Earlier this week the World Economic Forum, IFC and World Bank published ‘The Arab World Competitiveness Report 2018’. The report ranks Arab countries based on 12 factors which are considered essential drivers of productivity and competitiveness.
The Arab region is diverse with the UAE, Qatar and Saudi Arabia being ranked at the 17th, 25th and 30th most competitive countries out of the 137 countries in the Global Competitiveness Index (GCI). Oman, UAE, Bahrain, Saudi Arabia and Qatar have all improved their GCI scores over the decade 2007-17 in contrast to Lebanon, Algeria and Morocco which have seen declines; plus states ‘such as Iraq, Libya, and Syria – where fragility, conflict and violence (FCV) precluded the collection of the data necessary for the calculation of the index’. In general the resource rich and conflict free countries rank better. Of the 12 pillars in the GCI, the Arab World has made gains in the infrastructure and technological readiness categories versus the OECD countries. However, the report shows that the region as a whole still lags in innovation, technological readiness, higher education and training, and labour market efficiency.
The report advocates a new social contract addressing economic diversification and reducing the dependence on natural resources; increasing the role of the private sector in the economy; creating opportunities for the youth and future workforce; improving innovation and adapting to technological development. The dominance of the public sector remains a key issue as it has been a key job provider. However, the working population of the Arab region is projected to increase from 241m (2015) to 370m by 2040. This means it will need to generate 58m jobs by 2040 just to maintain unemployment rates. Diversification will be important to drive job creation and economic growth.
The GCC states have certainly made progress with their development plans e.g. UAE’s Vision 2021 which focuses on encouraging trade and investment, enhancing international competitiveness, investing in education and innovation and technology. Along with Vision 2030 in Saudi Arabia, and Qatar National Vision 2030. Investment in infrastructure has increased: the value of infrastructure projects in planning or delivery stages across the GCC is estimated at US$2.7tn in 2017. Plus, member states have established funds to try and seed start-ups: Saudi Arabia established a fund (USD1bn) to invest in SMEs, Qatar Development Bank provides seed capital and the UAE has also seen equity investment in start-ups rise to USD1.7bn in 2016 from only USD100m in 2014. Nevertheless, there is still room for improvement particularly in areas of education and spreading the latest digital technologies.
Importantly, the UAE, Qatar and Saudi Arabia are all creditor nations with significant asset buffers that can be used for investment and transitioning to an era of less resource dependent growth. Plus, there is the added benefit that a lot of their sovereign and quasi-sovereign issues are highly rated and trade attractively on our valuation screens.