDB is launching a major campaign to promote entrepreneurship. This will include setting up a series of business advisory centers for prospective entrepreneurs, developing an effective loans vehicle for small- and medium-sized enterprises, and undertaking an information and awards campaign to recognize successful entrepreneurs. In the area of human capacity, Libya has a long tradition of enrollment in higher education, especially in the sciences (ranked 17th and 29th in enrollment in secondary and tertiary schools). However, improving the quality of higher education (ranked 115th) and making education more relevant to the needs of the job market are a critical priority. With this aim in mind, a businessoriented leadership training program for the 250 most promising business leaders in Libya is being conducted. The program is intended to serve as a catalyst for a more broad-based outreach of business-relevant training in Libya; it is accompanied by other proposals, such as setting up an elite academy for higher education, which are intended to address the low quality of higher education. To overcome the weaknesses in workforce training (ranked 106th in on-the-job training), a national training blueprint is being prepared. But reforms are needed to make employment regulation more efficient

and flexible, so businesses can allocate staff more efficiently. Currently, Libya ranks 118th on labor market efficiency and flexibility. Libya also ranks low in overall infrastructure quality (110th) and financial market efficiency and sophistication (121st). The low level of financial market sophistication as well as overall soundness of the banking system and local equity market access remain core priorities. In order to address these, the government is seeking to attract foreign partners to lead the development of key infrastructure and financial sector projects. Recent examples include a deal signed by Libya’s government-owned Social and Economic Development Fund and Tameer Holdings of Dubai to undertake a US$20 billion investment to build a township, Wadi Al Sharqui. The entry of foreign banks has also been proposed. The full potential of new technologies remains unused— in particular, the use of personal computers, Internet, and mobile telephones remains very low (93rd, 102nd, and 121st respectively) and incoming FDI brings little technology into the country (109th).

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Libya
GDP (PPP US$) per capita, 1980–2005
12,000

Libya MENA

10,000 8,000 6,000 4,000 2,000 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004

Source: IMF; World Bank

Foreign direct investment (FDI)
s FDI inflows (US$ millions) FDI inflows (percent of GDP)
1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 2000 2005 2010 3.0

Projected

2.0 1.5 1.0 0.5 0.0

Source: UNCTAD; Columbia University; IMF

Percent of GDP

US$ millions

2.5

Trade
Exports by country of destination
Share of total volume, 2005 (percent)

Exports by sector
Share of total volume, 2005 (percent)

Germany: 20% Italy: 47% France: 8% United States: 7% Switzerland: 5% Others: 12%

Petroleum, petroleum products: 94%

Gas, natural and manufactured: 2% Organic chemicals: 2% Others: 2%

Total value of exports (US$ millions): 23,518

Trade diversification
Number of exported product groups out of 261

Tariffs
Percent 10 8

2001..................................................................................1.2 2005..................................................................................1.4

s MENA countries s World

6 4 2 0

(0) Average faced tariff Average applied tariff

Source: International Trade Centre; UN Comtrade Note: For descriptions of variables and detailed sources, please refer to “How to Read the Country Profiles.”

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

4: Country Profiles

173

4: Country Profiles

Mauritania
Key indicators
Total population (millions), 2006........................................................................3.2 GDP (US$ billions), 2006 ........................................................................................3 GDP (PPP US$) per capita, 2006 ...................................................................3,206 as share of world total (percent).................................................................0.01 Current account balance (percent of GDP), 2006 ........................................-6.9 Human Development Indicator rank (out of 177 economies), 2004...........153
Source: UNFPA, IMF, UNDP

Competitiveness rankings
Rank within country group 1* (out of 48) Overall rank (out of 128) Score (1–7)

Stage of development 1
Factor driven Transition 1–2

Global Competitiveness Index 2007...............38........118 ......3.2
GCR 2005–06 (out of 117 economies) ....................................n/a.......n/a Basic requirements ...................................................37 .........117 .......3.4 1st pillar: Institutions..................................................11 ...........72 .......3.8 2nd pillar: Infrastructure ...........................................35 .........114 .......2.1 3rd pillar: Macroeconomy.........................................43 .........123 .......2.8 4th pillar: Health and primary education................30 .........108 .......4.9

2
Efficiency driven

Transition 2–3

3
Innovation driven

Institutions
7

Innovation

6 5 4

Infrastructure

174

Efficiency enhancers.................................................33 .........113 .......2.9 5th pillar: Higher education and training................44 .........124 .......2.3 6th pillar: Market efficiency......................................29 .........103 .......3.6 7th pillar: Technological readiness .........................11 ...........85 .......2.9 Innovation factors ......................................................30 .........108 .......3.0 8th pillar: Business sophistication...........................28 .........105 .......3.4 9th pillar: Innovation ..................................................33 .........111 .......2.6

3

Business sophistication

2 1

Macroeconomy

Technological readiness

Health and primary education Higher education and training

Market efficiency

Gender Gap Index 2006 (out of 115 economies)
* Country group includes the countries in the same stage of development as well as those transitioning toward it.

106
Mauritania Factor-driven economies

The most problematic factors for doing business
Access to financing ......................................................14.3 Inadequate supply of infrastructure ..........................10.5 Inadequately educated workforce...............................9.3 Foreign currency regulations........................................8.6 Inefficient government bureaucracy...........................7.0 Corruption.........................................................................6.9 Government instability/coups .......................................6.5 Tax rates ...........................................................................6.2 Inflation .............................................................................6.1 Policy instability...............................................................5.7 Tax regulations ................................................................5.6 Poor work ethic in national labor force ......................5.2 Restrictive labor regulations .........................................4.4 Crime and theft ................................................................3.6 0 5 10 15 Percent of responses
Note: From a list of 14 factors, respondents were asked to select the five most problematic for doing business in their country/economy and to rank them between 1 (most problematic) and 5. The bars in the figure show the responses weighted according to their rankings.

20

25

30

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Mauritania
The Global Competitiveness Index in detail
s Competitve Advantage s Competitve Disadvantage INDICATOR RANK/128 INDICATOR RANK/128

1st pillar: Institutions
1.01 1.02 1.03 1.04 1.05 1.06 1.07 1.08 1.09 1.10 1.11 1.12 1.13 1.14 1.15 Property rights ...........................................................95 .....s Diversion of public funds ...........................................85 .....s Public trust of politicians ...........................................58 .....s Judicial independence ...............................................60 .....s Favoritism in decisions of government officials ........36 .....s Government spending .............................................108 .....s Burden of government regulation ...............................6 .....s Business costs of terrorism ......................................40 .....s Reliability of police services ......................................63 .....s Business costs of crime and violence .......................61 .....s Organized crime ........................................................63 .....s Ethical behavior of firms ............................................73 .....s Efficacy of corporate boards......................................92 .....s Protection of minority shareholders’ interests ..........68 .....s Strength of auditing and accounting standards .......119 .....s 6.01 6.02 6.03 6.04 6.05 6.06 6.07 6.08 6.09 6.10 6.11 6.12 6.13 6.14 6.15 6.16 6.17 6.18 6.19 6.20 6.21 6.22 6.23

6th pillar: Market efficiency
Agricultural policy costs...........................................119 .....s Efficiency of legal framework ....................................53 .....s Extent and effect of taxation .....................................14 .....s No. of procedures required to start a business*.......82 .....s Time required to start a business* ..........................110 .....s Intensity of local competition ..................................123 .....s Effectiveness of antitrust policy ................................88 .....s Imports* ....................................................................21 .....s Prevalence of trade barriers ....................................128 .....s Prevalence of foreign ownership...............................97 .....s Exports*.....................................................................88 .....s Hiring and firing practices ............................................3 .....s Flexibility of wage determination ..............................99 .....s Cooperation in labor-employer relations ....................11 .....s Reliance on professional management .....................84 .....s Pay and productivity ..................................................85 .....s Brain drain..................................................................93 .....s Private-sector employment of women ......................42 .....s Financial market sophistication................................106 .....s Ease of access to loans...........................................115 .....s Venture capital availability........................................116 .....s Soundness of banks ................................................102 .....s Local equity market access .....................................118 .....s

2nd pillar: Infrastructure
2.01 2.02 2.03 2.04 2.05 2.06 Overall infrastructure quality....................................126 .....s Railroad infrastructure ...............................................81 .....s Quality of port infrastructure ...................................101 .....s Air transport infrastructure quality ...........................121 .....s Quality of electricity supply .....................................106 .....s Telephone lines*......................................................109 .....s

3rd pillar: Macroeconomy
3.01 3.02 3.03 3.04 3.05 3.06 Government balance* .............................................122 .....s National savings rate* .............................................119 .....s Inflation* ..................................................................114 .....s Interest rate spread* ................................................n/a Government debt* ..................................................106 .....s Real effective exchange rate* ...................................46 .....s

7th pillar: Technological readiness
7.01 7.02 7.03 7.04 7.05 7.06 7.07 Technological readiness...........................................121 .....s Firm-level technology absorption...............................16 .....s Laws relating to ICT ................................................116 .....s FDI and technology transfer ........................................6 .....s Mobile telephone subscribers* .................................90 .....s Internet users* ........................................................117 .....s Personal computers*...............................................100 .....s

4th pillar: Health and primary education
4.01 4.02 4.03 4.04 4.05 4.06 4.07 4.08 4.09 Business impact of malaria .....................................110 .....s Business impact of tuberculosis .............................104 .....s Business impact of HIV/AIDS ..................................106 .....s Infant mortality* ......................................................108 .....s Life expectancy* .....................................................105 .....s Tuberculosis prevalence* ........................................112 .....s Malaria prevalence*.................................................114 .....s HIV prevalence* ........................................................82 .....s Primary enrollment* ................................................111 .....s 8.01 8.02 8.03 8.04 8.05 8.06 8.07 8.08

8th pillar: Business sophistication
Local supplier quantity.............................................114 .....s Local supplier quality ...............................................111 .....s Production process sophistication.............................81 .....s Extent of marketing .................................................110 .....s Control of international distribution ...........................98 .....s Willingness to delegate authority ..............................97 .....s Nature of competitive advantage ..............................48 .....s Value chain presence.................................................88 .....s

5th pillar: Higher education and training
5.01 5.02 5.03 5.04 5.05 5.06 5.07 Secondary enrollment*............................................119 .....s Tertiary enrollment*.................................................107 .....s Quality of the educational system...........................112 .....s Quality of math and science education .....................97 .....s Quality of management schools..............................126 .....s Local availability of research and training services..124 .....s Extent of staff training ...............................................78 .....s

9th pillar: Innovation
9.01 9.02 9.03 9.04 9.05 9.06 9.07 9.08 Quality of scientific research institutions ................128 .....s Company spending on R&D ....................................128 .....s University-industry research collaboration...............127 .....s Gov’t. procurement of advanced tech products........19 .....s Availability of scientists and engineers......................80 .....s Utility patents* ..........................................................80 .....s Intellectual property protection..................................78 .....s Capacity for innovation ..............................................77 .....s

* Hard data Note: For descriptions of variables and detailed sources, please refer to “How to Read Country Profiles.”

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

4: Country Profiles

175

4: Country Profiles

Mauritania
Mauritania: Promise and Challenge
STÉPHANE OERTEL, World Economic Forum

The recent discovery of oil fields in the country bodes well for Mauritania’s future and provides an opportune moment for introducing reforms. Current reforms focus on transparency and stabilizing the macroeconomic performance, yet challenges in education, health, and infrastructure remain formidable.

176

L

ike many other parts of subSaharan Africa, Mauritania is experiencing strong growth rates, with the start of oil production boosting real GDP growth close to 20% in 2006. Expansion of production in 2007 is expected to maintain growth above 10%. Traditionally heavily dependent on a drought- and calamity-prone agricultural sector, the discovery of oil will, at least in the short term, alleviate a number of constraints that have plagued the government— notably its chronic fiscal and current account imbalances (its macroeconomy rank is 124, based on 2005 hard data). Relations with donors have improved since the new militarytransitional government came to power. The IMF, the World Bank, and the African Development Bank have agreed to write off Mauritania’s debts as part of the multilateral debt relief initiative. The re-engagement of the donor community, a quid pro quo for the promised democratic transition, is granting Mauritania access to increased direct budgetary support and technical assistance as well as urgently needed investments in infrastructure and the services sector.

Considerable investments are also flowing into the iron ore sector. Together with multinational partners, the government plans to increase both iron ore output and processing within the country, resulting in an FDI and technology transfer rank of 6. Mauritania’s rich fishing grounds constitute the third important sector of its economy. Despite promising trends, Mauritania’s development challenges are formidable. It remains one of the poorest countries in the world, with a quarter of the population living on less than $1 and close to two-thirds on less than $2 a day.1 The results of the Global Competitiveness Index (where it has an overall rank of 119) point toward some crucial areas where Mauritania needs to make further progress in order to build a strong basis for sustained growth and enhanced competitiveness. Major investments are needed in critical bottleneck areas—including higher education and training, infrastructure, and health (ranked 125th, 115th, and 109th respectively)—that presently hinder the transition from a largely factor-driven to a more efficiencydriven economy. The transitional government has put measures into place to improve the transparency and oversight of its management of oil revenue (it ranks 86th in diversion of public funds). These are part of a larger effort to reform the country’s financial sector to enhance both its transparency and its efficiency by combating money-laundering and tightening its banking inspection regime. Clearly transparency is being taken seriously; businesses surveyed appear to have faith in the government’s institutions (institutions ranks

73rd, public trust of politicians ranks 59th; but auditing and accounting standards (117th) and securing property rights (93rd) need to be strengthened). But the sharp increase in oil revenue and the approaching end of the political transition may represent a major challenge to continuing to promote transparency and fiscal discipline. Additional fiscal pressures consist of increases in government spending, driven by oil production and the pressures of election-related expenditures, keeping inflation (ranked 111) above target levels. The only instrument currently at the central bank’s disposal for managing the surplus liquidity consists of bank reserve requirements. The central bank is therefore likely to gradually liberalize the foreign-exchange market to be better able to manage future excess liquidity (the real effective exchange rate rank is 43). From the perspective of market efficiency (ranked 104th), most business sectors remain largely government-driven. Private entrepreneurs lack access to financing (reflected in the financial markets rank of 120), adequate infrastructure, and an educated workforce from which to recruit. On the other hand, the government appears committed to introduce market-friendly mechanisms and to intensify local competition, with the expanding telecommunications sector leading the way as competing operators provide constantly improving services and coverage at increasingly affordable rates.

Notes 1 UNDP HDR 2006 data.

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Mauritania
GDP (PPP US$) per capita, 1980–2005
8,000

Mauritania MENA

6,000 4,000 2,000 0

Source: IMF; World Bank

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

Foreign direct investment (FDI)
140 7

100 80 60 40 20 0

5 4 3 2

FDI inflows (percent of GDP)

(n/a)
2000 2005 2010

1 0

Source: UNCTAD; Columbia University; IMF

Percent of GDP

US$ millions

s FDI inflows (US$ millions)

120

6

Trade
Exports by country of destination
Share of total volume, 2005 (percent)

Exports by sector
Share of total volume, 2005 (percent)

Japan: 17% Italy: 21% France: 17% Metalliferous ores and metal scrap: 46% Animal feed stuff: 3% Others: 3%

Belgium: 12% Others: 20% Germany: 12% Fish, crustaceans, molluscs: 49%

Total value of exports (US$ millions): 724

Trade diversification
Number of exported product groups out of 261

Tariffs
Percent 12 10

2001..................................................................................3.1 2005..................................................................................3.0

s MENA countries s World

8 6 4 2 0

Average faced tariff
Source: International Trade Centre; UN Comtrade Note: For descriptions of variables and detailed sources, please refer to “How to Read the Country Profiles.”

Average applied tariff

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

4: Country Profiles

177

4: Country Profiles

Morocco
Key indicators
Total population (millions), 2006......................................................................31.9 GDP (US$ billions), 2006 ......................................................................................57 GDP (PPP US$) per capita, 2006 ...................................................................4,819 as share of world total (percent).................................................................0.23 Current account balance (percent of GDP), 2006..........................................0.5 Human Development Indicator rank (out of 177 economies), 2004...........123
Source: UNFPA, IMF, UNDP

Competitiveness rankings
Rank within country group 1* (out of 48) Overall rank (out of 128) Score (1–7)

Stage of development 1
Factor driven Transition 1–2

Global Competitiveness Index 2007.................7..........72 ......4.0
GCR 2005–06 (out of 117 economies)......................................76 .......3.8 Basic requirements .....................................................6 ...........70 .......4.4 1st pillar: Institutions....................................................9 ...........68 .......3.9 2nd pillar: Infrastructure .............................................4 ...........61 .......3.6 3rd pillar: Macroeconomy.........................................18 ...........81 .......4.2 4th pillar: Health and primary education................17 ...........89 .......6.1

2
Efficiency driven

Transition 2–3

3
Innovation driven

Institutions
7

Innovation

6 5 4

Infrastructure

178

Efficiency enhancers...................................................7 ...........77 .......3.6 5th pillar: Higher education and training................14 ...........87 .......3.5 6th pillar: Market efficiency......................................11 ...........75 .......4.1 7th pillar: Technological readiness ...........................3 ...........70 .......3.3 Innovation factors ......................................................12 ...........73 .......3.5 8th pillar: Business sophistication .........................14 ...........80 .......3.8 9th pillar: Innovation ....................................................9 ...........61 .......3.3

3

Business sophistication

2 1

Macroeconomy

Technological readiness

Health and primary education Higher education and training

Market efficiency

Gender Gap Index 2006 (out of 115 economies)
* Country group includes the countries in the same stage of development as well as those transitioning toward it.

107
Morocco Factor-driven economies

The most problematic factors for doing business
Access to financing ......................................................19.6 Tax rates .........................................................................14.0 Corruption.......................................................................13.0 Tax regulations ..............................................................11.8 Inadequate supply of infrastructure ............................9.7 Inadequately educated workforce...............................6.1 Inefficient government bureaucracy...........................5.7 Poor work ethic in national labor force ......................5.2 Foreign currency regulations........................................4.4 Restrictive labor regulations .........................................3.5 Inflation .............................................................................2.3 Policy instability...............................................................1.8 Government instability/coups .......................................1.5 Crime and theft ................................................................1.4 0 5 10 15 Percent of responses
Note: From a list of 14 factors, respondents were asked to select the five most problematic for doing business in their country/economy and to rank them between 1 (most problematic) and 5. The bars in the figure show the responses weighted according to their rankings.

20

25

30

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Morocco
The Global Competitiveness Index in detail
s Competitve Advantage s Competitve Disadvantage INDICATOR RANK/128 INDICATOR RANK/128

1st pillar: Institutions
1.01 1.02 1.03 1.04 1.05 1.06 1.07 1.08 1.09 1.10 1.11 1.12 1.13 1.14 1.15 Property rights ...........................................................57 .....s Diversion of public funds ...........................................77 .....s Public trust of politicians ...........................................53 .....s Judicial independence ...............................................77 .....s Favoritism in decisions of government officials ........53 .....s Government spending ...............................................52 .....s Burden of government regulation .............................48 .....s Business costs of terrorism ......................................91 .....s Reliability of police services ......................................36 .....s Business costs of crime and violence .......................47 .....s Organized crime ........................................................49 .....s Ethical behavior of firms ............................................96 .....s Efficacy of corporate boards....................................102 .....s Protection of minority shareholders’ interests ..........64 .....s Strength of auditing and accounting standards .........88 .....s 6.01 6.02 6.03 6.04 6.05 6.06 6.07 6.08 6.09 6.10 6.11 6.12 6.13 6.14 6.15 6.16 6.17 6.18 6.19 6.20 6.21 6.22 6.23

6th pillar: Market efficiency
Agricultural policy costs.............................................98 .....s Efficiency of legal framework ....................................56 .....s Extent and effect of taxation .....................................64 .....s No. of procedures required to start a business*.......16 .....s Time required to start a business* ............................15 .....s Intensity of local competition ....................................71 .....s Effectiveness of antitrust policy ................................55 .....s Imports* ....................................................................82 .....s Prevalence of trade barriers ......................................93 .....s Prevalence of foreign ownership...............................48 .....s Exports*.....................................................................96 .....s Hiring and firing practices ..........................................49 .....s Flexibility of wage determination ..............................44 .....s Cooperation in labor-employer relations ....................84 .....s Reliance on professional management ...................108 .....s Pay and productivity ..................................................52 .....s Brain drain..................................................................79 .....s Private-sector employment of women ......................84 .....s Financial market sophistication..................................83 .....s Ease of access to loans.............................................87 .....s Venture capital availability..........................................94 .....s Soundness of banks ..................................................70 .....s Local equity market access .......................................76 .....s

2nd pillar: Infrastructure
2.01 2.02 2.03 2.04 2.05 2.06 Overall infrastructure quality......................................60 .....s Railroad infrastructure ...............................................50 .....s Quality of port infrastructure .....................................54 .....s Air transport infrastructure quality .............................66 .....s Quality of electricity supply .......................................53 .....s Telephone lines*......................................................100 .....s

3rd pillar: Macroeconomy
3.01 3.02 3.03 3.04 3.05 3.06 Government balance* .............................................116 .....s National savings rate* ...............................................29 .....s Inflation* ......................................................................8 .....s Interest rate spread* .................................................87 .....s Government debt* ....................................................85 .....s Real effective exchange rate* ...................................45 .....s

7th pillar: Technological readiness
7.01 7.02 7.03 7.04 7.05 7.06 7.07 Technological readiness.............................................72 .....s Firm-level technology absorption...............................42 .....s Laws relating to ICT ..................................................74 .....s FDI and technology transfer ......................................44 .....s Mobile telephone subscribers* .................................71 .....s Internet users* ..........................................................62 .....s Personal computers*.................................................91 .....s

4th pillar: Health and primary education
4.01 4.02 4.03 4.04 4.05 4.06 4.07 4.08 4.09 Business impact of malaria .......................................66 .....s Business impact of tuberculosis ...............................68 .....s Business impact of HIV/AIDS ....................................81 .....s Infant mortality* ........................................................91 .....s Life expectancy* .......................................................69 .....s Tuberculosis prevalence* ..........................................76 .....s Malaria prevalence*...................................................63 .....s HIV prevalence* ........................................................28 .....s Primary enrollment* ..................................................94 .....s 8.01 8.02 8.03 8.04 8.05 8.06 8.07 8.08

8th pillar: Business sophistication
Local supplier quantity...............................................66 .....s Local supplier quality .................................................80 .....s Production process sophistication.............................80 .....s Extent of marketing ...................................................74 .....s Control of international distribution ...........................77 .....s Willingness to delegate authority ..............................96 .....s Nature of competitive advantage ..............................83 .....s Value chain presence.................................................71 .....s

5th pillar: Higher education and training
5.01 5.02 5.03 5.04 5.05 5.06 5.07 Secondary enrollment*............................................103 .....s Tertiary enrollment*...................................................94 .....s Quality of the educational system.............................92 .....s Quality of math and science education .....................49 .....s Quality of management schools................................26 .....s Local availability of research and training services....59 .....s Extent of staff training ...............................................87 .....s

9th pillar: Innovation
9.01 9.02 9.03 9.04 9.05 9.06 9.07 9.08 Quality of scientific research institutions ..................83 .....s Company spending on R&D ......................................75 .....s University-industry research collaboration.................66 .....s Gov’t. procurement of advanced tech products........65 .....s Availability of scientists and engineers......................20 .....s Utility patents* ..........................................................77 .....s Intellectual property protection..................................54 .....s Capacity for innovation ..............................................93 .....s

* Hard data Note: For descriptions of variables and detailed sources, please refer to “How to Read Country Profiles.”

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

4: Country Profiles

179

4: Country Profiles

Morocco
Economic Reforms Fuel Growth
FOUZI MOURJI, Université Hassan II, Casablanca

A dynamic private sector fuels growth in Morocco, supported by a number of reforms, for example with respect to domestic competition. Nevertheless, a large public deficit and a lack of transparency remain challenges to be addressed.

