Arab World Competitiveness Report 2007

World Economic ForumGeneva, Switzerland 2007

The Arab WorldCompetitiveness Report 2007Sustaining the Growth Momentum

MARGARETA DRZENIEK HANOUZWorld Economic Forum

SHERIF EL DIWANY World Economic Forum

TARIK YOUSEFDubai School of Government

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The Arab World Competitiveness Report 2007 © 2007 World Economic Forum

The Arab World Competitiveness Report2007 is published by the World EconomicForum within the framework of the GlobalCompetitiveness Network.

Professor Klaus Schwab, Executive Chairman

EDITORS

Margareta Drzeniek Hanouz, Senior Economist, World Economic Forum

Sherif El Diwany, Director, Head of Middle East, World Economic Forum

Tarik Yousef, Dean, Dubai School of Government

FROM THE WORLD ECONOMIC FORUM:

GLOBAL COMPETITIVENESS NETWORK

Fiona Paua, Senior Adviser

Jennifer Blanke, Senior EconomistCiara Browne, Senior Community ManagerThierry Geiger, EconomistIrene Mia, Senior EconomistAviva Rajczyk, Team Coordinator

MIDDLE EAST TEAM

Nadia Boulifa, Manager, Middle East & North AfricaDaniel Davies, Associate DirectorSofiane Khatib, Global Leadership FellowKarim Sehnaoui, Global Leadership Fellow

AFRICA TEAM

Stéphane Oertel, Global Leadership Fellow

FROM THE DUBAI SCHOOL OF GOVERNMENT:

Paul Dyer, Research Associate

We thank Hope Steele for her superb editingwork and Ha Nguyen for her excellent graphicdesign and layout.

The terms country and nation as used in thisreport do not in all cases refer to a territorialentity that is a state as understood by inter-national law and practice. The terms coverwell-defined, geographically self-containedeconomic areas that may not be states butfor which statistical data are maintained on aseparate and independent basis.

World Economic ForumGeneva

Copyright © 2007by the World Economic Forum

Published by World Economic Forumwww.weforum.org

All rights reserved. No part of this publicationmay be reproduced, stored in a retrieval system, or transmitted, in any form or by anymeans, electronic, mechanical, photocopying,or otherwise without the prior permission ofthe World Economic Forum.

ISBN-13: 978-92-95044-02-9

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Contents

Preface...................................................................................................vKlaus Schwab (World Economic Forum)

Executive Summary..........................................................................viiMargareta Drzeniek Hanouz (World Economic Forum), Sherif El Diwany (World Economic Forum), and Tarik Yousef (Dubai School of Government)

Part 1: Competitiveness in the Arab World: Removing Obstacles to Growth

1.1 Assessing Competitiveness in the Arab World: Strategies for Sustaining the Growth Momentum.............3Margareta Drzeniek Hanouz (World Economic Forum) and Tarik Yousef (Dubai School of Government)

1.2 Recent US Free Trade Initiatives in the Middle East: Opportunities but No Guarantees..............................21Robert Z. Lawrence (Harvard University and PetersonInstitute for International Economics)

1.3 Will the Current Oil Boom Solve the Employment Crisis in the Middle East?..............................31Paul Dyer and Tarik Yousef (Dubai School of Government)

1.4 The Gulf Cooperation Council Region: Financial Market Development, Competitiveness, and Economic Growth...........................41Simon Gray and Mario I. Blejer (Bank of England)

Part 2: Enhancing Drivers of Growth in the Arab World

2.1 Gulf Cooperation Council Health Care: Challenges and Opportunities ..............................................55Mona Mourshed, Viktor Hediger, and Toby Lambert(McKinsey & Company)

2.2 Assessing Travel & Tourism Competitiveness in the Arab World.....................................................................65Jennifer Blanke and Irene Mia (World Economic Forum)

2.3 Promoting Technology and Innovation: Recommendations to Improve Arab ICT Competitiveness.......................................................................81Soumitra Dutta (INSEAD), Zeinab Karake-Shalhoub (American University in Sharjah) and Geoffrey Samuels(INSEAD)

2.4 Promoting the Growth and Competitiveness of the Insurance Sector in the Arab World .......................97Peter Vayanos and Maher Hammoud (Booz Allen Hamilton)

2.5 Middle East Transport and Logistics at a Crossroads...............................................................................119Fadi Majdalani, Ulrich Koegler, and Simon Kuge (Booz Allen Hamilton)

Part 3: Future Competitiveness of the Arab World

3.1 The Gulf Cooperation Council (GCC) Countries and the World: Scenarios to 2025: Implications for Competitiveness......................................129Nicholas Davis and Chiemi Hayashi (World Economic Forum)

Part 4: Country ProfilesHow to Read the Country Profiles...............................................145

List of Countries...............................................................................149

Country Profiles ...............................................................................150

Part 5: Data TablesHow to Read the Data Tables.......................................................205

List of Data Tables...........................................................................207

Data Tables .......................................................................................209

Technical Notes and Sources ......................................................271

About the Authors............................................................................273

Partner Institutes .............................................................................279

Acknowledgments..........................................................................280

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v

Pref

ace

Since the last edition of The Arab World CompetitivenessReport two years ago, the global economic environmenthas continued to benefit the Arab world economies.Increasing global trade and financial flows have fueledglobal growth and with it energy demand, which inturn has brought wealth to many economies in theregion. Remittances, trade, and investment flows havespread the benefits of high oil prices also to countriesthat do not export oil.And, despite a precarious geopo-litical environment, many economies in the region havegrown faster than they had in the previous threedecades.

Amid this backdrop of economic growth, the Arabworld is nonetheless at a critical juncture.Although theregion’s economies are currently very dynamic and offertremendous business opportunities, there is no doubtthat improvements to national competitiveness and clos-er integration with the global economy and within theregion are necessary if this growth momentum is to besustained.

The previous edition of this Report called for moreintense reform efforts and indeed, many countries havemade significant progress in reforming and diversifyingtheir economies. But the economic upturn, which hasprovided a cushion for reform, can also take off some ofthe pressure to act.At this point in time, it is key thatcountries maintain their focus on competitiveness-enhancing reforms.

Yet though the timing is ripe for reforms, policy-makers in many countries remain uncertain on the stepsto be taken, the priorities to be addressed, and the effec-tiveness of measures to implement. Often they also facepressures in support of the status quo, as reform is painfulfor certain groups in the economy and the benefits arenot always immediately visible nor evenly shared.

The business sector can play a vital role in theprocess of reform.As a stakeholder, business can supportand advocate competitiveness-enhancing reforms withtheir governments while highlighting the benefits of amore competitive economy for creating jobs andincreasing wealth for all.And, equally importantly, com-panies can directly contribute to making the economymore competitive by providing education, fosteringinnovation, and promoting a culture of entrepreneurshipand meritocracy.

Since its inception four years ago, the WorldEconomic Forum’s Arab Business Council has been at

the forefront of business-led initiatives toward promot-ing competitiveness in the region.The Arab BusinessCouncil is currently composed of 80 Arab business lead-ers and entrepreneurs who are committed to the mis-sion of “Enhancing Competitiveness of the Arab World”and to helping equip their societies to compete effec-tively in the global economy and contribute to thedevelopment of an equitable regional and global society.

The World Economic Forum is proud to presentthe third edition of The Arab World CompetitivenessReport.As part of our Global Competitiveness Reportseries, this volume is intended to support policymakersand businesses alike in their endeavor to enhance com-petitiveness in the region.The Report also provides anin-depth assessment of competitiveness of economies inthe region vis-à-vis the rest of the world, highlightingstrengths and weaknesses of individual countries whileoffering a tool for assessing the efficiency of measurestaken and overall progress.

The Arab World Competitiveness Report series serves asa platform for public-private dialogue on issues relatedto competitiveness, as has been witnessed at the ArabWorld Competitiveness Roundtable in Doha in 2005 and through the work of several NationalCompetitiveness Councils in the region.These high-leveldiscussions have often used the findings of The ArabWorld Competitiveness Report as a basis for competitivenessbenchmarking and for advancing policy discussions.This is certain to be the case in the Arab WorldCompetitiveness Roundtable, which is held on April9–10, 2007, in Doha, Qatar.

We are grateful to the authors who have generouslycontributed their time and knowledge to this edition ofthe Report and to business leaders in the region whoresponded to our Executive Opinion Survey.We wouldalso like to thank the editors of this Report, MargaretaDrzeniek Hanouz, Sherif El Diwany, and Tarik Youseffor their thought leadership and their commitment tothe project.We also wish to thank Fiona Paua, wholeads the Global Competitiveness Network, and theother members of the team: Jennifer Blanke, CiaraBrowne,Thierry Geiger, Irene Mia, and Aviva Rajczyk.Finally, we would like to convey our gratitude to theArab Business Council and to Qatar Airways for theircontribution to this Report.

PrefaceKLAUS SCHWAB

Executive Chairman, World Economic Forum

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Buoyed by high oil prices and intensifying global tradelinkages, the Arab world is enjoying spectacular rates ofgrowth for the fourth year in a row. Initial reform effortsover the past few decades have contributed to thisremarkable result, but the region is still far from realizingits full growth potential. In a global economy character-ized by an ever-faster integration of markets—and withit, a more pronounced division of labor—sustaining thecurrent momentum of growth in the region will requirean acceleration of economic reforms.

The current situation provides an opportunemoment for forging ahead with reforms to improvenational competitiveness, and initial evidence suggeststhat policymakers in the region are taking steps to dojust that. Over the past few years, the region has seen anumber of successful initiatives materialize. Clearly,given the diversity of Arab economies, appropriatemeasures and priorities will differ significantly acrosscountries. However, the current growth environmentprovides an opportunity for all regional economies tosecure more competitive economic and institutionalstructures.

Against this background, the Arab WorldCompetitiveness Report 2007 seeks to identify tangiblesolutions to the constraints that limit faster growth. Italso proposes strategies for enhancing the competitive-ness of selected sectors that have been identified as hav-ing high potential.This approach—of dismantling barri-ers while providing the environment for the develop-ment of specific sectors—has proven successful in somecountries in the region, such as Bahrain and the UnitedArab Emirates.The Report seeks to assess how suchsuccesses can be emulated by other regional economies.While Part 1 discusses obstacles to growth, Part 2 ana-lyzes measures required to boost growth in a number ofsectors in the region.The Report closes with a look intothe future in Part 3.

In Part 1, the first chapter, by Margareta DrzeniekHanouz and Tarik Yousef, aims to shed light on the fac-tors and policies that could contribute to enhancing theregion’s growth performance by assessing the nationalcompetitiveness of Arab countries against internationalbenchmarks.The analysis is based on the WorldEconomic Forum’s Global Competitiveness Index,which is built on the understanding that competitivenessis the set of factors, policies, and institutions that supportsustainable gains in productivity and therefore economic

growth in the medium term.Although the chapter fol-lows the methodology of The Global CompetitivenessReport, a minor methodological change has been intro-duced to better account for characteristics of economieshighly dependent on natural resources.The results give adetailed picture of the competitive strengths of theregion as a whole and those of its the individual coun-tries.They also indicate a set of diverse challenges to beaddressed.The rankings, reported in Tables 1a, b, and cbelow, underscore the diversity of Arab economies.These rankings show the performance of Arab worldcountries in terms of competitiveness against the rele-vant benchmarks—economies in other parts of theworld at the same stage of development. Many countriesshow a respectable track record for improving competi-tiveness in relation to their own past; however, whenbenchmarked against peers in other parts of the world,many Arab economies—particularly the oil-exportingones—fall behind.

The authors identify a number of challenges thatneed to be addressed in the near future if competitiveperformance in the region is to improve and growthmomentum is to be maintained. Given the high unem-ployment in many of the countries and the need todiversify their economies, educational outcomes are par-ticularly worrying.The challenges to improving educa-tion differ from country to country.While some coun-tries still struggle with high illiteracy rates, others facethe task of better aligning educational systems with theneeds of a competitive economy. If left unaddressed,these shortcomings will alter the future developmentpath of the respective economies.

High unemployment and a growing population areincreasingly putting pressure on governments in theregion to overhaul the current labor market model,which in many countries is highly regulated and oftenrelies heavily on the public sector and on migrant work-ers. More flexibility in employment regulations andincreased focus on meritocracy and professional man-agement would be desirable steps in the right direction.The chapter concludes that a number of countries inthe region still struggle with macroeconomic imbal-ances. Non-oil countries struggle with budget deficitsand government debt. On the other hand, while the oilexporters are blessed with large budgetary inflows, theyneed to address high inflation rates resulting from theincreased liquidity.

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Executive SummaryMARGARETA DRZENIEK HANOUZ, World Economic Forum

SHERIF EL DIWANY, World Economic Forum

TARIK YOUSEF, Dubai School of Government

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In his comprehensive contribution,“Recent USFree Trade Initiatives in the Middle East: Opportunitiesbut No Guarantees,” Robert Z. Lawrence analyzespotential effects of the free trade agreements recentlysigned between Arab countries and the United States inlight of their goals.The author argues convincingly thatthe deep nature of the US agreements presents newopportunities for Arab countries, but to take full advan-tage of these agreements,Arab countries will have tocomplement them with additional policy measures. ForArab countries to reap the full benefits, improvements inregulatory rules and systems will have to be made.Increased integration within the Arab region, throughadvancing initiatives such as the Middle East Free TradeAgreement (MEFTA), will also be necessary. But theagreements can also present problems for Arab coun-tries.These difficulties come in three areas: first, in relat-

ing them to agreements with other trading partners(most importantly the European Union); second, in cre-ating political difficulties associated with closer relationswith the United States; and third, in undertaking thenecessary economic and political adjustments necessaryto realize the benefits.

In their chapter “Will the Current Oil Boom Solvethe Employment Crisis in the Middle East?” Paul Dyerand Tarik Yousef review labor market trends in theregion since the onset of the recent oil boom, focusingon job creation, unemployment, and government poli-cies aimed at improving labor market outcomes.Theauthors note that although unemployment rates for theregion as a whole have declined since 2000, the mostnew jobs have been created in oil-producing countriesand remain dependent on public expenditure. Manynon–oil producers, in fact, have seen unemployment

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Table 1a: Arab world GCI 2007 rankings in internationalcomparison: Country group 3*

GCR 2007

Country/Economy Rank Score

Switzerland 1 5.81Finland 2 5.74Sweden 3 5.73Denmark 4 5.70Singapore 5 5.62United States 6 5.62Japan 7 5.62Germany 8 5.60Netherlands 9 5.57United Kingdom 10 5.53Norway 11 5.46Hong Kong SAR 12 5.45Taiwan, China 13 5.40Iceland 14 5.40Israel 15 5.38Canada 16 5.36France 17 5.34Austria 18 5.32Australia 19 5.30Belgium 20 5.28Ireland 21 5.22New Zealand 22 5.17Luxembourg 23 5.15Korea, Rep. 24 5.12Estonia 25 5.12Spain 26 4.79Czech Republic 27 4.72Barbados 28 4.71United Arab Emirates 29 4.67Slovenia 30 4.64Portugal 31 4.60Qatar 32 4.56Hungary 33 4.53Italy 34 4.47Malta 35 4.44Kuwait 36 4.42Cyprus 37 4.35Greece 38 4.33Bahrain 39 4.30Trinidad and Tobago 40 4.06

* Group 3 comprises innovation-driven economies (countries in the 3rd stageof development and those transitioning toward it).

Table 1b: Arab world GCI 2007 rankings in internationalcomparison: Country group 2*

GCR 2007


Malaysia 1 5.13Chile 2 4.85Tunisia 3 4.72Latvia 4 4.60Thailand 5 4.58Lithuania 6 4.57Slovak Republic 7 4.57Oman 8 4.53South Africa 9 4.42Poland 10 4.33Costa Rica 11 4.27Croatia 12 4.27Jordan 13 4.25Mexico 14 4.23Kazakhstan 15 4.22Mauritius 16 4.22Panama 17 4.21Turkey 18 4.18Russian Federation 19 4.13Jamaica 20 4.13El Salvador 21 4.12Colombia 22 4.09Brazil 23 4.08Argentina 24 4.05Romania 25 4.04Libya 26 4.00Bulgaria 27 4.00Peru 28 3.99Algeria 29 3.98Uruguay 30 3.97Macedonia, FYR 31 3.92Botswana 32 3.83Venezuela 33 3.80Dominican Republic 34 3.78Namibia 35 3.76Ecuador 36 3.72Bosnia and Herzegovina 37 3.72Serbia and Montenegro 38 3.71Albania 39 3.49Suriname 40 3.45

* Group 2 comprises efficiency-driven economies (countries in the 2nd stageof development and those transitioning toward it).

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rates rise, a situation reinforced by decreased transfermechanisms—particularly remittances and migration—between regional oil countries and non-oil countries.The authors also note that Gulf Cooperation Council(GCC) countries continue to face significant problemsin employing nationals seeking to enter the labor force.By and large, the authors find, the region will continueto face significant challenges in creating quality jobs forthe growing labor force—particularly for young, newentrants and women.The challenges will require movingbeyond government-driven labor market interventions

and selective reforms toward comprehensive reformsaimed at inspiring entrepreneurship and private-sectordevelopment; faster integration into global trade andinvestment flows; and rapid progress in educationalreform, gender equality, and governance.

In their thought-provoking contribution “The GulfCooperation Council Region: Financial MarketDevelopment, Competitiveness, and EconomicGrowth,” Simon Gray and Mario I. Blejer explore thecurrent status of financial market development in theGCC region.They argue that the development andstrength of the financial sector in the GCC will dependon economic diversification in the Gulf states and thelong-term management of petrochemical resources, aswell as on the GCC’s ability to serve the needs of thewider region. Otherwise, these economies are not likelyto generate sufficient business to maintain the financialsector when oil prices weaken, which may generatestrong cyclical swings. However, the authors concludethat the financial sector in the GCC should be able tosupport continuing broadly based economic develop-ment not only in the GCC itself, but in the region morewidely.The authors argue that it is to early to ascertainhow far any of the GCC financial centers will go towardreaching a global scale. Some aspects of protectionism,such as restrictions on foreign investment and theemployment of foreign labor, may work against this goal.

Part 2 begins with an analysis of the health servicessector. Mona Mourshed,Viktor Hediger, and TobyLambert, in their chapter “Gulf Cooperation CouncilHealth Care: Challenges and Opportunities,” explore theoutlook for health-care services in the region.Theirassessment of health trends in the GCC reveals thathealth-care demand will dramatically increase as a resultof population growth, aging, and the changing patternof health-risk factors.They estimate that by 2025 thedemand for treatment will rise by 240 percent, demandfor hospital beds will almost double, and the cost ofhealth-care delivery will increase fivefold. Governmentsare not prepared to meet these challenges through themainly public health-care delivery systems and will needsupport from the private sector for both provision andfinancing.To promote the private sector’s involvement,substantive regulatory and policy changes will have tobe made.The two most important challenges in thisrespect are developing reimbursement systems for pub-licly funded private health-care services and identifyingand enforcing a set of quality standards that will apply topublic and private providers. Many opportunities willpresent themselves to private providers, who will facethe choice of either entering government contracts orrunning their own facilities. Finally, private players willbenefit from scale effects by operating in more than onecountry.

