The World Bank in the MENA Region, a Conversation with Inger Andersen – by Jack Berger

During the EPIIC Conference on the Future of the Middle East and North Africa at Tufts University, co-editor Jack Berger sat down with Inger Andersen, the Vice President of the Middle East and North Africa Region for the World Bank to discuss issues of unemployment, governance, and sustainability in the region.

Ms. Andersen is responsible for the Bank’s strategy and operations throughout the region. Prior to her appointment, she served as Vice President of Sustainable Development, where she led the department’s work with developing countries to provide key infrastructure, enhance food security, promote environmental sustainability, develop social accountability, provide support for climate change mitigation and resilience, and support countries in disaster risk management. She has also played a key role in supporting internal reforms and strengthening the Bank’s sectoral leadership.

In the next 5-10 years, what are the World Bank’s primary development goals?

Globally speaking, we have two goals for the World Bank. The first goal is eradicating extreme poverty. Here, we’re talking about eradicating extreme poverty – i.e. those who live on the equivalent of $1.25 a day, etc., although in some countries it is more than that – and essentially working on bending the curve. We know that poverty is decreasing, but we’ve set ourselves a target where we want to bend that curve and end extreme poverty faster than it would otherwise end. The second goal deals with boosting, what we refer to as shared prosperity – so that the bottom 40% can see a doubling of their income– that’s another goal that we have. In the MENA region, you could ask: How do we do this? We are seeing four drivers for that. The first driver is boosting job creation, through the private sector, through better education; through all the things we know work – better school to work transition, etc. We are thinking about all of these things when we are thinking about job creation. Second, more generally, simply having sound fiscal policies that generate growth, and sound private sector policies that generate growth. The third deals with the issues around inclusion. Pre-Arab Spring, pre-transition, there was a sense that in many of these countries, whole groups were excluded – the women, the young, the rural, certain ethnic groups – depending on which country you were in. The fourth deals with governance – meaning better institutions: dealing with corruption, dealing with nepotism, etc. These are the kinds of drivers that we provide to reach the two goals. So in our programs and in our projects, both in terms of the investments as well as the advisory – the knowledge, the technicalassistance – these are the kinds of issues that we support.

How is the World Bank working to combat unemployment and promote job growth in the MENA region?

There are two prongs, I would say. One prong deals with supply – it’s short term but it’s a little bit like what you see in other countries when you have a financial crisis. So at the time of the crisis – or the transitions – economic growth was going down, and so jobs were particularly scarce. We’ve done a number of projects where we support labor intensive public works: painting schools, fixing irrigation canals, fixing roads, etc. – essentially to create jobs while the economy gets back on its feet. Essentialy, you stimulate the economy and the job market to increase the number of jobs. We have supported such projects in Tunisia, Yemen, Morocco, Egypt early on in 2012, and elsewhere. That’s one type, but obviously that’s not the long-term solution, because the government clearly cannot hold these employment positions. So that’s a short-term thing to create a sense of hope, to be honest, and to create things that are visible to the public – the school got painted…there’s a sense of faith that the change is delivering something. But more importantly, we are helping the governments to drive private sector growth. So what does that look like? It’s about two areas: First, the policy area for making it simpler and easier to start a business. If you are a young person in one of our countries in the MENA region, it is not easy to start a new company. If you have a great idea, try getting a bank loan. Try walking in through the front door of the bank and saying, “I want to borrow $5,000 for this great idea.” It’s very difficult. Suppose your aunt lent you the money, then try registering that company, and the red tape that you have to navigate. Try hiring 5 people, and then you find that you need to scale down to 2, try firing the 3 people. So essentially making the labor market and the business environment smoother, so that you can ensure that new businesses can come into play. That’s on the side of the policy. Next would be dealing with skills. Young people are graduating from university, and there are no jobs in the field that they have studied  – you have a mismatch. Further, there’s a perverse relationship in some of these countries that the more educated you are, the higher the chance that you will be unemployed. This is obviously a total waste of human potential. So this means we are supporting school-to-work programs, and ensuring that the labor market – the universities and high schools, and vocational training programs – are much better connected. Finally, we are working on export promotion. It is very difficult, if you have a product, to actually deal with the export market. So these are the areas that we’re working in.

In examining private sector growth, can you identify any particular industries that are primed to provide that growth, and the jobs that come along with it?

There are a couple of fascinating things. One is that we see, in general, that the profiles of companies in the Middle East are “old”. What we would like to see is lots of new entrants of new companies into the business setting and lots of failures – we wouldn’t like to see the failures, but that’s how it goes: people take risks, some move forward, some do not. We’d like to see an age structure of companies that is of mixed “age” if you like, including many new young, vibrant companies. So that’s one point. The second is that if you were to construct what the age profile of companies is – yes, you have some young entrants, but what we are finding then is that these young entrants – the one guy who employs 5 people, you would like to see him grow to employ 30 people. But instead we’re seeing what we’re referring to as the missing middle – that this growth doesn’t happen. It’s very hard to grow in company size, in part because of regulatory issues and other issues – access to credit, culture of risk avoidance, absence of bankruptcy laws, absence of credit bureaus – these are things that create stuckness. Then you have the old companies. So that’s the first point of fact. The second deals with the actual type of companies. So what we see – and I’m generalizing to make the point – is, in the MENA region, that investments are in rather “labor poor” content. So what is that? It’s extractives, and it’s construction. You see a lot of investment there, but that doesn’t have the high labor content, and even the value added…and worker satisfaction isn’t very high. What you would like to see in an economy is large investments in manufacturing, and large investments in ICT. Manufacturing is “labor rich”, and ICT – investments, of course we know, create a lot of wealth and lots of job opportunities. So that ICT service sector is one that could grow, as well as manufacturing. There, again, there are lots of regulatory issues around it that need to open up.