M
180

orocco has improved its position in the Global Competitiveness Index from 76th to the 70th rank in the last edition of the Global Competitiveness Report. Reasons behind this improvement are reflected in its macroeconomic indicators. One of Morocco’s advantages lies in its infrastructure facilities, particularly the supply of energy, transport, and telecommunications. The liberalization policies adopted since the 1980s contribute to these positive results—in particular, the telecommunications provider was privatized and the distribution of electricity was delegated to private companies. The fairly dynamic private sector benefits from high demand resulting from demographic growth and the increase in the number of households where members are employed or entrepreneurs in either the formal or the—very efficient— informal economy. The latter contributes about 40% of employment in certain sectors, such as construction, but is also growing among small companies in the retail trade, handicraft, and restaurant business. This helps—with the quality of infrastructure, the availability of cultural heritage, and a dynamic tourism policy—to favor the development of

tourism. The demand is further maintained by remittances of Moroccan workers from abroad, which account for about 4.9% of GDP and help to strengthen household purchasing power and fuel investment. Private-sector growth is also favored by a reduced number of procedures required to start a business following the establishment of regional centers for investment (RCI) in 2002, which provide “one stop shops” to facilitate operations and administrative procedures of investors. Positive factors for business operations are the ready availability of engineers (rank 20) and the good quality of the education provided by management schools (rank 26); the stable security environment and the absence of pandemics are additional advantages. A number of large construction projects that contribute to increasing internal demand and stimulate private-sector growth are under way: the large port of Tangier, the program for expanding the highway network, the “Azur” plan for tourism development, and the program for constructing social housing. In addition, a number of reforms and liberalization measures in the areas of family law and the status of women, labor market regulation, and the introduction of an open sky policy are currently in different stages of implementation. These will all have a part to play in raising the country’s competitiveness. But business continues at low levels of sophistication (rank 79); a similar assessment is made for the stock market, which witnessed an enormous success in the second half of the 1990s, following the reform of financial markets in 1993

(modern regulation and creation of a private company to manage the stock market) and the privatization of public companies. Since then progress has been slow, because only a few companies have agreed to open up their capital base. Entrepreneurs, who often own family companies, are reluctant to delegate authority (rank 96) as well. Morocco’s competitive disadvantages remain corruption (rank 66),1 the public deficit (–5.74% of GDP), and the social inequalities and the persistence of pockets of poverty (close to 15% of the population is living below the poverty line). Illiteracy remains high (47% of the population) but is slowly improving (primary enrollment reaches 86.1%). The opening of the economy has had advantages, but the trade deficit is structural (the coverage of imports stagnates at around 50%) because of the rigidity of the productive base and the slow pace of adjustment of companies when confronted with international competition. The beneficial effects of technology transfer through FDI take time to materialize, so the economy, still highly dependent on agriculture, remains sensitive to varying weather conditions. The elasticity of GDP to the variation of agricultural production is very high even if this sector represents a smaller share of the economy (16%) than services and industry.

Notes 1 This weak score is consistent with the results of Transparency International’s Corruption Perceptions Index

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Morocco
GDP (PPP US$) per capita, 1980–2005
8,000

Morocco MENA

7,000 6,000 5,000 4,000 3,000 2,000 1,000

Source: IMF; World Bank

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

Foreign direct investment (FDI)
3,500 6

FDI inflows (percent of GDP)

2,000 1,500 1,000 500 0

Projected

2,500

4 3 2 1 0

Source: UNCTAD; Columbia University; IMF

2000

2005

2010

Percent of GDP

US$ millions

s FDI inflows (US$ millions)

3,000

5

Trade
Exports by country of destination
Share of total volume, 2005 (percent)

Exports by sector
Share of total volume, 2005 (percent)

France: 30%

Spain: 18%

Clothing and accessories: 26%

Electrical machinery, apparatus and parts: 12%

United Kingdom: 6% Italy: 5% Others: 36% India: 4% Others: 35%

Fish, crustaceans, molluscs: 9%

Vegetables and fruit: 8% Inorganic chemicals: 8%

Total value of exports (US$ millions): 10,632

Trade diversification
Number of exported product groups out of 261

Tariffs
Percent 8

2001................................................................................16.8 2005................................................................................18.1

s MENA countries s World

6 4 2 0

Average faced tariff
Source: International Trade Centre; UN Comtrade Note: For descriptions of variables and detailed sources, please refer to “How to Read the Country Profiles.”

Average applied tariff

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

4: Country Profiles

181

4: Country Profiles

Oman
Key indicators
Total population (millions), 2006........................................................................2.6 GDP (US$ billions), 2006 ......................................................................................38 GDP (PPP US$) per capita, 2006 .................................................................17,906 as share of world total (percent).................................................................0.07 Current account balance (percent of GDP), 2006........................................19.4 Human Development Indicator rank (out of 177 economies), 2004.............56
Source: UNFPA, IMF, UNDP

Competitiveness rankings
Rank within country group 2* (out of 40) Overall rank (out of 128) Score (1–7)

Stage of development 1
Factor driven Transition 1–2

Global Competitiveness Index 2007.................8..........40 ......4.5
GCR 2005–06 (out of 117 economies) ....................................n/a.......n/a Basic requirements .....................................................3 ...........31 .......5.3 1st pillar: Institutions....................................................1 ...........17 .......5.3 2nd pillar: Infrastructure .............................................7 ...........43 .......4.2 3rd pillar: Macroeconomy...........................................3 .............6 .......5.9 4th pillar: Health and primary education................36 ...........95 .......5.9

2
Efficiency driven

Transition 2–3

3
Innovation driven

Institutions
7

Innovation

6 5 4

Infrastructure

182

Efficiency enhancers.................................................10 ...........51 .......4.1 5th pillar: Higher education and training................16 ...........55 .......4.2 6th pillar: Market efficiency........................................4 ...........32 .......4.7 7th pillar: Technological readiness .........................20 ...........61 .......3.4 Innovation factors ......................................................21 ...........71 .......3.6 8th pillar: Business sophistication .........................22 ...........70 .......4.0 9th pillar: Innovation ..................................................19 ...........66 .......3.2

3

Business sophistication

2 1

Macroeconomy

Technological readiness

Health and primary education Higher education and training

Market efficiency

Gender Gap Index 2006 (out of 115 economies)
* Country group includes the countries in the same stage of development as well as those transitioning toward it.

n/a
Oman Economies in transition from 1 to 2

The most problematic factors for doing business
Inadequately educated workforce.............................22.2 Inefficient government bureaucracy.........................22.0 Poor work ethic in national labor force ....................16.2 Restrictive labor regulations .......................................14.1 Inadequate supply of infrastructure ..........................10.5 Access to financing ........................................................8.6 Tax regulations ................................................................1.7 Tax rates ...........................................................................1.4 Corruption.........................................................................1.2 Policy instability...............................................................1.0 Inflation .............................................................................0.7 Foreign currency regulations........................................0.2 Government instability/coups .......................................0.2 Crime and theft ................................................................0.2 0 5 10 15 Percent of responses
Note: From a list of 14 factors, respondents were asked to select the five most problematic for doing business in their country/economy and to rank them between 1 (most problematic) and 5. The bars in the figure show the responses weighted according to their rankings.

20

25

30

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Oman
The Global Competitiveness Index in detail
s Competitve Advantage s Competitve Disadvantage INDICATOR RANK/128

1st pillar: Institutions
1.01 1.02 1.03 1.04 1.05 1.06 1.07 1.08 1.09 1.10 1.11 1.12 1.13 1.14 1.15 Property rights ...........................................................19 .....s Diversion of public funds .............................................9 .....s Public trust of politicians ...........................................18 .....s Judicial independence ...............................................39 .....s Favoritism in decisions of government officials ........12 .....s Government spending ...............................................14 .....s Burden of government regulation .............................37 .....s Business costs of terrorism ......................................14 .....s Reliability of police services ........................................3 .....s Business costs of crime and violence .........................3 .....s Organized crime ..........................................................3 .....s Ethical behavior of firms ............................................22 .....s Efficacy of corporate boards......................................27 .....s Protection of minority shareholders’ interests ..........23 .....s Strength of auditing and accounting standards .........32 .....s

2nd pillar: Infrastructure
2.01 2.02 2.03 2.04 2.05 2.06 Overall infrastructure quality......................................22 .....s Railroad infrastructure .............................................108 .....s Quality of port infrastructure .....................................28 .....s Air transport infrastructure quality .............................41 .....s Quality of electricity supply .......................................28 .....s Telephone lines*........................................................83 .....s

INDICATOR RANK/128 2A]6th pillar: Market efficiency 6.01 Agricultural policy costs.............................................17 .....s 6.02 Efficiency of legal framework ....................................19 .....s 6.03 Extent and effect of taxation .......................................3 .....s 6.04 No. of procedures required to start a business*.......50 .....s 6.05 Time required to start a business* ............................64 .....s 6.06 Intensity of local competition ....................................88 .....s 6.07 Effectiveness of antitrust policy ................................40 .....s 6.08 Imports* ....................................................................76 .....s 6.09 Prevalence of trade barriers ......................................12 .....s 6.10 Prevalence of foreign ownership...............................37 .....s 6.11 Exports*.....................................................................25 .....s 6.12 Hiring and firing practices ..........................................89 .....s 6.13 Flexibility of wage determination ..............................52 .....s 6.14 Cooperation in labor-employer relations ....................13 .....s 6.15 Reliance on professional management .....................32 .....s 6.16 Pay and productivity ..................................................48 .....s 6.17 Brain drain....................................................................4 .....s 6.18 Private-sector employment of women ........................6 .....s 6.19 Financial market sophistication..................................40 .....s 6.20 Ease of access to loans.............................................31 .....s 6.21 Venture capital availability..........................................63 .....s 6.22 Soundness of banks ..................................................66 .....s 6.23 Local equity market access .......................................48 .....s

7th pillar: Technological readiness 3rd pillar: Macroeconomy
3.01 3.02 3.03 3.04 3.05 3.06 Government balance* .................................................7 .....s National savings rate* ...............................................36 .....s Inflation* ....................................................................19 .....s Interest rate spread* .................................................36 .....s Government debt* ....................................................10 .....s Real effective exchange rate* ...................................16 .....s 7.01 7.02 7.03 7.04 7.05 7.06 7.07 Technological readiness.............................................41 .....s Firm-level technology absorption...............................50 .....s Laws relating to ICT ..................................................79 .....s FDI and technology transfer ......................................42 .....s Mobile telephone subscribers* .................................58 .....s Internet users* ..........................................................68 .....s Personal computers*.................................................74 .....s

4th pillar: Health and primary education
4.01 4.02 4.03 4.04 4.05 4.06 4.07 4.08 4.09 Business impact of malaria .......................................48 .....s Business impact of tuberculosis ...............................44 .....s Business impact of HIV/AIDS ....................................14 .....s Infant mortality* ........................................................43 .....s Life expectancy* .......................................................45 .....s Tuberculosis prevalence* ..........................................28 .....s Malaria prevalence*...................................................61 .....s HIV prevalence* ........................................................28 .....s Primary enrollment* ................................................107 .....s 8.01 8.02 8.03 8.04 8.05 8.06 8.07 8.08

8th pillar: Business sophistication
Local supplier quantity...............................................93 .....s Local supplier quality .................................................78 .....s Production process sophistication.............................50 .....s Extent of marketing ...................................................71 .....s Control of international distribution ...........................26 .....s Willingness to delegate authority ..............................56 .....s Nature of competitive advantage ..............................80 .....s Value chain presence.................................................53 .....s

9th pillar: Innovation 5th pillar: Higher education and training
5.01 5.02 5.03 5.04 5.05 5.06 5.07 Secondary enrollment*..............................................62 .....s Tertiary enrollment*...................................................91 .....s Quality of the educational system.............................38 .....s Quality of math and science education .....................59 .....s Quality of management schools................................63 .....s Local availability of research and training services....43 .....s Extent of staff training ...............................................32 .....s 9.01 9.02 9.03 9.04 9.05 9.06 9.07 9.08 Quality of scientific research institutions ................103 .....s Company spending on R&D ......................................86 .....s University-industry research collaboration.................86 .....s Gov’t. procurement of advanced tech products........35 .....s Availability of scientists and engineers......................76 .....s Utility patents* ..........................................................55 .....s Intellectual property protection..................................23 .....s Capacity for innovation ............................................110 .....s

* Hard data Note: For descriptions of variables and detailed sources, please refer to “How to Read Country Profiles.”

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

4: Country Profiles

183

4: Country Profiles

Oman
Advancing Integration with the Global Economy
SALEM BEN NASSER AL-ISMAILY, Omani Center for Investment Promotion and Export Development

The Omani economy is transforming rapidly, and progress is being made with respect to diversification and job creation. The government should continue these reforms and enhance efforts to attract investment and an opening of the economy at the regional and global level.

184

T

he outlook for Oman for the coming years remains positive, buoyed by the continued strength of international oil prices, which are set to keep export revenue and fiscal earnings high, more than offsetting the impact of weak oil production. With an increasing degree of openness in investment, trade and commerce policies, the rapid pace of modernization and infrastructure development, and an enlarged private-sector role, Oman’s economic transformation is creating a competitive platform for all economic players. On the social front, all important indicators—such as the healthcare system, literacy rate, and women’s participation in corporate governance—indicate steady improvement. The result is a significant transformation of the society and the economy. Progress with a range of gasbased industrial projects (including a new liquefied natural gas facility) also supports the Sultanate’s prospects, marking the advancement of the country’s diversification program and creating some of the jobs urgently required by Oman’s rapidly growing labor force. The new industrial ventures seen in Sohar, Sur, and other regions

of the country contain a large portion of local and foreign private investments. More ventures are anticipated in the tourism sector in 2007. These ventures also will be funded by mostly foreign investments, a good indication of foreign investors’ confidence in the investment regime of the Sultanate of Oman. Local and foreign private-sector investment was robust during 2006. Most of the anticipated new investments would be in downstream of the gas-based industrial projects, or in infrastructure supporting the expanding tourism sector. The economic growth witnessed in Oman has been fueled not only by new infrastructure projects but also by consumption and relatively low interest rates. Consumer demand has increased local production capacity, resulting in additional investment in manufacturing and service sectors. Trade volume within the Arab world and Oman in 2007 is expected to rise as the a result of the free trade agreement among some of the Arab countries—including Oman—that has been in effect since 2005. Net exports will be substantially strengthened because new liquefied natural gas (LNG) capacities came onstream and Oman-India Fertilizer will continue full-capacity production. Conscious effort to promote investment within the region is needed. To strengthen the private sector’s role in economic development through deeper economic integration, the following are necessary: higher intra-Arab trade and legal and financial cooperation. Banks and investment houses must come together to fight financial crimes,

channel investments across the region prudently, syndicate toward development financing, and integrate trade and commerce closely. It is essential for the Sultanate of Oman to continue its efforts to diversify its economy and integrate more closely with the global economy. The government should persist in enhancing the rule of law and sound fiscal and monetary policy, adopting procedures and systems that increase ease of doing business and reduce the size of the government.

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Oman
GDP (PPP US$) per capita, 1980–2005
20,000

Oman MENA

15,000 10,000 5,000 0

Source: IMF; World Bank

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

Foreign direct investment (FDI)
800 2.5 2.0 1.5 1.0 0.5

600 500 400 300 200 100 0

FDI inflows (percent of GDP)

(n/a)
0.0 2000 2005 2010

Source: UNCTAD; Columbia University; IMF

Percent of GDP

US$ millions

s FDI inflows (US$ millions)

700

Trade
Exports by country of destination
Share of total volume, 2005 (percent)

Exports by sector
Share of total volume, 2005 (percent)

Others: 86%

United Arab Emirates: 7% Korea: 5% Spain: 2%

Petroleum, petroleum products: 66%

Gas, natural and manufactured: 20%

Special transactions and commodities: 5% Others: 9%

Total value of exports (US$ millions): 20,366

Trade diversification
Number of exported product groups out of 261

Tariffs
Percent 8

2001..................................................................................2.0 2005..................................................................................2.0

s MENA countries s World

6 4 2 0

Average faced tariff
Source: International Trade Centre; UN Comtrade Note: For descriptions of variables and detailed sources, please refer to “How to Read the Country Profiles.”

Average applied tariff

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

4: Country Profiles

185

4: Country Profiles

Qatar
Key indicators
Total population (millions), 2006......................................................................0.84 GDP (US$ billions), 2006 ......................................................................................45 GDP (PPP US$) per capita, 2006 .................................................................32,596 as share of world total (percent).................................................................0.04 Current account balance (percent of GDP), 2006........................................49.1 Human Development Indicator rank (out of 177 economies), 2004.............46
Source: UNFPA, IMF, UNDP

Competitiveness rankings
Rank within country group 3* (out of 40) Overall rank (out of 128) Score (1–7)

Stage of development 1
Factor driven Transition 1–2

Global Competitiveness Index 2007...............32..........39 ......4.6
GCR 2005–06 (out of 117 economies)......................................46 .......4.3 Basic requirements ...................................................22 ...........22 .......5.5 1st pillar: Institutions..................................................20 ...........22 .......5.1 2nd pillar: Infrastructure ...........................................36 ...........41 .......4.3 3rd pillar: Macroeconomy...........................................2 .............4 .......6.0 4th pillar: Health and primary education................30 ...........37 .......6.6

2
Efficiency driven

Transition 2–3

3
Innovation driven

Institutions
7

Innovation

6 5 4

Infrastructure

186

Efficiency enhancers.................................................33 ...........38 .......4.4 5th pillar: Higher education and training................35 ...........46 .......4.4 6th pillar: Market efficiency......................................26 ...........30 .......4.8 7th pillar: Technological readiness .........................32 ...........34 .......4.2 Innovation factors ......................................................38 ...........55 .......3.8 8th pillar: Business sophistication...........................40 ...........69 .......4.0 9th pillar: Innovation ..................................................32 ...........41 .......3.5

3

Business sophistication

2 1

Macroeconomy

Technological readiness

Health and primary education Higher education and training

Market efficiency

Gender Gap Index 2006 (out of 115 economies)
* Country group includes the countries in the same stage of development as well as those transitioning toward it.

n/a
Qatar Innovation-driven economies

The most problematic factors for doing business
Inadequate supply of infrastructure ..........................16.8 Access to financing ......................................................15.4 Inadequately educated workforce.............................13.8 Restrictive labor regulations .......................................13.3 Inefficient government bureaucracy.........................12.7 Inflation .............................................................................8.4 Poor work ethic in national labor force ......................4.9 Policy instability...............................................................4.9 Foreign currency regulations........................................2.8 Corruption.........................................................................2.1 Government instability/coups .......................................1.8 Crime and theft ................................................................1.3 Tax rates ...........................................................................1.0 Tax regulations ................................................................0.8 0 5 10 15 Percent of responses
Note: From a list of 14 factors, respondents were asked to select the five most problematic for doing business in their country/economy and to rank them between 1 (most problematic) and 5. The bars in the figure show the responses weighted according to their rankings.

20

25

30

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Qatar
The Global Competitiveness Index in detail
s Competitve Advantage s Competitve Disadvantage INDICATOR RANK/128 INDICATOR RANK/128

1st pillar: Institutions
1.01 1.02 1.03 1.04 1.05 1.06 1.07 1.08 1.09 1.10 1.11 1.12 1.13 1.14 1.15 Property rights ...........................................................39 .....s Diversion of public funds ...........................................19 .....s Public trust of politicians ...........................................11 .....s Judicial independence ...............................................20 .....s Favoritism in decisions of government officials ........13 .....s Government spending .................................................4 .....s Burden of government regulation .............................16 .....s Business costs of terrorism ......................................49 .....s Reliability of police services ......................................22 .....s Business costs of crime and violence .......................14 .....s Organized crime ........................................................19 .....s Ethical behavior of firms ............................................32 .....s Efficacy of corporate boards......................................32 .....s Protection of minority shareholders’ interests ..........27 .....s Strength of auditing and accounting standards .........41 .....s 6.01 6.02 6.03 6.04 6.05 6.06 6.07 6.08 6.09 6.10 6.11 6.12 6.13 6.14 6.15 6.16 6.17 6.18 6.19 6.20 6.21 6.22 6.23

6th pillar: Market efficiency
Agricultural policy costs.............................................38 .....s Efficiency of legal framework ....................................27 .....s Extent and effect of taxation .......................................6 .....s No. of procedures required to start a business* ......n/a Time required to start a business* ...........................n/a Intensity of local competition ....................................67 .....s Effectiveness of antitrust policy ................................49 .....s Imports* ..................................................................110 .....s Prevalence of trade barriers ........................................9 .....s Prevalence of foreign ownership...............................92 .....s Exports*.....................................................................21 .....s Hiring and firing practices ..........................................31 .....s Flexibility of wage determination ................................8 .....s Cooperation in labor-employer relations ....................55 .....s Reliance on professional management .....................54 .....s Pay and productivity ..................................................25 .....s Brain drain....................................................................2 .....s Private-sector employment of women ......................40 .....s Financial market sophistication..................................48 .....s Ease of access to loans.............................................12 .....s Venture capital availability..........................................37 .....s Soundness of banks ..................................................46 .....s Local equity market access .......................................45 .....s

2nd pillar: Infrastructure
2.01 2.02 2.03 2.04 2.05 2.06 Overall infrastructure quality......................................45 .....s Railroad infrastructure ...............................................60 .....s Quality of port infrastructure .....................................43 .....s Air transport infrastructure quality .............................35 .....s Quality of electricity supply .......................................44 .....s Telephone lines*........................................................48 .....s

3rd pillar: Macroeconomy
3.01 3.02 3.03 3.04 3.05 3.06 Government balance* .................................................4 .....s National savings rate* .................................................2 .....s Inflation* ....................................................................19 .....s Interest rate spread* .................................................40 .....s Government debt* ....................................................25 .....s Real effective exchange rate* ...................................73 .....s

7th pillar: Technological readiness
7.01 7.02 7.03 7.04 7.05 7.06 7.07 Technological readiness.............................................27 .....s Firm-level technology absorption...............................43 .....s Laws relating to ICT ..................................................39 .....s FDI and technology transfer ......................................11 .....s Mobile telephone subscribers* .................................26 .....s Internet users* ..........................................................39 .....s Personal computers*.................................................40 .....s

4th pillar: Health and primary education
4.01 4.02 4.03 4.04 4.05 4.06 4.07 4.08 4.09 Business impact of malaria .......................................56 .....s Business impact of tuberculosis ...............................45 .....s Business impact of HIV/AIDS ....................................26 .....s Infant mortality* ........................................................43 .....s Life expectancy* .......................................................36 .....s Tuberculosis prevalence* ..........................................66 .....s Malaria prevalence*.....................................................1 .....s HIV prevalence* ..........................................................1 .....s Primary enrollment* ..................................................47 .....s 8.01 8.02 8.03 8.04 8.05 8.06 8.07 8.08

8th pillar: Business sophistication
Local supplier quantity...............................................90 .....s Local supplier quality .................................................82 .....s Production process sophistication.............................25 .....s Extent of marketing ...................................................77 .....s Control of international distribution ...........................55 .....s Willingness to delegate authority ..............................35 .....s Nature of competitive advantage ..............................37 .....s Value chain presence.................................................62 .....s

5th pillar: Higher education and training
5.01 5.02 5.03 5.04 5.05 5.06 5.07 Secondary enrollment*..............................................34 .....s Tertiary enrollment*...................................................77 .....s Quality of the educational system.............................20 .....s Quality of math and science education .....................38 .....s Quality of management schools................................40 .....s Local availability of research and training services....58 .....s Extent of staff training ...............................................58 .....s

9th pillar: Innovation
9.01 9.02 9.03 9.04 9.05 9.06 9.07 9.08 Quality of scientific research institutions ..................49 .....s Company spending on R&D ......................................42 .....s University-industry research collaboration.................60 .....s Gov’t. procurement of advanced tech products........24 .....s Availability of scientists and engineers......................83 .....s Utility patents* ..........................................................80 .....s Intellectual property protection..................................28 .....s Capacity for innovation ..............................................61 .....s

* Hard data Note: For descriptions of variables and detailed sources, please refer to “How to Read Country Profiles.”

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

4: Country Profiles

187

4: Country Profiles

Qatar
Successful Policies Bode Well for the Future
THIERRY GEIGER, World Economic Forum

Qatar is one of the most competitive economies in the region, with a number of notable strengths mainly related to institutions and labor markets. Going forward, improvements with respect to infrastructure, education, and goods market efficiency will be necessary to enhance the country’s competitiveness.