The potential to develop the tourism sector in theregion, one of the fastest-growing service industries inrecent years, is assessed by Jennifer Blanke and Irene Mia

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Table 1c: Arab world GCI 2007 rankings in internationalcomparison: Country group 1*

GCR 2007


India 1 4.47Indonesia 2 4.28China 3 4.25Egypt 4 4.09Azerbaijan 5 4.09Philippines 6 4.02Morocco 7 4.02Guatemala 8 3.94Vietnam 9 3.93Ukraine 10 3.91Sri Lanka 11 3.90Syria 12 3.81Armenia 13 3.78Georgia 14 3.75Moldova 15 3.73Pakistan 16 3.69Honduras 17 3.62Mongolia 18 3.61Kenya 19 3.61Nicaragua 20 3.55Tajikistan 21 3.50Bolivia 22 3.49Nigeria 23 3.49Bangladesh 24 3.48Gambia 25 3.45Cambodia 26 3.42Benin 27 3.41Tanzania 28 3.40Paraguay 29 3.35Kyrgyz Republic 30 3.33Cameroon 31 3.32Guyana 32 3.29Madagascar 33 3.29Nepal 34 3.27Lesotho 35 3.24Uganda 36 3.21Zambia 37 3.21Mauritania 38 3.18Burkina Faso 39 3.10Malawi 40 3.09Zimbabwe 41 3.07Mali 42 3.04Ethiopia 43 3.00Mozambique 44 2.97Timor-Leste 45 2.91Chad 46 2.64Burundi 47 2.62Angola 48 2.50

* Group 1 comprises factor-driven economies (countries in the 1st stage ofdevelopment).

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CHAPTER 1.1

Assessing Competitiveness in the Arab World: Strategies for Sustaining the Growth MomentumMARGARETA DRZENIEK HANOUZ, World Economic Forum


The high energy prices of the past few years havebrought the Arab world the highest growth rates innearly three decades. In the oil-exporting countries, theoil boom has gone hand in hand with surging fiscal andexternal surpluses, shrinking public debts and raisinglevels of foreign reserves.This windfall has been sharedby the non–oil-exporting countries through investmentflows, remittances, and trade.These developments appearto have dramatically transformed the economic prospectsof the region, bringing a renewed sense of optimism andovershadowing the heightened geopolitical insecurity ofthe past few years.

As long as energy prices remain at their presenthigh levels, it is safe to suggest that the Arab economies—especially those endowed with substantial oil and gasreserves—could sustain the ongoing prosperity for awhile. But therein lies the danger as well.What if oilprices take an unexpected downward dive, as they havedone over the past three decades? More worrisome,what if the current prosperity postpones the adoption ofstructural reforms needed to achieve international com-petitiveness and sustain the current growth momentum?After all, oil booms have traditionally provided breathingspace for governments and delayed the implementationof reform programs.

Such concerns about the long-term prospects ofthe region and the likely trajectory of reform are sharedby international observers and, more importantly, poli-cymakers and the general public in the Arab world.Yetonly a few regular assessments of economic develop-ments in the Arab world are produced, notwithstandingthe increased relevance of the region’s energy resources,financial liquidity, and geopolitics to the stability of theworld economy. In addition, the region suffers fromserious gaps in the availability of basic economic andfinancial indicators (see Box 1), not to mention a lack oftransparency in policymaking and limited accountabilityin reviewing outcomes.

This chapter makes a contribution toward closingthis gap by assessing the competitiveness of Arabeconomies. Utilizing the results of the most recentWorld Economic Forum’s Executive Opinion Survey,the chapter benchmarks the competitive performance ofArab countries against selected comparators.The assess-ment is designed not only to identify present areas ofstrength and weakness but also to pinpoint areas ofreform that should be addressed in the near future.

MethodologyThe World Economic Forum defines competitiveness asthe set of factors, policies, and institutions that deter-mines the level of productivity in a country. Productivitydescribes how efficiently available resources are used andtherefore the growth performance of an economy.Thuswhat is assessed is the potential of an economy toachieve sustained economic growth over the medium to

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long term.The model controls for the starting level ofincome and thus predicts that countries with lower percapita income will tend to grow faster because theyneed to catch up with the more advanced economies.

This methodology reflects latest theoretical andempirical research and a long-standing experience withassessing competitiveness.The World Economic Forumconducted the first competitiveness assessment in 1979,and has been continuing this work since then.Themethodology has significantly evolved in response toadvances in economic research and to the increasingdiversity of countries covered by The GlobalCompetitiveness Report, including the expansion of cover-age of countries from the Arab world.

In particular, three principles that today govern the assessment of competitiveness have emerged. First,competitiveness of countries cannot be determined by anarrow set of factors but is rather the result of multiplesets of variables and processes that span the entire econ-omy. Second, as the global economy evolves, these factorstend to change and so does their impact. For example,advances in technology such as data processing andInternet capacity have altered the way of doing business.As a result, the diverging economic performance ofcountries on the two sides of the digital divide hasunderlined the key role played by ICT in growth andcompetitiveness. By contrast, inflation is no longer thefocus of policy in light of the present global environmentof low inflation.And, third, different factors matter indifferent ways across countries, depending on the stageof development.Although an advanced country such asJapan will have to keep innovating in order to remaincompetitive, more basic factors such as primary educa-tion and law and order matter more for countries thatlack the basic conditions for growth, such as Mauritania.

Before diving into the structure of the index, it isuseful to describe the two types of data that make up itscomponents. Out of the 90 variables that make up theindex, 24 are obtained from international organizationssuch as the United Nations Educational, Scientific andCultural Organization (UNESCO), the InternationalMonetary Fund (IMF), and the World Bank. By usingthese sources we ensure that the data and their sourcesare comparable across countries, a crucial requirementwhen undertaking international comparisons.We uti-lized the latest reported figures for each variable.1 Theremaining variables come from the Executive OpinionSurvey (Survey), undertaken annually by the WorldEconomic Forum in all countries covered by the Report.

This Survey is addressed to business leaders in eachof the countries to gauge their perceptions of thenational business environment.These data are used mainlyfor assessing crucial determinants of competitiveness forwhich comparable data do not exist for the entire set ofcountries covered by the Report. Examples of variablesincluded in the Survey are the quality of public and pri-vate institutions and the quality of infrastructure andeducation, as well as some aspects of market efficiency,business sophistication, and innovation.Although surveydata are often criticized for their subjectivity, the use ofthese data is now widely accepted as it captures percep-tions by business leaders of the business environmentand, hence, is of great value to policymakers.

The determinants of competitiveness are capturedby the structure of the Global Competitiveness Index(GCI). Developed by Professor Xavier Sala-i-Martin incooperation with the World Economic Forum, the GCIhas been used since The Global Competitiveness Report2006–2007 for all competitiveness assessments under-taken by the Forum.The detailed structure of the GCI

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Box 1: Data (un)availability

Each quantitative assessment of competitiveness oreconomic performance in the region relies heavilyon available data. In the particular case of the GCI,the data we use need to be collected according tointernational standards in order to enable a mean-ingful comparison across countries. Unlike for mostother regions in the world, obtaining internationallycomparable data is difficult for most countries in theregion, in particular for Gulf economies. Oftencountries do not even collect basic data; for exam-ple, accurate year-on-year inflation is hard to obtainfor the United Arab Emirates and consequently, realGDP cannot be calculated precisely.

Improved data availability would enable policy-makers in the region to take more targeted deci-sions, benchmark their countries against internation-al or regional best performers, and identify bestpractice in specific areas. It would also aid potentialforeign investors in making the strategic choice totake advantage of the growing competitiveness ofthe region.

In this respect, the data obtained through theExecutive Opinion Survey provide a rich source ofinformation on countries of the region and anexcellent complement to existing data. However,they are no substitute for hard data on economicperformance. Regional governments must take stepsto develop and enhance their statistical and data col-lection capabilities. International cooperation, forexample at the level of the Gulf CooperationCouncil, could also help alleviate this problem.

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is presented in Appendix A to this chapter. It groups thefactors affecting competitiveness into nine pillars:

1. InstitutionsThe institutional framework has a strong bearingon competitiveness and growth because it shapesincentives in an economy and affects how busi-ness, the political sphere, and the remaining soci-ety interact with each other.

2. InfrastructureQuality infrastructure reduces the cost of com-munication, transport, and energy. By renderingbusiness operations more efficient it contributesto lowering the cost of doing business and there-fore increases competitiveness.

3. MacroeconomyMacroeconomic stability has come to be recog-nized as one of the basic preconditions forgrowth; this has been widely confirmed in theo-retical and empirical research. Soaring andvolatile prices render the business environmentunpredictable, and high interest rates—resulting,for example, from refinancing government debt—increase the cost of credit and investment.

4. Health and primary educationThe importance of health for competitivenessbecomes clear when one considers some Africancountries, where the HIV/AIDS epidemic affectsone-quarter of the working-age population.Although these are extreme cases, almost all eco-nomic activity requires a healthy and literateworkforce. Prevalent lack of access to basic healthservices and education reduces not only the over-all growth potential, but also forecloses the bene-fits of economic growth for significant parts ofthe population.

5. Higher education and trainingThe availability of qualified staff is a preconditionnot only for innovation but also for adoptingtechnologies from abroad and improving businesspractice.All these aspects, which are reflected inthe structure of the Global CompetitivenessIndex, become even more crucial when a coun-try climbs up the value chain and moves awayfrom low-cost production and resource extractiontoward more efficient processes and more sophis-ticated products.

6. Market efficiencyThis pillar assesses how far goods, labor, andfinancial resources are allocated to the most effi-cient use in an economy. In order to functionefficiently, goods markets need a certain level ofcompetition, which directs goods toward theirbest use.Three components can contribute toincreasing competition in an economy: efficientantitrust regulation, openness to trade, and regula-tions that keep market distortions to a minimum.For labor markets, flexibility and efficiency arecritical for ensuring that businesses can maintaina workforce that suits their needs at all times.Factors such as flexibility of wage determinationand hiring and firing are essential in this respect.Finally, given the link between effective financialintermediation and growth, financial markets arevital for making available credit and other finan-cial products at an appropriate cost.

7. Technological readinessThis pillar measures the capacity of an economyto absorb latest technologies and to use them toenhance the productivity of its industries.Consequently, it encompasses the ability to adapttechnologies from abroad through technologytransfer but also the use and penetration ofadvanced information and communication tech-nologies, in particular Internet and mobiletelephony.

8. Business sophisticationThe ability to manage a business efficiently isimperative for increasing productivity, particularlyat the top end of the value chain. Significant dif-ferences in company performance can beexplained by looking at the level of managementpractice. In this respect, supporting the clusteringof firms has proven an important vehicle of pub-lic policy to enhance the performance of firms.

9. InnovationWhile technological readiness refers to the adop-tion of technologies from abroad, the innovationpillar measures the extent to which countries areable to develop entirely new products and servic-es.This is particularly important for countries atthe most advanced stage of development becauseinnovation is the only self-sustaining driver ofgrowth for countries that have reached the high-tech frontier, while less-advanced countries canstill improve their productivity by adopting tech-nologies from abroad.

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These nine pillars are grouped into three subindexes.The first subindex, called basic requirements, comprisesinstitutions, infrastructure, macroeconomy, and healthand primary education.The second subindex covers effi-ciency enhancers and includes higher education and train-ing, market efficiency, and technological readiness; thethird subindex, innovation factors, includes business sophis-tication and innovation.To capture the notion that theset of drivers of competitiveness evolves as a countrydevelops, different weights are given to the subindexesdepending on the stage of development of the country.

Countries are categorized according to the follow-ing three stages of development: the factor-driven stage,the efficiency-driven stage, and the innovation-drivenstage.The factor-driven first stage of developmentdescribes an economy that competes on natural resourcesor the abundance of low-cost labor.As countries develop,wages rise and businesses need to increase their efficiencyto remain competitive, as the country moves into thesecond stage of development. Finally, in high-wagecountries such Japan or the United Kingdom, businessescan be competitive only if they develop cutting-edgeproducts and employ sophisticated techniques in pro-ducing and selling them. Since data on wage levels aredifficult to obtain, we use GDP per capita as a proxy to define the thresholds for each of the stages of devel-opment.All countries with a GDP per capita belowUS$2,000 are considered to be factor-driven; countrieswith a GDP per capita between US$3,000 and 6,000are considered to be in the efficiency-driven stage; andinnovation-driven countries are those whose GDP percapita lies above US$17,000. Countries that fall inbetween these thresholds transition smoothly from onestage to the other.

This year’s Arab World Competitiveness Report featuresan improvement to the methodology used to assess thecompetitiveness of oil-producing economies and othercountries in the region that rely heavily on resourceextraction.To classify the countries into stages of devel-opment, we have added a second criterion that measuresthe extent to which countries are factor-driven.We proxythis by the share of exports of primary goods in totalexports (goods and services) and assume that countriesthat export more than 50 percent of primary exports areto a large extent factor-driven.The stage of develop-ment for these countries is adjusted downward depend-ing on the country’s exact share of primary exports—the higher the share the stronger the adjustment and thecloser the country will move to stage 1. For example, acountry that exports 95 percent of primary productsand falls into stage 3 based on its income is now placedin the transition phase between stage 1 and 2. Both cri-teria—per capita income and the share of primaryexports—are weighted identically and the stage ofdevelopment is not adjusted for countries with less thana 50 percent share of primary exports.Table 1, whichpresents the shares of primary exports as percentage of

total exports for Arab countries, shows that a number ofcountries in the region are to a large extent factor-driven.

Table 2 provides an overview of the distribution ofcountries covered by this Report into the stages of devel-opment.A complete list of all countries can be found inAppendix B.We model the differences between stages ofdevelopment by giving different weights to the threesubindexes.The exact weights are shown in Table 3.

Expanded country coverageIn addition to the ten Arab countries covered by theGCR 2006–2007—Algeria, Bahrain, Egypt, Jordan,Kuwait, Qatar, Mauritania, Morocco,Tunisia, and theUnited Arab Emirates (UAE)—three more—Libya,Oman, and Syria—have been added.With a total ofthirteen countries, the geographical coverage of thisReport has been expanded beyond the AWCR 2005. Inthe case of Libya, this study is the first comparativeassessment of the country’s competitiveness.

Highly diverse economiesThe economies of the Arab world exhibit great diversityin income and structure.The variety is highlighted bythe fact that GDP per capita of the wealthiest country,Qatar, is 73 times higher than that of the poorest coun-try, Mauritania. In addition, the economies are charac-terized by a multiplicity of structures. Some countrieshave accumulated significant wealth through the extrac-tion of natural resources while others follow more tradi-tional trajectories of development, starting with lower-end manufacturing and slowly moving up the valuechain.These differences affect the competitive perform-ance in many ways, the most important being the avail-ability of resources for public investment.Thus, differentpolicy recommendations apply across countries and theinternational benchmarks required for comparison varyacross countries.

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Table 1: Primary exports as share of total exports forArab world countries

Country Share of total exports (percent)

Algeria 64Bahrain 2Egypt 9Jordan 9Kuwait 47Libya 86Mauritania 56Morocco 5Oman 71Qatar 46Syria 43Tunisia 7United Arab Emirates 31

Source: International Trade Centre, World Bank.

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To take this diversity into account, rankings are pre-sented here divided by these groups of countries.2, Thesegroups facilitate the benchmarking of countries againstother comparable economies along a divide built in themodel.As noted above, the groups usually represent dif-ferent levels of development that are accompanied bydistinct production structures and levels of wealth.Thedetailed rankings for the region in the internationalcontext are presented in Tables 4a, b, and c.Wheneverrelevant, we will refer to the rankings in the entire sam-ple covered by The Arab World Competitiveness Report,which comprises 128 countries worldwide.The globalrankings of all the countries is provided in Appendix C.As the methodology has been slightly adapted and someof the data updated, we refer to these rankings as theupdated Global Competitiveness Index 2007 (GCI2007).The country profiles at the end of the report pro-vide additional data and information on each of thecountries assessed.

The United Arab Emirates (UAE) is the highest-ranked Arab country on the list of the 40 most-advanced innovation-driven economies in the world(country group 3), coming in at 29th place—ahead ofSlovenia and Portugal in this group, which comprisessome of the most developed and competitive economiesin the sample, including Switzerland, the best performerin The Global Competitiveness Report 2006–2007.TheUnited Arab Emirates is followed closely by Qatar,ranked 32nd within this group, ahead of Europeancountries such as Hungary and Italy. Kuwait andBahrain are both included on the list toward the bottomof the group, at place 36 and 39 respectively out of 40economies.

The second group of countries comprises 40 coun-tries that are categorized as efficiency-driven, or in tran-sition toward this stage of development.This group isheaded by Malaysia and Chile and comprises manyemerging economies, including Brazil and the RussianFederation. Several Arab nations are included in this list

at various levels of rankings.Tunisia is the best per-former among the Arab world economies in this group,ranking 3rd overall and coming in ahead of someEuropean countries, such as Poland and Latvia.Withinthe region,Tunisia outperforms Oman, at rank 8 thesecond-best performer by a fairly large margin. Jordanfollows at 13th place, yet still ranks relatively high con-sidering its income.Toward the lower end of the rank-ings, we find Libya at 26 and Algeria at 29 out of 40economies.

In the group of factor-driven economies (countrygroup 1) headed by India, we find 48 of the lessadvanced-countries in the world.Apart fromMauritania, which comes in at 38th position, the Arabeconomies in this group compare rather favorablyagainst the rest of the group and rank in the upperquarter—Egypt ranks 4th, Morocco 7th, and Syria 12th.

The best performers in the Arab world lag behind theirpeers in terms of competitivenessThe four Arab world countries that fall into the groupof 40 most-advanced economies—the United ArabEmirates, Qatar, Kuwait, and Bahrain—rank toward thebottom of their peer group in terms of national com-petitiveness.Weaknesses in innovation and businesssophistication—two areas that are relatively more

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Table 3: Weighting of subindexes, based on stage ofdevelopment

Basic Efficiency Innovation and Weights requirements enhancers sophistication factors

Factor-driven stage 50% 40% 10%Efficiency-driven stage 40% 50% 10%Innovation-driven stage 30% 40% 30%

‘Source: World Economic Forum, 2006.

Table 2: Classification of Arab world countries into stages of development

Stage of development Arab world countries Other countries in this stage Important areas for competitiveness

Stage 1 (factor-driven) Egypt, Mauritania, Syria, India, China Basic requirements (critical) and Morocco efficiency enhancers (very important)

Transition from 1 to 2 Algeria, Libya, Oman, Tunisia, Colombia, Thailand, Venezuela Basic requirements (critical) and efficiency Jordan enhancers (increasingly important)

Stage 2 (efficiency-driven) Turkey, Russian Federation Basic requirements (very important) and efficiency enhancers (critical)

Transition from 2 to 3 Bahrain Barbados, Czech Republic, Same as above, but innovation factors Korea become increasingly important

Stage 3 (innovation-driven) Qatar, United Arab Emirates, United States, United Kingdom, All three areas important: basic Kuwait Japan requirements, efficiency enhancers

and innovation factors

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important for competitiveness of high-incomeeconomies—explain part of this and outweigh the sig-nificant progress with respect to both macroeconomicstability and the intuitional environment.

Boosting innovation capacity will require public andprivate investment and a structural overhaul of the basicinnovation infrastructure.A comparison of the results oninnovation indicators with the best performer in thiscategory, Japan, points to areas for improvement (Table 5).Although governments in the region promote innova-tion by purchasing high-technology products on a pri-ority basis and enforcing intellectual property rights,overall innovation capacity and company spending onresearch and development (R&D) are significantlybehind that of Japan.The quality of their research insti-tutions is far below the world’s best and their outputs

are not valued commercially as the entities have fewlinks with the private sector.

