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Development Packages Must Facilitate Meaningful Economic and Social Change

1 Jun 2011 in , , ,

Last week the World Bank announced "up to $6 billion in new Bank support over the next two years for Egypt and Tunisia" to assist in political transitions and economic reform.  Shortly after the G-8 Summit at Deauville, France announced the formation of a "Deauville Partnership" and pledged to raise "more than USD 20 billion" over the next two years to strengthen institutional development in Tunisia and Egypt especially as it links to inclusive economic growth and job creation among young people. The Middle East Youth Initiative sat down with Edward Sayre, MEYI's Director of Research and a nonresident fellow at Brookings Institution, to discuss the potential impact of the G-8 and World Bank development packages on private sector development, youth participation in the labor market, and critical issues surrounding educational quality, employment, and social inclusion.

Middle East Youth Initiative (MEYI):Economic and social frustrations played a large role in the emergence of an "Arab Spring" and the subsequent toppling of long-entrenched governments in Tunisia and Egypt.  Do the development packages proposed by the World Bank and G-8 countries go far enough in providing solutions to what has emerged as region-wide, chronic issues around educational quality, employment, and social inclusion?

Edward Sayre:The aid and loan packages thus far offered by the G-8 and World Bank do very little in terms of addressing the underlying economic and social frustrations in Egypt and Tunisia. The development packages that have been offered take several forms. First, there will be direct budgetary support because of the loss of foreign investment, trade and tourism that has occurred due to the uprisings. The conflict has scared away both tourists and investors leading to a loss in foreign exchange and an increase in the budget deficits of both countries. Second, there are loans for specific large scale development infrastructure projects. Finally, there is indirect aid in the form of loan guarantees that will make easier for Egyptian and Tunisian businesses to attain preferable rates for business transactions. While the details of each of these types of assistance have yet to be revealed, none of the funding is directed towards reversing trends in educational and employment incentives which undergird much of the social tension that led to the uprisings.

MEYI:According to a recent World Bank report, job creation in the private sector is critical to the successful political and economic transitions in the region and depends heavily on both short-term financing and long-term investments.  Will access to capital and markets improve through the development pledges of the World Bank and the G-8? If so, what kinds of policies or specific initiatives should accompany the development packages to encourage private sector growth and the inclusion of youth in both that process and its outcome?

Edward Sayre:

Access to capital is critical for private sector development and access is particularly difficult for small and medium sized enterprises. These smaller enterprises often do not have the connections to financial services in underdeveloped financial sectors which are more interested in receiving deposits than making loans to local businesses. Thus, the capital for business expansion (and thus job creation) is generally dependent upon the owners’ ability to dip into retained profits to finance an expansion of their workforces. The development pledges thus far only encourage the private capital markets to engage in making access to funds easier for the businesses in these countries, without specific policies to aid such development. The Deauville Partnership explicitly asks the regional multilateral development banks such as the African Development Bank to assist by strengthening the business climate. This is a positive development, but much more needs to be done.

The specific types of policies and initiatives that could accompany these development packages take two forms. The first, which we already see taking place, will simply try to even the playing field between Egypt and Tunisia and those countries of a similar size that have not had the political upheaval . By decreasing the uncertainty of doing business in these countries, these policies can go a long way towards developing the private sector opportunities that will lead to further job creation. The second, which is vaguely referred to in the Deauville Partnership declaration, is that the regional development banks, along with the World Bank and bilateral aid offices, can provide a degree of technical assistance and dialogue that will help shape policies that encourage private sector development and are inclusive to immediate goals of youth. Through facilitating policy roundtables at the middle tiers of the new regimes’ bureaucracies and involving all stakeholders, including youth, the G-8 through the Deauville Partnership can help coordinate meaningful economic change.

MEYI:One of the biggest challenges facing Tunisia, Egypt, and the wider Middle East is providing opportunities for young people to find meaningful employment on par with their level of education and expectations.  How will these development packages provide such opportunities for youth in the long term, and how will the entry of youth into the labor market help to reshape the economic, political, and social realities of the region?

 

Edward Sayre:What is most promising in the Arab Spring for youth is the opportunity for old entrenched interests that had blocked radical changes may be removed. The long term solution to the problems of meaningful employment for youth will not come about due to any specific aid or development packages, but these packages could either facilitate the long term changes that need to take place or they could hinder these changes. While the aid packages will not go towards fundamental educational reform that needs to occur (specifically reforming a system that focuses on credential production rather than skill formation), they can help facilitate the discussion and processes that can lead to these changes. The fear that I have about this aid is that if it merely goes towards budgetary support for the existing structures including state owned enterprises and bloated government bureaucracies, then it may be harder to facilitate the necessary institutional reform immediately. However, if by working with regional development banks, this aid leads to a dialogue about real reform, then it is possible that the economic, political and social realities of the region can begin to be restructured in a way that leads to meaningful employment for youth.

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