188

W

ith a rank of 38, Qatar’s performance on the Global Competitiveness Index (GCI) is remarkable in many aspects—particularly the high quality of public and private institutions (22nd among the 128 economies covered by the GCI): the country is relatively free from corruption and undue influence (14th), the government spends efficiently (4th), and its regulation is seen as rather easy to comply with (16th). Another of Qatar’s strong advantages resides in the efficiency of its labor market (13th), explained mainly by the flexibility of wage determination (8th) and of hiring and firing practices (31st). Brain drain (2nd) does not seem to be a problem, consistent with Qatar’s open immigration policy and its reputation as a destination for qualified labor. However, for the country to climb further up the ladder of competitiveness, a number of issues need to be addressed especially with respect to infrastructure, education, and goods market efficiency. The most problematic factor for conducting business in Qatar cited by the business community is the inadequate supply of infrastructure. Qatar’s performance—41st on the

infrastructure pillar—is poor when measured against its peers. Hong Kong ranks 3rd, Singapore 6th, Taiwan 16th, Korea 21st, and the United Arab Emirates 25th. The government is addressing the issue with massive projects. The first phase of the US$7.5 billion New Doha International Airport will bring the capacity of passengers from a current 7.5 million to 12.5 million by 2007, with plans to raise this number to 50 million by 2020. This increased capacity will be accompanied by a substantial increase in the fleet of the national carrier Qatar Airways and the number of routes it offers. Ports are also being modernized and expanded. In addition, the US$5 billion, 40-kilometer-long Qatar–Bahrain Bridge should be completed by 2010, linking Qatar with the rest of the region and contributing to furthering regional economic integration and mobility. Although literacy and enrollment rates in primary and secondary education are high, attention needs to be turned to higher education. With an enrollment rate of less than 20% (77th), tertiary education in Qatar is insufficiently developed. To tackle this issue, in 2004 the government launched the project Education City, a 2,500-acre campus on the outskirts of Doha. Scheduled for completion in 2008, Education City aims at providing world-class education from kindergarten to the post-graduate level, notably through partnerships with Western universities. The project should also contribute to enhancing capacity for innovation (61st), fostering collaboration between university and the private sector (60th), and reducing the shortage of scientists and engineers

(83rd), three areas in which Qatar does relatively poorly. Another area for improvement is the efficiency of goods markets. Here Qatar ranks 90th, a mediocre performance partly attributable to insufficient domestic competition (67th), a small base of local suppliers (90th), and low incidence of foreign ownership (92nd). Albeit still low, Qatar’s rank on this later indicator has actually improved from 109th in 2005, a sign that the reforms initiated in 2000 intended to relax the rules and restrictions for foreign investment and ownership are beginning to bear fruit. Finally, the looming danger represented by the high reliance and therefore vulnerability of Qatar’s finances to energy price fluctuations is worth mentioning. The government budget, which in 2005 yielded a surplus equivalent to 20% of GDP (4th highest), was in the red throughout the 1990s as a result of falling oil prices. The government is seeking to diversify its sources of income by developing the natural gas industry, which already represents one-third of its exports. It is also planning to establish a free investment zone, where it will offer foreign companies tax incentives of up to 100% to invest in small- and medium-sized enterprises outside the oil and gas sector.

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Qatar
GDP (PPP US$) per capita, 1980–2005
35,000

Qatar MENA

30,000 25,000 20,000 15,000 10,000 5,000 0

Source: IMF; World Bank

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

Foreign direct investment (FDI)
3,000

FDI inflows (percent of GDP)

1,500 1,000 500 0 2000 2005 2010

Source: UNCTAD; Columbia University; IMF

Projected

2,000

Percent of GDP

US$ millions

s FDI inflows (US$ millions)

2,500

5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0

Trade
Exports by country of destination
Share of total volume, 2005 (percent)

Exports by sector
Share of total volume, 2005 (percent)

Japan: 40%

Korea: 16%

Gas, natural and manufactured: 34%

Special transactions and commodities: 9% Fertilizers (except group 272): 3% Plastics in primary forms: 2% Others: 2%

Singapore: 8% United Arab Emirates: 5% India: 3% Others: 28%

Petroleum, petroleum products: 50%

Total value of exports (US$ millions): 25,762

Trade diversification
Number of exported product groups out of 261

Tariffs
Percent 10 8

2001..................................................................................2.0 2005..................................................................................2.5

s MENA countries s World

6 4 2 0

Average faced tariff
Source: International Trade Centre; UN Comtrade Note: For descriptions of variables and detailed sources, please refer to “How to Read the Country Profiles.”

Average applied tariff

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

4: Country Profiles

189

4: Country Profiles

Syria
Key indicators
Total population (millions), 2006......................................................................19.5 GDP (US$ billions), 2006 ......................................................................................29 GDP (PPP US$) per capita, 2006 ...................................................................3,976 as share of world total (percent).................................................................0.12 Current account balance (percent of GDP), 2006 .......................................–1.8 Human Development Indicator rank (out of 177 economies), 2004...........107
Source: UNFPA, IMF, UNDP

Competitiveness rankings
Rank within country group 1* (out of 48) Overall rank (out of 128) Score (1–7)

Stage of development 1
Factor driven Transition 1–2

Global Competitiveness Index 2007...............12..........84 ......3.8
GCR 2005–06 (out of 117 economies) ....................................n/a.......n/a Basic requirements .....................................................5 ...........69 .......4.5 1st pillar: Institutions..................................................12 ...........73 .......3.8 2nd pillar: Infrastructure ...........................................10 ...........78 .......3.1 3rd pillar: Macroeconomy...........................................9 ...........61 .......4.5 4th pillar: Health and primary education..................2 ...........45 .......6.6

2
Efficiency driven

Transition 2–3

3
Innovation driven

Institutions
7

Innovation

6 5 4

Infrastructure

190

Efficiency enhancers.................................................25 .........104 .......3.1 5th pillar: Higher education and training................19 ...........96 .......3.2 6th pillar: Market efficiency......................................37 .........114 .......3.5 7th pillar: Technological readiness .........................31 .........109 .......2.6 Innovation factors ......................................................17 ...........84 .......3.3 8th pillar: Business sophistication...........................12 ...........77 .......3.8 9th pillar: Innovation ..................................................25 ...........99 .......2.7

3

Business sophistication

2 1

Macroeconomy

Technological readiness

Health and primary education Higher education and training

Market efficiency

Gender Gap Index 2006 (out of 115 economies)
* Country group includes the countries in the same stage of development as well as those transitioning toward it.

n/a
Syria Factor-driven economies

The most problematic factors for doing business
Inefficient government bureaucracy.........................15.3 Access to financing ......................................................14.3 Corruption.......................................................................13.7 Inadequately educated workforce...............................8.9 Foreign currency regulations........................................8.6 Inadequate supply of infrastructure ............................7.2 Restrictive labor regulations .........................................7.2 Tax regulations ................................................................6.1 Poor work ethic in national labor force ......................6.0 Tax rates ...........................................................................4.0 Policy instability...............................................................3.3 Inflation .............................................................................3.0 Crime and theft ................................................................1.8 Government instability/coups .......................................0.7 0 5 10 15 Percent of responses
Note: From a list of 14 factors, respondents were asked to select the five most problematic for doing business in their country/economy and to rank them between 1 (most problematic) and 5. The bars in the figure show the responses weighted according to their rankings.

20

25

30

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Syria
The Global Competitiveness Index in detail
s Competitve Advantage s Competitve Disadvantage INDICATOR RANK/128 INDICATOR RANK/128

1st pillar: Institutions
1.01 1.02 1.03 1.04 1.05 1.06 1.07 1.08 1.09 1.10 1.11 1.12 1.13 1.14 1.15 Property rights ...........................................................88 .....s Diversion of public funds ...........................................43 .....s Public trust of politicians ...........................................63 .....s Judicial independence ...............................................88 .....s Favoritism in decisions of government officials ........72 .....s Government spending ...............................................78 .....s Burden of government regulation .............................86 .....s Business costs of terrorism ......................................29 .....s Reliability of police services ......................................46 .....s Business costs of crime and violence .......................20 .....s Organized crime ........................................................20 .....s Ethical behavior of firms ............................................58 .....s Efficacy of corporate boards....................................118 .....s Protection of minority shareholders’ interests ..........92 .....s Strength of auditing and accounting standards .......124 .....s 6.01 6.02 6.03 6.04 6.05 6.06 6.07 6.08 6.09 6.10 6.11 6.12 6.13 6.14 6.15 6.16 6.17 6.18 6.19 6.20 6.21 6.22 6.23

6th pillar: Market efficiency
Agricultural policy costs.............................................64 .....s Efficiency of legal framework ....................................84 .....s Extent and effect of taxation .....................................78 .....s No. of procedures required to start a business*.......92 .....s Time required to start a business* ............................81 .....s Intensity of local competition ....................................84 .....s Effectiveness of antitrust policy ................................76 .....s Imports* ....................................................................88 .....s Prevalence of trade barriers ....................................115 .....s Prevalence of foreign ownership.............................127 .....s Exports*.....................................................................77 .....s Hiring and firing practices ..........................................93 .....s Flexibility of wage determination ..............................70 .....s Cooperation in labor-employer relations ....................69 .....s Reliance on professional management ...................115 .....s Pay and productivity ..................................................68 .....s Brain drain..................................................................86 .....s Private-sector employment of women ......................39 .....s Financial market sophistication................................124 .....s Ease of access to loans...........................................106 .....s Venture capital availability..........................................99 .....s Soundness of banks ................................................120 .....s Local equity market access .....................................123 .....s

2nd pillar: Infrastructure
2.01 2.02 2.03 2.04 2.05 2.06 Overall infrastructure quality......................................74 .....s Railroad infrastructure ...............................................61 .....s Quality of port infrastructure .....................................84 .....s Air transport infrastructure quality .............................89 .....s Quality of electricity supply .......................................80 .....s Telephone lines*........................................................69 .....s

3rd pillar: Macroeconomy
3.01 3.02 3.03 3.04 3.05 3.06 Government balance* ...............................................92 .....s National savings rate* ...............................................61 .....s Inflation* ....................................................................90 .....s Interest rate spread* .................................................24 .....s Government debt* ....................................................73 .....s Real effective exchange rate* ...................................21 .....s

7th pillar: Technological readiness
7.01 7.02 7.03 7.04 7.05 7.06 7.07 Technological readiness.............................................87 .....s Firm-level technology absorption...............................85 .....s Laws relating to ICT ................................................121 .....s FDI and technology transfer ....................................122 .....s Mobile telephone subscribers* .................................98 .....s Internet users* ..........................................................89 .....s Personal computers*.................................................81 .....s

4th pillar: Health and primary education
4.01 4.02 4.03 4.04 4.05 4.06 4.07 4.08 4.09 Business impact of malaria .......................................43 .....s Business impact of tuberculosis ...............................32 .....s Business impact of HIV/AIDS ....................................24 .....s Infant mortality* ........................................................58 .....s Life expectancy* .......................................................54 .....s Tuberculosis prevalence* ..........................................55 .....s Malaria prevalence*...................................................56 .....s HIV prevalence* ..........................................................1 .....s Primary enrollment* ..................................................49 .....s 8.01 8.02 8.03 8.04 8.05 8.06 8.07 8.08

8th pillar: Business sophistication
Local supplier quantity...............................................52 .....s Local supplier quality .................................................76 .....s Production process sophistication.............................93 .....s Extent of marketing .................................................104 .....s Control of international distribution ...........................21 .....s Willingness to delegate authority ............................109 .....s Nature of competitive advantage ............................102 .....s Value chain presence.................................................73 .....s

5th pillar: Higher education and training
5.01 5.02 5.03 5.04 5.05 5.06 5.07 Secondary enrollment*..............................................95 .....s Tertiary enrollment*...................................................90 .....s Quality of the educational system.............................99 .....s Quality of math and science education .....................78 .....s Quality of management schools..............................106 .....s Local availability of research and training services..100 .....s Extent of staff training ...............................................86 .....s

9th pillar: Innovation
9.01 9.02 9.03 9.04 9.05 9.06 9.07 9.08 Quality of scientific research institutions ................109 .....s Company spending on R&D ....................................108 .....s University-industry research collaboration...............117 .....s Gov’t. procurement of advanced tech products......113 .....s Availability of scientists and engineers......................43 .....s Utility patents* ..........................................................80 .....s Intellectual property protection..................................91 .....s Capacity for innovation ............................................108 .....s

* Hard data Note: For descriptions of variables and detailed sources, please refer to “How to Read Country Profiles.”

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

4: Country Profiles

191

4: Country Profiles

Syria
Increasing the Role of the Private Sector
NUHAD DIMASHKIYYAH, UNDP Business Development Programme, Damascus

Over the past two years, Syria has undertaken a number of reforms with the goal of improving the business environment and opening up the country. Current efforts aim at increasing the share of the private sector in the economy. In the recent past measures have been taken to strengthen insurance and banking regulation, customs procedures, and intellectual property rights.

192

T

he Syrian economy is a multi-resourced, factor-driven (according to the World Economic Forum classification) developing economy, where GDP per capita is US$ 1,580 for 2005 (market prices). From the 1950s through the 1980s Syria had planned economic policies that framed its business environment and economic activities, where the state retained a large degree of control over the economy and the public sector was the major actor. The basic economic model witnessed a huge change with the introduction of Investment Law No. 10 of 1991, which passed a number of investment privileges to increase the share of the private sector in the economy. This step was followed by a number of bilateral and multilateral regional free trade agreements, which placed Syria between a planned and an open market economy until recently. In June 2005, Syria defined its new economic identity as a “social market economy” and adopted the “Tenth Five Year Plan 2006–2010.” This plan highlights the greater expected role of the Syrian private sector in both economic

activity and decision making. It differs from the previous nine plans in opening up economic activities to the private sector, and ensures private-sector participation in decision making and the execution of development plans. Hence forward, Syria has passed a transitional stage. Decision makers are aware of the new requirements of open market economy and the need for competitive business environment at both micro and macro levels as well as investment-friendly legislative and administrative frameworks. As a result, more than half of the 80 laws and 80 legislative decrees issued in 2005 and 2006 have been targeted toward modernizing and promoting the business environment. These steps covered wide segments of the business sector—mainly licensing private banks (including Islamic banks) and private insurance companies; reviving the Monetary Council; establishing the Syrian stock market; and modernizing intellectual property rights, taxes, and customs duties laws. New business support institutions have also been established, and drafts for competition law, new companies and corporations law, and investment law are being reviewed, to be issued in the near future. Other big steps were taken with respect to modernizing the physical and technical infrastructure (ports, the increasing number of customs clearances, and modern industrial cities), and an increase in budget allocated for higher education and health sector. Moreover, for the last 15 years, Syria has enjoyed solid macroeconomic conditions as a result of oil revenues. This is reflected in a surplus in the foreign trade balance, low budget deficits, negligible

inflation rates, stable exchange rates, low foreign debt, and acceptable liquidity in national banks. However, these solid indicators have been accompanied with rather low GDP growth rates, an increase in unemployment rates, and a decreasing share the industrial sector in GDP. With Syrian oil reserves approaching depletion, more efforts have been targeted toward better functioning of public and private institutions, maximizing the comparative advantage of Syria’s geographical location, and free trade agreements. The aim is to position Syria as a promising investment country. This is seen in the cumulative increase in FDI to US$16.7 billion during the period 2003–06.

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Syria
GDP (PPP US$) per capita, 1980–2005
8,000

Syria MENA

7,000 6,000 5,000 4,000 3,000 2,000 1,000

Source: IMF; World Bank

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

Foreign direct investment (FDI)
600 6

400 300 200 100 0 2000 2005

4 3 2

FDI inflows (percent of GDP)

(n/a)
2010

1 0

Source: UNCTAD; Columbia University; IMF

Percent of GDP

US$ millions

s FDI inflows (US$ millions)

500

5

Trade
Exports by country of destination
Share of total volume, 2005 (percent)

Exports by sector
Share of total volume, 2005 (percent)

Live animals: 4% Clothing and accessories: 3% Textile yarn, fabrics, made-up articles: 3%

Germany: 27%

France: 13%

United States: 8% United Kingdom: 6% Petroleum, petroleum products: 73%

Vegetables and fruit: 3%

Others: 13%

Italy: 27%

Others: 19%

Total value of exports (US$ millions): 4,201

Trade diversification
Number of exported product groups out of 261

Tariffs
Percent 20

2001..................................................................................2.4 2005..................................................................................2.4

s MENA countries s World

15 10 5 0

Average faced tariff
Source: International Trade Centre; UN Comtrade Note: For descriptions of variables and detailed sources, please refer to “How to Read the Country Profiles.”

Average applied tariff

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

4: Country Profiles

193

4: Country Profiles

Tunisia
Key indicators
Total population (millions), 2006......................................................................10.2 GDP (US$ billions), 2006 ......................................................................................30 GDP (PPP US$) per capita, 2006 ...................................................................8,809 as share of world total (percent).................................................................0.14 Current account balance (percent of GDP), 2006 .......................................–1.6 Human Development Indicator rank (out of 177 economies), 2004.............87
Source: UNFPA, IMF, UNDP

Competitiveness rankings
Rank within country group 2* (out of 40) Overall rank (out of 128) Score (1–7)

Stage of development 1
Factor driven Transition 1–2

Global Competitiveness Index 2007.................3..........29 ......4.7
GCR 2005–06 (out of 117 economies)......................................37 .......4.5 Basic requirements .....................................................4 ...........33 .......5.3 1st pillar: Institutions....................................................4 ...........26 .......5.1 2nd pillar: Infrastructure .............................................3 ...........37 .......4.4 3rd pillar: Macroeconomy.........................................14 ...........39 .......4.9 4th pillar: Health and primary education..................5 ...........33 .......6.7

2
Efficiency driven

Transition 2–3

3
Innovation driven

Institutions
7

Innovation

6 5 4

Infrastructure

194

Efficiency enhancers...................................................6 ...........40 .......4.3 5th pillar: Higher education and training..................5 ...........36 .......4.7 6th pillar: Market efficiency........................................7 ...........36 .......4.6 7th pillar: Technological readiness ...........................9 ...........47 .......3.7 Innovation factors ........................................................2 ...........28 .......4.4 8th pillar: Business sophistication.............................3 ...........31 .......4.8 9th pillar: Innovation ....................................................2 ...........27 .......4.0

3

Business sophistication

2 1

Macroeconomy

Technological readiness

Health and primary education Higher education and training

Market efficiency

Gender Gap Index 2006 (out of 115 economies)
* Country group includes the countries in the same stage of development as well as those transitioning toward it.

90
Tunisia Economies in transition from 1 to 2

The most problematic factors for doing business
Access to financing ......................................................13.5 Tax rates .........................................................................12.2 Tax regulations ..............................................................11.8 Inefficient government bureaucracy...........................9.9 Restrictive labor regulations .........................................8.5 Poor work ethic in national labor force ......................7.7 Inadequately educated workforce...............................7.1 Foreign currency regulations........................................7.0 Inflation .............................................................................5.5 Inadequate supply of infrastructure ............................5.4 Corruption.........................................................................4.2 Policy instability...............................................................2.6 Government instability/coups .......................................2.4 Crime and theft ................................................................2.2 0 5 10 15 Percent of responses
Note: From a list of 14 factors, respondents were asked to select the five most problematic for doing business in their country/economy and to rank them between 1 (most problematic) and 5. The bars in the figure show the responses weighted according to their rankings.

20

25

30

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Tunisia
The Global Competitiveness Index in detail
s Competitve Advantage s Competitve Disadvantage INDICATOR RANK/128 INDICATOR RANK/128

1st pillar: Institutions
1.01 1.02 1.03 1.04 1.05 1.06 1.07 1.08 1.09 1.10 1.11 1.12 1.13 1.14 1.15 Property rights ...........................................................36 .....s Diversion of public funds ...........................................24 .....s Public trust of politicians ...........................................13 .....s Judicial independence ...............................................34 .....s Favoritism in decisions of government officials ........10 .....s Government spending .................................................3 .....s Burden of government regulation .............................11 .....s Business costs of terrorism ......................................16 .....s Reliability of police services ......................................25 .....s Business costs of crime and violence .......................23 .....s Organized crime ........................................................42 .....s Ethical behavior of firms ............................................29 .....s Efficacy of corporate boards......................................58 .....s Protection of minority shareholders’ interests ..........19 .....s Strength of auditing and accounting standards .........50 .....s 6.01 6.02 6.03 6.04 6.05 6.06 6.07 6.08 6.09 6.10 6.11 6.12 6.13 6.14 6.15 6.16 6.17 6.18 6.19 6.20 6.21 6.22 6.23

6th pillar: Market efficiency
Agricultural policy costs...............................................5 .....s Efficiency of legal framework ....................................31 .....s Extent and effect of taxation .....................................19 .....s No. of procedures required to start a business*.......63 .....s Time required to start a business* ............................12 .....s Intensity of local competition ....................................43 .....s Effectiveness of antitrust policy ................................26 .....s Imports* ....................................................................53 .....s Prevalence of trade barriers ......................................44 .....s Prevalence of foreign ownership...............................52 .....s Exports*.....................................................................56 .....s Hiring and firing practices ..........................................32 .....s Flexibility of wage determination ..............................96 .....s Cooperation in labor-employer relations ....................29 .....s Reliance on professional management .....................57 .....s Pay and productivity ..................................................29 .....s Brain drain..................................................................43 .....s Private-sector employment of women ........................5 .....s Financial market sophistication..................................60 .....s Ease of access to loans.............................................38 .....s Venture capital availability..........................................31 .....s Soundness of banks ..................................................66 .....s Local equity market access .......................................70 .....s

2nd pillar: Infrastructure
2.01 2.02 2.03 2.04 2.05 2.06 Overall infrastructure quality......................................37 .....s Railroad infrastructure ...............................................25 .....s Quality of port infrastructure .....................................35 .....s Air transport infrastructure quality .............................50 .....s Quality of electricity supply .......................................39 .....s Telephone lines*........................................................80 .....s

3rd pillar: Macroeconomy
3.01 3.02 3.03 3.04 3.05 3.06 Government balance* ...............................................78 .....s National savings rate* ...............................................50 .....s Inflation* ....................................................................22 .....s Interest rate spread* .................................................22 .....s Government debt* ....................................................70 .....s Real effective exchange rate* ...................................20 .....s

7th pillar: Technological readiness
7.01 7.02 7.03 7.04 7.05 7.06 7.07 Technological readiness.............................................30 .....s Firm-level technology absorption...............................36 .....s Laws relating to ICT ..................................................49 .....s FDI and technology transfer ......................................34 .....s Mobile telephone subscribers* .................................57 .....s Internet users* ..........................................................75 .....s Personal computers*.................................................69 .....s

4th pillar: Health and primary education
4.01 4.02 4.03 4.04 4.05 4.06 4.07 4.08 4.09 Business impact of malaria .......................................35 .....s Business impact of tuberculosis ...............................27 .....s Business impact of HIV/AIDS ....................................12 .....s Infant mortality* ........................................................70 .....s Life expectancy* .......................................................54 .....s Tuberculosis prevalence* ..........................................36 .....s Malaria prevalence*.....................................................1 .....s HIV prevalence* ..........................................................1 .....s Primary enrollment* ..................................................26 .....s 8.01 8.02 8.03 8.04 8.05 8.06 8.07 8.08

8th pillar: Business sophistication
Local supplier quantity...............................................30 .....s Local supplier quality .................................................33 .....s Production process sophistication.............................37 .....s Extent of marketing ...................................................55 .....s Control of international distribution ...........................29 .....s Willingness to delegate authority ..............................32 .....s Nature of competitive advantage ..............................26 .....s Value chain presence.................................................29 .....s

5th pillar: Higher education and training
5.01 5.02 5.03 5.04 5.05 5.06 5.07 Secondary enrollment*..............................................74 .....s Tertiary enrollment*...................................................61 .....s Quality of the educational system.............................11 .....s Quality of math and science education .......................9 .....s Quality of management schools................................20 .....s Local availability of research and training services....33 .....s Extent of staff training ...............................................37 .....s

9th pillar: Innovation
9.01 9.02 9.03 9.04 9.05 9.06 9.07 9.08 Quality of scientific research institutions ..................33 .....s Company spending on R&D ......................................36 .....s University-industry research collaboration.................32 .....s Gov’t. procurement of advanced tech products..........4 .....s Availability of scientists and engineers......................10 .....s Utility patents* ..........................................................70 .....s Intellectual property protection..................................31 .....s Capacity for innovation ..............................................31 .....s

* Hard data Note: For descriptions of variables and detailed sources, please refer to “How to Read Country Profiles.”

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

4: Country Profiles

195

4: Country Profiles

Tunisia
Steady Reforms Lead to Sustainable Growth
NADIA BOULIFA, World Economic Forum

Reforms have borne fruit in Tunisia and the country is experiencing high growth rates. Yet opportunities in technology-driven industries remain untapped, as access to technology is constrained.