Another striking result for these for countries isthat they have relatively low rankings on indicatorsrelated to health and education when benchmarkedagainst the group of advanced economies. Despite theirrelative wealth all four countries rank toward the bottomof the group on this pillar, particularly on indicatorsmeasuring access to primary education. On the positiveside, most of these countries have made significantprogress over the past three decades with respect toincreasing educational enrollments, demonstrating thecapacity to make further advances in the future.Asidefrom quantitative targets, the quality of outcomes in ter-tiary schooling needs to be enhanced to reverse the lowvaluation of educational credentials by the private sector.

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Table 4a: Arab world GCI 2007 rankings in internationalcomparison: Country group 3*

GCR 2007


Switzerland 1 5.81Finland 2 5.74Sweden 3 5.73Denmark 4 5.70Singapore 5 5.62United States 6 5.62Japan 7 5.62Germany 8 5.60Netherlands 9 5.57United Kingdom 10 5.53Norway 11 5.46Hong Kong SAR 12 5.45Taiwan, China 13 5.40Iceland 14 5.40Israel 15 5.38Canada 16 5.36France 17 5.34Austria 18 5.32Australia 19 5.30Belgium 20 5.28Ireland 21 5.22New Zealand 22 5.17Luxembourg 23 5.15Korea, Rep. 24 5.12Estonia 25 5.12Spain 26 4.79Czech Republic 27 4.72Barbados 28 4.71United Arab Emirates 29 4.67Slovenia 30 4.64Portugal 31 4.60Qatar 32 4.56Hungary 33 4.53Italy 34 4.47Malta 35 4.44Kuwait 36 4.42Cyprus 37 4.35Greece 38 4.33Bahrain 39 4.30Trinidad and Tobago 40 4.06

* Group 3 comprises innovation-driven economies (countries in the 3rd stageof development and those transitioning toward it).

Table 4b: Arab world GCI 2007 rankings in internationalcomparison: Country group 2*

GCR 2007


Malaysia 1 5.13Chile 2 4.85Tunisia 3 4.72Latvia 4 4.60Thailand 5 4.58Lithuania 6 4.57Slovak Republic 7 4.57Oman 8 4.53South Africa 9 4.42Poland 10 4.33Costa Rica 11 4.27Croatia 12 4.27Jordan 13 4.25Mexico 14 4.23Kazakhstan 15 4.22Mauritius 16 4.22Panama 17 4.21Turkey 18 4.18Russian Federation 19 4.13Jamaica 20 4.13El Salvador 21 4.12Colombia 22 4.09Brazil 23 4.08Argentina 24 4.05Romania 25 4.04Libya 26 4.00Bulgaria 27 4.00Peru 28 3.99Algeria 29 3.98Uruguay 30 3.97Macedonia, FYR 31 3.92Botswana 32 3.83Venezuela 33 3.80Dominican Republic 34 3.78Namibia 35 3.76Ecuador 36 3.72Bosnia and Herzegovina 37 3.72Serbia and Montenegro 38 3.71Albania 39 3.49Suriname 40 3.45

* Group 2 comprises efficiency-driven economies (countries in the 2nd stageof development and those transitioning toward it).

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The United Arab Emirates—strong on macroeconomicindicators and institutions and weak on education andinnovationThe United Arab Emirates has undergone a remarkableeconomic transformation in the past decade.Amid secu-rity problems elsewhere in the region, the emirates thatmake up the country have realized some of the highestgrowth rates in the Arab world through the persistentpursuit of reforms aimed at economic liberalization anddiversification. Dubai pioneered the creation of dynamicfree-trade zones in the early 1980s, setting an examplein good public management for others to follow.Todaythe country is focused on developing world-class servic-es in areas including finance, health care, and ICT.

The outlook for the country is positive on accountof a number of strengths.The macroeconomic environ-ment is one of them, with the federal government aswell as the emirates having exercised sound economicmanagement.Yet rising inflation (a result of the con-struction and real-estate boom), high financial liquidity,and the fall in the dollar to which the dirham is peggedare increasingly becoming a concern. Besides themacroeconomic environment, other areas of strengthinclude the very modern transport infrastructure andwell-functioning public and private institutions. Labormarkets are judged to be flexible and efficient by thebusiness community, especially in regard to the expatri-ate labor force.

One area of concern is the educational system, par-ticularly primary and secondary education.The enroll-ment rate in primary education ranks 112th in theentire sample, an outcome that could prove detrimentalto the country’s plans for greater diversification.Althoughthe United Arab Emirates exhibits a very high teacher-pupil ratio, outcomes are not commensurate with thepublic investment undertaken or the needs and expecta-tions of the business sector.The quality of managementschools, ranked 52nd in the complete sample, is perceivedas suboptimal.

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Table 4c: Arab world GCI 2007 rankings in internationalcomparison: Country group 1*

GCR 2007


India 1 4.47Indonesia 2 4.28China 3 4.25Egypt 4 4.09Azerbaijan 5 4.09Philippines 6 4.02Morocco 7 4.02Guatemala 8 3.94Vietnam 9 3.93Ukraine 10 3.91Sri Lanka 11 3.90Syria 12 3.81Armenia 13 3.78Georgia 14 3.75Moldova 15 3.73Pakistan 16 3.69Honduras 17 3.62Mongolia 18 3.61Kenya 19 3.61Nicaragua 20 3.55Tajikistan 21 3.50Bolivia 22 3.49Nigeria 23 3.49Bangladesh 24 3.48Gambia 25 3.45Cambodia 26 3.42Benin 27 3.41Tanzania 28 3.40Paraguay 29 3.35Kyrgyz Republic 30 3.33Cameroon 31 3.32Guyana 32 3.29Madagascar 33 3.29Nepal 34 3.27Lesotho 35 3.24Uganda 36 3.21Zambia 37 3.21Mauritania 38 3.18Burkina Faso 39 3.10Malawi 40 3.09Zimbabwe 41 3.07Mali 42 3.04Ethiopia 43 3.00Mozambique 44 2.97Timor-Leste 45 2.91Chad 46 2.64Burundi 47 2.62Angola 48 2.50

* Group 1 comprises factor-driven economies (countries in the 1st stage ofdevelopment).

Table 5: Innovation in selected Arab countries

Quality of University- Gov’t.scientific Company industry procurement Intellectual Availability research spending research of advanced property of scientists Capacity for Utility 9th pillar:

institutions on R&D collaboration tech products protection and engineers innovation patents, 2005 Innovation

No. of utility patents Country Score (1–7) Score (1–7) Score (1–7) Score (1–7) Score (1–7) Score (1–7) Score (1–7) per 1,000 inhabitants Score (1–7)

Bahrain 2.55 2.26 1.84 3.83 4.08 3.79 2.36 0.0 2.71Kuwait 3.86 2.93 2.76 3.23 3.62 4.46 2.47 1.1 3.04Qatar 4.00 3.40 3.11 4.40 4.84 4.14 3.19 0.0 3.51United Arab Emirates 3.79 3.40 3.33 4.72 4.80 4.14 2.99 0.7 3.52Average of Arab countries in stage 3 3.74 3.18 2.99 4.15 4.40 4.18 3.02 0.50 3.33Japan 5.85 6.06 5.17 4.98 5.88 6.25 6.00 236.9 5.90Distance to best performer 2.10 2.88 2.19 0.83 1.49 2.07 2.98 236.35 2.57

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Although flexible migration policy allows easyaccess to expatriate workers, an increasing number ofjobs will have to be provided for the growing nationallabor force.This is going to be difficult if universal basiceducation is not achieved and vocational training andsecondary schooling are not improved.A newlylaunched strategy to improve educational outcomes,along with initiatives taken to facilitate the presence ofinternational universities, signal a commitment to tack-ling the problem.

GCI results point to weaknesses in market efficien-cy, in particular with respect to competition for goodsand services.Although the United Arab Emiratesachieved a good result on the overall issue, entry intomarkets appears to be constrained by red tape. It stilltakes 63 days to set up a new business and executivesdeplore the constraints on foreign ownership.Among128 countries covered by the entire sample, the UnitedArab Emirates achieves a low 94th rank in this category.

Last but not least, the results on innovation andR&D call for increased investment both from the publicand private sectors. UAE businesses have registered onlya few patents, and their innovation capacity is not at parwith the country’s income level.The survey results pointto the reasons behind this, including the low quality ofresearch institutions and a clear shortage of trained sci-entists and engineers. On the positive side, the govern-ment appears ready to prioritize innovation. Intellectualproperty rights are well protected and the public sectoris increasingly promoting innovation through targetedprocurement of advanced technology products.

Qatar—excels in macroeconomic outcomes but improvements in infrastructure and business sophistication are neededDespite intensive diversification efforts, the Qatari econ-omy remains heavily dependant on natural resources,with a rising share of gas exports.The second-bestranked economy in the region, Qatar came in 32ndwithin the group of advanced countries.A small countryrich in natural gas reserves, it achieves the highest percapita income in the region and one of the highest inthe world.

Like other oil-producing countries in the region,Qatar’s macroeconomic stability has benefited from theincreased production and export price of oil and gas.Although the country’s fiscal situation has improvedmarkedly, public debt remains high and the dollar’sdepreciation, in combination with the soaring housingcosts, has put significant upward pressures on inflation.Despite these somewhat worrying trends, Qatar ranks anexcellent 4th in the entire sample on the macroecono-my pillar.

Rising oil revenues in the past few years have beenused to launch large-scale infrastructure projects, includ-ing road networks as well as the newly built Doha air- and seaports. Our data show that upgrading the

infrastructure is necessary—the country ranks only 36thwithin its group on this category. Compared with othercountries in the region, Qatar shows a relatively goodtrack record with respect to education at all levels. It hasreached almost universal primary and secondary enroll-ment.According to UNESCO data, literacy is rising,with 89 percent of adults and 95.9 percent of youngpeople able to read and write.Yet for the country tomove ahead, a higher turnout of university graduateswill be necessary. Its ranking among the 128 countrieson this category is only 77th.

As a country with high wage levels, Qatari busi-nesses will have to focus on innovation and increasingbusiness sophistication. In terms of innovation, the pic-ture is mixed although relatively good. Government isclearly protecting property rights well and gives priorityto procuring advanced technology products.Yet busi-nesses and research institutions lag behind.The qualityof the latter is assessed as relatively low (rank 49 out of128 countries) and the two main players in innovationmiss out on collaboration opportunities.At the sametime, appropriately trained staff for research activities isscarce (rank 83 out of 128 countries).

Kuwait—excellent macroeconomic environment withweak outcomes on education and innovationKuwait occupies 37th place out of 40 countries includ-ed in this group.As in other oil-exporting countries inthe region, the macroeconomic environment hasmarkedly improved in the past few years and the coun-try is second to none within the group on the macro-economy pillar, reflecting the steadily growing budgetsurplus and growing savings.

There is room for improvement with respect toprimary education.Although it is already above levelsfound in most countries in the region, some additionalefforts could easily translate into universal education.Similarly, improvements in the quality of higher educa-tion would benefit the country’s business sector,enabling it to improve the sophistication of businessoperations and to enhance the innovation capacity ofdomestic businesses.

One particular aspect highlighted by the Survey isthe prevalence of pervasive red tape that negativelyaffects business operations and makes the entry of newcompanies difficult.At the same time, businesses findgovernment regulations difficult to comply with, andthe country occupies a low 73rd position on the indica-tor that assesses this category. However, the countryboasts very good financial infrastructure with easy accessto a wide range of financial services, including loans,equity markets, and risk capital.

More than other economies that fall into thisgroup, Kuwait remains sheltered from the internationaleconomy and thus foregoes the benefits of competition.Although formal trade barriers are not identified asobstacles, foreign ownership is considered the most

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restricted of the countries covered (rank 128 out of 128countries). Both the low level of imports and restrictionson entry by foreign firms further reduce competition inthe already very small internal market.

Finally, as in most countries discussed here, innova-tion remains a shortcoming of the Kuwaiti economy.But the assessment of business people stands in contrastto the hard data.Although the business sector provides avery pessimistic assessment of the country’s ability toinnovate (rank 112 out of 128), the country has regis-tered the highest number of utility patents in the Arabworld, which points to relatively more successfulresearch activity.

Bahrain—good macroeconomic performance and socioeconomic indicators with gaps in higher educationand trainingWithin the sample of 40 countries representing thisgroup, Bahrain achieves a relatively weak 39th rank withonly Trinidad and Tobago coming in below. Unlike itsneighbors, however, the country is not endowed withsignificant oil and gas reserves—this in part explains thecountry’s ongoing drive to promote economic diversifi-cation while maintaining macroeconomic stability.

As a result of targeted investments since the 1970s,health and education indicators as well as the provisionof infrastructure have improved considerably. Mostnotably, Bahrain is the best-performing country in the region with respect to health and primary education(rank 30 out of 128 countries).The country has stable and efficient public institutions and advancedinfrastructure.

Bahrain has the highest literacy rate in the regionand has made excellent progress with respect to enroll-ment rates in secondary and tertiary education.Yet busi-ness leaders, in their responses to the Survey, indicatethat schools could improve the preparation of graduatesfor positions in the private sector as well as for establish-ing a strong foundation for innovation.

Efforts to attract foreign direct investment (FDI)into more technology intensive sectors appear promis-ing.The potential for attracting technology-intensiveactivities is considerable given the relatively high capaci-ty of the Bahraini economy to absorb new technologies(rank 43 out of 128 countries) and the performance ofBahrain in terms of use of high-technology products.

Bahrain has achieved great regional and interna-tional success as a result of the sophistication and open-ness of its financial markets. Even the United ArabEmirates—its main competitor from the region—scoreslower with respect to these two aspects, while countriesthat have placed less weight on developing the financialsector, such as Qatar or Kuwait, clearly stay behind. Butfor a country with abundant liquidity, access to loans fornational companies remains difficult.

Tunisia, Oman, Jordan, Libya, and Algeria show diverging performance with respect to their peersThe second group of countries fall into the efficiency-driven stage of development or are in the process oftransitioning to this stage.As noted above, countries inthis phase need to focus on higher education and train-ing, market efficiency, and technological readiness toenable businesses to employ labor more productivelyand pay higher wages.At the same time, the basicenablers—institutions, infrastructure, macroeconomy, andhealth and primary education are equally important fornational competitiveness and should be maintained.Andalthough less important now, innovation and sophistica-tion factors should be kept in mind for the future.

The Arab countries in this group are spread acrossthe entire spectrum of rankings.All do well on macro-economic indicators and most have relatively good insti-tutions. But as in the first group, educational outcomesare below optimal. Most of these countries have thebenefit of young populations, which can easily add tothe burden of unemployment if job creation is notaccelerated. In light of this, the regulation of labor markets—including government hiring and wage-settingpractices as well as rules on hiring and firing workers—is a priority.

Tunisia—stable institutions and good educational out-comes but weak infrastructure and financial systemsRanking third, behind Malaysia and Chile,Tunisia leadsthe Arab economies in the second group, ahead of someEuropean Union (EU) members such as Latvia andLithuania.Tunisia’s excellent performance on the indexreflects the country’s even performance across most ofthe indicators and some pronounced competitivestrengths, particularly its well-developed public institutions.

Great progress in expanding primary education hasbeen made with the provision of universal primary edu-cation.Although higher enrollment rates in secondaryand tertiary education would enable the country tobenefit more from its human capital, the quality of edu-cation is assessed as very good, often ranking the coun-try among the top 20 countries covered by the GCRon education indicators.

In addition,Tunisian businesses benefit from highlevels of business sophistication.Although marketingactivities could be enhanced and production processesimproved, companies tend to operate at the upper endof the value chain. Index results suggest that the govern-ment focuses on enhancing the country’s innovativecapacity. It gives priority to procuring advanced tech-nology products, and the quality of research institutionsand their collaboration with businesses are assessed asvery positive.Yet the country’s capacity in R&D is low,as measured by the number of utility patents.

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Tunisia’s competitiveness could benefit fromincreased investment in infrastructure, particularly in airtransport and telecommunications facilities, whichremain below international standards. Private public-partnerships should be envisaged in light of the need forimproved fiscal management.A reduced budget deficitand public debt would also contribute to an improve-ment in competitiveness and make more funds availablefor necessary investment in the medium term.

Among the factors that will impede future growth,the low efficiency of financial markets and gaps in tech-nological readiness stand out, as do some aspects relatedto the efficiency of labor markets. In terms of financialmarkets, the access to finance for local companies, suchas loans and local equity markets, could be improved.There is also a need to develop more sophisticatedfinancial products and services as well as to strengthenthe overall stability of the sector.

Oman—well-developed institutions and efficient labormarkets, but education and sophistication in need ofimprovementOman occupies the 8th rank among the second groupand is the second-most competitive Arab country in thisgroup.The country’s solid outcomes on macroeconomicindicators (rank 6 out of 128 countries), including ahigh budgetary surplus and a declining governmentdebt, are a result of the economic reforms started in theearly 1990s and focused on diversification and privatiza-tion.Today even inflation—a problem in neighboringcountries—is under control.Yet savings remain fairlylow and may prove insufficient for providing the coun-try with funds for investment.

Other strengths in Oman include its well-developedinstitutions (rank 17 out of 128 countries), both in thepublic and private sectors. Low levels of corruption andfavoritism and an excellent security situation contributeto a good business environment. Improvements withrespect to judicial independence and reducing burdensfor complying with government regulations would con-tribute to strengthening Oman’s competitive position.

Oman’s commitment to improving labor marketoutcomes is reflected in the high level of efficiency inits local labor markets.Yet further reforms aiming at ren-dering the labor markets more flexible will be necessaryto help reduce the high unemployment among Omanis.Another way of improving labor market outcomes isthrough education reforms. Oman’s enrollment rates arenot up to international standards at any level of educa-tion. In particular, tertiary enrollment rates are lowest inthe Gulf region, with only 13 percent of young peopleof the relevant age group attending universities.

In addition to education, a poor showing in tech-nological readiness, business sophistication, and innova-tion contribute to weakening the country’s position.Efforts to increase the penetration and use of the latest

technologies could boost growth in the country. GivenOman’s stage of development, the country should focuson enhancing efficiency, with innovation and businesssophistication playing only a secondary role.Yet, as thecountry diversifies, those factors will become increasing-ly important.

Omani businesses need to prepare to upgrade theirbusiness practices and to adopt the latest managementmodels. Marketing remains underdeveloped and produc-tion processes do not reach standards in similarly devel-oped economies.To achieve greater diversification,research and development are going to be increasinglyimportant. Research institutions are in urgent need ofupgrading, trained human resources are scarce, andbecause businesses do not experience high returns toR&D they invest relatively little in developing newproducts and services.

Jordan—efficient markets and accountable institutions but low ICT use and technological transfersRanking 13th within the second group of countries,Jordan achieves a relatively good position in the GCIrankings. Its strong performance is linked to low levelsof corruption, transparent and accountable public insti-tutions, and business-friendly regulations that are easy tocomply with.This is reflected in its 6th rank among the40 countries on the institutions pillar.A drawback is thecountry’s exposure to insecurity, reflecting the threat ofterrorism and its proximity to the Arab-Israeli conflict.

