UAE. According to Ernst & Young’s second quarterly Rapid-Growth Markets Forecast, over 15 million young people will enter the workforce over the next decade.
The Middle East and North Africa (MENA) region has a relatively young and fast-growing labor force and the greatest challenge will be to create employment and develop the non-oil economy.
Bassam Hage, MENA Markets Leader, Ernst & Young, says: “The average annual growth rate in the labor force in MENA over the next 10 years is expected to be around 2% per year. While a growing labor force adds to potential growth in the region, creating jobs for this next generation in MENA will be one of the most important economic developments.”
The forecast provides a four step response to the issue of job creation. These are, promoting entrepreneurship and creating the right environment for new businesses, developing the non-oil economy, education and training and targeted public spending on infrastructure.
According to the International Monetary Fund (IMF), infrastructure investment can have a sizeable impact on employment generation – about 40,000 annual direct and indirect new jobs can be created in the short term for every US$1bn spend on infrastructure projects. On this basis, 1% of GDP spent on the right kind of infrastructure projects could generate up to 87,000 new jobs in Egypt, for example.
GDP growth forecasts to slowdown across the region
Qatar, the United Arab Emirates (UAE), Saudi Arabia and Egypt will receive less of a boost from rising oil prices over the next decade but should register an average growth of 4% p.a. Of the four MENA RGMs, Qatar, with its large oil and gas reserves, will continue to be the fastest growing. MENA RGMs are attempting to offset weaker external growth through fiscal programs.
Public spending to spur growth and economic development
Robust public spending, however, remains a strong contributor to growth particularly in Qatar and Saudi Arabia. In Qatar, large capital spending increases coupled with rises in wages, pensions and benefits for all state and military employees helped boost the economy.
Saudi Arabia’s GDP growth rate of 6.1% in 2011 is largely attributable to support from government spending, especially on infrastructure. In the UAE, GDP growth has been supported by the oil sector, tourism and business services as well as government spending. The UAE economy has been insulated somewhat from the problems in the Eurozone through close links with the fast-growing Asian economies.
Fiscal programs employed by MENA governments
Many countries in the region are attempting to offset some of the weaker external growth through fiscal programs. Saudi Arabia has announced a multi-year spending package equivalent to 19% of total GDP. In 2011, the bulk of the extra spending is on increased employment and social welfare, including wages and subsidies, but in future years, the focus will be on capital spending, directed mostly toward the housing sector.
Spending programs, particularly on expanded subsidies and transfers, have been implemented in Egypt, as the country responds not only to the political uncertainty, but the economic downturn and higher commodity prices. Monetary policy has also been supportive. Qatar, Saudi Arabia and the UAE have cut further or maintained their already low interest rates.
Euro crisis to impact Egypt more
The global downturn and the euro area sovereign debt crisis have depressed growth in the MENA region. For oil exporters, the impact is much less, reflecting more government resources to increase spending and their closer links with faster-growing Asian economies rather than Europe.
But oil-exporting countries are also being impacted by the deterioration in the international financial markets and the withdrawal of European banks from doing business in external markets.
As a result, global debt financing is becoming more difficult and more costly, while project finance deals are taking longer to finalize. Oil importers such as Egypt are much more directly impacted. Close to 30% of Egypt’s export of goods are destined for the Eurozone and a significant proportion of their remittances, FDI inflows and revenue from tourism come from Europe too.
25 resilient rapid-growth markets to fend off strain of Eurozone crisis
Slackening demand, turbulent and volatile markets and credit liquidity problems in Europe are beginning to squeeze RGMs but not to the extent of derailing robust economic performance. The RGMs are expected to grow collectively by 5.3% this year, in stark contrast to the mild recession expected in the Eurozone in H1 2012 and modest growth in the US.
While growth in the RGMs will continue to be the envy of advanced economies, in the near term, they are showing the strains from the falloff in demand from the Eurozone, as well as the buffeting to financial markets and business confidence over the past few months. As a result growth in 2012 is expected to be lower than forecast by RGMF in October. However, these markets will continue to contribute nearly half of the world’s growth over the next three years.
About the Rapid Growth Markets Forecast
The quarterly Ernst & Young Rapid Growth Markets Forecast is a macroeconomic forecast co-produced with Oxford Economics and based on Oxford Economics’ Global Econometric Model.
It aims to fulfil the need for practical and accessible economic forecasts and insights on the development in a list of 25 rapid growth countries around the world, selected on three key criteria – they should be large, both in terms of GDF and demographics, they should be dynamic, rapidly growing countries and of strategic importance for business development.
Our forecast is based on Oxford Economic's Global Econometric Model and provides analysis of the implications for corporations doing business in rapid growth markets and gives recommendations for decision-makers.
Follow the development by tuning in to our quarterly webcast debate and by visiting www.ey.com/rapidgrowth
About Ernst & Young MENA
The MENA practice of Ernst & Young has been operating in the region since 1923. For over 88 years, we have evolved to meet the legal and commercial developments of the region. Across the region, we have over 4,200 people united across 20 offices and 15 Arab countries, sharing the same values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential.
For more information, please visit www.ey.com/mena
About Ernst & Young Global
Ernst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 152,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential.
For more information, please visit www.ey.com