Social spending: job creation key to future of MENA region

Delegates gathered at a recent economics workshop hosted by the DIFC to discuss the importance of investment in infrastructure and logistics for creating a prosperous future in the MENA region. Andrew White highlights one of the key issues to emerge from the conference – job creation

Regional leaders in the Middle East have unveiled a string of multibillion-dollar infrastructure projects in recent months, which will also serve to accelerate ambitious social spending plans. Such largesse was the chief topic of discussion at a recent workshop hosted by the Dubai International Financial Centre (DIFC): Integrating MENA Into Emerging Global Supply Chains, and attended by leading figures from the world of banking, finance and logistics.

The unrest which spread across large swathes of the Middle East in 2011 helped highlight the most significant challenge faced by regional governments today: to create as many as 50 million jobs over the next decade, in order to reverse a trend that has seen unemployment among youth in the Middle East soar to around 25%. Many analysts believe that infrastructure development is the answer, and Middle East governments would appear to agree.

Long-term employment effects

“Job creation is the central issue for the countries of the region,” said Dr Nasser Saidi, Chief Economist at the DIFC. “Why should we give priority to infrastructure investment? Because of demographics and diversification: in the short term, every US$1bn you invest creates about 110,000 infrastructure-related jobs. But the long-term employment effect could be far greater, on the condition that the spending leads to economic diversification.”

Such diversification would allow oil-producing nations to chart a future away from hydrocarbons, while offering others an opportunity to bring public and private sectors together, in the name of job creation and economic development. The former is a philosophy which has already reaped dividends for regional players such as Dubai, which has successfully diversified its revenue streams away from hydrocarbons, and into global trade.

“Forty years ago Dubai had oil, but our leaders recognised that trade was the most important thing for the growth of the country going forward,” noted Mohammed Al Muallem, Senior VP and MD for the UAE Region, at global ports operator DP World. “They recognised that there would come a time when the oil was finished, but trade would continue, and today you can see the results of that vision.”

Global trade increasing

The emirate’s main port, at Jebel Ali, is today the region’s largest and offers goods produced in Asia, an entry point into the economies of the Gulf and wider Middle East. And even in the wake of the global financial crisis, trade in the region continues to flourish: while global consumer trade rose 6.5% in 2011, the Middle East saw double-digit growth in the same year. For those countries still recovering from the unrest of 2011, or those nations looking to weld public sector ambition to private sector expertise and technology, the challenge will be to successfully integrate new infrastructure developments, with the modern global supply chain.

“The population of the GCC countries alone is only around 45 million people, so in reality the domestic demand for goods and services will always be limited,” said Faris Mansour, Senior VP at investment banking and financial services group Macquarie Capital. “Where infrastructure really plays a role is in the movement of goods and services in the East-West corridor – that’s where the opportunities lie.”