D
196

espite a fairly difficult external environment, Tunisia presents one of the most stable and reliable economies in the region. For more than 20 years it has been enjoying a progressive and prudent economic growth that encourages and eases local investments and strengthens the pillars of the Tunisian society. According to international institutions such as the World Bank and the International Monetary Fund, Tunisia is exemplary in its ability to make long-term reform plans that benefit all levels of society. By defining a clear vision and giving the priority to fields like poverty, education, and health (an excellent score for its stage of development, 6.7 out of 7), the government has paved the way for successful and balanced social and economic development. And although Tunisia shows higher literacy rates and performs better on health indicators than its neighbors, continued efforts are needed to catch up with international standards. A general climate of security and confidence and an economic reform program relying on privatization and liberalization implemented since the 1990s have contributed to high-level sustainable growth (GDP growth is estimated at 4.6 a year on average in 2001–05). So far, the country has deployed many of its efforts in traditional economic

sectors such as manufacturing, construction, agriculture, or services (essentially tourism), somewhat neglecting its innovative and creative potential. Data from the GCI shows that Tunisia has a good potential for attracting innovationdriven industries. Well-qualified staff for research activities are widely available, intellectual property rights are well protected, and the quality of research institutes is assessed as good. Yet so far the country has not taken advantage of its technological capacity, as incoming FDI does not tend to induce transfer of technology. Tunisia’s competitiveness remains hampered by a number of competitive disadvantages. These involve gaps in infrastructure, including telecommunications and the use of new technologies (it ranks 37th infrastructure, and 47th in technological readiness). Even though considerable improvements have been made to the road network, substantial efforts are needed in public transportation, air transport, and railways as well as extensive modernization and diversification of the Travel & Tourism sector. Tourism is a key element of the Tunisian economy, and its development is fundamental to maintaining high growth rates and lowering unemployment (14% in 2005). But as the country develops, it will need to move up the value chain and increase efficiency levels. The government is investing a lot of time and energy in democratizing the access to technology in all its facets. But the low use of technology still remains a clear disadvantage for business and social and cultural development. A significant improvement of the efficiency enhancers (higher education and training, market

efficiency, and technological readiness) would greatly contribute to the development of the business sector. In particular, financial services reveal important limitations with respect to the levels of sophistication and soundness of the banking sector, and business lacks appropriate access to local equity markets. The country does not fully benefit from ICT because penetration rates for the Internet (ranks 71st), personal computers (ranks 73rd), and mobile telephones remain low. At the same time, the lack of know-how, sophistication, and effective management seriously compromises Tunisia’s chances to become more competitive in creating interesting business opportunities.

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Tunisia
GDP (PPP US$) per capita, 1980–2005
10,000

Tunisia MENA

8,000 6,000 4,000 2,000

Source: IMF; World Bank

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

Foreign direct investment (FDI)
1,200

FDI inflows (percent of GDP)

600 400 200 0 2000 2005 2010

Source: UNCTAD; Columbia University; IMF

Projected

800

Percent of GDP

US$ millions

s FDI inflows (US$ millions)

1,000

4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0

Trade
Exports by country of destination
Share of total volume, 2005 (percent)

Exports by sector
Share of total volume, 2005 (percent)

Italy: 24%

Germany: 8% Spain: 5% Libya: 5%

Clothing and accessories: 30%

Electrical machinery, apparatus, and parts: 14%

Petroleum, petroleum products: 13% Others: 25% France: 33% Others: 35% Footwear: 4% Fixed vegetable fats and oils: 4%

Total value of exports (US$ millions): 10,949

Trade diversification
Number of exported product groups out of 261

Tariffs
Percent 30 25

2001................................................................................16.1 2005................................................................................17.7

s MENA countries s World

20 15 10 5 0

Average faced tariff
Source: International Trade Centre; UN Comtrade Note: For descriptions of variables and detailed sources, please refer to “How to Read the Country Profiles.”

Average applied tariff

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

4: Country Profiles

197

4: Country Profiles

United Arab Emirates
Key indicators
Total population (millions), 2006........................................................................4.7 GDP (US$ billions), 2006 ....................................................................................177 GDP (PPP US$) per capita, 2006 .................................................................27,610 as share of world total (percent).................................................................0.21 Current account balance (percent of GDP), 2006...........................................21 Human Development Indicator rank (out of 177 economies), 2004.............49
Source: UNFPA, IMF, UNDP

Competitiveness rankings
Rank within country group 3* (out of 40) Overall rank (out of 128) Score (1–7)

Stage of development 1
Factor driven Transition 1–2

Global Competitiveness Index 2007...............29..........32 ......4.7
GCR 2005–06 (out of 117 economies)......................................32 .......4.6 Basic requirements ...................................................26 ...........28 .......5.4 1st pillar: Institutions..................................................24 ...........28 .......5.0 2nd pillar: Infrastructure ...........................................24 ...........25 .......5.0 3rd pillar: Macroeconomy...........................................3 .............5 .......5.9 4th pillar: Health and primary education................40 .........102 .......5.7

2
Efficiency driven

Transition 2–3

3
Innovation driven

Institutions
7

Innovation

6 5 4

Infrastructure

198

Efficiency enhancers.................................................29 ...........30 .......4.6 5th pillar: Higher education and training................37 ...........59 .......4.1 6th pillar: Market efficiency......................................21 ...........23 .......5.0 7th pillar: Technological readiness .........................26 ...........27 .......4.5 Innovation factors ......................................................32 ...........40 .......4.1 8th pillar: Business sophistication...........................31 ...........37 .......4.6 9th pillar: Innovation ..................................................31 ...........40 .......3.5

3

Business sophistication

2 1

Macroeconomy

Technological readiness

Health and primary education Higher education and training

Market efficiency

Gender Gap Index 2006 (out of 115 economies)
* Country group includes the countries in the same stage of development as well as those transitioning toward it.

101
United Arab Emirates Innovation-driven economies

The most problematic factors for doing business
Restrictive labor regulations .......................................16.5 Inadequately educated workforce.............................15.6 Poor work ethic in national labor force ....................13.7 Inflation ...........................................................................13.6 Inefficient government bureaucracy.........................11.4 Access to financing ........................................................9.0 Inadequate supply of infrastructure ............................6.4 Policy instability...............................................................5.9 Corruption.........................................................................2.9 Foreign currency regulations........................................2.2 Government instability/coups .......................................1.4 Crime and theft ................................................................0.7 Tax regulations ................................................................0.5 Tax rates ...........................................................................0.2 0 5 10 15 Percent of responses
Note: From a list of 14 factors, respondents were asked to select the five most problematic for doing business in their country/economy and to rank them between 1 (most problematic) and 5. The bars in the figure show the responses weighted according to their rankings.

20

25

30

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

United Arab Emirates
The Global Competitiveness Index in detail
s Competitve Advantage s Competitve Disadvantage INDICATOR RANK/128 INDICATOR RANK/128

1st pillar: Institutions
1.01 1.02 1.03 1.04 1.05 1.06 1.07 1.08 1.09 1.10 1.11 1.12 1.13 1.14 1.15 Property rights ...........................................................43 .....s Diversion of public funds ...........................................17 .....s Public trust of politicians .............................................9 .....s Judicial independence ...............................................41 .....s Favoritism in decisions of government officials ........27 .....s Government spending .................................................8 .....s Burden of government regulation ...............................8 .....s Business costs of terrorism ......................................45 .....s Reliability of police services ......................................12 .....s Business costs of crime and violence .......................12 .....s Organized crime ........................................................18 .....s Ethical behavior of firms ............................................26 .....s Efficacy of corporate boards......................................61 .....s Protection of minority shareholders’ interests ..........54 .....s Strength of auditing and accounting standards .........37 .....s 6.01 6.02 6.03 6.04 6.05 6.06 6.07 6.08 6.09 6.10 6.11 6.12 6.13 6.14 6.15 6.16 6.17 6.18 6.19 6.20 6.21 6.22 6.23

6th pillar: Market efficiency
Agricultural policy costs...............................................7 .....s Efficiency of legal framework ....................................35 .....s Extent and effect of taxation .......................................4 .....s No. of procedures required to start a business*.......92 .....s Time required to start a business* ..........................101 .....s Intensity of local competition ....................................28 .....s Effectiveness of antitrust policy ................................50 .....s Imports* ......................................................................9 .....s Prevalence of trade barriers ......................................15 .....s Prevalence of foreign ownership...............................94 .....s Exports*.......................................................................6 .....s Hiring and firing practices ..........................................23 .....s Flexibility of wage determination ................................5 .....s Cooperation in labor-employer relations ....................31 .....s Reliance on professional management .....................56 .....s Pay and productivity ..................................................35 .....s Brain drain....................................................................6 .....s Private-sector employment of women ......................57 .....s Financial market sophistication..................................46 .....s Ease of access to loans...............................................9 .....s Venture capital availability..........................................17 .....s Soundness of banks ..................................................36 .....s Local equity market access .......................................20 .....s

2nd pillar: Infrastructure
2.01 2.02 2.03 2.04 2.05 2.06 Overall infrastructure quality......................................14 .....s Railroad infrastructure ...............................................74 .....s Quality of port infrastructure .......................................9 .....s Air transport infrastructure quality ...............................7 .....s Quality of electricity supply .......................................13 .....s Telephone lines*........................................................45 .....s

3rd pillar: Macroeconomy
3.01 3.02 3.03 3.04 3.05 3.06 Government balance* .................................................3 .....s National savings rate* .................................................8 .....s Inflation* ....................................................................80 .....s Interest rate spread* .................................................44 .....s Government debt* ......................................................8 .....s Real effective exchange rate* ...................................41 .....s

7th pillar: Technological readiness
7.01 7.02 7.03 7.04 7.05 7.06 7.07 Technological readiness.............................................15 .....s Firm-level technology absorption...............................21 .....s Laws relating to ICT ..................................................34 .....s FDI and technology transfer ......................................15 .....s Mobile telephone subscribers* .................................16 .....s Internet users* ..........................................................37 .....s Personal computers*.................................................36 .....s

4th pillar: Health and primary education
4.01 4.02 4.03 4.04 4.05 4.06 4.07 4.08 4.09 Business impact of malaria .......................................41 .....s Business impact of tuberculosis ...............................42 .....s Business impact of HIV/AIDS ....................................46 .....s Infant mortality* ........................................................46 .....s Life expectancy* .......................................................29 .....s Tuberculosis prevalence* ..........................................37 .....s Malaria prevalence*.....................................................1 .....s HIV prevalence* ........................................................51 .....s Primary enrollment* ................................................112 .....s 8.01 8.02 8.03 8.04 8.05 8.06 8.07 8.08

8th pillar: Business sophistication
Local supplier quantity...............................................44 .....s Local supplier quality .................................................35 .....s Production process sophistication.............................28 .....s Extent of marketing ...................................................31 .....s Control of international distribution ...........................35 .....s Willingness to delegate authority ..............................43 .....s Nature of competitive advantage ..............................41 .....s Value chain presence.................................................52 .....s

5th pillar: Higher education and training
5.01 5.02 5.03 5.04 5.05 5.06 5.07 Secondary enrollment*..............................................90 .....s Tertiary enrollment*...................................................73 .....s Quality of the educational system.............................32 .....s Quality of math and science education .....................41 .....s Quality of management schools................................52 .....s Local availability of research and training services....42 .....s Extent of staff training ...............................................38 .....s

9th pillar: Innovation
9.01 9.02 9.03 9.04 9.05 9.06 9.07 9.08 Quality of scientific research institutions ..................60 .....s Company spending on R&D ......................................42 .....s University-industry research collaboration.................48 .....s Gov’t. procurement of advanced tech products........12 .....s Availability of scientists and engineers......................83 .....s Utility patents* ..........................................................44 .....s Intellectual property protection..................................29 .....s Capacity for innovation ..............................................72 .....s

* Hard data Note: For descriptions of variables and detailed sources, please refer to “How to Read Country Profiles.”

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

4: Country Profiles

199

4: Country Profiles

United Arab Emirates
Reforms Need to Continue to Sustain Growth Momentum
KENNETH WILSON, Economic & Policy Research Unit, Zayed University

The United Arab Emirates is rapidly diversifying its economy, building on very good public institutions, infrastructure, and technological readiness. Going forward, major challenges will lie in upgrading education and incentivizing business to increase R&D activity.

T
200

he United Arab Emirates continues to make great strides in diversifying its economy to become less dependent on hydrocarbons. However, its performance is uneven and it still has major challenges and constraints to confront. These include its modest performance in all areas of education and innovation, its lack of entrepreneurship, and its high inflation rate. By contrast it has very good public institutions, infrastructure, and technological readiness. Considerable improvements have been made in the rule of law and corporate governance by the Ministry of Economy in the past two years. However, there remain some obstacles to transparency and efficiency because of the federal nature of the country (ranking on institutions: 28). Businesses often deal with three levels of government: the federal government, the emirate government, and the municipality. Currently, under the sponsorship of the Ministry of Economy and with the assistance of the Organisation for Economic Co-operation and Development (OECD), a new law and policy is being developed to facilitate greater foreign investment in the United Arab Emirates. In terms of infrastructure (where it ranks 25th), the United

Arab Emirates has excellent road networks, though there are traffic problems in Dubai and, increasingly, in Abu Dhabi. Massive airport expansions are currently underway in Dubai and Jebel Ali. Electricity generation is being expanded with international joint venture partners with the Dubai and Abu Dhabi local monopolies, and there are plans to create a national electricity grid. On macroeconomic performance (ranked 6th) the record is uneven. Although the United Arab Emirates does extremely well on government surplus, government debt, and national savings, it is experiencing excessive inflation— unofficially as high as 15% in Dubai—which is negatively affecting its real effective exchange rate. The housing shortage in Dubai and Abu Dhabi, the major source of inflation, is expected to be eliminated in the first quarter of 2008. The educational system is inadequate and in need of modernization at all levels. The federal government is responsible for primary education (which ranks 112th) and secondary education, but new reforms will devolve more responsibility to school districts. A rapidly expanding private education system caters for the children of non-nationals, but also a growing number of nationals seeking an alternative. Very little vocational training is offered and there are low participation rates at the tertiary level (the country ranks 60th for higher education and training). Very little research and development is undertaken in the United Arab Emirates, and no major research centers are linked to universities, resulting in a ranking of 42 on innovation.

The United Arab Emirates is a tax-free economy, but business regulations vary among emirates and are bureaucratic and tedious. To address this, various emirates have established free zones—36 are already operating or planned. Although the labor market is flexible, there is strong reliance on nonnational labor and very little privatesector employment of female nationals. There is considerable growth in the financial sector, with the established Abu Dhabi Securities Market and Dubai Financial Market leading the way, and the newer markets such as the Dubai International Financial Centre and the Dubai International Financial Exchange are starting to gain traction, resulting in a ranking on market efficiency of 23. In terms of technological readiness (ranks 27th), the United Arab Emirates enjoys excellent IT infrastructure and bandwidth, but prices for telecommunications services are among the highest in the world. Also there are restrictions on Internet use, and Voice over Internet Protocol (VoIP) is currently banned to protect the profits of the local monopoly telecommunications firm Etisilat. The arrival of a second telecommunications firm, Du, scheduled to commence operations in March 2007, may change things somewhat.

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

United Arab Emirates
GDP (PPP US$) per capita, 1980–2005
30,000

United Arab Emirates MENA

25,000 20,000 15,000 10,000 5,000 0

Source: IMF; World Bank

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

Foreign direct investment (FDI)
14,000 10 8 Projected 6 4 2 0 2000 2005 2010 –2

10,000 8,000 6,000 4,000 2,000 0

FDI inflows (percent of GDP)

Source: UNCTAD; Columbia University; IMF

–2,000

Percent of GDP

US$ millions

s FDI inflows (US$ millions)

12,000

Trade
Exports by country of destination
Share of total volume, 2005 (percent)

Exports by sector
Share of total volume, 2005 (percent)

Korea: 15% Japan: 38% Thailand: 8% Singapore: 4% Pakistan: 4% Petroleum, petroleum products: 57%

Gas, natural and manufactured: 8% Non-metallic mineral manufactures: 5% Telecom and sound equipment: 3% Gold, non-monetary excluding ores: 3%

Others: 31% Others: 24%

Total value of exports (US$ millions): 67,062

Trade diversification
Number of exported product groups out of 261

Tariffs
Percent 10 8

2001..................................................................................3.2 2005..................................................................................4.5

s MENA countries s World

6 4 2 0

Average faced tariff
Source: International Trade Centre; UN Comtrade Note: For descriptions of variables and detailed sources, please refer to “How to Read the Country Profiles.”

Average applied tariff

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

4: Country Profiles

201

Part 5
Data Tables

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

How to Read the Data Tables
THIERRY GEIGER, World Economic Forum

The following pages present the ranks and scores of the 13 Arab World countries included in this Report on all the variables composing the updated Global Competitiveness Index 2007 (GCI 2007). In addition, for the sake of comparison, 10 additional countries are listed. Numbers to the left of the country names correspond to the ranks among the 128 economies covered by the GCI 2007. The data are organized into nine sections, corresponding to the nine pillars of the GCI 2007:
I. II. III. IV. V. VI. VII. VIII. IX. Institutions Infrastructure Macroeconomy Health and primary education Higher education and training Market efficiency Technological readiness Business sophistication Innovation

Two types of data are used in the GCI 2007: Survey data and hard data. • Survey data: average responses in each country to questions included in the World Economic Forum’s Executive Opinion Survey, conducted in the early months of 2006. • Hard data: indicators obtained from a variety of sources.

Survey data Data yielded from the World Economic Forum’s Executive Opinion Survey are presented in blue-colored bar graphs. Questions asked for responses on a scale of 1 to 7, where an answer of 1 corresponds to the lowest possible score and an answer of 7 corresponds to the highest possible score. For each Survey variable, the original question and the two extreme answers are shown.The average score for each country—that is, the arithmetic mean of responses from each country—is reported with a precision of one decimal point, although we use exact figures to determine rankings. For example, in the case of variable 6.16 on pay and productivity, Oman’s average score is 4.36956 and Kuwait’s average score is 4.36190.These countries are ranked 48th and 49th respectively, although they are both listed with the same rounded score of 4.4. A dotted line on the graph indicates the mean score across the sample of the 128 economies covered by the GCI 2007—not only across the countries shown in the tables. Standard deviations are shown next to the bars representing each country’s mean score.The standard deviation indicates how closely or widely the individual responses are spread around the mean country score. In other words, it provides information on the extent of agreement on the question within the given country. The smaller the standard deviation, the greater the consensus among respondents.

4: Data Tables | Institutions

1.01
Property rights
Property rights, including over financial assets (1 = are poorly defined and not protected by law, 7 = are clearly defined and well protected by law)

1.02
Diversion of public funds
In your country, diversion of public funds to companies, individuals, or groups due to corruption (1 = is common, 7 = never occurs)

RANK COUNTRY

SCORE

1

MEAN: 4/6

7

SD

RANK COUNTRY

SCORE

1

MEAN: 3.9

7

SD

11 Singapore......................6.3 13 Norway .........................6.3 15 Japan ............................6.2 19 Oman ............................5.9 22 United States................5.8 26 India ..............................5.7 36 Tunisia...........................5.4 39 Qatar .............................5.3 43 United Arab Emirates ...5.1 47 Jordan ...........................5.0 48 Bahrain..........................5.0 54 Turkey ...........................4.8 55 Kuwait...........................4.8 57 Morocco .......................4.8 58 Egypt ............................4.7

0.8 0.7 1.0 1.1 1.3 1.3 1.3 1.5 1.7 1.5 1.7 1.5 1.8 1.9 1.8 1.5 1.5 2.0 1.5 1.9 1.5 2.1 1.5

5 Norway .........................6.3 6 Singapore......................6.3 9 Oman ............................6.2 17 United Arab Emirates ...5.7 19 Qatar .............................5.6 24 Tunisia...........................5.2 27 Japan ............................5.0 28 Kuwait...........................5.0 29 United States................5.0 32 Jordan ...........................4.9 37 Libya .............................4.7 43 Syria ..............................4.4 44 Egypt ............................4.3 47 Bahrain..........................4.0 51 Turkey ...........................3.9 55 India ..............................3.9 74 China.............................3.3 77 Morocco .......................3.3 80 Algeria...........................3.2 82 Mexico ..........................3.2 85 Mauritania .....................3.2 91 Russian Federation .......3.0 124 Brazil .............................2.1

0.6 0.7 1.4 1.4 1.8 1.3 1.5 1.5 1.5 1.7 2.1 2.0 1.7 1.8 1.5 1.6 1.4 1.7 1.7 1.4 1.6 1.5 1.3

8

61 Mexico ..........................4.6 63 Brazil .............................4.6 67 Algeria...........................4.5 83 China.............................4.0 88 Syria ..............................3.8 95 Mauritania .....................3.7 96 Libya .............................3.7 117 Russian Federation .......3.2

SOURCE: World Economic Forum, Executive Opinion Survey 2006

SOURCE: World Economic Forum, Executive Opinion Survey 2006

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

How to Read the Data Tables

205

How to Read the Data Tables

Hard data
4: Data Tables | Macroeconomy

3.01
Government balance
Government fiscal surplus/deficit as a percentage of GDP, 2005 or most recent year available

3.02
National savings rate
National savings rate as a percentage of GDP, 2005 or most recent year available

RANK COUNTRY

HARD DATA

RANK COUNTRY

HARD DATA

1 Kuwait ...............................36.8 2 Libya ..................................32.2 3 United Arab Emirates ........24.9 4 Qatar..................................19.7 5 Norway ..............................15.8 6 Algeria ...............................14.2 7 Oman.................................10.6 9 Russian Federation..............7.5 10 Bahrain ................................6.2 12 Singapore ............................6.0 57 China..................................–1.3 64 Mexico...............................–1.6 78 Tunisia................................–2.8 88 Brazil ..................................–3.3 92 Syria...................................–3.4

1 Kuwait ...............................59.0 2 Qatar..................................58.4 3 Libya ..................................57.3 4 Algeria ...............................51.2 5 China .................................47.6 6 Singapore ..........................47.1 8 United Arab Emirates ........44.5 10 Norway ..............................37.1 18 Russian Federation............32.1 21 India...................................29.1 25 Bahrain ..............................27.9 27 Japan .................................26.8 29 Morocco ............................25.7 36 Oman.................................24.8 50 Tunisia................................22.1 53 Brazil..................................21.8 58 Mexico...............................21.0 61 Syria...................................20.9 69 Egypt .................................19.5 77 Turkey ................................18.0 102 United States.....................13.6 119 Mauritania..........................10.0 124 Jordan..................................5.6

22

104 United States.....................–4.1 112 Jordan................................–5.2 116 Morocco ............................–5.7 117 Japan .................................–5.8 118 Turkey ................................–5.9 122 Mauritania..........................–6.8 125 India ...................................–7.5 127 Egypt ...............................–10.5

SOURCE: IMF, World Economic Outlook Database (April 2006)

SOURCE: IMF, World Economic Outlook April 2006, published version

While Survey data provide qualitative information, hard data are an objective measure of a quantity (for example, gross domestic product, malaria incidence, number of personal computers, number of procedures required to start a business, and so on).We use the latest data available from international organizations (such as the International Monetary Fund, the World Bank, various United Nations agencies, and the International Telecommunication Union).These data are completed, if necessary, by national sources. In the following pages, hard data variables are presented in black-shaded bar graphs. A detailed description and full source for each variable can be found in the Technical Notes and Sources section at the end of this Report. When data are not available or are too old, “n/a” is used in lieu of the rank and the value. In the case of hard data, true ties between two or more countries are possible. In such cases, shared rankings are indicated accordingly. For example, the number of procedures required to start a business—12—is the same in Syria and the United Arab Emirates. As a result, the two are listed with the same rank in Table 6.04.

