Report: Arab World Stagnant

Archaic, inefficient and inward-looking state policies have condemned most Arab economies to prolonged stagnation despite relatively rich natural resources and high investment rates, a report released Sunday said.

The World Economic Forum report said reforms were urgently needed to open the region to outside investment, privatize state-dominated economies, improve the quality of government, tackle corruption and modernize the education system.

“The Arab world has suffered a 20-year growth slowdown,” concluded the report, firmly blaming governments rather than outside influences.

The Arab World Competitiveness Report focused on 16 countries and was published to coincide with a two-day meeting of Arab business and political leaders organized by the World Economic Forum, a nonprofit organization funded by corporate contributions.

The Arab world has relied far too heavily on capital accumulation as the engine for growth and has been left behind by globalization, the report said.

In 1981, the region accounted for 10.7% of world exports. In 2001, it was down to 3.5%.

“The export structure of the region as a whole is still primarily based either on its absolute advantage in petroleum products, as in the case of the major oil-producing countries like Kuwait and Qatar, or on its comparative advantage in labor-intensive manufactures, as in the case of Morocco and Tunisia,” it said.

Successful export diversification, the report said, hinges on a long-term strategy based on promoting domestic entrepreneurship and encouraging foreign direct investment.

But would-be businesses suffered from stifling regulatory burdens, and potential investors were deterred by Middle East tensions and by excessive government regulation and protection, it said.

The report described private investment in the Arab world as “insufficient and inefficient.”

“Although the banking system is the most important part of the financial sector, its extraordinary inefficiency does not lead it to allocate national savings to their most productive uses,” it said. “Without proper channeling of savings into productive and efficient investment, economic growth is impossible.”

“With the exception of Egypt, Oman, Syria and Tunisia, productivity growth in the Arab world has been negative; that is, the efficiency of the economy has markedly deteriorated,” the report said.

Compared with the rest of the world, the Middle East has little access to telecommunications, partly because of the limited efforts at reform in the region.

Even though the region had huge labor reserves, there was a dearth of systems to prepare young people for the rapidly evolving global economy, it said. In most countries, women were marginalized. About 40% of the Arab world is younger than 15.