Unlike many other countries in the region, whichremain fairly protected, the Jordanian economy is moreopen to trade and foreign participation.Yet a number ofcompetitive disadvantages need to be addressed if Jordanis to realize its full competitive potential. Its macroeco-nomic environment remains one of the most fragile inthe world, ranking 106th out of 128 countries becauseof its high budget deficit and public debt. Labor marketsare overly regulated with respect to hiring and firing(rank 92 out of 128 countries), contributing to highunemployment and encouraging brain drain.

An area that has recently moved to the center ofattention is the country’s ICT and technological readi-ness.The use of advanced technology, such as computersand the Internet, remains low by international andregional standards.At the same time, the capacity toadapt technology and innovation from abroad remainsrelatively weak. Focusing on enhancing efficiency byencouraging the transfer of technology, be it throughFDI or licensing, would be instrumental for Jordan’sability to move up the value chain and export moresophisticated products. Currently, the export structure ischaracterized by low value added products that rely onunskilled labor inputs, such as textiles.

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Libya—excellent macroeconomic indicators but infrastructure is underdeveloped and the quality of education is weakIn the first inclusion of the country in internationalcompetitiveness rankings, Libya comes in 26th among40 countries. Libya has only recently embarked on theprocess of economic reform and is making efforts todiversify its oil-based economy.Thanks to the recent oilboom, the country excels in macroeconomic indicators,with one of the highest budgetary surpluses and one ofthe lowest government debts worldwide.

Improvements should be made with respect to regulation, which is considered burdensome (rank 99out of 128 countries) and property rights, which shouldbe better defined and enforced.With the privatizationprocess under way, corporate governance standards willhave to be overhauled to provide a good basis for theoperations of the private sector, and auditing andreporting standards will need to be strengthened (rank 116 out of 128). Currently, businesses perceivecorporate boards to be of little use (rank 127 out of 128countries).

Physical infrastructure is underdeveloped, particular-ly in the transport sector.And although education iswidely available, it is judged to be of low quality by thecountry’s business sector (rank 114 out of 128 countries).Labor markets display a large degree of inefficienciesrelated to overregulation, consistent with the reportedhigh unemployment rates. Given the country’s recenthistory of international isolation, continuing the processof trade and investment liberalization remains a priority.

Equally importantly, there is ample room forimprovement in the area of technological readiness, asthe country does not appear to be taking full advantageof technology that could be made available throughtechnology transfer or licensing.And although not yetessential in view of Libya’s stage of development, inno-vation and sophistication of business operations arebelow levels found in countries in a similar stage ofdevelopment and need to be enhanced.

Algeria—excellent macroeconomic environment in a sheltered and technologically backward economyAlgeria ranks a fairly low 29th among the 40 countriesincluded in this group.Thanks to increasing exports ofoil and gas, GDP growth has picked up recently and themacroeconomic environment has improved markedly.The government budget has gone into surplus and thepublic debt was reduced significantly, from 41 percent ofGDP in 2001 to only 16 percent in 2005.

Progress has been achieved with respect to theoverall institutional environment. Government spendingis considered relatively efficient by the business sectorand government officials are neutral in their decisions.Yet some indications show that corruption needs to betackled.At the same time, corporate governance isunderdeveloped, particularly with respect to oversight

regulations such as the functioning of boards and auditingand reporting requirements.

Algeria also shows good outcomes on health indi-cators and has introduced universal primary education,giving it one of the highest enrollment rates in theregion.A weak spot remains the low commitment toon-the-job training and the still fairly low quality of theeducational system, mainly when it comes to manage-ment education.

The country is still fairly sheltered from internationalcompetition, which limits the efficiency of its domesticmarkets. In addition, its labor markets remain highlyregulated, especially with respect to the wage-settingprocess and the brain drain, factors that do not bodewell for the country’s future.At the same time, a fragilebanking system does not fulfill its function of channel-ing capital into companies efficiently, with access toloans and other financing services limited.

Future challenges for the country include invest-ment in technological readiness, including the better useof advanced technology.As a second-stage country,Algeria should focus more intensely on assimilatingtechnology from abroad.Activities in innovative activityare currently constrained by the low quality of localresearch institutes that collaborate little with businessand by limited spending by businesses on research anddevelopment.

The performance of Egypt, Morocco, Syria, andMauritania confirms the diversity of these countriesThe third group of countries comprises the 48economies with the lowest income in the entire sample.All of them are in the factor-driven stage of develop-ment.The ranking is headed by India, Indonesia, andChina. Egypt, Morocco, Syria, and Mauritania are thefour Arab world countries that fall into this group.Withthe exception of Mauritania, they perform well withrespect to their peers and place in the upper quarter ofthe group. On average they perform well on infrastruc-ture and, with the exception of Morocco, also on healthand primary education. In all countries but Syria, themacroeconomic environment—in particular fiscal anddebt management—requires particular attention by poli-cymakers in future.

Although attention in the first stage of developmentshould focus on the basic requirements, also very impor-tant are higher education and training, market efficiency,and technological readiness.The competitiveness performance is hampered in this group by the lowattainment of higher education and low levels of marketefficiency.Among the three markets assessed, the laborand financial markets stand out as particularly affected.Rigid regulations limit the scope of job creation by theprivate sector, while the lack of depth in the financialsystem constrains company growth.

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Egypt—good institutions and infrastructure but one of thehighest budget deficits in the worldAmong countries in the low-income group Egypt leadsthe Arab economies, ranking 4th out of 48 countriesafter China and ahead of the Philippines.The country’sperformance shows some pronounced strengths andweaknesses. Public and private institutions are overall ingood shape, benefiting from a more technocratic andless corrupt bureaucracy.Yet the country’s businesses,especially in the tourism sector, suffer from the threat ofterrorism (rank 105 out of 128 countries).

Transport, energy, and communications infrastruc-ture serves the economy well, and good progress hasbeen achieved on primary education with near universalenrollment attained.Yet the quality of education remainslow and hardly meets the needs of a growing anddynamic business sector.Although Egypt is one of themost protected economies in the Arab world, competi-tion is relatively intense thanks to the large domesticmarket. Greater openness through multilateral or bilater-al trade agreements would benefit the economy.

The country’s competitive potential remains under-utilized. Despite the clear strengths outlined, a numberof fundamental challenges have to be addressed to boostgrowth and job creation.A major shift in macroeco-nomic management could contribute to enhancinggrowth, including prudent public spending to rein inone of the highest budget deficits in the world (rank127 out of 128 countries) and limit the soaring govern-ment debt (rank 104 out of 128 countries). Inflation isalso surprisingly high given the worldwide trend towardincreased price stability.

The efficiency of all three markets assessed—goods,labor, and financial—remains low. In addition to protec-tionism, rigid labor regulations contribute to highunemployment. Financial markets are equally in need ofenhancement, as they are ill equipped to channel finan-cial resources into the most profitable investments in thebusiness sector. Growth of companies is hampered bylimited financial products such as loans and venture cap-ital, and there is ample room to bring greater stabilityand soundness to the banking sector.

Last but not least, the potential of technology andinnovation to boost growth remains underutilized.Although in the case of Egypt some technology isacquired through FDI, increased use of advanced generalpurpose technologies, such as the Internet, mobile tele-phones, and personal computers could benefit businessesand boost growth, as has been seen in other countries.

Morocco—good infrastructure and efficient marketsalthough human capital needs urgent improvementsMorocco occupies the 7th place among 48 economiesin this group.The country’s strengths include the rela-tively solid institutions with low distortions (rank 48 outof 128 countries) and efficient government spending.Business is little concerned by security issues (rank 47

out of 128 countries), although terrorism is considered asignificant threat.There is room for improvement incorporate governance, particularly in the role of corpo-rate boards and auditing and reporting requirements.

The quality of infrastructure is good apart from thetelecommunications sector, which is brought down bythe low penetration of fixed telephone lines. Moroccodoes well on indicators of technological readiness, butpenetration rates of advanced technologies—includingmobile telephones—remain low. Moroccan firms, how-ever, are aggressive in absorbing technology fromabroad.Although local firms are sheltered from interna-tional competition, there are few barriers to entry facingforeign and domestic firms, and antitrust regulationeffectively prevents monopolies.

Morocco has embarked recently on an extensiveprogram for enhancing competitiveness by intensifyingtrade links and promoting sectors with high valueadded. Such efforts, however, will be frustrated if thedevelopment of human capital is not advanced.Thecountry has not achieved universal primary educationand secondary schools and universities are not widelyaccessible.Although only about 11 percent of the rele-vant age group is enrolled in institutions of higher edu-cation, Morocco does well on the quality of educationaloutcomes especially in math, science, and managementtraining.And at the same time, the low tertiary enroll-ment does not appear to constrain business activity, ascan be seen from the good assessment of the availabilityof scientists and engineers by businesses.

Equally important, a more sophisticated and deeperfinancial sector could play an important role in closingthe financing gap businesses faced by businesses and helpaccelerate economic development.Access to loans andother forms of finance such as equity markets and ven-ture capital remain very limited.

Syria—low levels of corruption and good socioeconomicoutcomes against a weak macroeconomic environmentand high levels of protectionSyria is the 12th most competitive economy amongcountries in the lowest stage of development.With agrowing population and difficult geopolitical environ-ment, the country is facing many challenges to improv-ing competitiveness.Awareness, since the early 1990s, ofthe need to diversify the economy has resulted in thelaunch of many initiatives aimed at reform.

The country displays a number of notable strengths.Levels of corruption remain fairly low (rank 43 out of128 countries) and, in international comparisons, busi-nesses have trust in their political leaders (rank 63 out of128 countries).The threat of terrorism and organizedcrime is perceived to be weak (rank 23 out of 128countries). Infrastructure facilities for telecommunica-tions, energy, and transport are seen as working efficient-ly with the exception of air- and seaports, which are

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state owned and subject to cumbersome procedures andregulations and insufficient capacities.

Syria displays inferior results on macroeconomicindicators. Despite the current economic boom, thecountry has a significant deficit and has accumulatedconsiderable public debt, amounting to almost 60 per-cent of GDP. In addition, inflation peaked in 2005mainly because of a wage increase in the public sector,inflows of liquidity from Gulf countries, and an appreci-ation of the currency.

Over the past few years, Syria has made great effortsto improve the basic education and health of its popula-tion. Infant mortality is lower than in other countries atthe same stage of development, and universal enrollmentin primary education has been achieved.

Enhancing competitiveness has moved to the centerof the economic policy agenda in the country, and theGCI results point to a number of challenges in thisrespect. In particular, secondary schooling and highereducation are not widespread and the quality of theeducational system is assessed to be below the level nec-essary to support a growing business sector.

In addition, weaknesses persist in market efficiency.High levels of protectionism in goods markets and rigidhiring and firing practices restrict competition in thosemarkets and contribute to the high level of unemploy-ment.The financial sector is in urgent need of upgrad-ing as it currently is unable channel funds into the busi-ness sector. It is characterized by an unstable bankingsystem and difficulty in accessing loans and other instru-ments of corporate financing.

Furthermore, much of the potential with respect tousing technology to boost growth remains untapped.FDI does not lead to technological transfers and compa-nies’ capacity to adopt technology is limited.This—together with the rather low use of advanced technolo-gies within the business sector and the general popula-tion—prevents Syria from taking better advantage of thebenefits new technologies offer. Internet use remainsvery limited (rank 89 out of 128), since the countryonly recently opened up to this technology.

Mauritania—institutions are a comparative strengthagainst an overall weak performance, in particular highmacroeconomic imbalancesAs the country with the lowest per capita income in theArab world, at 38th place out of 48 Mauritania occupiesthe lowest ranking among the countries within theregion.The recent discovery of off-shore petroleumfields will bring strong growth over the next years andmake funds available for investment in competitiveness-enhancing activities.

Not surprisingly, Mauritania suffers from a lowassessment on virtually all the pillars of the GCI. Still, afew areas of strength emerge.The country has a relative-ly independent judicial system (rank 60 out of 128countries), government officials are not likely to give in

to favoritism (rank 36 out of 128 countries), and regula-tion is among the least distorting in the world (rank 6out of 128 countries). Overall, public and private insti-tutions are assessed as functioning fairly well given thecountry’s level of development.

Two more areas stand out for their positive assess-ment.The first is in labor markets: Mauritania has fairlyflexible labor markets with little intervention in businessdecisions on hiring and firing (rank 3 out of 128 coun-tries), although companies are not entirely free to setwages (rank 99 out of 128 countries).At the same time,there is room for improvement in strengthening the linkbetween pay and productivity and providing incentives,in particular for educated people, to remain in thecountry (rank 85 and 93, respectively, both out of 128countries) or to return from abroad.

The second positive area is in technological readi-ness, where adoption of latest technologies is a relativecompetitive advantage of the country, in particular whenseen in light of its level of development. Firms areassessed to be one of the best worldwide with respect toabsorption of technology (rank 16 out of 128 countries)and FDI leads to technology transfer (rank 6 out of 128countries). Most certainly, both indicators have to beinterpreted in light of the growing imports of equip-ment for the extraction of petroleum over the recentyears.

Against these few positive aspects, the list of relativedisadvantages is long. Mauritania is among the worstperformers worldwide with respect to the quality ofinfrastructure and macroeconomic stability.Yet, with tar-geted investment in new transport, energy, and telecom-munications facilities and continued privatization, infra-structure is likely to improve over the next few years.For the macroeconomic imbalances to be corrected,improved fiscal and debt management and prudent useof oil revenues is critical given the country’s limitedexperience in managing large inflows of funds.

Investment in primary education is equally a priori-ty if the country is to maintain competitiveness over thelonger term.Although compulsory, primary schooling isbelow levels that would be necessary for a growingeconomy, resulting in high illiteracy rates.The popula-tion also exhibits one of the worst health profiles in theworld, reflected in the low life expectancy (rank 105 outof 128 countries) and high infant mortality (rank 108out of 128 countries). Fortunately, the country is lessaffected by the HIV/AIDS epidemic than its sub-Saharan African neighbors.

Any future reform program should include a signif-icant but carefully sequenced liberalization of interna-tional trade. Mauritania has the most restrictive tradebarriers in the entire sample (rank 128 out of 128 coun-tries) and trade has proven in many instances a powerfulmeans of boosting growth and job creation.

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ConclusionsThis chapter has assessed the competitiveness of 13 Arabcountries benchmarked against economies in the samestage of development.The results confirm the diversityof the Arab world and highlight a number of strengthsand weaknesses that can inform policy decisions andprovide a foundation for enhanced dialogue betweenthe public and private sector.

The present findings, along with previous assess-ments, indicate that many countries show a respectabletrack record for maintaining and improving competi-tiveness.Yet, when benchmarked against peers in otherparts of the world, many Arab economies fall behind.This applies to a larger extent to the wealthier and moreadvanced economies; most of the remaining Arab worldcompares rather favorably when benchmarked againstother countries in similar stages of development. Intoday’s globalizing world economy, the pace of reformwill need to be accelerated to avoid the region fallingfurther behind the most dynamic economies in theworld, such as Singapore, Malaysia, India, and China.

We have identified a number of challenges thatneed to be addressed to improve the competitive per-formance and maintain the growth momentum in theregion. Given the high unemployment and the need fordiversification in many countries, education reform is ahigh priority. Educational outputs remain mismatchedwith the needs of the business sector, depriving theeconomies of the trained talent needed to raise produc-tivity and move up the value chain. Because innovationis the key enabler of future growth, investment inresearch institutions as well as incentives for the privatesector to increase R&D spending will be necessary.

High unemployment and rapid labor force growthare putting pressure on governments in the region tothoroughly overhaul the organization and regulation oflabor markets that rely heavily on the public sector andmigrant workers. More flexibility in employment regu-lations and increased focus on meritocracy and profes-sional management are steps in the right direction.Although many of these reforms are politically sensitive,the current growth cycle may prove opportune for initi-ating labor market reforms. Similar considerations applyto goods markets in several countries that remain pro-tected from internal and external competition.

When it comes to addressing the challenges outlinedin this chapter, the current oil boom is a double-edgedsword.Although periods of prosperity provide a windowof opportunity for introducing politically challengingreform, they also diminish the pressure for such reforms.Some of the most impressive success stories in theregion, including that of the United Arab Emirates, havedemonstrated the possibility of sustained and aggressivereforms irrespective of conditions in oil markets.This,however, has often required the participation of thebusiness community and society at large in supportingmeasures aimed at long-term economic prosperity.

Notes1 In the case of this Report, we have updated the ICT-related variables

as well as data from the Doing Business database of the WorldBank, taking into account the latest developments in these twoareas. These data were not yet available at the time the GCR2006–2007 was produced.

2 Countries in transition between stages have been attributed to thenext highest stage of development. By doing so, we stress theareas they need to focus on in order to prepare for the future.

ReferencesEIU (Economist Intelligence Unit). 2006a. Country Profile 2006:

Mauritania. London: EIU.

———. 2006b: Country Profile 2006: Syria. London: EIU.

———. 2006c. Country Profile 2006: United Arab Emirates. London:EIU.

IMF (International Monetary Fund). 2006. Arab Republic of Egypt: 2006Article IV Consultation—Staff Report; Staff Statement; PublicInformation Notice on the Executive Board Discussion; andStatement by the Executive Director for the Arab Republic ofEgypt. In Country Report No. 08-253. Washington, DC: IMF.

World Bank. 2005. Middle East and North Africa EconomicDevelopments and Prospects 2005: Oil Booms and RevenueManagement. Washington, DC: World Bank.

———. 2006. Middle East and North Africa Economic Developmentsand Prospects 2006: Financial Markets in a New Age of Oil.Washington, DC: World Bank.

World Economic Forum. 2005. The Arab World Competitiveness Report2005, ed. A. Lopez-Claros and K. Schwab. Hampshire: PalgraveMacmillan.

———. 2006. Global Competitiveness Report 2006–2007: Creating anImproved Business Environment, ed. A. Lopez-Claros, M. Porter,X. Sala-i-Martin, and K. Schwab. Hampshire: Palgrave Macmillan.

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Appendix A: Composition of the Global Competitiveness Index

This appendix provides details on how the GlobalCompetitiveness Index is constructed.All of theSurvey and hard data variables used in this index canbe found in the data tables section of this Report withmore detailed descriptions.

1st Pillar: InstitutionsA. Public institutions

1. Property rights1.01 Property rights

2. Ethics and corruption1.02 Diversion of publics funds1.03 Public trust of politicians

3. Undue influence1.04 Judicial independence1.05 Favoritism in decisions of government officials

4. Government inefficiency (red tape, bureaucracy and waste)1.06 Wastefulness of government spending1.07 Burden of government regulation

5. Security1.08 Business costs of terrorism1.09 Reliability of police services1.10 Business costs of crime and violence1.11 Organized crime

B. Private institutions

1. Corporate ethics1.12 Ethical behavior of firms

2. Accountability1.13 Efficacy of corporate boards1.14 Protection of minority shareholders’ interests1.15 Strength of auditing and accounting standards

2nd Pillar: Infrastructure2.01 Overall infrastructure quality2.02 Railroad infrastructure development2.03 Quality of port infrastructure2.04 Quality of air transport infrastructure2.05 Quality of electricity supply2.06 Telephone lines (hard data)

3rd Pillar: Macroeconomy3.01 Government surplus/deficit (hard data)3.02 National savings rate (hard data)3.03 Inflation (hard data)3.04 Interest rate spread (hard data)3.05 Government debt (hard data)3.06 Real effective exchange rate (hard data)

4th Pillar: Health and primary educationA. Health

4.01 Medium-term business impact of malaria4.02 Medium-term business impact of tuberculosis4.03 Medium-term business impact of HIV/AIDS4.04 Infant mortality (hard data)4.05 Life expectancy (hard data)4.06 Tuberculosis prevalence (hard data)4.07 Malaria prevalence (hard data)4.08 HIV prevalence (hard data)

B. Primary education

4.09 Primary enrollment (hard data)

5th Pillar: Higher education and trainingA. Quantity of education

5.01 Secondary enrollment ratio (hard data)5.02 Tertiary enrollment ratio (hard data)

B. Quality of education

5.03 Quality of the educational system5.04 Quality of math and science education5.05 Quality of management schools

C. On-the-job training

5.06 Local availability of specialized research andtraining services

5.07 Extent of staff training

6th Pillar: Market efficiencyA. Good markets: Distortions, competition, and size

1. Distortions6.01 Agricultural policy costs6.02 Efficiency of legal framework6.03 Extent and effect of taxation6.04 Number of procedures required to start a business

(hard data)6.05 Time required to start a business (hard data)

2. Competition6.06 Intensity of local competition6.07 Effectiveness of antitrust policy6.08 Imports (hard data)6.09 Prevalence of trade barriers6.10 Foreign ownership restrictions

3. Size0.00 GDP – exports + imports (hard data)6.11 Exports (hard data)

(cont’d.)