206

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

List of Data Tables

Section I: Institutions
1.01 1.02 1.03 1.04 1.05 1.06 1.07 1.08 1.09 1.10 1.11 1.12 1.13 1.14 1.15 Property rights...............................................................210 Diversion of public funds ..............................................210 Public trust of politicians ...............................................211 Judicial independence...................................................211 Favoritism in decisions of government officials............212 Government spending ..................................................212 Burden of government regulation .................................213 Business costs of terrorism ..........................................213 Reliability of police services ..........................................214 Business costs of crime and violence ..........................214 Organized crime ............................................................215 Ethical behavior of firms ...............................................215 Efficacy of corporate boards .........................................216 Protection of minority shareholders’ interests..............216 Strength of auditing and accounting standards ............217

Section VI: Market efficiency
6.01 6.02 6.03 6.04 6.05 6.06 6.07 6.08 6.09 6.10 6.11 6.12 6.13 6.14 6.15 6.16 6.17 6.18 6.19 6.20 6.21 6.22 6.23 Agricultural policy costs ................................................240 Efficiency of legal framework .......................................240 Extent and effect of taxation ........................................241 Number of procedures required to start a business (hard data) ......................................................241 Time required to start a business (hard data) ...............242 Intensity of local competition........................................242 Effectiveness of antitrust policy....................................243 Imports (hard data)........................................................243 Prevalence of trade barriers ..........................................244 Prevalence of foreign ownership ..................................244 Exports (hard data) ........................................................245 Hiring and firing practices .............................................245 Flexibility of wage determination ..................................246 Cooperation in labor-employer relations ......................246 Reliance on professional management.........................247 Pay and productivity......................................................247 Brain drain .....................................................................248 Private-sector employment of women .........................248 Financial market sophistication .....................................249 Ease of access to loans ................................................249 Venture capital availability .............................................250 Soundness of banks......................................................250 Local equity market access ..........................................251

Section II: Infrastructure
2.01 2.02 2.03 2.04 2.05 2.06 Overall infrastructure quality .........................................220 Railroad infrastructure ...................................................220 Quality of port infrastructure.........................................221 Air transport infrastructure quality ................................221 Quality of electricity supply...........................................222 Telephone lines (hard data) ...........................................222

Section III: Macroeconomy
3.01 3.02 3.03 3.04 3.05 3.06 Government balance (hard data) ...................................224 National savings rate (hard data)...................................224 Inflation (hard data) .......................................................225 Interest rate spread (hard data).....................................225 Government debt (hard data) ........................................226 Real effective exchange rate (hard data) ......................226

Section VII: Technological readiness
7.01 7.02 7.03 7.04 7.05 7.06 7.07 Technological readiness ................................................254 Firm-level technology absorption ..................................254 Laws relating to ICT ......................................................255 FDI and technology transfer .........................................255 Mobile telephone subscribers (hard data).....................256 Internet users (hard data)..............................................256 Personal computers (hard data) ....................................257

Section IV: Health and primary education
4.01 4.02 4.03 4.04 4.05 4.06 4.07 4.08 4.09 Business impact of malaria ...........................................228 Business impact of tuberculosis ...................................228 Business impact of HIV/AIDS .......................................229 Infant mortality (hard data) ............................................229 Life expectancy (hard data) ...........................................230 Tuberculosis prevalence (hard data)..............................230 Malaria prevalence (hard data) ......................................231 HIV prevalence (hard data) ............................................231 Primary enrollment (hard data)......................................232

Section VIII: Business sophistication
8.01 8.02 8.03 8.04 8.05 8.06 8.07 8.08 Local supplier quantity ..................................................260 Local supplier quality.....................................................260 Production process sophistication ................................261 Extent of marketing ......................................................261 Control of international distribution...............................262 Willingness to delegate authority .................................262 Nature of competitive advantage..................................263 Value chain presence ....................................................263

Section V: Higher education and training
5.01 5.02 5.03 5.04 5.05 5.06 5.07 Secondary enrollment (hard data) .................................234 Tertiary enrollment (hard data) ......................................234 Quality of the educational system ................................235 Quality of math and science education ........................235 Quality of management schools ...................................236 Local availability of specialized research and training services .....................................................236 Extent of staff training .................................................237

Section IX: Innovation
9.01 9.02 9.03 9.04 9.05 9.06 9.07 9.08 Quality of scientific research institutions......................266 Company spending on research and development ......266 University-industry research collaboration ....................267 Government procurement of advanced technology products .....................................................267 Availability of scientists and engineers .........................268 Utility patents (hard data) ..............................................268 Intellectual property protection .....................................269 Capacity for innovation..................................................269

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

List of Data Tables

207

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Data Tables

Section I Institutions
209

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

5: Data Tables | Institutions

1.01
Property rights
Property rights, including over financial assets (1 = are poorly defined and not protected by law, 7 = are clearly defined and well protected by law)

1.02
Diversion of public funds
In your country, diversion of public funds to companies, individuals, or groups due to corruption (1 = is common, 7 = never occurs)

RANK COUNTRY

SCORE

1

MEAN: 4.6

7

SD

RANK COUNTRY

SCORE

1

MEAN: 3.9

7

SD

11 Singapore......................6.3 13 Norway .........................6.3 15 Japan ............................6.2 19 Oman ............................5.9 22 United States................5.8 26 India ..............................5.7 36 Tunisia...........................5.4 39 Qatar .............................5.3 43 United Arab Emirates ...5.1 47 Jordan ...........................5.0 48 Bahrain..........................5.0 54 Turkey ...........................4.8 55 Kuwait...........................4.8 57 Morocco .......................4.8 58 Egypt ............................4.7

0.8 0.7 1.0 1.1 1.3 1.3 1.3 1.5 1.7 1.5 1.7 1.5 1.8 1.9 1.8 1.5 1.5 2.0 1.5 1.9 1.5 2.1 1.5

5 Norway .........................6.3 6 Singapore......................6.3 9 Oman ............................6.2 17 United Arab Emirates ...5.7 19 Qatar .............................5.6 24 Tunisia...........................5.2 27 Japan ............................5.0 28 Kuwait...........................5.0 29 United States................5.0 32 Jordan ...........................4.9 37 Libya .............................4.7 43 Syria ..............................4.4 44 Egypt ............................4.3 47 Bahrain..........................4.0 51 Turkey ...........................3.9 55 India ..............................3.9 74 China.............................3.3 77 Morocco .......................3.3 80 Algeria...........................3.2 82 Mexico ..........................3.2 85 Mauritania .....................3.2 91 Russian Federation .......3.0 124 Brazil .............................2.1

0.6 0.7 1.4 1.4 1.8 1.3 1.5 1.5 1.5 1.7 2.1 2.0 1.7 1.8 1.5 1.6 1.4 1.7 1.7 1.4 1.6 1.5 1.3

210

61 Mexico ..........................4.6 63 Brazil .............................4.6 67 Algeria...........................4.5 83 China.............................4.0 88 Syria ..............................3.8 95 Mauritania .....................3.7 96 Libya .............................3.7 117 Russian Federation .......3.2

SOURCE: World Economic Forum, Executive Opinion Survey 2006

SOURCE: World Economic Forum, Executive Opinion Survey 2006

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Public trust of politicians
Public trust in the financial honesty of politicians is (1 = very low, 7 = very high)

Judicial independence
Is the judiciary in your country independent from political influences of members of government, citizens, or firms? (1 = no, heavily influenced, 7 = yes, entirely independent)

RANK COUNTRY

SCORE

1

MEAN: 2.7

7

SD

RANK COUNTRY

SCORE

1

MEAN: 3.9

7

SD

1 Singapore......................6.3 7 Norway .........................5.3 9 United Arab Emirates ...5.2 11 Qatar .............................5.0 13 Tunisia...........................4.6 18 Oman ............................4.2 25 United States................3.5 26 Japan ............................3.5 32 Jordan ...........................3.2 44 Kuwait...........................2.9 46 China.............................2.8 47 Algeria...........................2.8 48 Bahrain..........................2.7 51 Egypt ............................2.7 52 Turkey ...........................2.7 53 Morocco .......................2.7 58 Mauritania .....................2.5 60 India ..............................2.4 63 Syria ..............................2.4 80 Libya .............................2.1 88 Mexico ..........................2.0 110 Russian Federation .......1.7 122 Brazil .............................1.4

0.8 1.2 1.6 1.3 1.4 1.7 1.6 1.5 1.4 1.6 1.5 1.3 1.4 1.6 1.3 1.4 1.6 1.1 1.4 1.5 1.0 1.0 0.8

5 Norway .........................6.3 14 India ..............................5.9 20 Qatar .............................5.6 22 Japan ............................5.6 29 Singapore......................5.2 31 Kuwait...........................5.2 34 Tunisia...........................5.1 36 United States................5.0 38 Jordan ...........................4.9 39 Oman ............................4.8 40 Egypt ............................4.8 41 United Arab Emirates ...4.8 50 Libya .............................4.2 52 Turkey ...........................4.2 60 Mauritania .....................3.8 65 Algeria...........................3.7 69 Mexico ..........................3.6 76 Bahrain..........................3.4 77 Morocco .......................3.4 80 China.............................3.4 88 Syria ..............................3.0 95 Brazil .............................2.8 113 Russian Federation .......2.3

1.0 1.3 1.4 1.5 1.6 1.8 1.4 1.6 1.7 1.4 1.9 1.7 2.3 1.6 1.7 1.7 1.6 2.0 1.9 1.8 1.8 1.5 1.4

SOURCE: World Economic Forum, Executive Opinion Survey 2006

SOURCE: World Economic Forum, Executive Opinion Survey 2006

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

5: Data Tables | Institutions

1.03

1.04

211

5: Data Tables | Institutions

1.05
Favoritism in decisions of government officials
When deciding upon policies and contracts, government officials (1 = usually favor well-connected firms and individuals, 7 = are neutral)

1.06
Government spending
Public spending in your country (1 = is wasteful, 7 = provides necessary goods and services not provided by the market)

RANK COUNTRY

SCORE

1

MEAN: 3.2

7

SD

RANK COUNTRY

SCORE

1

MEAN: 3.3

7

SD

5 Singapore......................5.1 7 Norway .........................5.0 10 Tunisia...........................4.7 12 Oman ............................4.6 13 Qatar .............................4.5 18 Japan ............................4.3 25 Algeria...........................3.9 27 United Arab Emirates ...3.9 36 Mauritania .....................3.6 38 India ..............................3.6 40 United States................3.5 46 Jordan ...........................3.3 48 Egypt ............................3.2 51 Libya .............................3.2 52 Turkey ...........................3.2

1.4 1.1 1.2 1.6 1.8 1.6 1.9 1.7 2.1 1.3 1.5 1.7 1.5 1.7 1.3 1.6 1.5 1.6 1.3 1.5 1.1 1.4 1.3

1 Singapore......................5.9 3 Tunisia...........................5.3 4 Qatar .............................5.2 8 United Arab Emirates ...4.9 12 Norway .........................4.7 14 Oman ............................4.7 28 United States................3.9 31 Bahrain..........................3.7 36 Algeria...........................3.7 37 Jordan ...........................3.7 42 India ..............................3.6 47 Mexico ..........................3.4 52 Morocco .......................3.4 54 China.............................3.3 55 Kuwait...........................3.3 59 Turkey ...........................3.3 64 Egypt ............................3.2 72 Libya .............................3.0 76 Japan ............................3.0 78 Syria ..............................3.0 100 Russian Federation .......2.6 108 Mauritania .....................2.5 122 Brazil .............................1.9

0.7 1.0 1.4 1.3 1.1 1.4 1.5 1.4 1.8 1.3 1.2 1.2 1.5 1.6 1.5 1.3 1.6 1.6 1.5 1.5 1.3 1.5 1.1

212

53 Morocco .......................3.2 56 Bahrain..........................3.1 62 China.............................3.0 72 Syria ..............................2.9 78 Kuwait...........................2.8 88 Mexico ..........................2.7 90 Brazil .............................2.7 117 Russian Federation .......2.2

SOURCE: World Economic Forum, Executive Opinion Survey 2006

SOURCE: World Economic Forum, Executive Opinion Survey 2006

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Burden of government regulation
Complying with administrative requirements (permits, regulations, reporting) issued by the government in your country is (1 = burdensome, 7 = not burdensome)

Business costs of terrorism
The threat of terrorism in your country (1 = imposes significant costs on business, 7 = does not impose significant costs on business)

RANK COUNTRY

SCORE

1

MEAN: 3.1

7

SD

RANK COUNTRY

SCORE

1

MEAN: 5.0

7

SD

2 Singapore......................5.1 6 Mauritania .....................4.6 8 United Arab Emirates ...4.3 11 Tunisia...........................4.2 16 Qatar .............................3.9 20 Norway .........................3.8 24 Jordan ...........................3.6 25 Japan ............................3.6 27 United States................3.6 32 Bahrain..........................3.4 35 China.............................3.4 37 Oman ............................3.4 48 Morocco .......................3.1 63 Algeria...........................3.0 65 Turkey ...........................3.0 68 India ..............................2.9 73 Kuwait...........................2.9 74 Egypt ............................2.9 86 Syria ..............................2.7 96 Mexico ..........................2.6 99 Libya .............................2.6 119 Russian Federation .......2.2 127 Brazil .............................1.9

1.3 2.2 1.6 1.4 1.4 1.4 1.4 1.3 1.5 1.7 1.4 2.2 1.6 1.5 1.1 1.4 1.6 1.6 1.4 1.2 1.6 1.3 1.1

3 Brazil .............................6.2 14 Oman ............................5.9 16 Tunisia...........................5.9 19 Libya .............................5.8 29 Syria ..............................5.7 40 Mauritania .....................5.4 45 United Arab Emirates ...5.4 49 Norway .........................5.3 49 Qatar .............................5.3 54 Mexico ..........................5.3 74 Kuwait...........................5.1 80 Singapore......................5.0 87 India ..............................4.8 91 Morocco .......................4.7 93 Turkey ...........................4.6 99 Jordan ...........................4.4 100 Japan ............................4.4 102 Bahrain..........................4.3 105 Egypt ............................4.3 106 Russian Federation .......4.3 107 China.............................4.2 114 United States................3.8 118 Algeria...........................3.7

1.5 1.7 1.4 2.0 1.8 2.1 1.6 1.8 1.5 1.7 1.7 1.5 1.6 1.8 1.7 1.8 1.7 1.9 2.2 1.9 1.7 1.7 2.2

SOURCE: World Economic Forum, Executive Opinion Survey 2006

SOURCE: World Economic Forum, Executive Opinion Survey 2006

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

5: Data Tables | Institutions

1.07

1.08

213

5: Data Tables | Institutions

1.09
Reliability of police services
Police services (1 = cannot be relied upon to protect businesses from criminals, 7 = can be relied upon to protect businesses from criminals)

1.10
Business costs of crime and violence
The incidence of common crime and violence (e.g., street muggings, firms being looted) (1 = imposes significant costs on businesses, 7 = does not impose significant costs on businesses)

RANK COUNTRY

SCORE

1

MEAN: 4.2

7

SD

RANK COUNTRY

SCORE

1

MEAN: 4.3

7

SD

3 Oman ............................6.5 4 Singapore......................6.5 8 Norway .........................6.2 11 Jordan ...........................6.0 12 United Arab Emirates ...5.9 17 United States................5.7 18 Japan ............................5.7 22 Qatar .............................5.5 25 Tunisia...........................5.5 27 Kuwait...........................5.4 34 Algeria...........................5.1 36 Morocco .......................5.0 46 Syria ..............................4.5 47 Egypt ............................4.5 49 Turkey ...........................4.5

1.0 0.6 0.9 1.2 1.3 1.4 1.2 1.6 1.3 1.4 1.5 1.7 2.0 1.8 1.4 1.5 2.0 1.7 2.1 1.5 1.4 1.6 1.5

3 Oman ............................6.7 5 Singapore......................6.6 10 Norway .........................6.4 11 Jordan ...........................6.2 12 United Arab Emirates ...6.2 13 Japan ............................6.1 14 Qatar .............................6.0 20 Syria ..............................5.8 22 Kuwait...........................5.6 23 Tunisia...........................5.6 25 Libya .............................5.6 27 India ..............................5.6 45 United States................5.0 47 Morocco .......................5.0 50 Bahrain..........................4.9 51 Egypt ............................4.8 54 Turkey ...........................4.7 61 Mauritania .....................4.5 73 China.............................4.0 83 Algeria...........................3.8 85 Russian Federation .......3.7 115 Brazil .............................2.7 120 Mexico ..........................2.4

0.7 0.7 0.8 0.8 1.5 1.2 1.4 1.5 1.6 1.4 1.7 1.5 1.6 1.8 1.7 1.8 1.6 1.6 1.7 2.0 1.7 1.6 1.2

214

50 India ..............................4.5 56 Bahrain..........................4.4 63 Mauritania .....................4.2 66 Libya .............................4.1 67 China.............................4.0 108 Mexico ..........................3.0 109 Russian Federation .......3.0 111 Brazil .............................2.9

SOURCE: World Economic Forum, Executive Opinion Survey 2006

SOURCE: World Economic Forum, Executive Opinion Survey 2006

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Organized crime
Organized crime (mafia-oriented racketeering, extortion) in your country (1 = imposes significant costs on businesses, 7 = does not impose significant costs on businesses)

Ethical behavior of firms
The corporate ethics (ethical behavior in interactions with public officials, politicians, and other enterprises) of firms in your country are (1 = among the world’s worst, 7 = among the best in the world)

RANK COUNTRY

SCORE

1

MEAN: 4.8

7

SD

RANK COUNTRY

SCORE

1

MEAN: 4.3

7

SD

3 Oman ............................6.7 5 Singapore......................6.6 6 Jordan ...........................6.5 9 Norway .........................6.5 10 Libya .............................6.5 14 Kuwait...........................6.3 18 United Arab Emirates ...6.2 19 Qatar .............................6.2 20 Syria ..............................6.2 21 Bahrain..........................6.1 30 Egypt ............................5.8 42 Tunisia...........................5.5 46 Japan ............................5.4 47 India ..............................5.4 49 Morocco .......................5.3 58 United States................5.0 63 Mauritania .....................4.9 70 Algeria...........................4.7 73 Turkey ...........................4.6 94 Russian Federation .......3.8 95 China.............................3.8 113 Brazil .............................3.3 117 Mexico ..........................3.1

0.7 0.8 0.9 0.7 1.0 1.1 1.3 1.3 1.5 1.4 1.7 1.6 1.5 1.4 1.7 1.5 1.6 1.8 1.5 1.7 1.7 1.7 1.6

6 Singapore......................6.2 8 Norway .........................6.1 19 Japan ............................5.6 21 United States................5.5 22 Oman ............................5.5 26 United Arab Emirates ...5.1 29 Tunisia...........................5.0 32 Qatar .............................4.8 34 Kuwait...........................4.8 42 Bahrain..........................4.6 43 Mexico ..........................4.6 44 Jordan ...........................4.5 46 India ..............................4.5 48 Turkey ...........................4.4 50 Egypt ............................4.4 58 Syria ..............................4.2 69 Libya .............................4.1 70 Algeria...........................4.1 73 Mauritania .....................4.0 75 Brazil .............................4.0 96 Morocco .......................3.7 107 China.............................3.5 120 Russian Federation .......3.2

0.8 0.8 1.1 1.3 1.3 1.3 1.0 1.3 1.1 1.2 1.3 1.2 1.1 1.2 1.2 1.4 1.5 1.3 1.5 1.3 1.4 1.3 1.2

SOURCE: World Economic Forum, Executive Opinion Survey 2006

SOURCE: World Economic Forum, Executive Opinion Survey 2006

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

5: Data Tables | Institutions

1.11

1.12

215

5: Data Tables | Institutions

1.13
Efficacy of corporate boards
Corporate governance by investors and boards of directors in your country is characterized by (1 = management has little accountability, 7 = investors and boards exert strong supervision of management decisions)

1.14
Protection of minority shareholders’ interests
Interests of minority shareholders in your country are (1 = not protected by law and seldom recognized by majority shareholders, 7 = protected by law and actively enforced)

RANK COUNTRY

SCORE

1

MEAN: 4.6

7

SD

RANK COUNTRY

SCORE

1

MEAN: 4.4

7

SD

13 Norway .........................5.5 15 United States................5.5 16 Singapore......................5.4 27 Oman ............................5.2 28 India ..............................5.1 31 Japan ............................5.1 32 Qatar .............................5.1 38 Russian Federation .......4.9 51 Mexico ..........................4.7 58 Tunisia...........................4.6 61 United Arab Emirates ...4.5 66 Brazil .............................4.5 72 Jordan ...........................4.4 74 Bahrain..........................4.4 80 Egypt ............................4.3

0.7 1.3 1.0 0.9 1.1 1.1 1.4 1.5 1.2 1.6 1.4 1.3 1.4 1.4 1.7 1.2 1.6 1.6 1.7 1.6 1.7 1.5 1.8

12 Norway .........................5.7 13 India ..............................5.6 16 United States................5.6 19 Tunisia...........................5.5 22 Singapore......................5.4 23 Oman ............................5.3 27 Qatar .............................5.2 32 Japan ............................5.0 38 Algeria...........................4.9 40 Bahrain..........................4.8 44 Jordan ...........................4.8 45 Brazil .............................4.7 54 United Arab Emirates ...4.6 55 Mexico ..........................4.6 59 Turkey ...........................4.5 61 Egypt ............................4.4 64 Morocco .......................4.4 66 Kuwait...........................4.4 68 Mauritania .....................4.2 76 Libya .............................4.1 92 Syria ..............................3.9 116 China.............................3.3 123 Russian Federation .......2.9

1.2 1.1 1.3 1.5 1.1 1.0 1.4 1.3 1.7 1.8 1.6 1.5 1.7 1.4 1.6 1.8 1.9 1.8 1.4 2.0 1.8 1.5 1.5

216

84 Turkey ...........................4.3 92 Mauritania .....................4.2 94 Kuwait...........................4.1 102 Morocco .......................4.0 107 Algeria...........................3.9 118 Syria ..............................3.8 121 China.............................3.7 127 Libya .............................3.0

SOURCE: World Economic Forum, Executive Opinion Survey 2006

SOURCE: World Economic Forum, Executive Opinion Survey 2006

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Strength of auditing and accounting standards
Financial auditing and reporting standards regarding company financial performance in your country are (1 = extremely weak, 7 = extremely strong—the best in the world)

RANK COUNTRY

SCORE

1

MEAN: 4.7

7

SD

18 Norway .........................6.0 19 Singapore......................6.0 21 India ..............................6.0 22 United States................5.9 28 Bahrain..........................5.6 31 Japan ............................5.5 32 Oman ............................5.5 36 Kuwait...........................5.4 37 United Arab Emirates ...5.3 41 Qatar .............................5.3 48 Jordan ...........................5.1 50 Tunisia...........................5.1 61 Turkey ...........................4.8 62 Brazil .............................4.8 64 Mexico ..........................4.7 72 Egypt ............................4.5 88 Morocco .......................4.0 89 Russian Federation .......4.0 102 Algeria...........................3.7 109 China.............................3.6 116 Libya .............................3.4 119 Mauritania .....................3.3 124 Syria ..............................3.2

0.6 0.6 0.9 1.1 0.8 1.0 1.0 1.2 1.2 1.3 1.1 0.9 1.1 1.4 1.1 1.6 1.5 1.3 1.5 1.4 1.8 1.5 1.6

SOURCE: World Economic Forum, Executive Opinion Survey 2006

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

5: Data Tables | Institutions

1.15

217

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Data Tables

Section II Infrastructure
219

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

5: Data Tables | Infrastructure

2.01
Overall infrastructure quality
General infrastructure in your country is (1 = underdeveloped, 7 = as extensive and efficient as the world’s best)

2.02
Railroad infrastructure
Railroads in your country are (1 = underdeveloped, 7 = as extensive and efficient as the world’s best)

RANK COUNTRY

SCORE

1

MEAN: 3.8

7

SD

RANK COUNTRY

SCORE

1

MEAN: 2.9

7

SD

2 Singapore......................6.6 8 Japan ............................6.3 11 United States................6.1 14 United Arab Emirates ...5.9 20 Norway .........................5.5 22 Oman ............................5.4 32 Bahrain..........................4.9 33 Kuwait...........................4.9 37 Tunisia...........................4.7 40 Jordan ...........................4.6 45 Qatar .............................4.4 57 Egypt ............................3.8 60 Morocco .......................3.7 61 Mexico ..........................3.6 65 Turkey ...........................3.5

0.5 1.1 1.2 1.1 1.0 0.8 1.3 1.4 1.2 1.1 1.5 1.5 1.6 1.1 1.1 1.4 1.3 1.2 1.3 1.3 1.2 1.4 1.0

2 Japan ............................6.6 9 Singapore......................5.7 15 United States................5.1 21 India ..............................4.7 24 Norway .........................4.4 25 Tunisia...........................4.4 30 Russian Federation .......3.9 33 China.............................3.8 47 Egypt ............................3.3 50 Morocco .......................3.1 60 Qatar .............................2.6 61 Syria ..............................2.5 66 Mexico ..........................2.4 68 Turkey ...........................2.3 73 Algeria...........................2.0 74 United Arab Emirates ...2.0 76 Jordan ...........................2.0 80 Kuwait...........................1.9 81 Mauritania .....................1.8 82 Brazil .............................1.8 93 Bahrain..........................1.6 108 Oman ............................1.4 120 Libya .............................1.2

0.9 1.3 1.5 1.3 1.2 1.3 1.6 1.4 1.6 1.6 2.2 1.4 1.1 1.1 0.9 1.8 1.2 1.5 1.2 1.1 1.2 1.3 0.7

220

66 China.............................3.4 70 India ..............................3.3 72 Algeria...........................3.1 74 Syria ..............................3.1 81 Brazil .............................2.9 87 Russian Federation .......2.7 109 Libya .............................2.2 126 Mauritania .....................1.7

SOURCE: World Economic Forum, Executive Opinion Survey 2006

SOURCE: World Economic Forum, Executive Opinion Survey 2006

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Quality of port infrastructure
Port facilities and inland waterways in your country are (1 = underdeveloped, 7 = as developed as the world’s best)

