Social protection is vital for overall economic health in MENA. Here’s why

Photo: Amr Emam/IRIN

In late October, the Middle East and North African Social Policy (MENASP) Network held it’s fourth annual conference in partnership with the American University in Cairo. Many experts, academics, researchers, and policy makers from Egypt and around the world attended the conference to discuss local, regional, and global issues around social protection policies. Topics ranged from subsidies, health insurance, education, jobs, unemployment, and welfare regimes.

The volatile era the MENA region finds itself in has driven conversations on the importance of social security policies and the state’s role in them. Egypt itself has made a range of sweeping reforms to its own social protection programmes with mixed results. It’s an increasingly important topic in economic debates around the world today due to the destabilizing effects of spending cuts, unemployment (of the youth specifically), and poverty.

Attitudes around social protection ought to be less about them being a moral, philanthropic duty, and more about them being an economic necessity. One of the conference’s keynote speakers, Professor Melani Cammett from Harvard University, revealed a key statistic. Public spending by Middle East governments between 2008 and 2019 had dropped significantly, the same period the region faced some of its most restive years during the Arab Spring uprisings. It may not have been the main cause of them, but their simultaneity cannot be ignored.

Social policy isn’t exclusively about cash handouts, financial support, and state-provided social welfare. It’s also about ensuring people have access to jobs and opportunities and are provided with the essential skills and tools to participate in the labor market. One of the most significant factors that drove the Arab Spring uprisings were the private sector’s tendency to have high levels of cronyism and nepotism, which served as a massive block to youth’s  access to the job market.

For example, in Tunisia, business that were well connected performed better yet had a negative impact on the competitiveness of other businesses in the market. These connected businesses mostly worked in protected industries and sectors, so access was difficult or impossible for those not part of the circle. They provided 1% of jobs yet generated 21% of overall net profits. Similarly, in Lebanon, sectors that had high numbers of connected firms created fewer jobs and actually reduced economic growth.

MENA youth continue to face obstacles to entrepreneurship. According to research conducted by Reham Rizk from the British University in Egypt revealed that in Egypt, Tunisia, and Jordan, employers were most likely to be 59 to 64-year-olds. Most employers and entrepreneurs also tended to be less educated. Her research concluded that entrepreneurship, even if spaces and opportunities were opened, won’t solve youth unemployment alone as it is only one type of labor activity.

Egypt, Jordan, and Morocco in particular face the issues of having high numbers of new entrants into the labor market far exceeding the numbers of new jobs being created. The educational and training infrastructures across these countries aren’t necessarily helping the unemployment problem as there seems to be a disconnect between what the job market is demanding and the skills being taught to young people of working age. This dilemma has caused a low youth labor force participation rate across the Middle East and North Africa.

Orthodox solutions that have been suggested by international organizations and pursued by MENA countries such as liberalizing trade, attracting foreign direct investment (FDI), easing business regulations, and reducing government spending and fiscal deficits have so far brought little to no respite to these chronic problems. Economic growth hasn’t necessarily led to higher levels of employment. Entrenched interests and nepotism continue to be a block to positive change in the private sector, clogging pathways for youth to pursue entrepreneurial projects and find adequate employment that fit their skills.

Instead, subsidy cuts and reductions in public spending on services has only caused popular backlashes and social unrest, which are inevitable when these underlying issues aren’t addressed. Emma Murphy, a professor of political economy at Durham University and member of the Institute for Middle Eastern and Islamic Studies, said that the MENA region had been facing a youth bulge in recent decades. This youth bulge provided a golden opportunity for investments and higher productivity thanks to a high number of independent people of working age, yet due to poor institutions and infrastructure, MENA governments haven’t managed to fully exploit it.

Egypt still has much potential to improve institutionally. Imane Helmy, a program assistant in the Poverty Reduction Team of the United Nations Development Programme (UNDP), said that Egypt could free up a significant amount of fiscal space through careful budget allocation. Improved regulation, accountability, oversight, and enforcement would also greatly make public spending more efficient at targeting those most in need.

Field research conducted by Walaa Talaat, a lecturer of economics from Ain Shams University, found a staggering range of statistics regarding Egypt’s food subsidy program. While Egypt’s poverty rate stands at just above 30%, she found that approximately 70% of the country’s population benefited in some way from food subsidies. Astonishingly, around 78% of them were non-poor, while 10% of the poor didn’t have access to food subsidies. Talaat revealed that she herself had come across a high number of high-income individuals at ration offices when out in the field. The processes for accessing food subsidies were extremely loose and were causing high levels of waste and leakages throughout the system.

If such institutional shortcomings could be fixed and reformed, the state could have more finances at its disposal to target and protect the most vulnerable in society. A bottom-top approach would only have a trickle-up effect across the economy.

    Knowledge Partners

    CONTACT US

    School of Business
    American University in Cairo
    AUC Avenue – P.O. Box 74
    New Cairo 11835
    Egypt
    Email: BusinessForward@aucegypt.edu

    Copyrights © 2017 The American University in Cairo School of Business • All Rights Reserved

    Copyrights © 2017 The American University in Cairo School of Business • All Rights Reserved