Unemployment is a key driver of potential instability in the MENA region. The International Labor Organization (ILO) has identified two specific gaps in employment — unmatched elsewhere in the world — that further compound the problem: gender and youth.
Addressing the Critical Challenge of Employment in the MENA Region
Youth unemployment remains an issue of global focus. Whereas worldwide youth unemployment in 2014 stood at 13%, North Africa (30.5%) and the Middle East (28.2%) reflected the two highest regional averages overall. Furthermore, while global averages have remained relatively consistent since the 2008 financial recession, in the Middle East and North Africa the trend has worsened considerably where the rates now stand at their highest point since the late 1990s.
This ongoing deterioration persists even though Arab youth are doing comparatively well with near universal education, including young women, at higher levels. And while it is true that socio-cultural factors depress female employment in these regions (pushing up the overall averages), studies show that this discrepancy alone cannot account for more than a few percentages points of the differential. Finally, future employment opportunities for the young are likely to be hampered by ongoing political turmoil as youth are the most severely affected age group in economic crises; as employees, they are the “first out” as economies contract and the “last in” as they begin to recover. Combatting this trend is a mission of maximum interest to all.
Women are almost three times more likely to be unemployed than men, despite the fact that more young women than men in the Arab world are graduating from universities.
At 28.4% in 2015, the youth unemployment rate in the MENA region is almost five times higher than the joblessness rate for older adults.
In North Africa, youth unemployment is higher than the Arab average: 30% for both sexes and 45% for young women.
In the MENA region, youth unemployment rates have exceeded 25% since 1991. By the early 2000s, for every job that was created, four jobseekers entered the labor market. To employ those currently out of work, along with those expected to graduate over the next several years, 80 million new jobs will need to be created by 2020.
Achieving such rapid employment growth will require structural reforms and a coordination of public and private efforts. This is particularly important given the current mismatch between the education system and the job market – those with tertiary education are three times more likely to be unemployed than those without.
Private-sector development is another critical part of the solution. Entrepreneurship, access to finance, increasing IT connectivity, and reducing regulatory burdens for small businesses can help fill the jobs gap.
Targeting Employment in the SME sector
Addressing the long-term structural impediments to regional job creation is a massive challenge charged by political, social and economic considerations that limit the influential effectiveness any single course of action. Nevertheless, parsing the problem into smaller bits is an important step, particularly when demonstrable evidence is at hand to support unique interventions.
As it relates to overall employment in the region, the significance of the SME sector (also known as Small & Medium Enterprises) cannot be overstated. SMEs account for a very high share of private sector employment in MENA, particularly in countries with large informal sectors where they represent about 80% percent of all business (estimated at 19-23 million) contributing 40% of all jobs. In the typical non-GCC MENA country, SME businesses (including in the informal sector) are more likely to employ as much as 67 percent of total labor.
Insufficient Growth Capital in the SME Sector
Promoting SME resiliency and growth is well recognized contributor to both GDP and to political stability – and many country policies, including those in the MENA region, have been developed to promote economic activity in this sector. Yet, access to finance continues to be one of the greatest challenges for the region where nearly 63 percent of the SMEs do not have access to commercial capital. The total financing gap for SMEs in MENA is estimated at $210 to $240 billion (of which the formal sector gap is estimated at $160-180 billion). A recent World Bank/Union of Arab Banks survey of over 130 MENA banks shows that only 8 percent of lending goes to SMEs across MENA (and even less in GCC countries at 2 percent).
Not surprisingly, banking in the region is characterized by conservative lending practices, where credit risk is minimized through the imposition of high collateral requirements. Lack of sufficient collateral is the number one reported (by borrowers) obstacle to receive bank commercial funding. From the commercial lenders’ perspective, advancing relatively small amounts to widely distributed and undercollateralized borrowers is simply too costly a venture to pursue.