What would you say poses the biggest risk to development in the region?

You know, we probably wouldn’t answer that, because we think that the response to that is probably more complex. There isn’t a silver bullet. One needs to deal with a series of issues in parallel – educational quality, opening of the labor markets, ability to access credit, ending cronyism, having greater inclusion – fixing any one of these will not do the trick. Of course some would argue that, you know, there are broad risks in the security dimension, and this is true, but I say that if you fix the economy, and the young people have opportunity and jobs, then maybe you are beginning to fix the political and some of the security elements.

What do you think is the general trend in the MENA region in terms of sustainable development?

The biggest pressure point is water. This is a water scarce region by nature, and it’s a growing region, and it’s a highly urbanized region. It’s not a question of just getting water from the well, as it would be in a rural setting. It’s a highly water intense region because of the high degree of urbanization, which means water needs to be produced and delivered. As we’re seeing, for example in Yemen, where the country is running out of water – we have hilltop villages that are already abandoned because of lack of water, we have the capital Sanaa where you have water in the pipes, on a good month, every 14 days. So you have a parallel industry of water tankers coming from far away. So the water problem, and water use efficiency, is a huge agenda item that often is overlooked because this region is though of, correctly, as the oil producing region, so that tends to be what people would focus on. The second point I would mention is climate change. This region is also a region that lives in high aridity, with very limited rainfall, so with climate change that’ll become even harsher in a number of places. Plus, it is a delta region, meaning that urban agglomeration is based on rivers close or in their delta – think Cairo, think Alexandria – and with potential sea level rise, this will clearly have an impact on delta or coastal regions – think Basra. So the thinking around climate change – mitigation of climate change, adaptation of climate change – is important. Here I want to mention that the Tunisians, who just approved their constitution 2 weeks ago, they have a very modern constitution now – we can all be very proud that Tunisians have managed to do that – and in that constitution they enshrine the importance of dealing with climate change, and it actually is the first constitution in the world to do so.

What role do you see for sustainable energy – for example solar farms in Morocco – in spurring development and job creation, and in changing attitudes toward the environment and sustainability?

First of all, Morocco decided to step into this knowing that they would be pushing the boundaries of this technology. Of course, you do have solar field elsewhere – in Nevada, in Saudi Arabia, etc. – but Morocco decided that because they do not have oil – they have to import all of their hydrocarbons – they decided to make this investment in the future. We were proud, together with others, to co-invest with them on this. So in Morocco, there is a great pride in having taken this step. Obviously what they hope to do is produce energy for themselves, but also to sell excess energy to Europe, and to realize from Europe the subsidies that are available for renewable energy. There is a European directive that states that each European country has to produce and use a certain amount of renewable energy. So why produce it at home when you can buy it from Morocco, where you have greater solar radiation, greater solar intensity, and greater job creation. We’ve done some back of the envelope estimates, and for this plant that we’ve invested in, there are a large number of jobs created. Not necessarily in the operation of the plant, but in the surrounding industry – the schools and everything else that will make this work – and so solar power in Morocco has a lot of potential. I’ve many times said that investing in this, and exporting excess solar energy to Europe, is much better because it creates jobs in the region, while also producinggreen energy. Similarly, Egypt is investing in wind, Yemen is investing in wind…so is Jordan. So there is a drive now for renewable energy, and there is an understanding that this is part of the future.

What kind of strain have the pressures of population growth and urbanization put on existing institutions in the MENA region, and what kinds of policies are being put in place to mitigate their effects?

Well it’s very real. Not only do you have rural-to-urban migration, but you also have natural population growth. So the demographics are pushing the urban centers – and I don’t just mean the capitals, even mid-sized cities are experiencing this strain. That, of course, is putting pressure on public services – be it education, health, garbage collection, water, energy, etc. So the question then is, what to do about this? We talk a lot – in fact the Yemeni and Tunisian constitutions enshrined it in their basic legal texts – about how then to delegate and decentralize service delivery. Think of it like this: If you have a big country, and all of the services have to be delivered from that capital – and you are talking very large distances – it’s really about how to ensure that local governments can have the capacities, the skills, and the financing to deliver quality services at an efficient cost, and with satisfaction for the consumers. We are working increasingly with mayors in cities to help them enhance their local service delivery. That has to be part and parcel of the solution because, after all, who knows best what the pressures of his or her city is? It’s probably not the Ministry in the central capital, it’s probably that mayor who, day in and day out, sees their city growing and knows what the pressure points are. So the decentralization – downward fiscal decentralization – for service delivery, and eventually for local elections, is precisely the road down which many more countries are traveling.

In terms of sustaining that delegation of responsibility, what role do you think the private sector plays in terms of making sure that this decentralization is always financially viable?

I think what we are seeing, both in Morocco as well as in Tunisia and elsewhere…say the roads need fixing in a town, do they get fixed by the government or by a subcontractor from the private sector? For garbage collection, is it better to do it yourself on the government purse, or do you do it through the private sector. I think that these things, in the US, for example, are offered by the private sector. So there’s definitely a role for the private sector, same in health provision, clinics, etc. that are opened by an entrepreneurial doctor. So, yes, I think there is a role for the private sector at the local level, regulated by the municipality or the city, because you want to make sure that the services are at a level that is reasonable. So the local government becomes a regulator, and the private sector becomes a services provider. It’s much more efficient, it’s much more effective, and it’s always cheaper.


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