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B. Labor markets: Flexibility and efficiency

1. Flexibility6.12 Hiring and firing practices6.13 Flexibility of wage determination6.14 Cooperation in labor-employer relations

2. Efficiency6.15 Reliance on professional management6.16 Pay and productivity6.17 Brain drain6.18 Private sector employment of women

C. Financial markets: Sophistication and openness

6.19 Financial market sophistication6.20 Ease of access to loans6.21 Venture capital availability6.22 Soundness of banks6.23 Local equity market access

7th Pillar: Technological readiness7.01 Technological readiness7.02 Firm-level technology absorption7.03 Laws relating to ICT7.04 FDI and technology transfer7.05 Cellular telephones (hard data)7.06 Internet users (hard data)7.07 Personal computers (hard data)

8th Pillar: Business sophisticationA. Networks and supporting industries

8.01 Local supplier quantity8.02 Local supplier quality

B. Sophistication of firms’ operations and strategy

8.03 Production process sophistication8.04 Extent of marketing8.05 Control of international distribution8.06 Willingness to delegate authority8.07 Nature of competitive advantage8.08 Value-chain presence

9th Pillar: Innovation9.01 Quality of scientific research institutions9.02 Company spending on research and development9.03 University/industry research collaboration9.04 Government procurement of advanced technology

products9.05 Availability of scientists and engineers9.06 Utility patents (hard data)9.07 Intellectual property protection9.08 Capacity for innovation

Appendix A: Composition of the Global Competitiveness Index (cont’d.)

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Stage 1 Transition from 1 to 2 Stage 2 Transition from 2 to 3 Stage 3

Angola Albania Argentina Bahrain AustraliaArmenia Algeria Brazil Barbados AustriaAzerbaijan Bosnia and Herzegovina Bulgaria Czech Republic BelgiumBangladesh Botswana Chile Estonia CanadaBenin Colombia Costa Rica Hungary CyprusBolivia Ecuador Croatia Korea, Rep. DenmarkBurkina Faso El Salvador Dominican Republic Malta FinlandBurundi Jordan Jamaica Taiwan, China FranceCambodia Libya Kazakhstan Trinidad and Tobago GermanyCameroon Macedonia, FYR Latvia GreeceChad Namibia Lithuania Hong Kong SARChina Oman Malaysia IcelandEgypt Peru Mauritius IrelandEthiopia Suriname Mexico IsraelGambia Thailand Panama ItalyGeorgia Tunisia Poland JapanGuatemala Venezuela Romania KuwaitGuyana Russian Federation LuxembourgHonduras Serbia and Montenegro NetherlandsIndia Slovak Republic New ZealandIndonesia South Africa NorwayKenya Turkey PortugalKyrgyz Republic Uruguay QatarLesotho SingaporeMadagascar SloveniaMalawi SpainMali SwedenMauritania SwitzerlandMoldova United Arab EmiratesMongolia United KingdomMorocco United StatesMozambiqueNepalNicaraguaNigeriaPakistanParaguayPhilippinesSri LankaSyriaTajikistanTanzaniaTimor-LesteUgandaUkraineVietnamZambiaZimbabwe

Appendix B: List of countries/economies in each stage of development

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Country GCI 2007 rank GCI 2007 score GCI 2005–06 rank

Switzerland 1 5.81 4Finland 2 5.74 2Sweden 3 5.73 7Denmark 4 5.70 3Singapore 5 5.62 5United States 6 5.62 1Japan 7 5.62 10Germany 8 5.60 6Netherlands 9 5.57 11United Kingdom 10 5.53 9Norway 11 5.46 17Hong Kong SAR 12 5.45 14Taiwan, China 13 5.40 8Iceland 14 5.40 16Israel 15 5.38 23Canada 16 5.36 13France 17 5.34 12Austria 18 5.32 15Australia 19 5.30 18Belgium 20 5.28 20Ireland 21 5.22 21New Zealand 22 5.17 22Luxembourg 23 5.15 24Malaysia 24 5.13 25Korea, Rep. 25 5.12 19Estonia 26 5.12 26Chile 27 4.85 27Spain 28 4.79 28Tunisia 29 4.72 37Czech Republic 30 4.72 29Barbados 31 4.71 n/aUnited Arab Emirates 32 4.67 32Slovenia 33 4.64 30Portugal 34 4.60 31Latvia 35 4.60 39Thailand 36 4.58 33Lithuania 37 4.57 34Slovak Republic 38 4.57 36Qatar 39 4.56 46Hungary 40 4.53 35India 41 4.47 45Italy 42 4.47 38Malta 43 4.44 44Oman 44 4.44 n/aKuwait 45 4.42 49South Africa 46 4.42 40Cyprus 47 4.35 41Greece 48 4.33 47Poland 49 4.33 43Bahrain 50 4.30 50Indonesia 51 4.28 69Costa Rica 52 4.27 56Croatia 53 4.27 64Jordan 54 4.25 42China 55 4.25 48Mexico 56 4.23 59Kazakhstan 57 4.22 51Mauritius 58 4.22 55Panama 59 4.21 65Turkey 60 4.18 71Russian Federation 61 4.13 53Jamaica 62 4.13 63El Salvador 63 4.12 60Colombia 64 4.09 58

(cont’d.)

Country GCI 2007 rank GCI 2007 score GCI 2005–06 rank

Egypt 65 4.09 52Azerbaijan 66 4.09 62Brazil 67 4.08 57Trinidad and Tobago 68 4.06 66Argentina 69 4.05 54Romania 70 4.04 67Philippines 71 4.02 73Morocco 72 4.02 76Bulgaria 73 4.00 61Peru 74 3.99 77Uruguay 75 3.97 70Guatemala 76 3.94 95Vietnam 77 3.93 74Algeria 78 3.93 82Macedonia, FYR 79 3.92 75Ukraine 80 3.91 68Sri Lanka 81 3.90 80Libya 82 3.89 n/aSyria 83 3.81 n/aBotswana 84 3.80 72Armenia 85 3.78 81Dominican Republic 86 3.78 91Namibia 87 3.76 79Georgia 88 3.75 86Venezuela 89 3.74 84Moldova 90 3.73 89Ecuador 91 3.72 87Bosnia and Herzegovina 92 3.72 88Serbia and Montenegro 93 3.71 85Pakistan 94 3.69 94Honduras 95 3.62 97Mongolia 96 3.61 90Kenya 97 3.61 93Nicaragua 98 3.55 96Tajikistan 99 3.50 92Albania 100 3.49 100Bolivia 101 3.49 101Nigeria 102 3.49 83Bangladesh 103 3.48 98Gambia 104 3.45 n/aSuriname 105 3.45 n/aCambodia 106 3.42 111Benin 107 3.41 106Tanzania 108 3.40 105Paraguay 109 3.35 102Kyrgyz Republic 110 3.33 104Cameroon 111 3.32 99Guyana 112 3.29 108Madagascar 113 3.29 107Nepal 114 3.27 n/aLesotho 115 3.24 n/aUganda 116 3.21 103Zambia 117 3.21 n/aMauritania 118 3.18 n/aBurkina Faso 119 3.10 n/aMalawi 120 3.09 114Zimbabwe 121 3.07 110Mali 122 3.04 115Ethiopia 123 3.00 116Mozambique 124 2.97 112Timor-Leste 125 2.91 n/aChad 126 2.64 117Burundi 127 2.62 n/aAngola 128 2.50 n/a

* The 2007 rankings, which are based on the Global Competitiveness Report 2006–2007, are compared with previous year’s data from theGlobal Competitiveness Report 2005–2006.

Appendix C: Global Competitiveness Index rankings 2007 and 2005*

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CHAPTER 1.2

Recent US Free TradeInitiatives in the Middle East:Opportunities but NoGuaranteesROBERT Z. LAWRENCE, Harvard University and Peterson Institute

for International Economics

FOREWORDRecognizing the urgent need of the Arab world to integratesuccessfully into the global economy, the Arab BusinessCouncil commissioned, in 2005, an extensive study oftrade as a means to strengthen the economic links amongArab states, focusing, in the first instance, on theUS–Middle East free trade agreements (FTAs).

Considering the basic questions of potential economicbenefits that these agreements have brought to the signatorycountries to date, and their benefit to the region as awhole in the long term, the study seems to suggest thatthese FTAs have considerable potential to bring aboutboth political and economic reforms.The political thrust of these agreements, however, and their primarily bilateralcharacter, have had implications on deeper regional integration.Arab Business Council members agree on theurgent need for better alignment between regional andbilateral trade agreements, incorporating the reduction ofnontariff barriers. Moreover, when coupled with financialmarkets’ liberalization, trade liberalization and integrationwill help spur investment in Arab states and enable thecreation of wealth for future generations, and put them in a position to compete in the global economy on a win-win basis.

The following chapter summarizes the main findingsof this study.

Shafik GabrChairmanArab Business Council

Mazen DarwazehVice-ChairmanArab Business Council

Khalid Abdullah JanahiVice-ChairmanArab Business Council

In 2003, US President George W. Bush proposed creatinga comprehensive free trade agreement (FTA) betweenthe United States and the Middle East (MEFTA) by firstnegotiating comprehensive free trade agreements withcountries in the region bilaterally, and then combiningthese into a single overarching arrangement between theUnited States and the region as a whole.The USadministration has begun to implement this strategy bynegotiating FTAs with Morocco, Bahrain, Oman, andthe United Arab Emirates (UAE). In addition to the ear-lier agreements that had been signed with Jordan andIsrael (and extended to the West Bank and Gaza), this

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This article draws extensively on a study I have recently completed onthe topic. For a more extensive discussion and elaboration, seeLawrence (2006).

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meant that by 2006, the United States had concludedsix FTA arrangements with countries from the regionand a seventh with the United Arab Emirates was insight.

The interest of the United States in MEFTA is notprimarily economic; rather, it reflects geopolitical andsecurity considerations.The MEFTA initiative reflectsthe judgment that US policy in the region needs aneconomic component in order to be effective. By con-trast, for Arab countries interest in MEFTA is primarilyeconomic.

For Arab countries, the attraction of FTAs with the United States stems primarily from four types ofeconomic advantages they could provide:

• First, there are the direct benefits that come fromincreased trade and investment. FTAs afford prefer-ential access to the large US market that couldresult in increased exports and investment by bothforeign and local firms. FTAs will also improveconsumer welfare by reducing domestic prices andincreasing competition and choice in the domesticmarket.

• Second, the agreements can be used to improve thetrade relations of Middle Eastern countries vis-à-visother trading partners. FTAs will reduce the tradediversion that results from other preferentialarrangements, such as the Euro-Mediterranean(Euro-Med) Association Agreements with theEuropean Union.They will also enhance theregion’s bargaining power with other countries thatwill wish to be accorded treatment similar to thatobtained by the United States.

• Third, the agreements can help to promote increasedregional integration. If several countries in theregion sign similar agreements, these can also beused as the basis for deepening regional economicintegration.The most ambitious hope is that theUS initiative could spur all Arab countries to takethese necessary steps with the United States andthen with each other; a somewhat less ambitiousoutcome would be for a select group of countriesto launch a regional integration that achieves deepeconomic integration among those countries whoare willing.

• Finally, and perhaps most importantly, the agree-ments can assist with domestic reforms.1

But will these FTA agreements be effective inadvancing the goals of those who sign them? Judged bythe history of FTAs in the region, some skepticism isprobably in order.2 Middle Eastern countries have oftengrasped the symbols of Arab unity but been unwilling to engage in the fundamental systemic changes that

would really make their markets mutually contestable.Foot-draggers have also been able to stall meaningfulagreements or have taken steps that deny full implemen-tation. In addition, there are questions about the size ofthe benefits such agreements might produce becausemost Arab countries have relatively modest trade andinvestment links with the United States; the EuropeanUnion (EU) is a more important trading partner by far.In 2003, for example, EU imports and exports fromArab countries were 4.6 and 3.7 times larger than thosefrom the United States respectively, while the non-oilexports to the United States amounted to around 6 percent of all exports from Arab countries and theUnited States accounted for only 8 percent of thesecountries’ imports.3

Nonetheless, what is particularly striking about theagreements signed by Bahrain, Morocco, and Oman istheir comprehensive and deep character.They requireliberalization—not only for trade in all goods, includingagriculture, but also for many services and for foreigndirect investment. In particular, the prototypical USagreement requires virtually complete liberalization ofindustrial and agricultural products, extensive coverageof market access for services, rights of establishmentwith few exceptions for foreign investment, obligationsto protect intellectual property that are more extensivethan those in the World Trade Organization (WTO)trade-related aspects of intellectual property (TRIPs)agreement, commitments on government procurement,policy transparency, technical barriers and standards, pro-visions to adhere to labor, and environmental standards.These requirements, set out in the clauses of the FTA,are all enforced by dispute settlement agreements backedby the possibility of the suspension of concessionsand/or payment of monetary assessments.4

The deep character of these agreements reflects the fact that, although the Middle East has been givenunique political priority, the United States is also nego-tiating similar agreements based on a standard templatewith other countries in many parts of the world.5 TheUS administration has tried not to depart from thistemplate, partly because it reflects the type of agreementthe US Congress will support and partly because it doesnot want to set a precedent of departing from theframework that other countries can point to.

By contrast, with the exception of the GulfCooperation Council (GCC), most previous agreementssigned by Arab countries—both with the EuropeanUnion and among each other—have generally dealt onlywith border barriers such as tariffs and quotas and, evenwith respect to these, coverage has often been incom-plete.Although the countries in the region have madesome progress in reducing tariffs, particularly on regionaltrade, they have failed to deal effectively with nontariffbarriers and the liberalization of services and investment.The pan-Arab Greater Arab Free Trade Agreement(GAFTA) for example, covers only trade in goods and

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remains deficient with respect to rules of origin andimplementation.The subregional Agadir Agreement(between Egypt, Jordan, Morocco, and Tunisia) has cor-rected the rules of origin issue for four countries.6 ButAgadir deals only with trade in goods.

I will argue in this paper that the deep nature ofthe US agreements presents new opportunities for Arabcountries.To take full advantage of this opportunity,however, they will have to complement the agreementswith additional policy measures, both individually andtogether.The promise of the agreements comes fromtheir ability to be used as a catalyst for increased eco-nomic benefits by improving regulatory rules and systemsat home and facilitating integration with the rest of theregion and the world. But the agreements are notpanaceas.They also present problems for Arab countries,first in relating these US agreements to agreements withother trading partners—most importantly the EuropeanUnion; second in creating political difficulties associatedwith closer relations with the United States, given problems in the region; and third in undertaking theeconomic and political adjustments necessary to realizethe benefits.

In what follows I will explore these issues in greaterdetail. I will first present some evidence on the need forMEFTA-type agreements by Arab countries. I will thenconsider whether the particular approach being used bythe United States is likely to result in an overarchingagreement. Next I consider the relationship between theUS agreements and those with the European Union. Ithen evaluate the potential economic impacts of theagreement, and finally suggest what the US and the Arabcountries need to do to maximize the potential benefitsfrom agreements and minimize their negative effects.

The need for changeMEFTA seeks to liberalize trade and investment, facilitatedomestic reforms, and encourage deeper regional tradearrangements.The Arab economies have both the needand the scope for adopting these policies.The need arises from the challenge of creating employment in theprivate sector for their growing labor forces; the scopefrom the poor state of the regulatory environment forprivate enterprise, particularly with respect to interna-tional trade.7

With only a few exceptions, almost all Arab countries have chronic unemployment problems that failto meet the challenge of providing new labor-forceentrants with private-sector employment opportunities.There are many reasons for this, but an important role issurely played by the very weak regulatory environment.Over the past decade, some reforms have been under-taken and per capita economic growth has generallyaccelerated, but performance still falls short whenbenchmarked against other countries and against thedemand for jobs.According to work done at the World

Bank, which uses a large number of sources, whenranked against other countries, the regulatory regimesand governance institutions in Arab countries dopoorly.8 The weakest dimensions of governance in theregion relate to the exercise of political freedom andaccountability, but the region is also particularly weak inregulatory policy.These results hold true even whenincome levels are taken into account.

With few exceptions, there has been little relativeimprovement in these regulatory policies over the pastdecade.9 To be sure, there have been reforms in manyArab countries—but the rest of the world has also beenchanging, and thus comparatively the Arab countrieshave not risen in the rankings. By international standards,Arab administrative regimes for doing business in generaland conducting trade across borders in particular areextremely burdensome. Even in Gulf states where tariffsare relatively low, trade is seriously impeded by bureau-cratic intervention.

The current regulatory regimes in many Arabcountries impede private-sector entrepreneurship, butthey have persisted because they also generate benefitsfor those who are skilled in operating within the systemand those people the system empowers to grant benefits.Altering these regulatory regimes will create new win-ners and losers, and therefore has important politicalimplications.

There is much evidence that the regulatory systemhas impeded international trade.A large number ofstudies suggest that, judged by international norms, thecountries in the region trade considerably less with eachother, with the United States, and with the rest of theworld than would be expected.10 In addition, particularlyin the Gulf countries, foreign direct investment isunusually low.Trade and regulatory policies form part of the explanation for this weak performance. Oncenontariff barriers are taken into account, on averagetrade protection in the region is higher than in anyother region in the world.

In addition to indicating considerable scope forimproving regulatory policies in Arab countries, thegovernance measures highlight two challenges forMEFTA. First, there are major differences among Arab countries with respect to regulatory quality andadministrative efficiency.The countries with whom theUnited States has already signed are those with thehighest regulatory quality, suggesting that the UnitedStates has followed its announced intention to signagreements with “countries that demonstrate a commit-ment to openness and reform.”11 The first five Arabcountries the United States agreed to negotiate bilateralFTAs with (Bahrain, Jordan, Morocco, Oman, and theUnited Arab Emirates) rank among the top 8 out of 18countries in the region in terms of regulatory qualityand among the top six when income levels are takeninto account. But regulatory policies are much poorer inthe rest of the region.This diversity in quality presents

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serious problems for comprehensive participation in asingle agreement.

Second, as already noted,Arab countries uniformlyhave low rankings with respect to the political gover-nance variables, particularly political accountability.Thissuggests that if the MEFTA is to become a reality within10 years, either the pace of political reform will have toaccelerate dramatically or major political reforms shouldnot be made a precondition for membership.