Air transport infrastructure quality
Passenger air transport in your country is (1 = infrequent, limited, and inefficient, 7 = as frequent, extensive, and efficient as the world’s best)

RANK COUNTRY

SCORE

1

MEAN: 3.7

7

SD

RANK COUNTRY

SCORE

1

MEAN: 4.5

7

SD

1 Singapore......................6.9 8 Japan ............................6.0 9 United Arab Emirates ...6.0 15 United States................5.7 17 Norway .........................5.6 26 Bahrain..........................5.3 28 Oman ............................5.1 35 Tunisia...........................4.8 43 Qatar .............................4.5 48 Kuwait...........................4.2 50 Jordan ...........................4.0 54 Morocco .......................3.8 56 China.............................3.7 62 Egypt ............................3.5 62 India ..............................3.5 65 Mexico ..........................3.4 66 Russian Federation .......3.4 77 Turkey ...........................3.1 79 Algeria...........................3.1 84 Syria ..............................2.9 90 Brazil .............................2.7 101 Mauritania .....................2.4 105 Libya .............................2.3

0.4 0.8 1.3 1.3 0.9 1.1 1.2 1.1 1.5 1.5 1.3 1.6 1.3 1.6 1.4 1.2 1.4 1.3 1.3 1.4 1.4 1.4 1.4

1 Singapore......................6.9 7 United Arab Emirates ...6.5 8 Japan ............................6.4 11 United States................6.2 19 Norway .........................5.9 35 Qatar .............................5.4 37 Bahrain..........................5.4 41 Oman ............................5.2 47 India ..............................5.1 48 Kuwait...........................5.0 49 Jordan ...........................5.0 50 Tunisia...........................5.0 55 Turkey ...........................4.7 56 Mexico ..........................4.7 57 Egypt ............................4.7 58 Brazil .............................4.6 66 Morocco .......................4.5 70 Russian Federation .......4.3 89 Syria ..............................3.7 91 China.............................3.7 93 Algeria...........................3.5 113 Libya .............................2.9 121 Mauritania .....................2.5

0.4 1.3 0.8 1.3 0.9 1.5 1.1 1.0 1.4 1.5 1.3 1.1 1.3 1.2 1.6 1.4 1.6 1.4 1.5 1.3 1.3 1.7 1.4

SOURCE: World Economic Forum, Executive Opinion Survey 2006

SOURCE: World Economic Forum, Executive Opinion Survey 2006

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

5: Data Tables | Infrastructure

2.03

2.04

221

Data Tables | Infrastructure

2.05
Quality of electricity supply
The quality of electricity supply in your country (lack of interruptions and lack of voltage fluctuations) is (1 = worse than in most other countries, 7 = meets the highest standards in the world)

2.06
Telephone lines
Main telephone lines per 100 inhabitants, 2005

RANK COUNTRY

SCORE

1

MEAN: 4.5

7

SD

RANK COUNTRY

HARD DATA

3 Japan ............................6.9 11 Singapore......................6.6 13 United Arab Emirates ...6.6 15 Norway .........................6.6 19 Kuwait...........................6.3 20 United States................6.3 28 Oman ............................6.1 35 Jordan ...........................5.6 39 Tunisia...........................5.5 42 Bahrain..........................5.4 44 Qatar .............................5.4 53 Morocco .......................5.0 54 Egypt ............................5.0 57 Brazil .............................5.0 70 Algeria...........................4.2

0.7 0.6 0.6 0.6 0.9 1.1 0.8 1.0 1.1 1.2 1.7 1.5 1.3 1.4 1.6 1.3 1.5 1.6 1.5 1.4 1.7 1.4 1.5

6 United States.....................60.6 21 Norway ..............................46.1 23 Japan .................................45.9 25 Singapore ..........................43.5 44 Russian Federation............27.9 45 United Arab Emirates ........27.5 46 Bahrain ..............................27.0 47 China .................................26.6 48 Qatar..................................26.4 50 Turkey ................................25.9 55 Brazil..................................23.0 62 Kuwait ...............................19.0 64 Mexico...............................18.2 69 Syria...................................15.2 73 Egypt .................................14.0 75 Libya ..................................13.6 80 Tunisia................................12.5 81 Jordan................................11.4 83 Oman.................................10.3 90 Algeria .................................7.8 99 India.....................................4.5 100 Morocco ..............................4.4 109 Mauritania............................1.3

222

72 Turkey ...........................4.1 74 Mexico ..........................4.1 78 Libya .............................4.0 80 Syria ..............................4.0 82 China.............................3.9 85 Russian Federation .......3.8 100 India ..............................3.1 106 Mauritania .....................3.0

SOURCE: World Economic Forum, Executive Opinion Survey 2006

SOURCE: International Telecommunication Union, World

Telecommunication Indicators 2006

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Data Tables

Section III Macroeconomy
223

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

5: Data Tables | Macroeconomy

3.01
Government balance
Government fiscal surplus/deficit as a percentage of GDP, 2005 or most recent year available

3.02
National savings rate
National savings rate as a percentage of GDP, 2005 or most recent year available

RANK COUNTRY

HARD DATA

RANK COUNTRY

HARD DATA

1 Kuwait ...............................36.8 2 Libya ..................................32.2 3 United Arab Emirates ........24.9 4 Qatar..................................19.7 5 Norway ..............................15.8 6 Algeria ...............................14.2 7 Oman.................................10.6 9 Russian Federation..............7.5 10 Bahrain ................................6.2 12 Singapore ............................6.0 57 China..................................–1.3 64 Mexico...............................–1.6 78 Tunisia................................–2.8 88 Brazil ..................................–3.3 92 Syria...................................–3.4

1 Kuwait ...............................59.0 2 Qatar..................................58.4 3 Libya ..................................57.3 4 Algeria ...............................51.2 5 China .................................47.6 6 Singapore ..........................47.1 8 United Arab Emirates ........44.5 10 Norway ..............................37.1 18 Russian Federation............32.1 21 India...................................29.1 25 Bahrain ..............................27.9 27 Japan .................................26.8 29 Morocco ............................25.7 36 Oman.................................24.8 50 Tunisia................................22.1 53 Brazil..................................21.8 58 Mexico...............................21.0 61 Syria...................................20.9 69 Egypt .................................19.5 77 Turkey ................................18.0 102 United States.....................13.6 119 Mauritania..........................10.0 124 Jordan..................................5.6

224

104 United States.....................–4.1 112 Jordan................................–5.2 116 Morocco ............................–5.7 117 Japan .................................–5.8 118 Turkey ................................–5.9 122 Mauritania..........................–6.8 125 India ...................................–7.5 127 Egypt ...............................–10.5

SOURCE: IMF, World Economic Outlook Database (April 2006)

SOURCE: IMF, World Economic Outlook April 2006, published version

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Inflation
Annual percent change in consumer price index, average for 2005

Interest rate spread
Average interest rate spread, 2005

RANK COUNTRY

HARD DATA

RANK COUNTRY

HARD DATA

1 Japan .................................–0.3 2 Singapore ............................0.5 8 Morocco ..............................1.0 13 Algeria .................................1.6 13 Norway ................................1.6 16 China ...................................1.8 19 Oman...................................1.9 22 Tunisia..................................2.0 34 Libya ....................................2.5 39 Bahrain ................................2.6 47 Qatar....................................3.0 53 United States.......................3.4 56 Jordan..................................3.5 60 Kuwait .................................3.9 61 Mexico.................................4.0 65 India.....................................4.2 80 United Arab Emirates ..........6.0 85 Brazil....................................6.9 90 Syria.....................................7.2 97 Turkey ..................................8.2 112 Egypt .................................11.4 114 Mauritania..........................12.1 117 Russian Federation............12.6

2 Japan ...................................1.4 9 Norway ................................2.2 13 Libya ....................................2.5 16 United States.......................2.7 22 Tunisia..................................3.0 24 Syria.....................................3.1 27 China ...................................3.3 36 Oman...................................3.7 40 Qatar....................................4.0 42 Kuwait .................................4.0 44 United Arab Emirates ..........4.1 53 Jordan..................................4.7 54 India.....................................4.8 57 Singapore ............................4.9 63 Turkey ..................................5.6 67 Egypt ...................................5.9 73 Algeria .................................6.3 74 Mexico.................................6.4 77 Russian Federation..............6.7 80 Bahrain ................................7.1 87 Morocco ..............................8.0 121 Brazil..................................37.8 n/a Mauritania............................n/a

SOURCE: IMF, World Economic Outlook Database (April 2006)

SOURCE: IMF, International Financial Statistics; Economist Intelligence

Unit, CountryData Database (June 2006)

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

5: Data Tables | Macroeconomy

3.03

3.04

225

5: Data Tables | Macroeconomy

3.05
Government debt
Net domestic and external debt contracted by the government in percent of GDP, 2005

3.06
Real effective exchange rate
Real effective exchange rate 2005 relative to the 1997–2004 average

RANK COUNTRY

HARD DATA

RANK COUNTRY

HARD DATA

2 Libya ....................................1.2 8 United Arab Emirates ..........8.4 10 Oman.................................11.0 12 Kuwait ...............................13.0 13 Russian Federation............14.2 23 China .................................22.3 25 Qatar..................................24.5 28 Algeria ...............................28.5 47 Mexico...............................43.8 53 Norway ..............................46.4 70 Tunisia................................56.9 73 Syria...................................59.9 76 United States.....................62.9 85 Morocco ............................70.0 86 Brazil..................................71.4

1 Libya ................................–68.2 5 Egypt ...............................–29.0 13 Algeria..............................–16.5 16 Oman...............................–14.9 20 Tunisia..............................–12.4 21 Syria.................................–12.4 24 Japan ...............................–10.0 25 Bahrain...............................–9.8 29 Singapore...........................–8.4 32 China..................................–7.5 38 United States.....................–6.1 40 Jordan................................–5.8 41 United Arab Emirates ........–5.6 43 Kuwait................................–4.9 45 Morocco ............................–4.7 46 Mauritania..........................–4.6 61 Mexico.................................0.1 62 Brazil....................................0.2 73 Qatar....................................2.1 81 India.....................................4.5 85 Norway ................................5.2 119 Russian Federation............21.8 120 Turkey ................................22.1

226

89 Turkey ................................72.8 91 India...................................83.8 93 Jordan................................86.2 100 Singapore ..........................99.6 104 Egypt ...............................108.2 106 Mauritania........................109.3 111 Japan ...............................175.5 n/a Bahrain.................................n/a

SOURCE: IMF

SOURCE: IMF, Information Notice Systems Database (June 2006)

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Data Tables

Section IV Health and primary education
227

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

5: Data Tables | Health and primary education

4.01
Business impact of malaria
How serious do you consider the future impact of malaria on your company in the next 5 years? (1 = extremely serious, 7 = not a problem)

4.02
Business impact of tuberculosis
How serious do you consider the future impact of tuberculosis on your company in the next 5 years? (1 = extremely serious, 7 = not a problem)

RANK COUNTRY

SCORE

1

MEAN: 5.7

7

SD

RANK COUNTRY

SCORE

1

MEAN: 5.5

7

SD

3 Norway .........................6.9 7 Bahrain..........................6.8 28 Turkey ...........................6.6 32 Jordan ...........................6.6 34 Kuwait...........................6.6 35 Tunisia...........................6.6 41 United Arab Emirates ...6.4 43 Syria ..............................6.4 46 Japan ............................6.4 47 Mexico ..........................6.4 48 Oman ............................6.4 50 Russian Federation .......6.3 55 Brazil .............................6.2 56 Qatar .............................6.2 59 Egypt ............................6.2

0.5 0.5 0.8 0.8 1.1 0.6 1.0 1.4 1.1 1.1 1.3 1.3 1.2 1.2 1.6 1.4 1.8 1.7 1.2 2.0 1.5 1.6 1.6

5 Norway .........................6.8 18 Kuwait...........................6.5 24 Turkey ...........................6.5 27 Tunisia...........................6.4 31 Jordan ...........................6.4 32 Syria ..............................6.4 33 Bahrain..........................6.4 40 Mexico ..........................6.3 41 Brazil .............................6.2 42 United Arab Emirates ...6.2 44 Oman ............................6.2 45 Qatar .............................6.2 46 Japan ............................6.2 48 Singapore......................6.2 49 United States................6.1 58 Egypt ............................5.9 64 Algeria...........................5.8 68 Morocco .......................5.7 69 Russian Federation .......5.7 78 China.............................5.5 83 Libya .............................5.5 85 India ..............................5.4 104 Mauritania .....................4.4

0.7 1.2 0.9 0.8 1.0 1.4 1.1 1.1 1.3 1.2 1.1 1.1 1.3 1.2 1.3 1.8 1.8 1.9 1.6 1.6 2.2 1.6 1.6

228

64 United States................6.1 65 Algeria...........................6.1 66 Morocco .......................6.0 67 Singapore......................6.0 74 Libya .............................5.9 87 India ..............................5.5 89 China.............................5.5 110 Mauritania .....................4.1

SOURCE: World Economic Forum, Executive Opinion Survey 2006

SOURCE: World Economic Forum, Executive Opinion Survey 2006

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Business impact of HIV/AIDS
How serious do you consider the future impact of HIV/AIDS on your company in the next 5 years? (1 = extremely serious, 7 = not a problem)

Infant mortality
Infant (children aged 0–12 months) mortality per 1,000 live births, 2004

RANK COUNTRY

SCORE

1

MEAN: 4.9

7

SD

RANK COUNTRY

HARD DATA

1 Norway .........................6.6 9 Turkey ...........................6.3 12 Tunisia...........................6.3 14 Oman ............................6.3 20 Kuwait...........................6.1 23 Jordan ...........................6.1 24 Syria ..............................6.0 26 Qatar .............................6.0 29 Bahrain..........................5.9 38 Singapore......................5.7 41 Japan ............................5.7 46 United Arab Emirates ...5.6 49 Russian Federation .......5.6 50 Brazil .............................5.6 53 Egypt ............................5.6 58 Algeria...........................5.3 60 Mexico ..........................5.3 65 China.............................5.2 73 United States................5.1 81 Morocco .......................4.6 82 Libya .............................4.6 98 India ..............................4.0 106 Mauritania .....................3.4

0.7 1.1 0.9 1.1 1.5 1.2 1.7 1.2 1.3 1.2 1.5 1.6 1.7 1.5 2.0 2.1 1.4 1.8 1.7 2.2 2.3 1.9 2.1

1 Singapore ............................2.0 3 Japan ...................................3.0 3 Norway ................................3.0 32 United States.......................6.0 35 United Arab Emirates ..........7.0 41 Bahrain ................................9.0 43 Kuwait ...............................10.0 43 Oman.................................10.0 43 Qatar..................................10.0 53 Russian Federation............13.0 58 Libya ..................................15.0 58 Syria...................................15.0 70 Tunisia................................21.0 72 Jordan................................23.0 72 Mexico...............................23.0 78 China .................................26.0 78 Egypt .................................26.0 82 Turkey ................................28.0 88 Brazil..................................32.0 90 Algeria ...............................35.0 91 Morocco ............................38.0 102 India...................................62.0 108 Mauritania..........................78.0

SOURCE: World Economic Forum, Executive Opinion Survey 2006

SOURCE: World Health Organization, World Health Statistics 2006

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

5: Data Tables | Health and primary education

4.03

4.04

229

5: Data Tables | Health and primary education

4.05
Life expectancy
Life expectancy at birth (years), 2004

4.06
Tuberculosis prevalence
Estimated number of tuberculosis cases per 100,000 inhabitants, 2004

RANK COUNTRY

HARD DATA

RANK COUNTRY

HARD DATA

1 Japan .................................82.0 8 Norway ..............................80.0 8 Singapore ..........................80.0 24 United States.....................78.0 29 Kuwait ...............................77.0 29 United Arab Emirates ........77.0 36 Qatar..................................76.0 45 Bahrain ..............................74.0 45 Mexico...............................74.0 45 Oman.................................74.0 54 China .................................72.0 54 Libya ..................................72.0 54 Syria...................................72.0 54 Tunisia................................72.0 69 Algeria ...............................71.0

3 United States.......................3.6 4 Norway ................................4.1 8 Jordan..................................5.0 28 Oman.................................12.4 34 Libya ..................................20.0 36 Tunisia................................24.0 37 United Arab Emirates ........25.9 39 Kuwait ...............................29.8 45 Egypt .................................34.9 47 Japan .................................39.4 48 Singapore ..........................40.8 49 Mexico...............................43.2 51 Turkey ................................44.8 53 Bahrain ..............................49.8 55 Syria...................................50.8 59 Algeria ...............................53.9 66 Qatar..................................76.6 67 Brazil..................................76.7 76 Morocco ..........................105.2 87 Russian Federation..........160.3 95 China ...............................221.1 103 India.................................312.2 112 Mauritania........................502.4

230

69 Jordan................................71.0 69 Morocco ............................71.0 69 Turkey ................................71.0 78 Brazil..................................70.0 82 Egypt .................................68.0 92 Russian Federation............65.0 100 India...................................62.0 105 Mauritania..........................58.0

SOURCE: World Health Organization, The World Health Report 2006

SOURCE: World Health Organization, World Health Statistics 2006,

The World Health Report 2006 Edition

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Malaria prevalence
Estimated number of malaria cases per 100,000 inhabitants, 2004 or most recent year available

HIV prevalence
HIV prevalence as a percentage of adults aged 15–49 years, 2003 or most recent year available

RANK COUNTRY

HARD DATA

RANK COUNTRY

HARD DATA

1 Bahrain ................................0.0 1 Egypt ...................................0.0 1 Japan ...................................0.0 1 Jordan..................................0.0 1 Kuwait .................................0.0 1 Norway ................................0.0 1 Qatar....................................0.0 1 Russian Federation..............0.0 1 Singapore ............................0.0 1 Tunisia..................................0.0 1 United Arab Emirates ..........0.0 1 United States.......................0.0 56 Syria.....................................0.0 61 Oman...................................0.2 62 Libya ....................................0.2 63 Morocco ..............................0.2 66 Algeria .................................1.0 73 China ...................................3.1 74 Mexico.................................3.2 79 Turkey ................................12.9 97 India.................................167.2 101 Brazil................................254.2 114 Mauritania.....................5,979.4

1 Egypt ...................................0.0 1 Japan ...................................0.0 1 Jordan..................................0.0 1 Kuwait .................................0.0 1 Qatar....................................0.0 1 Syria.....................................0.0 1 Tunisia..................................0.0 1 Turkey ..................................0.0 27 Libya ....................................0.0 28 Algeria .................................0.1 28 China ...................................0.1 28 Morocco ..............................0.1 28 Norway ................................0.1 28 Oman...................................0.1 51 United Arab Emirates ..........0.2 52 Bahrain ................................0.2 52 Singapore ............................0.2 66 Mexico.................................0.3 82 Mauritania............................0.6 82 United States.......................0.6 86 Brazil....................................0.7 92 India.....................................0.9 94 Russian Federation..............1.1

SOURCE: World Health Organization and UNICEF, World Malaria Report

SOURCE: World Health Organization, World Health Statistics 2006, The

2005; World Health Organization Regional Offices; UNFPA, State of World Population 2005

World Health Report 2006 Edition; national sources

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

5: Data Tables | Health and primary education

4.07

4.08

231

5: Data Tables | Health and primary education

4.09
Primary enrollment
Net primary education enrollment rate, 2004 or most recent year available

RANK COUNTRY

HARD DATA

1 Japan .................................99.9 11 Norway ..............................98.9 21 Mexico...............................97.8 26 Tunisia................................97.6 33 Bahrain ..............................96.8 35 Algeria ...............................96.7 36 Brazil..................................96.5 37 Singapore ..........................96.4 41 Egypt .................................95.4 47 Qatar..................................94.8 48 China .................................94.6 49 Syria...................................94.5 62 United States.....................92.4 69 Russian Federation............91.5 70 Jordan................................91.1

232

77 India...................................89.7 81 Turkey ................................89.3 89 Libya ..................................87.0 94 Morocco ............................86.1 96 Kuwait ...............................86.0 107 Oman.................................77.9 111 Mauritania..........................74.3 112 United Arab Emirates ........71.2

SOURCE: UNESCO Institute for Statistics (June 2006); United Nations

Statistics Division

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Data Tables

Section V Higher education and training
233

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

5: Data Tables | Higher education and training

5.01
Secondary enrollment
Gross secondary enrollment rate, 2004 or most recent year available

5.02
Tertiary enrollment
Gross tertiary enrollment rate, 2004 or most recent year available

RANK COUNTRY

HARD DATA

RANK COUNTRY

HARD DATA

5 Norway ............................115.6 17 Libya ................................104.0 20 Brazil................................102.0 21 Japan ...............................101.6 27 Bahrain ..............................98.8 32 Singapore ..........................98.0 34 Qatar..................................96.8 42 United States.....................94.8 45 Russian Federation............92.9 52 Kuwait ...............................89.9 60 Jordan................................87.4 61 Egypt .................................87.1 62 Oman.................................86.4 74 Tunisia................................81.3 75 Algeria ...............................80.7

4 United States.....................82.0 5 Norway ..............................80.0 13 Russian Federation............68.0 29 Libya ..................................56.0 32 Japan .................................54.0 36 Singapore ..........................47.0 47 Jordan................................39.0 56 Bahrain ..............................34.0 57 Egypt .................................33.0 61 Tunisia................................29.0 61 Turkey ................................29.0 72 Mexico...............................23.0 73 Kuwait ...............................22.0 73 United Arab Emirates ........22.0 75 Algeria ...............................20.0 75 Brazil..................................20.0 77 China .................................19.0 77 Qatar..................................19.0 90 Syria...................................13.6 91 Oman.................................13.0 94 India...................................11.0 94 Morocco ............................11.0 107 Mauritania............................3.0

234

76 Mexico...............................79.7 77 Turkey ................................79.2 85 China .................................72.5 90 United Arab Emirates ........66.4 95 Syria...................................63.2 99 India...................................53.5 103 Morocco ............................47.6 119 Mauritania..........................20.2

SOURCE: UNESCO Institute for Statistics (June 2006); national sources

SOURCE: UNESCO Institute for Statistics (June 2006); World Bank,

World Development Indicators 2006

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Quality of the educational system
The educational system in your country (1 = does not meet the needs of a competitive economy, 7 = meets the needs of a competitive economy)

Quality of math and science education
Math and science education in your country’s schools (1 = lag far behind most other countries, 7 = are among the best in the world)

RANK COUNTRY

SCORE

1

MEAN: 3.7

7

SD

RANK COUNTRY

SCORE

1

MEAN: 4.0

7

SD

2 Singapore......................6.0 11 Tunisia...........................5.1 15 United States................5.0 17 Norway .........................5.0 19 Japan ............................4.9 20 Qatar .............................4.9 25 India ..............................4.7 32 United Arab Emirates ...4.4 38 Oman ............................4.2 45 Jordan ...........................4.0 55 Russian Federation .......3.7 63 Kuwait...........................3.5 74 Turkey ...........................3.2 80 Bahrain..........................3.2 83 Mexico ..........................3.1 88 China.............................3.0 92 Morocco .......................2.9 93 Algeria...........................2.9 99 Syria ..............................2.9 106 Egypt ............................2.7 112 Mauritania .....................2.6 116 Brazil .............................2.5 123 Libya .............................2.2

0.8 1.1 1.4 1.2 1.3 1.4 1.5 1.5 1.8 1.6 1.6 1.5 1.5 1.7 1.4 1.5 1.5 1.4 1.6 1.5 1.2 1.4 1.5

1 Singapore......................6.3 7 India ..............................5.7 9 Tunisia...........................5.6 14 Japan ............................5.4 38 Qatar .............................4.7 41 United Arab Emirates ...4.5 42 United States................4.5 43 Russian Federation .......4.5 49 Morocco .......................4.4 54 Norway .........................4.4 56 Jordan ...........................4.3 57 Turkey ...........................4.3 59 Oman ............................4.3 62 Kuwait...........................4.1 63 China.............................4.1 74 Algeria...........................3.7 78 Syria ..............................3.7 87 Libya .............................3.5 89 Bahrain..........................3.4 96 Egypt ............................3.2 97 Mauritania .....................3.1 101 Brazil .............................2.9 104 Mexico ..........................2.9

0.8 1.1 1.0 1.3 1.2 1.4 1.4 1.6 1.5 1.2 1.5 1.3 1.6 1.7 1.5 1.4 1.6 1.7 1.6 1.5 1.8 1.5 1.2

SOURCE: World Economic Forum, Executive Opinion Survey 2006

SOURCE: World Economic Forum, Executive Opinion Survey 2006

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

5: Data Tables | Higher education and training

5.03

5.04

235

5: Data Tables | Higher education and training

5.05
Quality of management schools
Management or business schools in your country are (1 = limited or of poor quality, 7 = among the best in the world)