Will a bottom-up approach work?The MEFTA approach is from the bottom up.TheUnited States aims to first negotiate bilateral agreements,then link them in subregional agreements; only at theend of the process will it construct a single MEFTA.There is clearly a tradeoff between mega-regional initia-tives that are built from the bottom up and those thatare constructed collectively in a single agreement withall participants simultaneously.The top-down approachhas the virtue of allowing for a set of rules that isapproved by all and under which all parties operate. Butobtaining agreement can be difficult in a collectivenegotiation with many participants because foot-draggerscan stall the process or water down agreements that areactually concluded. Indeed, the recent history of effortssuch as Free Trade in the Americas (FTAA) and Asia-Pacific Economic Cooperation (APEC) point to theproblems in this approach. By contrast, the bottom-upapproach permits those most willing and able to movefirst. It also allows them to tailor the details of theiragreements to particular bilateral circumstances.Theadvantage of the MEFTA, therefore, is that it has allowedfor the conclusion of deep, far-reaching agreements thatalmost certainly could not have been negotiated withuniversal Arab participation. But the cost of theapproach is that it creates a number of overlapping traderegimes that present problems for eventual integration.

Even though the United States has followed a boil-erplate approach to the agreements, there are stillimportant differences among them, mainly because theUS blueprint has evolved over time.The US MEFTAinitiative also presents signatories with problems ofadministering different systems of rules in their tradewith the United States, the European Union, theirregional partners, and the rest of world.These conflictsare most evident in relation to rules of origin. Producersin Jordan today, for example, have one set of rules oforigin when exporting to the United States under thespecial Qualifying Industrial Zones (QIZ) scheme,another with the US FTA, a third with respect to ArabLeague partners, and a fourth with the European Unionand Arab countries that are part of the AgadirAgreement.

The piecemeal approach adopted by the UnitedStates thus presents major challenges for eventuallyestablishing a single MEFTA agreement. In particular,

the early FTAs under which Israel, Jordan, and Palestineoperate are very different from more recent agreementssigned by Bahrain, Morocco, and Oman.This is evidentfrom their length.The US–Jordan agreement is roughly20 pages long; the more recent FTAs run into hundredsof pages.The agreements with Israel and the Palestinianscover only trade in goods.While the US–Jordan FTAincludes services, in contrast with subsequent agree-ments, it uses a positive list approach. If the UnitedStates insists that MEFTA should follow the morerestrictive and demanding FTAs that have been negoti-ated starting with Morocco, the countries with earlyFTAs will be required to assume major new obligations.This is especially the case for rules of origin, since theFTAs with Israel and Jordan (and the Egyptian QIZ)provide for rules of origin that are considerably lessstringent than those in the agreements with Moroccoand Bahrain.These differences will make agreement onthe final rules more difficult; absent such integration, ahub-and-spoke arrangement centered on the UnitedStates could emerge.Alternatively, one could imagine anagreement with variable geometry in which countrieshave different levels of commitment.

The more recent agreements also differ from theearlier agreements with Israel and Jordan in terms ofcoverage, the nature of the dispute settlement system,and numerous other provisions.A particular challengefor eventual integration and a single MEFTA agreementis presented by Jordan’s unique system for dealing withdisputes over rules for labor and the environment,which subjects violations of these rules to the same pro-cedures as violations of other parts of the agreement.

In sum, even aside from the obvious political problems of achieving a single MEFTA that includesIsrael and all the Arab countries, there are numerousinstitutional barriers to its full realization. From thestandpoint of Arab countries, the bottom-up approach isa mixed bag.The initiative creates tensions among Arabcountries because it divides the region by separatingcountries according to their ability to integrate interna-tionally and their political acceptability to the UnitedStates.This offers those most willing and able to negoti-ate the opportunity to differentiate themselves in boththese respects. But for those who are less willing this is aproblem.

In addition, the bottom-up approach prevents the Arab countries from initially forming coalitions,compelling them each to bargain individually with theUnited States.The consequence will be initial agree-ments that reflect their collective interests less.At laterstages, however—as an overarching MEFTA begins toemerge—they should find it easier to coordinate theirpositions. Nonetheless, while the approach that has been selected is possibly less likely to guarantee thateventually a single MEFTA will emerge, it is more likelyto ensure that the agreements that do emerge are likelyto retain their deep character.

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The MEFTA has the goal of encouraging regionalintegration.Yet, in contrast to the European Union, thewillingness of the United States to negotiate individuallywith GCC countries has created tensions for the opera-tion of the common external tariff of its customs union.On the other hand, the fact that agreements have indeedbeen negotiated separately has created a mechanism forthose Gulf states most interested in economic reforms toplace competitive pressures on those who are morereluctant to do so.

More recent developments have raised some ques-tions about whether the United States will actually beable to sustain the initiative to bring it to completion.12

When Dubai Ports World acquired the Peninsular andOriental Steam Navigation Company, it obtained controlover facilities at six US ports.The officials who sit onthe US government interagency committee responsiblefor reviewing foreign acquisitions for possible threats tonational security (CFIUS) viewed the sale as routine andapproved it in November 2005. However, the casebecame highly controversial when stirred up by a company with financial interests in the deal’s failure,and opposition mounted in the US Congress.Theacquisition was painted in a highly negative light notonly by President Bush’s opponents, who seized on thechance to be tougher than he was on a national defenseissue, but also by many in his party. Eventually theDubai Ports World Corporation responded to the controversy by selling the US port facilities to a US-controlled firm.

The entire affair marked a sea-change in the politi-cization of a process for reviewing foreign direct invest-ment that had previously been routine and technical. Itrevealed problems with the CFIUS process in generalthat may require reform.13 It also demonstrated howpublic fears can make it difficult to distinguish betweenAmerica’s Arab allies and genuine threats to its nationalsecurity.This treatment certainly makes it more difficultfor Arab countries to view the investment provisions ofFTAs as a genuine two-way street.The incident occurredat the same time as the United States and the UnitedArab Emirates (which includes Dubai) were negotiatingan FTA, and it was not surprising that in the immediateaftermath of the affair, the talks were temporarily postponed.14

The affair also affected the passage of the US–OmanFTA in mid 2006.15 Although the US Congress did ratify the agreement, in the House of Representativesthe margin of victory was very narrow—221 votes infavor and 205 against.This was very different from thevote on the US–Bahrain FTA, which passed in late 2005by a vote of 327 to 95. In contrast to the bipartisan support that had characterized votes over earlier MiddleEast FTAs, the agreement with Oman garnered only 22 votes from Democrats—just 7 more than the verycontroversial FTA with Central American countries in2005.The most contentious issue related to ability of

the United States to prevent an Omani firm from oper-ating a US port or other facility.16 The United Stateshad not listed ports services as an exception to theagreement, and several Democrats based their oppositionon concerns that the agreement could give Oman theright to challenge national security decisions made bythe United States with respect to the operation of ports,despite the fact that the agreement contains nationalsecurity exceptions.

The earlier, overwhelming and bipartisan support inthe US Congress for FTAs with Middle Eastern countriesreflected political rather than economic considerations.The 2006 US elections, in which the Democrats gainedmajorities in both houses of the US Congress, make theenvironment for trade agreements even more uncertain.These events demonstrate, however, that political con-siderations can be a double-edged sword. Earlier it waspolitical considerations that made FTAs with the MiddleEast popular; more recently, however, the politics hasbecome problematic.This all highlights the importanceof keeping the focus of the MEFTA process on eco-nomic issues and avoiding political issues that are betterdealt with by other means.

Are the US and European initiatives compatible?Another major challenge is presented by the Europeaninitiatives in the region. Like the United States, theEuropean Union has announced its intention to concludean FTA with the Middle East by 2010.The EuropeanUnion already has Euro-Med bilateral FTAs with mostArab countries outside the GCC; it has also developed asystem for pan-European rules of origin that permitsdiagonal cumulation among regional members with anFTA (such as Agadir) that uses European rules of origin.The Euro-Med agreements are part of AssociationAgreements that cover a far broader range of noneco-nomic issues than the US agreements do, but their tradeprovisions are more limited: they fail to include servicesand investment and have serious limitations with respectto agriculture. However, the European Union is nowmoving to a second phase in which willing partners willbe invited to sign plurilateral agreements that coverservices and investment.The European Union is alsonegotiating individualized work programs (PartnershipAgreements) with each Middle Eastern country thatwill support reforms in areas mutually considered to bepriorities.17 Countries are also being encouraged toadopt European standards and norms in addition to EUrules of origin.

An important issue is whether, in contrast to its earlier initiatives, the recent EU approach will be aneffective anchor for reforms.18 The fairly standardizednature of the US FTAs allows reformers to argue thatthe entire package must be adopted.The requirementsfor full EU membership were perhaps an even morepowerful anchor in the case of the countries that have

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recently acceded. But the à-la-carte approach in the EUNeighborhood Policy may make it easier for countriesto avoid reforms that are politically difficult.

The United States and the European Union sharethe broad goal of trying to promote economic develop-ment in the Middle East and encourage political andsocial reforms.And in many respects their initiatives arecomplementary. But there could also be serious problems.For example, if Arab countries use EU rules of origin intheir regional arrangements, how could they becomeeligible for diagonal cumulation under US rules? Wouldthe United States recognize EU rules? Unlikely.WouldArab countries be expected to implement two differentsets of rules in the preferential agreements they signamong themselves? Similarly, would the standards theyare required to use by the US agreement be compatiblewith those required by the European Union? These ten-sions with the European Union are particularly relevantbecause Arab countries typically have three or fourtimes as much trade with the European Union thanthey do with the United States, and if forced to chose,Arab countries would probably follow EU rules, therebylimiting the potential regional impact of a US agreement.

What economic impact will MEFTA have?The relatively small value of bilateral trade betweenArab countries and the United States is also relevantwhen estimating the likely impact of MEFTA. MEFTAwill eliminate all tariffs on trade between the UnitedStates and the Arab countries.To start thinking about itseffects, therefore, it is helpful to consider the currentlevels of bilateral trade and the duties that are currentlypaid.While some Arab countries levy fairly high tariffson US exports—on average, the rate in 2003 wasaround 10 percent—the United States generally chargesvery small duties on imports from Arab countries—justover half a percent in 2003.The predictable results ofsimulations using both partial and general equilibriummodels of freeing this trade therefore are that (1) theimpact is fairly small and (2) in most Arab countriesimports from the United States increase by more thanexports to the United States. Estimates of far less than 1percent of GDP for the increase in welfare generatedare quite typical in conventional simulations.

However, capturing only the static effects of elimi-nating tariffs on goods may seriously understate theimpact of the agreements.The additional effects ofreducing nontariff barriers and the liberalization of serv-ices trade and foreign investment should not be ignored.Simulations of these additional effects suggest they couldbe large.19 According to estimates using Tunisia andEgypt as examples, liberalization of foreign investmentin services that is generalized to all trading partnerscould boost welfare by almost 10 percent of GDP.20

In addition, simulation models typically assume thatthe structure of trade will remain unchanged.They

therefore capture only the responses induced to thegoods that are currently traded.This has yielded quitemisleading results. Kehoe, for example, evaluated theperformance of so-called applied general equilibriummodels on the impact of the North America Free TradeAgreement (NAFTA) and found that these models“drastically” underestimated its trade effects, particularlyin sectors in which originally there was little trade.Similarly, the International Trade Commission studiedthe potential free trade agreement between the UnitedStates and Jordan and totally missed the explosion inthat country’s exports of clothing to the United States asa result of special trade concessions it was granted by theUnited States.21 As Jordan and more recently Egypt’sexperience with the QIZ demonstrates, however, tradeagreements could change the trade structure by inducingnew export products and thereby generate effects thatconventional modeling will ignore. Jordanian exports tothe United States increased from US$72.8 million in2000 to a stunning US$1.267 billion in 2005, and theexports were so large that the bilateral balance of tradeshifted from a Jordanian deficit of US$239 million in2000 to a surplus of US$624 million in 2005. Similarly,Egyptian QIZ exports to the United States have grownvery rapidly between 2004 and 2006.

Most significantly, however, the models fail to consider the effects these agreements could have inaltering the trade regimes and regulatory policies inArab countries.The more recent US agreements withArab countries are extremely comprehensive.Theyrequire members to assume obligations that in manyrespects go much further than the obligations containedin WTO agreements.There are provisions freeing allforeign direct investment and all services, with excep-tions listed (a negative list).There are agreements withrespect to policy transparency, government procurementrules and practices, the operation of customs, and theenforcement of intellectual property protection andlabor and environmental laws.WTO rules for sanitaryand phyto-sanitary standards and technical regulationsare included in the agreement and the provision.

If Arab countries adopt and implement these provisions with respect to the United States there couldbe fundamental changes in the nature of their traderegimes. Improvements in the operation of customs, thetransparency of policy, procedures used for governmentprocurement, the laws for intellectual property andother regulatory practices such as standards based on science will change the system not only for US tradeand investment but for all foreign and domestic firmswho trade in these countries.

Opening services trade to foreign investors willheighten competition, which could generate importantimprovements in productivity.These key potential benefits from US agreements are, by their very nature,difficult to measure. But there are reasons to believethey could be considerable provided the appropriate

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complementary domestic policy steps are taken.Thesebenefits, however, will require domestic leadership thattakes advantage of the opportunities that are created. Inthis respect, the deep nature of the US agreements is agreat advantage.

Most of these benefits could be achieved by countries that individually sign deep bilateral FTAs andcomplement them with domestic reforms. If suchreforms and liberalization are achieved by some Arabcountries individually, their neighbors will automaticallybenefit from their more open regimes—even absent formal agreements with countries from the region orthe United States.Thus, as long as individual countriesimplement these agreements, the overall initiative seemsworthwhile even if the difficulties of eventual consolida-tion are considerable.

An important concern in Arab countries relates tothe inclusion of issues such as labor and environment inthese agreements. In these areas, however, the specifics of the agreements need to be examined carefully. Theagreements do not require adherence to specific environ-mental and labor standards.22 Instead, the countriescommit in general terms to promote workers’ rights andprotect the environment, and the agreements emphasizethe enforcement of domestic environmental and labor laws and not weakening environmental laws or reducingdomestic labor protection in order to encourage tradeor investment.

Moreover, when it comes to enforcement, theagreements stress that “the parties retain the right tomake decisions regarding the allocation of resources toenforcement with respect to labor (or environmental)matters determined to have higher priorities.To be sure,these obligations are backed by the agreements’ disputesettlement procedures and cases can be brought whereenforcement failures affect trade. However, if one partyis found guilty of such infractions and fails to come intocompliance, the other side may not be entitled to retali-ate using trade protection. If either country is found bya panel to be in violation of its enforcement obligationsit can be subject to a monetary assessment. Moreover,such an assessment cannot exceed US$15 million andthe funds are not necessarily paid to the other party butmay instead be used to help improve compliance. Insum, concerns that these provisions could be used todeny countries benefits are likely to be exaggerated.

RecommendationsBy itself, under current conditions the impacts of mostindividual agreements and even an overarching MEFTAare likely to be modest for three reasons. First, the cur-rent trade and investment links between the UnitedStates and the Middle East are relatively weak. Second,the regulatory and business environments in many Arabcountries continue to impede the global integration ofthese economies.And third, the negative political fallout

from US intervention in Iraq and the friction betweenIsrael and its neighbors far outweighs the political bene-fits the United States could obtain from the initiative.Nonetheless, the MEFTA initiative provides both theUnited States and its Arab partners with opportunitiesto take additional measures that could yield much greaterbenefits.While trade agreements provide opportunities,they do not guarantee results.They can contribute topositive economic and political outcomes but need tobe accompanied by other policies and actions by theprivate sector.

The United States For the United States, the principal challenges are sustaining the initiative politically, keeping the focus ofthe initiative on trade and investment issues, improvingsome of the specific rules of the agreement, introducingmechanisms that will facilitate integration among itsMiddle Eastern partners, and achieving a political settlement of the Arab–Israeli conflict.

Paradoxically, the United States will reap greaterpolitical benefits if, to a greater degree than it has doneso far, it keeps MEFTA on a strictly economic track.MEFTA should be focused on maximizing the econom-ic benefits it can bring to Arab countries.The criteriafor MEFTA membership should be the capacity toimplement and benefit from the agreement.The use ofMEFTA as a bargaining chip to induce internal politicalreforms and changes in other policies, however wellintentioned, is likely to backfire.This is likely to be difficult though in an environment in which Democratswho oppose trade agreement are especially likely tobring political considerations into the debate.

Particularly in the more recent agreements, theUnited States has appropriately insisted on FTAs thatachieve much deeper integration than the WTO requiresof its members.This approach entails the liberalizationof all merchandise trade including agriculture, services(with exceptions) and foreign direct investment, andcredible dispute settlement provisions.The depth of theMEFTA agreements ensures that the agreements are notmerely symbolic; it also promotes their use as an anchorfor domestic reforms.The agreements should not bewatered down in an effort to attract more reluctantmembers. It is better to have comprehensive bilateraland subregional agreements than weaker agreements towhich all countries subscribe.

However, improvements could be made with respectto the more protectionist provisions of the agreementsrelating to restrictive rules of origin and excessive intel-lectual property protection.The United States shouldnot be imposing intellectual property rules that cannotbe justified as measures to stimulate innovation in Arabcountries but can be justified only as measures to maxi-mize the incomes of US pharmaceutical and othercompanies. MEFTA has recently run into security con-cerns that have been provoked by the Dubai Ports affair.

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The agreements need clearer national security exceptionprovisions that prevent opponents using national securityas a pretext for rejecting the agreements.

Since the number of agreements has now reached a critical mass, more attention also needs to be paid bythe United States as to how they can be integrated. Inparticular, a mechanism for diagonal cumulation needsto be developed to allow value-added in any of thecountries to be combined to meet rules of originrequirements. Ideally this would be done on the basis of the relatively straightforward rules of the US–Israelagreement.The United States should also work with theEuropean Union to craft common rules of origin ormutual recognition of each other’s rules. Considerationshould also be given to developing regional, rather thanbilateral, dispute settlement mechanisms.

Given its political objectives, the United Statesshould make a separate FTA agreement with Palestine ahigh priority.The current coverage of the West Bankand Gaza under the US–Israel FTA is inadequate anddoes not meet Palestinian needs for increased interna-tional engagement and domestic institutional reforms.In particular, the failure to cover investment is a seriousgap.To be sure, the United States currently faces diffi-culties in dealing with the Hamas administration, buteventually a US–Palestine FTA is a key building blockfor a MEFTA that lives up to its potential.

Finally, a comprehensive MEFTA arrangement is unlikely absent an acceptable settlement of theArab–Israeli conflict.The United States is unlikely tosign a comprehensive agreement with the region thatdoes not include Israel. It is difficult, however, to imag-ine several Arab countries agreeing to a comprehensivearrangement that does include Israel.The political inter-est that the United States has in the region providesunique opportunities for those seeking to use agreementsas a stimulus to reform. But from the region’s standpoint,it should also be acknowledged that the political natureof the US interest creates problems as well as opportuni-ties. It is not easy to adopt policies for domestic economicreform and increased international integration in thefirst place.Whatever the long-run payoff may be, reformsand trade liberalization create losers as well as winners.In this context, it is only too easy for opponents to wraptheir opposition in nationalist and religious flags.Thedebate over free trade becomes particularly difficult andcharged when it is conflated with the debate over rela-tions with the United States and/or Israel.