5.06
Local availability of specialized research and training services
In your country, specialized research and training services are (1 = not available, 7 = available from world-class local institutions)

RANK COUNTRY

SCORE

1

MEAN: 4.1

7

SD

RANK COUNTRY

SCORE

1

MEAN: 3.9

7

SD

3 India ..............................6.0 6 United States................5.8 8 Singapore......................5.7 20 Tunisia...........................5.3 23 Norway .........................5.3 26 Morocco .......................5.1 40 Qatar .............................4.6 43 Mexico ..........................4.5 52 United Arab Emirates ...4.4 59 Japan ............................4.2 60 Kuwait...........................4.2 61 Turkey ...........................4.2 63 Oman ............................4.2 65 Brazil .............................4.1 77 Jordan ...........................3.7

0.9 1.3 0.8 1.1 0.9 1.2 1.3 1.2 1.5 1.3 1.4 1.3 1.5 1.4 1.5 1.7 1.3 1.4 1.3 1.3 1.4 1.5 1.4

1 Japan ............................6.1 5 United States................6.0 15 Norway .........................5.2 17 Singapore......................5.1 28 India ..............................4.7 32 Brazil .............................4.6 33 Tunisia...........................4.6 41 Turkey ...........................4.3 42 United Arab Emirates ...4.3 43 Oman ............................4.3 47 China.............................4.2 48 Mexico ..........................4.2 54 Kuwait...........................4.0 58 Qatar .............................3.9 59 Morocco .......................3.9 63 Jordan ...........................3.9 70 Russian Federation .......3.7 80 Egypt ............................3.5 97 Bahrain..........................3.1 98 Libya .............................3.1 100 Syria ..............................3.1 103 Algeria...........................3.0 124 Mauritania .....................2.2

0.8 1.1 0.9 1.1 1.4 1.4 1.4 1.1 1.6 2.2 1.3 1.4 1.5 1.9 1.7 1.5 1.4 1.5 1.7 1.6 1.5 1.4 1.8

236

78 Bahrain..........................3.7 85 Russian Federation .......3.6 89 Egypt ............................3.5 91 Algeria...........................3.5 93 China.............................3.4 106 Syria ..............................3.2 118 Libya .............................2.9 126 Mauritania .....................2.4

SOURCE: World Economic Forum, Executive Opinion Survey 2006

SOURCE: World Economic Forum, Executive Opinion Survey 2006

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Extent of staff training
The general approach of companies in your country to human resources is (1 = to invest little in training and employee development, 7 = to invest heavily to attract, train and retain employees)

RANK COUNTRY

SCORE

1

MEAN: 3.8

7

SD

3 Japan ............................5.9 9 United States................5.6 10 Norway .........................5.5 12 Singapore......................5.4 28 India ..............................4.8 32 Oman ............................4.5 37 Tunisia...........................4.3 38 United Arab Emirates ...4.3 39 Brazil .............................4.2 40 Turkey ...........................4.2 47 Kuwait...........................3.9 48 Mexico ..........................3.9 58 Qatar .............................3.7 60 Bahrain..........................3.7 61 Jordan ...........................3.6 77 China.............................3.4 78 Mauritania .....................3.3 84 Egypt ............................3.3 86 Syria ..............................3.2 87 Morocco .......................3.2 100 Algeria...........................3.0 101 Russian Federation .......2.9 109 Libya .............................2.7

0.9 1.2 0.9 1.0 1.3 1.5 1.5 1.6 1.3 1.1 1.6 1.3 1.7 1.8 1.5 1.3 1.8 1.7 1.4 1.5 1.4 1.3 1.8

SOURCE: World Economic Forum, Executive Opinion Survey 2006

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

5: Data Tables | Higher education and training

5.07

237

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Data Tables

Section VI Market efficiency
239

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

5: Data Tables | Market efficiency

6.01
Agricultural policy costs
Agricultural policy in your country (1 = is excessively burdensome for the economy, 7 = balances the interests of taxpayers, consumers, and producers)

6.02
Efficiency of legal framework
The legal framework in your country for private businesses to settle disputes and challenge the legality of government actions and/or regulations (1 = is inefficient and subject to manipulation, 7 = is efficient and follows a clear, neutral process)

RANK COUNTRY

SCORE

1

MEAN: 3.7

7

SD

RANK COUNTRY

SCORE

1

MEAN: 3.9

7

SD

5 Tunisia...........................4.7 6 Singapore......................4.7 7 United Arab Emirates ...4.7 8 China.............................4.7 15 Algeria...........................4.4 17 Oman ............................4.4 21 Bahrain..........................4.3 25 United States................4.1 38 Qatar .............................4.0 40 Brazil .............................4.0 55 Kuwait...........................3.7 57 India ..............................3.7 60 Jordan ...........................3.7 64 Syria ..............................3.6 92 Egypt ............................3.4

1.3 1.2 1.4 1.4 1.5 1.1 1.6 1.3 1.4 1.5 1.4 1.4 1.1 1.6 1.5 1.7 1.1 1.5 1.0 1.4 1.4 1.8 1.2

5 Norway .........................6.3 14 Singapore......................5.8 19 Oman ............................5.4 20 Japan ............................5.4 24 India ..............................5.1 26 United States................5.1 27 Qatar .............................5.1 30 Kuwait...........................5.1 31 Tunisia...........................5.0 35 United Arab Emirates ...4.8 37 Jordan ...........................4.8 50 Libya .............................4.1 53 Mauritania .....................4.1 54 Algeria...........................4.1 55 Egypt ............................4.1 56 Morocco .......................4.0 58 Turkey ...........................3.8 73 Bahrain..........................3.5 78 China.............................3.4 81 Mexico ..........................3.3 84 Syria ..............................3.2 92 Brazil .............................3.1 109 Russian Federation .......2.7

0.7 1.2 1.4 1.4 1.3 1.5 1.2 1.7 1.3 1.6 1.6 2.1 1.6 1.7 1.9 1.8 1.5 1.8 1.6 1.5 1.6 1.6 1.3

240

98 Morocco .......................3.3 104 Mexico ..........................3.3 106 Libya .............................3.2 115 Turkey ...........................2.9 117 Russian Federation .......2.9 118 Japan ............................2.9 119 Mauritania .....................2.9 122 Norway .........................2.9

SOURCE: World Economic Forum, Executive Opinion Survey 2006

SOURCE: World Economic Forum, Executive Opinion Survey 2006

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Extent and effect of taxation
The level of taxes in your country (1 = significantly limits the incentives to work or invest, 7 = has little impact on the incentives to work or invest)

Number of procedures required to start a business
Number of administrative procedures required to start a business, 2006

RANK COUNTRY

SCORE

1

MEAN: 3.5

7

SD

RANK COUNTRY

HARD DATA

1 Bahrain..........................6.1 3 Oman ............................6.0 4 United Arab Emirates ...5.9 5 Kuwait...........................5.9 6 Qatar .............................5.8 8 Singapore......................5.6 14 Mauritania .....................5.0 19 Tunisia...........................4.6 22 India ..............................4.4 32 United States................3.9 33 Algeria...........................3.9 37 Egypt ............................3.8 47 China.............................3.6 50 Japan ............................3.5 51 Jordan ...........................3.5 53 Norway .........................3.5 64 Morocco .......................3.2 70 Libya .............................3.1 76 Mexico ..........................3.1 78 Syria ..............................3.1 86 Turkey ...........................2.9 97 Russian Federation .......2.7 128 Brazil .............................1.5

1.4 0.9 1.6 1.5 1.6 1.0 1.7 1.3 1.3 1.4 1.8 1.8 1.4 1.1 1.6 1.1 1.6 1.9 1.3 1.5 1.2 1.5 0.9

7 Norway ................................4.0 10 United States.......................5.0 16 Morocco ..............................6.0 16 Singapore ............................6.0 27 Russian Federation..............7.0 36 Japan ...................................8.0 36 Mexico.................................8.0 36 Turkey ..................................8.0 50 Oman...................................9.0 63 Egypt .................................10.0 63 Tunisia................................10.0 82 India...................................11.0 82 Jordan................................11.0 82 Mauritania..........................11.0 92 Syria...................................12.0 92 United Arab Emirates ........12.0 99 China .................................13.0 99 Kuwait ...............................13.0 110 Algeria ...............................14.0 118 Brazil..................................17.0 n/a Bahrain.................................n/a n/a Libya ....................................n/a n/a Qatar....................................n/a

SOURCE: World Economic Forum, Executive Opinion Survey 2006

SOURCE: World Bank, Doing Business 2007: How to Reform (2006)

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

5: Data Tables | Market efficiency

6.03

6.04

241

5: Data Tables | Market efficiency

6.05
Time required to start a business
Number of days required to start a business, 2006

6.06
Intensity of local competition
Competition in the local market is (1 = limited in most industries and price-cutting is rare, 7 = intense in most industries as market leadership changes over time)

RANK COUNTRY

HARD DATA

RANK COUNTRY

SCORE

1

MEAN: 4.7

7

SD

3 United States.......................5.0 6 Singapore ............................6.0 10 Turkey ..................................9.0 12 Tunisia................................11.0 15 Morocco ............................12.0 17 Norway ..............................13.0 24 Jordan................................18.0 27 Egypt .................................19.0 37 Japan .................................23.0 38 Algeria ...............................24.0 46 Mexico...............................27.0 50 Russian Federation............28.0 64 Oman.................................34.0 67 China .................................35.0 67 India...................................35.0

3 Japan ............................6.0 4 India ..............................6.0 5 United States................5.9 19 Norway .........................5.6 26 Singapore......................5.5 27 Turkey ...........................5.4 28 United Arab Emirates ...5.4 34 China.............................5.3 40 Brazil .............................5.2 41 Jordan ...........................5.2 43 Tunisia...........................5.2 54 Bahrain..........................5.0 57 Mexico ..........................4.9 63 Kuwait...........................4.9 65 Russian Federation .......4.7 67 Qatar .............................4.7 68 Egypt ............................4.7 71 Morocco .......................4.6 84 Syria ..............................4.4 88 Oman ............................4.3 98 Algeria...........................4.2 118 Libya .............................3.7 123 Mauritania .....................3.4

0.9 1.0 1.1 1.0 1.1 1.0 1.3 1.2 1.2 1.2 0.9 1.4 1.2 1.5 1.8 1.5 1.7 1.6 1.6 1.3 1.6 1.7 1.6

242

67 Kuwait ...............................35.0 81 Syria...................................43.0 101 United Arab Emirates ........63.0 110 Mauritania..........................82.0 120 Brazil................................152.0 n/a Bahrain.................................n/a n/a Libya ....................................n/a n/a Qatar....................................n/a

SOURCE: World Bank, Doing Business 2007: How to Reform (2006)

SOURCE: World Economic Forum, Executive Opinion Survey 2006

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Effectiveness of antitrust policy
Anti-monopoly policy in your country is (1 = lax and not effective at promoting competition, 7 = effective and promotes competition)

Imports
Imports of goods and services as a percentage of GDP, 2005 or most recent year available

RANK COUNTRY

SCORE

1

MEAN: 4.0

7

SD

RANK COUNTRY

HARD DATA

8 Norway .........................5.8 10 Japan ............................5.7 14 United States................5.6 26 Tunisia...........................5.1 27 India ..............................5.1 32 Singapore......................4.9 34 Turkey ...........................4.7 40 Oman ............................4.4 41 Jordan ...........................4.3 47 Brazil .............................4.2 49 Qatar .............................4.1 50 United Arab Emirates ...4.1 55 Morocco .......................3.9 58 Mexico ..........................3.9 59 Algeria...........................3.9 62 Kuwait...........................3.8 70 Bahrain..........................3.6 74 Egypt ............................3.5 75 China.............................3.5 76 Syria ..............................3.5 77 Libya .............................3.5 88 Mauritania .....................3.2 103 Russian Federation .......3.0

0.8 0.9 1.3 1.0 1.3 1.2 1.2 1.6 1.6 1.4 1.6 1.6 1.7 1.5 1.4 1.8 1.7 1.6 1.5 1.5 1.9 2.0 1.5

1 Singapore ........................213.1 9 United Arab Emirates ........85.5 20 Jordan................................70.2 21 Mauritania..........................70.0 26 Bahrain ..............................66.0 53 Tunisia................................47.4 76 Oman.................................35.4 77 Turkey ................................35.3 81 Libya ..................................34.4 82 Morocco ............................34.1 85 China .................................33.4 87 Egypt .................................32.6 88 Syria...................................32.6 92 Mexico...............................31.5 94 Algeria ...............................30.4 97 Kuwait ...............................30.1 106 Norway ..............................27.8 110 Qatar..................................26.7 114 India...................................24.0 118 Russian Federation............21.4 125 United States.....................16.2 126 Japan .................................12.9 127 Brazil..................................12.4

SOURCE: World Economic Forum, Executive Opinion Survey 2006

SOURCE: Economist Intelligence Unit, CountryData Database (June

2006); IMF Country Reports; World Bank, World Development Indicators 2006

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

5: Data Tables | Market efficiency

6.07

6.08

243

5: Data Tables | Market efficiency

6.09
Prevalence of trade barriers
In your country, tariff and nontariff barriers significantly reduce the ability of imported goods to compete in the domestic market (1 = strongly agree, 7 = strongly disagree)

6.10
Prevalence of foreign ownership
Foreign ownership of companies in your country is (1 = rare, limited to minority stakes and often prohibited in key sectors , 7 = prevalent and encouraged)

RANK COUNTRY

SCORE

1

MEAN: 4.5

7

SD

RANK COUNTRY

SCORE

1

MEAN: 5.0

7

SD

3 Singapore......................6.2 9 Qatar .............................5.7 12 Oman ............................5.6 15 United Arab Emirates ...5.6 16 Bahrain..........................5.6 25 Kuwait...........................5.4 35 India ..............................5.1 37 United States................5.0 44 Tunisia...........................4.8 45 Turkey ...........................4.8 47 Jordan ...........................4.8 51 Mexico ..........................4.7 54 Japan ............................4.6 75 Libya .............................4.2 83 Algeria...........................4.1

1.1 1.3 1.2 1.6 1.5 1.6 1.5 1.4 1.3 1.7 1.6 1.8 1.5 2.3 2.0 1.6 1.6 1.8 1.7 1.7 2.1 1.9 1.9

3 Singapore......................6.3 20 Jordan ...........................5.8 31 Mexico ..........................5.6 32 Norway .........................5.5 37 Oman ............................5.4 40 India ..............................5.4 44 United States................5.3 48 Morocco .......................5.3 52 Tunisia...........................5.3 69 Bahrain..........................5.1 78 Japan ............................4.8 83 Turkey ...........................4.8 85 Algeria...........................4.7 86 Egypt ............................4.7 88 China.............................4.7 90 Brazil .............................4.6 92 Qatar .............................4.6 94 United Arab Emirates ...4.5 97 Mauritania .....................4.4 125 Russian Federation .......3.4 126 Libya .............................3.2 127 Syria ..............................3.2 128 Kuwait...........................2.9

0.8 1.2 1.2 0.9 1.1 1.4 1.2 1.5 1.5 1.8 1.3 1.2 1.7 1.7 1.5 1.3 1.6 2.0 1.6 1.4 1.9 1.7 1.7

244

85 China.............................4.1 86 Brazil .............................4.1 93 Morocco .......................4.0 96 Norway .........................3.9 101 Russian Federation .......3.9 107 Egypt ............................3.7 115 Syria ..............................3.6 128 Mauritania .....................3.0

SOURCE: World Economic Forum, Executive Opinion Survey 2006

SOURCE: World Economic Forum, Executive Opinion Survey 2006

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Exports
Exports of goods and services as a percentage of GDP, 2005 or most recent year available

Hiring and firing practices
The hiring and firing of workers is (1 = impeded by regulations, 7 = flexibly determined by employers)

RANK COUNTRY

HARD DATA

RANK COUNTRY

SCORE

1

MEAN: 3.9

7

SD

1 Singapore ........................243.0 6 United Arab Emirates ........99.0 7 Bahrain ..............................89.3 21 Qatar..................................68.4 24 Kuwait ...............................67.2 25 Oman.................................65.5 34 Algeria ...............................54.2 38 Jordan................................52.4 47 Libya ..................................47.4 55 Norway ..............................45.2 56 Tunisia................................44.8 72 Russian Federation............37.3 75 China .................................36.8 77 Syria...................................35.7 84 Egypt .................................31.0 85 Mexico...............................29.9 88 Mauritania..........................29.0 91 Turkey ................................28.3 96 Morocco ............................26.5 111 India...................................21.2 119 Brazil..................................16.8 122 Japan .................................14.3 126 United States.....................10.4

2 Singapore......................5.9 3 Mauritania .....................5.7 11 United States................5.2 17 Russian Federation .......5.1 23 United Arab Emirates ...4.7 31 Qatar .............................4.5 32 Tunisia...........................4.5 41 Kuwait...........................4.3 49 Morocco .......................4.2 50 China.............................4.2 67 Mexico ..........................3.8 70 Japan ............................3.8 81 Algeria...........................3.6 89 Oman ............................3.4 90 Turkey ...........................3.4 92 Jordan ...........................3.3 93 Syria ..............................3.3 100 Egypt ............................3.1 103 India ..............................3.0 107 Bahrain..........................2.9 114 Brazil .............................2.7 115 Norway .........................2.7 126 Libya .............................2.4

1.0 1.5 1.5 1.6 1.8 1.8 1.4 2.1 1.8 1.5 1.8 1.8 1.9 1.8 1.6 1.7 2.0 1.7 1.7 1.7 1.7 1.7 1.8

SOURCE: Economist Intelligence Unit, CountryData Database (June

SOURCE: World Economic Forum, Executive Opinion Survey 2006

2006)

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

5: Data Tables | Market efficiency

6.11

6.12

245

5: Data Tables | Market efficiency

6.13
Flexibility of wage determination
Wages in your country are (1 = set by a centralized bargaining process, 7 = up to each individual company)

6.14
Cooperation in labor-employer relations
Labor-employer relations in your country are (1 = generally confrontational, 7 = generally cooperative)

RANK COUNTRY

SCORE

1

MEAN: 5.0

7

SD

RANK COUNTRY

SCORE

1

MEAN: 4.6

7

SD

5 United Arab Emirates ...6.1 7 Egypt ............................6.1 8 Qatar .............................6.0 9 Kuwait...........................6.0 10 Japan ............................6.0 18 Singapore......................5.9 23 Russian Federation .......5.8 25 Jordan ...........................5.8 29 Bahrain..........................5.7 30 United States................5.7 44 Morocco .......................5.5 51 India ..............................5.5 52 Oman ............................5.5 53 China.............................5.5 68 Mexico ..........................5.1

1.3 1.6 1.4 1.3 0.7 0.7 1.4 1.3 1.8 1.3 1.6 1.2 1.2 1.3 1.0 1.7 1.3 2.4 1.1 1.2 1.6 1.3 1.0

2 Singapore......................6.2 6 Japan ............................5.9 11 Mauritania .....................5.7 12 Norway .........................5.7 13 Oman ............................5.6 27 Kuwait...........................5.1 28 Mexico ..........................5.1 29 Tunisia...........................5.1 31 United Arab Emirates ...5.1 35 United States................5.0 47 Libya .............................4.9 51 India ..............................4.8 55 Qatar .............................4.7 57 Jordan ...........................4.7 65 Algeria...........................4.6 69 Syria ..............................4.6 76 Russian Federation .......4.5 78 Egypt ............................4.5 84 Morocco .......................4.4 87 Turkey ...........................4.3 89 Bahrain..........................4.3 96 Brazil .............................4.2 102 China.............................4.1

0.7 0.7 1.2 1.0 1.2 1.3 1.0 1.1 1.3 1.3 1.6 1.2 1.4 1.3 1.6 1.5 1.4 1.6 1.6 1.3 1.8 1.3 1.3

246

70 Syria ..............................5.1 83 Turkey ...........................4.8 94 Libya .............................4.6 96 Tunisia...........................4.6 99 Mauritania .....................4.5 104 Algeria...........................4.4 109 Brazil .............................4.2 112 Norway .........................3.8

SOURCE: World Economic Forum, Executive Opinion Survey 2006

SOURCE: World Economic Forum, Executive Opinion Survey 2006

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Reliance on professional management
Senior management positions in your country are (1 = usually held by relatives, 7 = held by professional managers chosen based on superior qualification)

Pay and productivity
Pay in your country is (1 = not related to worker productivity, 7 = strongly related to worker productivity)

RANK COUNTRY

SCORE

1

MEAN: 4.5

7

SD

RANK COUNTRY

SCORE

1

MEAN: 4.0

7

SD

4 Norway .........................6.2 12 United States................5.9 15 Singapore......................5.8 16 Japan ............................5.7 24 India ..............................5.4 32 Oman ............................5.1 39 Brazil .............................4.9 53 Mexico ..........................4.7 54 Qatar .............................4.6 56 United Arab Emirates ...4.6 57 Tunisia...........................4.6 63 Bahrain..........................4.5 64 Turkey ...........................4.4 66 Algeria...........................4.4 76 Russian Federation .......4.2 80 China.............................4.1 84 Mauritania .....................4.0 89 Egypt ............................3.9 92 Jordan ...........................3.8 103 Kuwait...........................3.7 108 Morocco .......................3.6 115 Syria ..............................3.4 122 Libya .............................3.2

0.6 1.2 1.0 1.0 1.1 1.4 1.2 1.2 1.6 1.6 1.6 1.5 1.1 1.6 1.5 1.5 2.2 1.6 1.4 1.7 1.6 1.6 1.9

6 Singapore......................5.5 9 United States................5.2 11 Japan ............................5.1 22 Russian Federation .......4.6 25 Qatar .............................4.6 27 China.............................4.6 29 Tunisia...........................4.6 31 Egypt ............................4.6 35 United Arab Emirates ...4.5 41 India ..............................4.4 48 Oman ............................4.4 49 Kuwait...........................4.4 52 Morocco .......................4.3 57 Norway .........................4.2 59 Mexico ..........................4.2 60 Turkey ...........................4.1 64 Jordan ...........................4.0 68 Syria ..............................3.9 75 Bahrain..........................3.8 80 Algeria...........................3.8 81 Brazil .............................3.8 85 Mauritania .....................3.7 122 Libya .............................2.8

1.0 1.3 1.1 1.5 1.4 1.4 1.5 1.8 1.7 1.4 1.8 1.7 1.8 1.2 1.4 1.4 1.5 1.9 1.8 1.9 1.5 2.2 2.2

SOURCE: World Economic Forum, Executive Opinion Survey 2006

SOURCE: World Economic Forum, Executive Opinion Survey 2006

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

5: Data Tables | Market efficiency

6.15

6.16

247

5: Data Tables | Market efficiency

6.17
Brain drain
Your country’s talented people (1 = normally leave to pursue opportunities in other countries, 7 = almost always remain in the country)

6.18
Private-sector employment of women
In your country, do businesses provide women the same opportunities as men to rise to positions of leadership? (1 = no, women are unable to rise to positions of leadership , 7 = yes, women are often in management positions)

RANK COUNTRY

SCORE

1

MEAN: 3.4

7

SD

RANK COUNTRY

SCORE

1

MEAN: 4.7

7

SD

1 United States................6.1 2 Qatar .............................5.7 3 Japan ............................5.7 4 Oman ............................5.6 5 Norway .........................5.6 6 United Arab Emirates ...5.5 9 Kuwait...........................5.4 16 Singapore......................4.9 24 Bahrain..........................4.6 40 Brazil .............................3.9 43 Tunisia...........................3.8 44 China.............................3.8 48 India ..............................3.7 53 Russian Federation .......3.5 56 Mexico ..........................3.4

1.1 1.3 1.2 1.2 0.9 1.6 1.5 0.8 1.6 1.6 1.3 1.5 1.2 1.5 1.2 1.2 1.6 1.6 1.5 1.7 1.7 1.2 1.3

3 Singapore......................5.9 5 Tunisia...........................5.8 6 Oman ............................5.7 22 Norway .........................5.2 30 United States................5.2 34 India ..............................5.1 38 Egypt ............................5.0 39 Syria ..............................5.0 40 Qatar .............................5.0 42 Mauritania .....................4.9 52 Kuwait...........................4.8 56 Libya .............................4.7 57 United Arab Emirates ...4.7 72 Turkey ...........................4.6 74 Algeria...........................4.6 76 China.............................4.6 82 Russian Federation .......4.5 84 Morocco .......................4.5 96 Jordan ...........................4.3 99 Japan ............................4.2 100 Bahrain..........................4.2 109 Brazil .............................4.1 125 Mexico ..........................3.6