Arab opportunities Arab countries that have signed agreements with theUnited States should use them as an opportunity toundertake additional reforms in their domestic policiesto improve the business regulatory environment, toundertake additional measures to improve their interna-tional competitiveness, to enhance Arab regional inte-gration by extending the MEFTA provisions and coverage

to each other, and to coordinate negotiations with theUnited States and promote trade and investment liberal-ization with extraregional trading partners. Finally,countries that have not signed such agreements need tocarefully weigh the implications of participation and,where these are deemed positive, prepare carefully to bein a position to join.

The agreements themselves improve domestic regulatory policies by requiring measures such as greaterregulatory transparency, better government procurementprocedures, technical and health standards based on science, improvements in customs procedures, and betterintellectual property enforcement. Countries shouldbuild on these measures to reduce the excessive red tape associated with domestic and foreign business transactions.

Simply signing MEFTA is insufficient.To exploit itspotential, domestic-based firms need to be competitive.Private firms need to change their corporate strategiesto confront competitors both at home and in the UnitedStates. Governments, too, need to adapt their policies toencourage domestic and foreign investors to take advan-tage of the improved access to the US market.

The fact that several countries in the region arewilling to make the extensive commitments required byUS FTAs suggests that there is scope for deeper integra-tion agreements in the region based on the provisions.GAFTA and Agadir, for example, are limited to trade in goods. MEFTA breaks new ground for many coun-tries by including extensive obligations in services,foreign investment, standards, and dispute settlement.Agreements should also be used as a means of develop-ing regional integrative institutions.

Countries that have signed agreements with theUnited States independently need to think about coordinating their negotiating strategies with respect to how these agreements can now be linked. Strategiesfor achieving diagonal cumulation and perhaps broaderparticipation in dispute settlement are examples.

The agreements should be used as a basis for negotiating other bilateral and plurilateral agreementswith trading partners outside the region. By signing anagreement with the United States, countries indicate amore general commitment to deeper, comprehensiveinternational integration.Any country willing to adjustto free trade and investment with the largest developedeconomy could surely make similar adjustments in itstrade and investment with other countries.

Countries that have not yet joined need to weightheir options carefully. Some countries in the region arenot yet at a stage where they can assume the kinds ofobligations required by these FTA, and some mightdecide the costs of doing so are greater than the benefits.But inevitably the laggards will experience pressures toenhance their reforms to match those in neighboringcountries.

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The US approach is standardized. Once they areeligible, the United States gives countries a take-it-or-leave-it choice.This means they need to understand thefine print of the agreement.The agreements have notbeen crafted to exploit individual country weaknesses,but it does mean that countries need to do their home-work and understand the full nature of the obligationsthey are assuming.Trade expertise is essential.

In sum, while the agreements create enhancedopportunities for economic benefits, at the end of theday, the payoffs to these agreements are highly contingenton governments and the private sector taking othermeasures.

Notes1 See, for example, Galal and Lawrence (2005).

2 For an excellent review of Arab regional efforts see Fawzy (2003).

3 See Lawrence (2006, pp 95–6).

4 The agreements also exclude commitments on agricultural subsidiesand antidumping rules—the former because these can be dealtwith only in a multilateral context since the United States seeksreciprocal concessions from partners such as the EuropeanUnion, and the antidumping rules because of strong domesticpolitical resistance to weakening them.

5 See Schott (2004) for an analysis of the US FTA strategy. Otheragreements negotiated by the United States have includedNAFTA (with Mexico and Canada), CAFTA (with Central America),and agreements with Chile, Singapore, Australia, and theDominican Republic. Negotiations have concluded with Colombiaand Peru and are ongoing with Thailand, the South AfricanCustoms Union, South Korea, and Malaysia.

6 Agadir uses EU rules of origin issue to take advantage of EU provi-sions that allow value-added in any of the countries to counttoward meeting the rule of origin for exporting to the EuropeanUnion (a so-called diagonal cumulation). The agreement is animportant and positive example of the way in which agreementsoutside the region can form the basis for improved regional inte-gration.

7 See Nabli (2005), Noland and Pack (2006), and Yousef (2004).

8 See Kaufmann et al. (2005).

9 See DasGupta et al (2002).

10 These studies are surveyed in Lawrence (2006, Chapter 2); see alsoSoderling (2005).

11 See Zoellick (2003).

12 For a more complete discussion, see Graham and Marchick (2006).

13 See Graham and Marchick (2006) Chapter 6 for a discussion of pos-sible reforms.

14 On March 10, the United States Trade Representative announcedthat the fifth round of FTA talks between the United States andthe United Arab Emirates, which had been scheduled to begin onMarch 13 in Abu Dhabi, would be postponed.

15 The US Congress can be counted on to interpret a vote on a bilater-al FTA as a referendum its more general views of that country.This has made certain bilateral FTAs especially contentious. TheNAFTA debate, for example, introduced all kinds of issues relatingto Mexico many of which were not directly linked with trade.Likewise, the vote on CAFTA in 2005 generated controversiesrelating to human and labor rights and passed by a mere 217 forand 213 against in the US House of Representatives.

16 Labor rights issues were another source of opposition.

17 For a more complete discussion, see Hoekman (2005).

18 For an excellent analysis of the earlier agreements, see Tovias andUgur (2004).

19 See Hoekman and Konan (2005).

20 See Konan and Kim (2004).

21 See USITC (2000).

22 The Moroccan agreement, for example, states that the parties“shall strive to ensure” that its labor laws are enforced and con-sistent with the right of association, the right to organize and bar-gain collectively, the prohibition on forced labor, a minimum age ofemployment, and acceptable work conditions.

ReferencesDasGupta, D., J. Keller, and T.G. Srinivasan. 2002. “Reform and Elusive

Growth in the Middle-East—What Has Happened in the 1990s?”World Bank Middle East and North Africa Working Paper Series25 (June). Washington, DC: World Bank.

Fawzy, S. 2003. “The Economics and Politics of Arab EconomicIntegration.” In Arab Economic Integration: Between Hope andReality, eds. A. Galal and B. Hoekman. Cairo and Washington, DC:Egyptian Center for Economic Studies and Brookings Institution.

Galal, A. and R. Z. Lawrence. 2005. “Anchoring Reform with a US-Egypt FTA.” IIE Policy Analyses in International Economics 74.Washington, DC: Institute for International Economics.

Graham, E. M. and D. M. Marchick. 2006. US National Security andForeign Direct Investment. Washington, DC: Institute forInternational Economics.

Hoekman, B. 2005. “From Euro-Med Partnership to EuropeanNeighborhood: Deeper Integration à la Carte and EconomicDevelopment.” ECES Working Paper 103 (July). Cairo: EgyptianCenter for Economic Studies.

Hoekman, B. and D. Konan. 2005. “Economic Implications of a US-Egypt FTA.” In Anchoring Reform with a US-Egypt FTA, ed. A.Galal and R. Z. Lawrence. IIE Policy Analyses in InternationalEconomics 74. Washington, DC: Institute for InternationalEconomics.

Kaufmann, D., A. Kraay, and M. Mastruzzi. 2005. Governance MattersIV: Governance Indicators for 1996–2004. Washington, DC: WorldBank. Available at www.worldbank.org/wbi/governance/pubs/gov-matters4.html (accessed September 15, 2006).

Kehoe, T. J. Forthcoming. “An Evaluation of the Performance ofApplied General Equilibrium Models of the Impact of NAFTA.” InFrontiers in Applied General Equilibrium Modeling: Essays inHonor of Herbert Scarf, ed. T.J. Kehoe, T. N. Srinivasan, andJ.Whalley. Cambridge, UK: Cambridge University Press.

Konan, D. E. and K.E. Kim. 2004. “Beyond Border Barriers: TheLiberalization of Services Trade in Egypt and Tunisia.” The WorldEconomy 27 (9): 1429–47.

Lawrence, R. Z. 2006. Middle East Trade Agreement: A Circle ofOpportunity? Washington, DC: Peterson Institute for InternationalEconomics.

Nabli, M. K. 2005. “Restarting Arab Economic Reform.” In The ArabWorld Competitiveness Report 2005. Hampshire: PalgraveMacmillan.

Noland, M. and H. Pack. 2006. The Arab Economies in a ChangingWorld. Washington, DC: Institute for International Economics.

Schott, J. J., ed. 2004. Free Trade Agreements: US Strategies andPriorities. Washington, DC: Institute for International Economics.

Soderling, L. 2005. “Is the Middle East and North Africa RegionAchieving Its Trade Potential?” IMF Working Paper 05/90.Washington, DC: IMF.

Tovias, A. and M. Ugur. 2004. “Can the EU Anchor Policy Reform inThird Countries? An Analysis of the Euro-Med Partnership.”European Politics 5 (4): 395–418.

USITC (US International Trade Commission). “2000 Economic Impacton the United States of a U.S.–Jordan Free Trade Agreement.”ITC Investigation no. 332–418. Washington, DC: US InternationalTrade Commission.

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Yousef, T. M. 2004. “Development, Growth and Policy Reform in theMiddle East and North Africa since 1950.” Journal of EconomicPerspectives 18 (3): 91–116.

Zoellick, R. B. 2003. “A Return to the Cradle of Free Trade.”Washington Post Op Ed, June 23.

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CHAPTER 1.3

Will the Current Oil BoomSolve the Employment Crisis in the Middle East?PAUL DYER, Dubai School of Government


At the 2003 annual meetings of the InternationalMonetary Fund and the World Bank in Dubai, theWorld Bank released a flagship report on labor marketsin the Middle East and North Africa (MENA).1 Thereport described an unprecedented job creation challenge facing the region. By 2020, according to thereport, an estimated 100 million jobs would have to becreated to employ new entrants and reduce unemploy-ment to sustainable levels.To create these jobs, theregion would have to maintain average annual economicgrowth rates of 6 to 8 percent between 2000 and 2020,far higher than the average 3.6 percent growth witnessedover the 1990s.The report went even further, suggestingthat if MENA countries were to replicate the job creationrecord of the 1990s in the present and next decade,reasonable estimates indicate that unemployment rateswould rise significantly across the region.

Since the report’s publication, however, much haschanged in the region’s economic outlook. Most impor-tantly, oil prices—which had been forecast in 2002 tostay at or below US$25 a barrel for the foreseeablefuture—rose to $29 a barrel in 2003 and $53 a barrel in2005. For many countries, this unexpected and dramaticrise in oil prices has been reflected in rising personalincomes and government revenues.Thus, regional GDPgrowth improved from 2.9 percent in 2002 to an esti-mated 6.0 percent in 2005.2 Growth in 2006 was forecastat 5.6 percent and is projected to remain higher than5.0 percent for the foreseeable future.3 In turn, theregion has seen higher rates of job creation and decliningrates of unemployment for the first time in almost twodecades. Even the estimates of regional labor supplyhave been revised, with overall labor growth rates projected to be lower than the original estimates provided in 2003.5

Given these changes, the relevant question becomeswhether MENA’s labor market pressures have suddenlybecome manageable. More precisely, has the current oilboom solved the unemployment crisis facing theregion? This chapter reviews recent developments inMENA’s labor markets, focusing on job creation, unem-ployment, and government policies aimed at improvinglabor market outcomes. Rather than providing anexhaustive survey of the issues at the individual countrylevel, the chapter tackles the subject from a regional perspective.As such, it will be organized around a set of stylized facts that make up the important componentsof a general story.

Labor force growth and participation ratesAs of 2005, the labor force in MENA stood at nearly120 million persons, accounting for some 56 percent ofthe working-age population (ages 15–64) and 35 percentof the total population.Average annual growth rates forthe regional labor force between 2000 and 2005 averaged3.6 percent a year (Figure 1).The rate of growth in

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MENA is higher than in other developing regions, andhigher than ever recorded in such areas as Latin Americaand East Asia.Although labor force growth remainshigh, the rates of growth are declining. Having experi-enced substantial fertility declines in the 1980s, much ofthe region witnessed peak labor force growth rates inthe 1990s. Rates of growth will continue to decline toan average of 3.1 percent a year between 2005 and 2010and 2.1 percent a year between 2010 and 2020.Absolutenumbers of new entrants are currently peaking, at justabove 4 million new entrants a year—a number that willdecline, albeit slowly, to nearly 3.9 million by 2010 and3.1 million by 2020.

Labor force growth trends in MENA are drivenlargely by demographics, with the working-age popula-tion growing at a rate of nearly 3.0 percent a yearbetween 2000 and 2005.A general rise in labor forceparticipation rates has accompanied the growth of theworking-age population in MENA in recent decades. Infact, while working-age population growth has fallen,the rise in labor participation rates has largely counteredpotential decreases in labor force pressures. Changes inparticipation by women in particular have driven muchof this growth. In 2000, the participation rate amongwomen in MENA was about 27.5 percent. By 2005, ithad increased to nearly 30.5 percent.The participationrate among men, on the other hand, has remained fairly consistent, rising from 79.3 percent in 2000 to79.8 percent in 2005. Participation by young people hasfollowed a similar trend.Young women’s participation inthe labor force increased from 23.5 percent in 2000 to

nearly 24.9 percent in 2005, while that of young menhas declined from 54.9 percent to 54.4 percent.

Recent trends in unemployment and job creationWith recent economic growth in the region, there hasbeen an increase in job creation and a resultant declinein the overall rate of unemployment.The estimatedunemployment rate in the region in 2000 stood at near-ly 15.2 percent.5, 6 Currently available and comparablefigures put the regional rate of unemployment in 2005at around 12.7 percent.This decline in unemploymentappears modest, but it is nonetheless significant as it suggests that the economies of MENA are not onlyincreasingly able to absorb new labor market entrantsbut are making strides in reducing overall unemploymentas well. Implied employment growth in the region,between 2000 and 2005, averaged 4.0 percent a year, ornearly 19.6 million new jobs in all. Such performancecompares rather favorably with the record from the1990s, when employment growth averaged around 2.5percent per year and was consistently below labor forcegrowth in every country for which data are available.

Despite rising employment growth, however, theunemployment rate in the region remains high.Reducing rates of unemployment while continuing toabsorb new workers remains a critical challenge for pol-icymakers across all countries in MENA. Furthermore,evidence suggests that the bulk of job creation in recentyears has been temporary in nature and has dependedlargely on public-sector expenditures.The elasticity of

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employment with respect to GDP growth between2000 and 2005 has averaged nearly 0.9, quite high whencompared to historical trends in the region or interna-tional norms.This figure alone suggests that much of thejob creation in MENA has emphasized short-term, gov-ernment-supported solutions to addressing a long-termsystemic problem.To the extent that the new jobs creat-ed through government interventions are generally notproductive, it is legitimate to ask whether recentadvances in job creation are sustainable in the long run,even given continued high rates of economic growth.

Specific problem areas continue to plague regionallabor markets, particularly in regard to public-sectoremployment and labor market flexibility. Evidence sug-gests that public-sector employment has expanded inrecent years—even though the region has had historicallyone of the highest shares of public-sector employmentin the world. More importantly, the dominant role ofgovernments in labor markets reinforces the significantqueuing for public-sector jobs by educated new entrants.The perpetuation of implicit and explicit guarantees ingovernment hiring, along with mismatched expectationsresulting from generous public-sector compensation andbenefits policies, have all contributed to the continuedpreference for public-sector jobs.7 Also, despite somereforms intent on giving more flexibility to firms in hiring workers, regional economies remain among themost restrictive concerning labor market regulations,particularly in regard to dismissing workers.This hasinhibited the proactive role private business might have

played in job creation by elevating the perceived costsassociated with labor-intensive production.

Unemployment outcomes within the regionRegional aggregates mask the variety of experiences inMENA, both in terms of labor force growth and jobcreation (Figure 2).As might be expected, the oil-exporting economies of the region have been able tochannel increased government revenues into job creation,a pattern reminiscent of the oil boom in the 1970s. Forexample, Iran—a country facing relatively high laborforce growth at 4.3 percent a year—brought the unem-ployment rate down from 13.8 percent in 2000 to 11.0percent in 2005. Based on the reported official figures,the number of employed persons grew by 4.7 percentper year between 2000 and 2004, compared witharound 2.1 percent in the 1990s.

Likewise,Algeria has witnessed substantial changesin labor outcomes.With labor force growth at nearly 3.9 percent a year, the country has seen reported unem-ployment rates fall from 28.9 percent in 2000 to nearly15.3 percent in 2005. (It should be noted, however, thatrecent reported rates might not reflect the true rate ofunemployment in the country, as the government statis-tics agency has adopted a revised methodology in recentyears.8) Based on government sources, employment inthe country grew at an impressive average annual rate of7.7 percent per year between 2000 and 2004, or threetimes the rate of growth registered in the 1990s.

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Employment and unemployment data from theGulf Cooperation Council (GCC) countries are limited,a factor that renders an accurate assessment of recenttrends problematic.Available data suggest that amongnationals, unemployment remains a serious and growingproblem despite high economic growth rates. In SaudiArabia, official unemployment in 2002 was estimated at4.6 percent, while unemployment among nationals wasnearly 8.3 percent. Unemployment among nationals hasbeen estimated at 12.4 percent in Bahrain, 11.6 percentin Qatar, and 10 percent in Oman. Recent data fromthe United Arab Emirates (UAE) suggests that unem-ployment among nationals in that country is nearly 15percent.

The skewed nature of employment outcomes inthese oil-exporting and labor-importing countries isdriven largely by wage differentials, the result of thepublic-private and national-expatriate segmentation ofthe labor force.9 Historically, public-sector employmentfacilitated the distribution of oil wealth and encouragedhigher educational attainment by nationals who contin-ue to prefer the slow-growing public sector to the fast-growing—but low-wage and low-skill—private sector.Bolstered efforts to enforce stricter nationalizationemployment programs in recent years seem to be creatingincentives for manipulating the labor force rolls as muchas for creating jobs among nationals.

Labor outcomes for regional non-oil producers andnet oil importers have been quite different. Rising costsassociated with fuel—both in terms of input costs forbusinesses and budget constraints for governments still

holding on to costly fuel subsidies—have imposedincreased burdens on these economies. Furthermore, incontrast to the last oil boom in the region, transfersbetween oil economies and non-oil economies in theregion are comparatively weak. In the past, non-oileconomies benefited from high labor remittances anddirect aid from the oil economies (Figure 3).Althoughintraregional tourism and portfolio equity flows havegrown in recent years, workers’ remittances and aid havebeen limited.10

Perhaps the biggest contrast between the regionalimpact of the previous and the current oil booms concerns the role of labor migration in the non-oileconomies.Although migration provided an importantoutlet for workers in these countries during the 1970s,the last two decades registered a deceleration in the netinflows of Arab workers to the oil economies that hasnot been reversed in recent years.The negative effects of lower oil revenues after 1985 and the first Gulf Warwere reinforced by the replacement of workers from theregion with migrants from Asia as well as efforts in theGCC countries to nationalize the labor force.11 Thanksto the investments in education by both the labor-sendingand labor-receiving countries, educated nationals in the oil countries have largely become substitutes foreducated Arab migrants.