1.1 1.4 1.5 1.0 1.3 1.5 1.9 1.7 1.5 1.7 1.6 1.8 1.6 1.3 1.8 1.5 1.6 2.0 1.7 1.3 1.8 1.3 1.2

248

59 Turkey ...........................3.3 79 Morocco .......................2.8 86 Syria ..............................2.7 90 Jordan ...........................2.6 91 Libya .............................2.6 93 Mauritania .....................2.6 105 Algeria...........................2.4 113 Egypt ............................2.3

SOURCE: World Economic Forum, Executive Opinion Survey 2006

SOURCE: World Economic Forum, Executive Opinion Survey 2006

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Financial market sophistication
The level of sophistication of financial markets in your country is (1 = lower than international norms, 7 = higher than international norms)

Ease of access to loans
How easy is it to obtain a bank loan in your country with only a good business plan and no collateral? (1 = impossible, 7 = easy)

RANK COUNTRY

SCORE

1

MEAN: 3.9

7

SD

RANK COUNTRY

SCORE

1

MEAN: 3.4

7

SD

5 United States................6.3 13 Singapore......................6.0 18 Japan ............................5.7 20 Norway .........................5.6 28 Brazil .............................5.3 30 Bahrain..........................5.2 32 India ..............................5.1 36 Turkey ...........................4.6 38 Mexico ..........................4.6 40 Oman ............................4.5 41 Kuwait...........................4.5 46 United Arab Emirates ...4.3 48 Qatar .............................4.3 60 Tunisia...........................4.1 63 Jordan ...........................4.0 77 Egypt ............................3.6 83 Morocco .......................3.2 85 Russian Federation .......3.1 94 China.............................2.8 106 Mauritania .....................2.5 124 Syria ..............................2.0 125 Algeria...........................2.0 126 Libya .............................1.9

1.1 0.8 0.9 0.9 1.4 1.3 1.2 1.2 1.1 1.1 1.4 1.5 1.5 1.1 1.3 1.5 1.4 1.3 1.2 1.3 1.1 1.0 1.2

5 Norway .........................5.4 9 United Arab Emirates ...5.2 11 United States................5.1 12 Qatar .............................5.1 15 Kuwait...........................4.9 16 Singapore......................4.8 21 India ..............................4.6 31 Oman ............................4.3 38 Tunisia...........................4.0 39 Japan ............................4.0 47 Bahrain..........................3.8 62 Jordan ...........................3.3 74 Turkey ...........................3.0 77 Brazil .............................2.9 78 Mexico ..........................2.9 82 Egypt ............................2.8 87 Morocco .......................2.7 89 Russian Federation .......2.7 92 Libya .............................2.6 101 China.............................2.5 106 Syria ..............................2.4 114 Algeria...........................2.2 115 Mauritania .....................2.2

1.2 1.5 1.4 1.6 1.7 1.4 1.4 1.9 1.7 1.7 1.9 1.7 1.4 1.7 1.5 1.8 1.9 1.6 1.8 1.4 1.4 1.3 1.4

SOURCE: World Economic Forum, Executive Opinion Survey 2006

SOURCE: World Economic Forum, Executive Opinion Survey 2006

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

5: Data Tables | Market efficiency

6.19

6.20

249

5: Data Tables | Market efficiency

6.21
Venture capital availability
Entrepreneurs with innovative but risky projects can generally find venture capital in your country (1 = not true, 7 = true)

6.22
Soundness of banks
Banks in your country are (1 = insolvent and may require a government bailout, 7 = generally healthy with sound balance sheets)

RANK COUNTRY

SCORE

1

MEAN: 3.3

7

SD

RANK COUNTRY

SCORE

1

MEAN: 5.5

7

SD

1 United States................5.6 6 Norway .........................5.2 13 Singapore......................4.9 17 United Arab Emirates ...4.7 20 India ..............................4.6 23 Japan ............................4.5 27 Kuwait...........................4.2 31 Tunisia...........................4.1 37 Qatar .............................3.8 56 Bahrain..........................3.3 63 Oman ............................3.2 64 Russian Federation .......3.2 69 Mexico ..........................3.1 71 Jordan ...........................3.1 78 Turkey ...........................3.0

1.3 1.3 1.1 1.5 1.3 1.4 1.6 1.3 1.9 1.5 1.8 1.6 1.5 1.6 1.5 1.7 1.7 1.3 1.7 1.4 1.4 1.6 1.4

17 Norway .........................6.6 21 Singapore......................6.5 27 United States................6.3 28 Bahrain..........................6.3 32 Kuwait...........................6.2 34 Brazil .............................6.1 36 United Arab Emirates ...6.0 37 India ..............................6.0 46 Qatar .............................5.8 61 Mexico ..........................5.5 64 Jordan ...........................5.5 66 Oman ............................5.5 66 Tunisia...........................5.5 70 Morocco .......................5.4 77 Japan ............................5.2 95 Egypt ............................4.8 100 Turkey ...........................4.8 102 Mauritania .....................4.8 117 Russian Federation .......4.4 120 Syria ..............................4.2 122 Libya .............................4.2 124 Algeria...........................4.1 126 China.............................3.8

0.5 0.6 1.0 0.9 1.0 1.2 0.9 0.8 1.2 1.0 1.2 1.3 1.2 1.3 1.1 1.5 1.3 1.5 1.3 1.8 1.9 1.8 1.4

250

82 Libya .............................2.9 89 Egypt ............................2.8 93 China.............................2.7 94 Morocco .......................2.7 99 Syria ..............................2.6 100 Brazil .............................2.6 116 Mauritania .....................2.3 117 Algeria...........................2.2

SOURCE: World Economic Forum, Executive Opinion Survey 2006

SOURCE: World Economic Forum, Executive Opinion Survey 2006

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Local equity market access
Raising money by issuing shares on the local stock market is (1 = nearly impossible, 7 = quite possible for a good company)

RANK COUNTRY

SCORE

1

MEAN: 4.6

7

SD

1 India ..............................6.5 4 Japan ............................6.4 6 Norway .........................6.3 15 Singapore......................6.1 18 Kuwait...........................6.1 20 United Arab Emirates ...6.0 22 United States................6.0 25 Bahrain..........................5.9 34 Turkey ...........................5.8 35 Jordan ...........................5.7 45 Qatar .............................5.4 46 Brazil .............................5.4 48 Oman ............................5.4 55 Egypt ............................5.2 67 Mexico ..........................4.9 70 Tunisia...........................4.8 73 Russian Federation .......4.5 76 Morocco .......................4.3 78 China.............................4.3 112 Algeria...........................2.7 118 Mauritania .....................2.5 123 Syria ..............................2.2 124 Libya .............................2.2

0.7 0.8 0.8 0.8 1.0 1.2 1.2 1.3 1.3 1.2 1.8 1.7 1.3 1.6 1.5 1.1 1.8 1.7 1.7 1.9 1.9 1.6 2.0

SOURCE: World Economic Forum, Executive Opinion Survey 2006

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

5: Data Tables | Market efficiency

6.23

251

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Data Tables

Section VII Technological readiness
253

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

5: Data Tables | Technological readiness

7.01
Technological readiness
Your country’s level of technological readiness (1 = generally lags behind most other countries, 7 = is among the world leaders)

7.02
Firm-level technology absorption
Companies in your country are (1 = not able to absorb new technology, 7 = aggressive in absorbing new technology)

RANK COUNTRY

SCORE

1

MEAN: 3.9

7

SD

RANK COUNTRY

SCORE

1

MEAN: 4.7

7

SD

2 Japan ............................6.5 7 United States................6.1 9 Norway .........................6.1 11 Singapore......................5.9 15 United Arab Emirates ...5.6 23 India ..............................5.3 27 Qatar .............................4.9 30 Tunisia...........................4.8 39 Bahrain..........................4.6 41 Oman ............................4.5 44 Kuwait...........................4.3 45 Jordan ...........................4.3 56 Turkey ...........................4.1 58 Mexico ..........................4.0 59 Brazil .............................4.0

0.8 1.1 0.8 0.9 1.2 0.9 1.3 1.2 1.5 1.3 1.4 1.2 1.1 1.1 1.4 1.5 1.2 1.6 1.5 1.2 1.4 1.2 1.4

2 Japan ............................6.3 7 Singapore......................6.0 9 United States................6.0 12 Norway .........................5.9 13 India ..............................5.8 16 Mauritania .....................5.8 21 United Arab Emirates ...5.6 25 Turkey ...........................5.4 36 Tunisia...........................5.2 39 Kuwait...........................5.2 41 China.............................5.1 42 Morocco .......................5.0 43 Qatar .............................5.0 47 Brazil .............................4.9 50 Oman ............................4.9 53 Bahrain..........................4.8 56 Jordan ...........................4.8 60 Egypt ............................4.7 69 Algeria...........................4.6 71 Libya .............................4.6 77 Mexico ..........................4.5 83 Russian Federation .......4.4 85 Syria ..............................4.4

0.8 0.8 1.1 0.7 1.1 1.7 1.1 1.0 1.1 1.3 1.3 1.5 1.4 1.1 1.2 1.4 1.3 1.5 1.8 1.7 1.0 1.5 1.5

254

67 Egypt ............................3.7 70 China.............................3.6 72 Morocco .......................3.6 86 Russian Federation .......3.1 87 Syria ..............................3.1 89 Libya .............................3.0 106 Algeria...........................2.5 121 Mauritania .....................2.2

SOURCE: World Economic Forum, Executive Opinion Survey 2006

SOURCE: World Economic Forum, Executive Opinion Survey 2006

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Laws relating to ICT
Laws relating to the use of information communication technologies (electronic commerce, digital signatures, consumer protection) are (1 = nonexistent, 7 = well developed and enforced)

FDI and technology transfer
Foreign direct investment in your country (1 = brings little new technology, 7 = is an important source of new technology)

RANK COUNTRY

SCORE

1

MEAN: 3.7

7

SD

RANK COUNTRY

SCORE

1

MEAN: 4.9

7

SD

2 Singapore......................5.7 4 Norway .........................5.6 20 United States................5.1 25 Japan ............................4.9 31 India ..............................4.6 34 United Arab Emirates ...4.4 39 Qatar .............................4.2 42 Mexico ..........................4.2 48 Brazil .............................4.1 49 Tunisia...........................4.0 51 Bahrain..........................4.0 52 Turkey ...........................4.0 64 Jordan ...........................3.7 67 China.............................3.5 74 Morocco .......................3.2 79 Oman ............................3.1 81 Egypt ............................3.1 88 Russian Federation .......3.0 91 Kuwait...........................3.0 95 Algeria...........................2.9 116 Mauritania .....................2.3 121 Syria ..............................2.2 127 Libya .............................1.9

0.8 1.0 1.3 0.9 1.2 1.3 1.4 1.3 1.3 1.6 1.6 1.3 1.4 1.4 1.7 1.8 1.6 1.3 1.4 1.7 1.7 1.3 1.3

1 Singapore......................6.4 6 Mauritania .....................5.9 11 Qatar .............................5.7 15 United Arab Emirates ...5.6 20 Mexico ..........................5.5 25 India ..............................5.4 34 Tunisia...........................5.3 38 Brazil .............................5.3 42 Oman ............................5.2 44 Morocco .......................5.2 51 Egypt ............................5.1 53 United States................5.1 61 Turkey ...........................5.0 64 Jordan ...........................4.9 68 Norway .........................4.9 69 Bahrain..........................4.9 77 Japan ............................4.8 105 China.............................4.4 108 Libya .............................4.3 112 Algeria...........................4.2 117 Russian Federation .......4.1 121 Kuwait...........................3.9 122 Syria ..............................3.9

0.9 1.6 1.2 1.0 1.2 1.0 1.4 1.3 1.4 1.5 1.7 1.5 1.1 1.5 1.1 1.9 1.5 1.5 2.1 1.9 1.8 1.5 1.8

SOURCE: World Economic Forum, Executive Opinion Survey 2006

SOURCE: World Economic Forum, Executive Opinion Survey 2006

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

5: Data Tables | Technological readiness

7.03

7.04

255

5: Data Tables | Technological readiness

7.05
Mobile telephone subscribers
Mobile telephone subscribers per 100 inhabitants, 2005

7.06
Internet users
Internet users per 10,000 inhabitants, 2005 or most recent year available

RANK COUNTRY

HARD DATA

RANK COUNTRY

HARD DATA

10 Singapore ........................103.4 12 Bahrain ............................103.0 13 Norway ............................102.9 16 United Arab Emirates ......100.9 26 Qatar..................................92.2 32 Kuwait ...............................88.6 36 Russian Federation............83.6 45 Japan .................................74.0 48 United States.....................67.6 54 Turkey ................................59.6 57 Tunisia................................56.3 58 Oman.................................51.9 65 Brazil..................................46.2 66 Mexico...............................44.3 69 Algeria ...............................41.5

4 Norway ..............................73.6 9 Japan .................................66.6 10 United States.....................63.0 13 Singapore ..........................57.9 37 United Arab Emirates ........31.1 39 Qatar..................................28.2 43 Kuwait ...............................26.1 46 Turkey ................................21.9 47 Bahrain ..............................21.3 53 Brazil..................................19.5 58 Mexico...............................17.4 61 Russian Federation............15.2 62 Morocco ............................15.2 67 Jordan................................11.2 68 Oman.................................11.1 75 Tunisia..................................9.5 77 China ...................................8.4 85 Egypt ...................................6.8 88 Algeria .................................5.8 89 Syria.....................................5.8 91 India.....................................5.4 101 Libya ....................................3.6 117 Mauritania............................0.7

256

71 Morocco ............................40.9 83 China .................................29.9 84 Jordan................................28.9 90 Mauritania..........................24.3 94 Egypt .................................18.4 98 Syria...................................15.5 109 India.....................................8.2 120 Libya ....................................4.1

SOURCE: International Telecommunication Union, World

SOURCE: International Telecommunication Union, World

Telecommunication Indicators 2006

Telecommunication Indicators 2006

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Personal computers
Personal computers per 100 inhabitants, 2005 or most recent year available

RANK COUNTRY

HARD DATA

2 United States.....................76.2 10 Singapore ..........................62.2 15 Norway ..............................57.2 18 Japan .................................54.1 32 Kuwait ...............................22.3 36 United Arab Emirates ........19.8 40 Qatar..................................17.9 41 Bahrain ..............................16.9 50 Mexico...............................13.1 52 Russian Federation............12.1 56 Brazil..................................10.5 69 Tunisia..................................5.6 70 Jordan..................................5.3 71 Turkey ..................................5.1 74 Oman...................................4.7 81 Syria.....................................4.2 83 China ...................................4.1 87 Egypt ...................................3.8 91 Morocco ..............................2.4 92 Libya ....................................2.3 99 India.....................................1.5 100 Mauritania............................1.4 106 Algeria .................................1.1

SOURCE: International Telecommunication Union, World

Telecommunication Indicators 2006

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

5: Data Tables | Technological readiness

7.07

257

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Data Tables

Section VIII Business sophistication
259

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

5: Data Tables | Business sophistication

8.01
Local supplier quantity
Local suppliers in your country are (1 = largely nonexistent, 7 = numerous and include the most important materials, components, equipment, and services)

8.02
Local supplier quality
The quality of local suppliers in your country is (1 = poor as they are inefficient and have little technological capability, 7 = very good as they are internationally competitive and assist in new product and process development)

RANK COUNTRY

SCORE

1

MEAN: 4.7

7

SD

RANK COUNTRY

SCORE

1

MEAN: 4.3

7

SD

1 Japan ............................6.4 6 United States................5.9 9 India ..............................5.8 15 Kuwait...........................5.7 27 Norway .........................5.4 29 Turkey ...........................5.4 30 Tunisia...........................5.4 32 Brazil .............................5.3 35 Egypt ............................5.1 38 China.............................5.0 39 Bahrain..........................5.0 43 Singapore......................5.0 44 United Arab Emirates ...5.0 50 Russian Federation .......4.9 52 Syria ..............................4.8

0.7 1.2 1.0 1.2 1.1 1.0 0.8 1.1 1.3 1.2 1.3 1.2 1.4 1.7 1.4 1.7 1.5 1.3 1.6 1.4 1.2 1.3 2.1

2 Japan ............................6.4 10 United States................5.9 17 Norway .........................5.7 25 Singapore......................5.4 28 India ..............................5.3 33 Tunisia...........................5.0 35 United Arab Emirates ...4.9 37 Brazil .............................4.9 38 Kuwait...........................4.9 39 Turkey ...........................4.8 51 Mexico ..........................4.5 56 Egypt ............................4.4 57 Bahrain..........................4.4 65 China.............................4.2 68 Jordan ...........................4.2 71 Russian Federation .......4.1 76 Syria ..............................3.9 78 Oman ............................3.9 80 Morocco .......................3.8 82 Qatar .............................3.8 99 Algeria...........................3.5 100 Libya .............................3.5 111 Mauritania .....................3.3

0.7 1.2 0.7 0.9 1.2 0.9 1.2 1.2 1.4 1.0 1.2 1.5 1.6 1.2 1.4 1.4 1.3 1.3 1.5 1.3 1.2 1.6 1.8

260

58 Libya .............................4.7 60 Jordan ...........................4.7 64 Mexico ..........................4.7 66 Morocco .......................4.6 90 Qatar .............................4.3 93 Oman ............................4.2 95 Algeria...........................4.2 114 Mauritania .....................3.7

SOURCE: World Economic Forum, Executive Opinion Survey 2006

SOURCE: World Economic Forum, Executive Opinion Survey 2006

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Production process sophistication
Production processes use (1 = labor-intensive methods or previous generations of process technology, 7 = the world’s best and most efficient process technology)

Extent of marketing
The extent of marketing in your country is (1 = limited and primitive, 7 = extensive and employs the world’s most sophisticated tools and techniques)

RANK COUNTRY

SCORE

1

MEAN: 3.8

7

SD

RANK COUNTRY

SCORE

1

MEAN: 4.3

7

SD

2 Japan ............................6.4 13 United States................5.7 14 Singapore......................5.6 16 Norway .........................5.5 25 Qatar .............................4.8 28 United Arab Emirates ...4.7 32 Brazil .............................4.5 33 India ..............................4.4 37 Tunisia...........................4.4 43 Turkey ...........................4.1 44 Kuwait...........................4.1 48 Bahrain..........................3.9 49 Mexico ..........................3.9 50 Oman ............................3.9 66 Jordan ...........................3.5 71 Russian Federation .......3.3 74 Egypt ............................3.3 80 Morocco .......................3.2 81 Mauritania .....................3.1 85 Algeria...........................3.1 90 China.............................3.0 93 Syria ..............................3.0 101 Libya .............................2.8

0.9 1.2 0.9 0.7 1.6 1.3 1.1 1.2 1.0 1.1 1.5 1.7 1.1 1.3 1.3 1.3 1.4 1.5 1.5 1.4 1.2 1.2 1.5

2 United States................6.3 7 Japan ............................6.0 22 Singapore......................5.5 25 Norway .........................5.5 29 India ..............................5.4 31 United Arab Emirates ...5.3 32 Brazil .............................5.3 40 Mexico ..........................5.0 42 Kuwait...........................4.9 53 Turkey ...........................4.7 55 Tunisia...........................4.6 65 Bahrain..........................4.3 71 Oman ............................4.0 74 Morocco .......................4.0 77 Qatar .............................3.9 82 Jordan ...........................3.8 83 China.............................3.7 87 Russian Federation .......3.6 90 Egypt ............................3.6 104 Syria ..............................3.2 110 Mauritania .....................3.1 118 Algeria...........................3.0 124 Libya .............................2.5

1.1 0.8 0.9 1.0 1.3 1.2 1.2 1.0 1.4 1.1 1.2 1.3 1.4 1.5 1.4 1.3 1.3 1.4 1.5 1.3 1.7 1.4 1.5

SOURCE: World Economic Forum, Executive Opinion Survey 2006

SOURCE: World Economic Forum, Executive Opinion Survey 2006

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

5: Data Tables | Business sophistication

8.03

8.04

261

5: Data Tables | Business sophistication

8.05
Control of international distribution
International distribution and marketing from your country (1 = takes place through foreign companies, 7 = is owned and controlled by local companies)

8.06
Willingness to delegate authority
Willingness to delegate authority to subordinates is (1 = low—top management controls all important decisions, 7 = high—authority is mostly delegated to business unit heads and other lower level managers)

RANK COUNTRY

SCORE

1

MEAN: 4.0

7

SD

RANK COUNTRY

SCORE

1

MEAN: 3.7

7

SD

1 Japan ............................5.5 6 United States................5.3 17 Kuwait...........................4.9 19 Libya .............................4.8 21 Syria ..............................4.8 25 Norway .........................4.7 26 Oman ............................4.6 28 India ..............................4.6 29 Tunisia...........................4.6 31 Egypt ............................4.5 32 Turkey ...........................4.5 35 United Arab Emirates ...4.4 42 Brazil .............................4.3 46 Jordan ...........................4.3 47 Bahrain..........................4.3

1.0 1.3 1.5 1.6 1.7 1.0 1.5 1.3 1.1 1.6 1.2 1.6 1.4 1.5 1.8 1.2 1.7 1.5 1.3 1.7 1.5 1.9 1.6

6 Norway .........................5.6 8 United States................5.5 15 Japan ............................5.2 25 Singapore......................4.6 30 India ..............................4.3 32 Tunisia...........................4.1 35 Qatar .............................4.0 39 Brazil .............................4.0 43 United Arab Emirates ...3.9 45 Mexico ..........................3.8 50 Turkey ...........................3.8 56 Oman ............................3.6 63 Kuwait...........................3.5 68 Bahrain..........................3.4 72 China.............................3.4 78 Jordan ...........................3.3 85 Russian Federation .......3.2 89 Egypt ............................3.1 96 Morocco .......................3.0 97 Mauritania .....................3.0 109 Syria ..............................2.7 115 Algeria...........................2.6 116 Libya .............................2.6

1.0 1.3 1.0 1.2 1.3 1.1 1.7 1.4 1.6 1.3 1.2 1.5 1.5 1.8 1.5 1.5 1.5 1.6 1.7 1.9 1.5 1.6 1.7

262

50 Singapore......................4.2 55 Qatar .............................4.1 66 China.............................3.9 72 Mexico ..........................3.9 77 Morocco .......................3.8 82 Russian Federation .......3.8 98 Mauritania .....................3.6 102 Algeria...........................3.4

SOURCE: World Economic Forum, Executive Opinion Survey 2006

SOURCE: World Economic Forum, Executive Opinion Survey 2006

The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

Nature of competitive advantage
Competitiveness of your country’s companies in international markets is primarily due to (1 = low cost or local natural resources, 7 = unique products and processes)

Value chain presence
Exporting companies in your country (1 = are primarily involved in resource extraction or production, 7 = not only produce but also perform product design, marketing sales, logistics, and after-sales services)

RANK COUNTRY

SCORE

1

MEAN: 3.6

7

SD

RANK COUNTRY

SCORE

1

MEAN: 3.8

7

SD

3 Japan ............................6.1 14 United States................5.4 18 Singapore......................5.2 21 Norway .........................5.1 26 Tunisia...........................4.2 37 Qatar .............................3.8 41 United Arab Emirates ...3.7 46 India ..............................3.6 47 Kuwait...........................3.6 48 Mauritania .....................3.6 62 Egypt ............................3.4 67 Mexico ..........................3.4 69 Bahrain..........................3.3 70 Jordan ...........................3.3 73 Turkey ...........................3.2 74 China.............................3.2 80 Oman ............................3.1 83 Morocco .......................3.1 87 Brazil .............................3.0 94 Libya .............................2.9 99 Algeria...........................2.8 102 Syria ..............................2.8 110 Russian Federation .......2.7

1.3 1.3 1.0 1.7 1.3 1.8 1.6 1.4 1.7 1.6 1.6 1.3 1.7 1.4 1.1 1.7 1.8 1.6 1.3 1.6 1.3 1.4 1.3

3 Japan ............................6.4 15 United States................5.7 16 Singapore......................5.7 22 India ..............................5.1 29 Tunisia...........................4.7 37 Turkey ...........................4.1 38 Mexico ..........................4.1 44 Egypt ............................4.0 45 Norway .........................4.0 52 United Arab Emirates ...3.8 53 Oman ............................3.8 55 Jordan ...........................3.7 56 Brazil .............................3.7 57 China.............................3.7 62 Qatar .............................3.6 66 Kuwait...........................3.4 71 Morocco .......................3.4 73 Syria ..............................3.4 77 Bahrain..........................3.2 88 Mauritania .....................3.0 113 Libya .............................2.5 115 Russian Federation .......2.5 118 Algeria...........................2.4

0.9 1.2 1.0 1.2 1.0 1.2 1.2 1.7 1.7 1.6 1.4 1.5 1.4 1.5 1.9 1.8