These trends explain the weaker overall ties betweenoil-price movements and growth outcomes in theregion’s non-oil countries (Figure 4).As a result, manyof the non-oil countries have seen a slight worsening oflabor outcomes in recent years. Unemployment in

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Egypt rose from 9.0 percent in 2000 to nearly 11.0 percent in 2005. Economic growth, at 4.9 percent ayear, has not created enough jobs to counter Egypt’slabor force growth of nearly 2.7 percent a year.Employment creation averaged only 2.3 percent a yearbetween 2000 and 2005, about the same rate registeredin the 1990s. Similarly, Jordan has seen unemploymentrates rise from 13.2 percent in 2000 to 14.6 percent in2005. Employment growth in Jordan has averaged nearly3.7 percent a year, while its relatively young labor forcecontinues to grow at nearly 4.0 percent annually.

Syria, which maintains a sizeable oil-productioncapacity but is quickly becoming a net oil importer, sawunemployment rates rise from 11.2 percent in 2000 to12.3 percent in 2005.Actually, the implied employmentgrowth in Syria has been quite high, at 4.3 percent ayear, but Syria’s late entry into the demographic transitionmeans that the labor force growth rate in the countryhas averaged nearly 4.6 percent a year. Likewise,Yemenis currently experiencing labor force growth rates ofnearly 4.2 percent a year.Although comparable unem-ployment rates for Yemen are not available, labor forcedata suggest that labor force pressures in Yemen will behigh in the long term, while oil-driven growth willdecline as reserves are depleted.

The non-oil economies of Tunisia and Moroccohave seen positive employment outcomes in recentyears. Unemployment rates fell from 15.4 percent to14.2 percent in Tunisia and from 22.0 percent to 18.3percent in Morocco.12 Such declines occurred inMorocco despite weak economic growth resulting from

the expiration of the Multi-Fiber Agreement under theframework of the World Trade Organization (WTO).It should be noted that labor force growth in bothcountries is relatively low, as Tunisia and Morocco wereamong the first countries in the region to bring downfertility rates and both experienced peak labor forcegrowth rates in the early 1980s. Between 2000 and2005, annual rates of labor force growth averaged 3.0percent in Tunisia (driven largely by increases in partici-pation rates rather than demographic trends) and 2.1percent in Morocco.Annual employment growth ratesduring the same period averaged nearly 3.4 percent inTunisia and 3.0 percent in Morocco.

Unemployment outcomes for women and youthOne common factor among countries in the MENAregion is that women bear a disproportionate share ofpoor labor market outcomes. Rising participation ratesfor women, due in part to higher educational attainmentby women and to the employment of educated workersby governments, mean that the female labor force isgrowing more rapidly than the male one. Growth ratesfor the female labor force between 2000 and 2005 aver-aged nearly 5.1 percent a year.This is up from the 1990saverage of 4.6 percent a year, and although expectedrates of female labor force growth are expected to fall to3.9 percent a year by 2010, this is still 1.5 percentagepoints higher than male labor force growth.

Still, regional economies continue to face problemsfinding productive employment for many of these

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women because of dwindling opportunities in the public sector and limited access to paid employment inthe formal private sector, and, more generally, because of gender norms related to occupational segregation inthe labor market.13 As a result, unemployment rates for women in MENA are nearly twice that of men,averaging nearly 21 percent while those for men averageonly 11 percent.These rates imply that nearly 6.6 millionwomen are seeking but not able to find gainful employ-ment.They make up nearly half of the unemployed whileaccounting for less than 27 percent of the total labor force.

Prospects for young, new entrants in the region arealso weak, and even in higher-growth countries youngworkers face difficulties in securing jobs. Unemploymentrates among young people (ages 15–24) are more thandouble those of the total labor force. In recent years, theregional youth unemployment rate has remained above30 percent. Rates range from 23.2 percent in Iran to47.4 percent in Algeria. Recent estimates put youthunemployment in the United Arab Emirates, amongnationals, at nearly 60 percent. Regionwide, first-timejob seekers continue to make up more than 50 percentof the unemployed, further confirming that unemploy-ment in MENA is essentially a labor-market insertionphenomenon for youth.

Young workers face difficulties in securing jobsaround the world, given a general lack of experienceand, often, high wage expectations. However, the situa-tion in MENA is particularly acute because of the scaleof the problem. Currently, those ages 15–24 make upnearly 26 percent of the labor force and 35 percent ofthe working-age population.They amount to more than26 million potential workers, with nearly 8 million ofthem unable to find formal employment.There arelong-term problems associated with this: evidence sug-gests that negative experiences in securing a job at ayoung age may trigger long-term disillusionment withemployment prospects, a factor that may lead to higherrates of discouraged workers in the future.

Future prospects for unemployment in MENAAlthough labor supply pressures in MENA are easing,both in terms of rates of growth and the flows of newentrants, labor force growth will remain high by histori-cal and international standards. Given the expectedgrowth of the regional labor force, the region’s economieswill have to create around 54 million jobs within thenext 15 years, or 3.6 million jobs a year, to meet thedemands of new entrants alone.Within the next 20years, some 70 million jobs will have to be created tomeet these needs. In addition, resolving the currentunemployment situation requires the creation of anadditional 15 million jobs.These job creation requirementsdo not take into account the growing problem ofunderemployment in the region.

Available data for 2000 and 2005 suggest that theregion created 19.6 million jobs in that time period,averaging some 3.9 million new jobs a year.This sug-gests that MENA countries have made progress inaddressing the employment challenge facing the region.In fact, if the regional economy as a whole is able tomaintain current rates of growth over the next decade aswell as maintaining its current employment elasticity,unemployment rates as a whole could drop to nearly 7percent by 2010.A more sustainable elasticity rate—theaverage for MENA over the past 15 years has beenabout 0.7 instead of the current 0.9—suggests thatunemployment would decline to 10 percent by 2010and to around 5 percent by 2015.

However, continuing to create jobs at current ratesfor the long term depends on many factors, includingcontinued high rates of economic growth and main-tained high oil prices. It also depends on the region’sability to translate labor market interventions into long-term employment as well as the sustainability of laborabsorption in economies with high labor market rigidi-ties and a heavy reliance on public-sector employment.One should also note that this focus on the quantitativeaspects of job creation does not address the quality ofjobs being created, a matter of great importance in theregion given the rapid advances in educational attain-ment and the high wage expectations of first-time jobseekers.

Furthermore, the current rate of job creation may not apply across all MENA countries. Projectedeconomic growth and recent labor market outcomessuggest that oil-producing governments may be able tomanage the job creation challenge with public expendi-tures and targeted job creation programs.Although thesejobs might not be productive ones, they would reducethe pressures associated with labor supply growth andunemployment.The evidence, however, shows that thenon-oil economies of the region will continue to facelong-term difficulties in securing needed job creation,difficulties that require them to take more substantivesteps toward reforming their labor markets and enhanc-ing the dynamism of their economies.

Policies for promoting employment creationBeyond the effects of the current oil boom, research onlabor markets in MENA in the last decade has produceda wealth of recommendations on how policymakers canexpand job creation and reduce unemployment in amore sustainable manner.Among the most importantare rationalizing the role of the public sector and reduc-ing rigidities in labor market regulations, both of whichaim to encourage the private sector to become a moreeffective engine for job creation. Other tools at hand areactive labor market policies, interventions that aim toalleviate particular imbalances in the labor market.And in the labor-importing countries of the GCC,

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recommendations include the nationalization policiesthat have been utilized to affect the structure of labormarkets.

Public-sector employment in the region remainshigh.According to recent World Bank estimates, thepublic sector accounts for a third of all regional employ-ment, compared with 18 percent worldwide (with theexception of China).14 Public employment ranges froma low of 10 percent in Morocco to more than 70 per-cent for the GCC countries (for nationals).As a result,the fiscal burden of the public-sector wage bill inMENA is one of the highest in the world. More impor-tantly, the perpetuation of employment guarantees ingovernment hiring and the mismatched wage expecta-tions noted above perpetuate market segmentation andcrowd out the private sector from the labor market.

The private sector in MENA is also discouragedfrom hiring workers because of the restrictiveness oflabor market regulations. Labor market regulations aremeant to protect workers from unfair treatment at thehands of employers. However, overly restrictive regula-tions protect established workers at the expense of newentrants and women. Reducing the costs and restrictionsto firms that result from restrictions on types of legalcontracts, costly mandated severance packages, andexpensive—often nontransparent—legal proceedingsrelated to layoffs would increase incentives for privatefirms to hire more and invest in labor-intensive sectorssuch as manufacturing and services.

In 2003, the World Bank reported that MENAcountries maintain some of the most restrictive labormarket regulations in the world, with a labor marketrestrictiveness index value in the region averaging 48.8out of 100.15 According to the most recent figures, theregion has improved, ranking an average 35.8 out of 100in 2006. But reforms in this area have largely focused onimproving the ease of hiring workers by expanding thepower of businesses to hire temporary workers, whilestrictures on firing workers largely remain in place. Forexample, Egypt’s score for the ease of hiring a workerfell from 33 to 0; however, its score for the ease of firinga worker actually rose from 61 to 100.Asymmetricalreforms of labor regulations do little to change firmbehavior in hiring, as firms still face high, long-termlabor costs unless they are given the flexibility to dismissworkers during cyclical downturns or when the firmneeds to reorganize its production inputs to remaincompetitive.

In MENA, as in other regions that lack functioningnational unemployment insurance systems, active labormarket policies (ALMPs) constitute a major instrumentfor tackling labor market dislocations.ALMPs are pro-grams that encourage job creation through the use ofjob search assistance, training and retraining programsfor youth and dismissed workers, and direct job creationschemes through public works programs.A growingnumber of countries in MENA are turning to ALMPs.

As of 2003, spending on such programs in MENAaccounted for some 1.3 percent of GDP, up from 1.1percent in 2000 and 0.8 percent in 1995.16 Data on the effectiveness of such spending, in terms of job creation or long-term sustainability of job creation, arenot available.

Internationally,ALMPs have proven to be effectivemeans by which policymakers can help workers navigateeconomic shocks and cyclical downturns. However, aslong-term job creation schemes, they are expensive andlargely ineffective. Employment services such as jobsearch and training have proven to be marginally effec-tive.Wage subsidies and public works programs mayactually have long-term negative effects on wages andemployability for participants. Furthermore, the programsrequire careful targeting to ensure that those most inneed of such programs actually receive the benefits thatthese programs do provide.This is impossible withoutclose impact analysis, both ex ante and ex post. Mostcountries in MENA do not have adequate mechanismsto assess the impact of ALMPs.

The effective use of sector-specific reforms andprogrammatic interventions, such as labor market regu-lation reforms and ALMPs, are important mechanisms.However, their usefulness depends on knowledge of thegroups within the labor force that are most in need,careful targeting of these groups by policymakersdesigning interventions, and comprehensive assessmentof their effectiveness and efficiency. Policymakers shouldalso keep in mind that the returns from such programsare arguably short term and weak in comparison with systemic economic reforms that are driven byimprovements in the dynamism and competitiveness ofthe business environment.

Nationalization policies in the Gulf Cooperation CouncilGovernments in the GCC countries are increasinglyemploying labor nationalization policies by using quotasand increased restrictions on work permits for expatriates,as well as subsidies for the hiring of nationals.Theseefforts have been especially intense in Bahrain, Oman,and Saudi Arabia, where strong pressures on labor mar-kets have led to rising unemployment among nationals.Kuwait, Qatar, and the United Arab Emirates haverecently stepped up efforts to nationalize the labor force,and active labor market policies for nationals are likelyto gain momentum and become codified into law inthese countries.

These policy initiatives appear to have producedtangible results.17 In Bahrain, Kuwait, Oman, and SaudiArabia the share of nationals rose in the past decadefrom 65 percent to about 80 percent in the public sectorand from 25 percent to 32 percent in the private sector.The number of expatriate workers in the public sectorfell in both relative and absolute terms because of strictreplacement policies. Job nationalization in the private

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sector, where it occurred, appears to have been inresponse to government pressure—ranging from moralpersuasion to more direct policies such as fees onmigrant labor—to accelerate nationalization of the labor force.

It is difficult, however, to separate the effects oflabor force nationalization policies from overall economicand policy conditions. Moreover, there are reasons tobelieve that certain policies might be counterproductive.Administrative measures—such as mandatory quotas fornationals and restrictions on non-nationals in certainsectors—may increase employment among nationals inthe short term, but such restrictions raise costs for privatefirms through increased wages and administrative costs.Moreover, they encourage rent seeking and job diversion.Nationals reporting themselves as self-employed, forexample, may merely be sponsoring expatriate workerswho run establishments on their behalf.

Efficiency and effectiveness concerns constrain thescope of adopted active labor market strategies to pro-mote nationalization of the labor force and reduceunemployment.As with most ALMPs, the current poli-cies—and those under consideration—are not a panaceato the structural problems in labor markets.To theextent that the preferences for expatriate labor are driv-en by skill mismatches, as is widely reported, targetingthe wage differentials or providing subsidies for hiringnationals may not be sufficient to overcome the demandfor expatriates. Under these circumstances, imposingquotas may cause more damage to the private sector,while take-up rates for wage and employment subsidieswould be modest.

The conventional wisdom revisitedOne of the most important messages emerging from the2003 World Bank report on labor markets in MENAconcerned the need for addressing the orientation ofdevelopment policies in MENA instead of attemptingpiecemeal, partial solutions to addressing structural prob-lems. In particular, although the report argued that thereform of labor markets and use of direct interventionssuch as ALMPs to improve employment outcomes arenecessary components of policy reforms, they are notsufficient for addressing the scope of the employmentchallenge facing the region. In other words, the currentbattery of policies employed by governments in theregion is unlikely to provide a long-term solution to theregional employment crisis.

Instead, the solution to MENA’s long-termemployment challenge lies in accelerating the broad-based transformation of its economies to strengthen thecore drivers of job creation and economic growth.Asthe conventional wisdom of a few years ago argued, thisrequires greater entrepreneurship and private-sectordevelopment; faster integration into global trade andinvestment flows; less dependence on oil and greater

economic diversification; and rapid progress in educa-tional reform, gender equality, and better governance.18

Whether countries in the region will embrace suchcomprehensive reforms in the face of high oil pricesremains to be answered.

ConclusionsThe current oil boom in MENA appears to have alteredprospects for resolving much of the region’s unemploy-ment crisis. Overall unemployment rates have declined,with regional growth stimulating job creation at a ratethat sees employment growth outstripping the growthof the labor force. Coupled with prospects of highfuture oil prices and economic growth, current labormarket trends suggest that unemployment will continueto decline and the regional economy as a whole will beable to absorb new entrants.These positive outcomes,however, are contingent on continued high oil pricesand continued effectiveness of government-led interven-tions for generating new jobs.

The first of these assumptions is beyond our abilityto forecast, although we have witnessed several boom-and-bust cycles in oil prices over the past three decades.The second assumption—that government-led interven-tions will continue to be effective in creating jobs—aswe argued here, is doubtful and perhaps even undesirable,as it reinforces the dominance of states in MENA’seconomies and is unlikely to bring about the desiredoutcomes of sustainable creation of long-term productiveemployment. More worrisome, as we have noted, is thefact that the present exceptional conditions in oil marketshave not been shared by all countries in the region, andnon-oil producers in particular still face serious andgrowing unemployment problems.Thus, the region as a whole has little choice but to move forward withcomprehensive reforms that will improve the competi-tiveness of their economies and strengthen the role ofthe private sector.

Notes1 See World Bank (2004a).

2 See World Bank (2005).

3 Referenced economic growth data, including recent trends andprospects, are taken from the World Bank (2006a).

4 Referenced labor force and population data are from ILO (2005).

5 See World Bank (2004a)

6 Unemployment rates reported herein are based on official countrysources.

7 See Assaad (2002).

8 A recent study by ECOTechnics (2005) in Algeria suggests thatunemployment in 2004 in Algeria was closer to 25 percent.

9 See Girgis et al. (2003).

10 See World Bank (2006a).

11 See Yousef (2005a).

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12 Reported unemployment figures for Morocco reflect urban unem-ployment. Total unemployment in Morocco in 2005 has been esti-mated at 11.0 percent.

13 See World Bank (2004b).

14 See World Bank (2005).

15 See World Bank (2006b).

16 World Bank staff estimates.

17 See Girgis et al. (2003).

18 See Yousef (2005b).

ReferencesAssaad, R., ed. 2002. The Egyptian Labor Market in an Era of Reform.

Cairo: The American University in Cairo Press.

ECOTechnics. 2005. Activité et emploi en Algérie en 2004. Algiers:ECOTechnics.

Girgis, M., F. Hadad-Zervose, and A. Coulibaly. 2003. “A Strategy forSustainable Employment for GCC Nationals.” World Bank,Processed. Washington, DC: World Bank.

ILO (International Labor Organization). 2005. Economically ActivePopulation Estimates and Projections. Geneva: ILO. Availableonline at http://laborsta.ilo.org.

World Bank. 2004a. Unlocking the Employment Potential in the MiddleEast and North Africa: Toward a New Social Contract.Washington, DC: World Bank.

World Bank. 2004b. Gender and Development in the Middle East andNorth Africa: Women in the Public Sphere. Washington, DC:World Bank.

World Bank. 2005. Economic Developments and Prospects: Oil Boomsand Revenues Management. Washington, DC: World Bank.

World Bank. 2006a. Economic Developments and Prospects: FinancialMarkets in a New Age of Oil. Washington, DC: World Bank.

World Bank. 2006b. Doing Business 2007: How to Reform.Washington, DC: World Bank.

Yousef, T. 2005a. “The Changing Role of Labor Migration in ArabEconomic Integration.” In The Arab Economic Integration: TheChallenges and the Horizons, ed. A.Bolbol and S. Braikan. AbuDhabi: Arab Monetary Fund.

Yousef, T. 2005b. “Structural Reforms, the Investment Climate andPrivate Sector Development in the Arab World.” The ArabCompetitiveness Report 2005. Hampshire: Palgrave Macmillan,21–32.

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CHAPTER 1.4

The Gulf Cooperation CouncilRegion: Financial MarketDevelopment, Competitiveness,and Economic GrowthSIMON GRAY, Centre for Central Banking Studies, Bank of England

MARIO I. BLEJER, Centre for Central Banking Studies,

Bank of England

Developed, well-balanced economies today have, or haveaccess to, developed financial markets. Causality probablygoes in both directions: poor countries will lack the freeresources needed to support a developed financial mar-ket, but it is hard to imagine the process of economicdevelopment if the financial markets are suppressed.What is happening in the Gulf Cooperation Council(GCC) region to promote financial market development?And how is this likely to be affected in the future by oilprice–induced changes in wealth, and by the plannedcurrency union?

The GCC countries—Bahrain, Kuwait, Oman,Qatar, Saudi Arabia, and the United Arab Emirates—account for less than 15 percent of the population ofArabic-speaking countries (see Table 1),1 but (with oilprices at current high levels) for some 70 percent of thearea’s GDP and around 90 percent of the region’s stockmarket capitalization (though only 30 percent of thenumber of listed companies).While there are wide varia-tions in GDP per capita in the GCC region, even thelowest is still twice the level of the next-wealthiestArabic-speaking country (see Table 2).The relativewealth of the GCC region is in large part a product ofits petroleum resources (see Table 3). But it would beunfair simply to dismiss these countries as rentiereconomies with no significant diversification or scopefor economic development outside that supported bythe petroleum sector. Some GCC countries are makingclear attempts to develop niche markets or exploit rela-tive advantages, both in the real economy and in finan-cial markets.This paper looks at the GCC countries inorder to explore their attempt to gain competitivenessby developing and enhancing the financial sector, andtouches on the relationship between the financial sectorand the real economy.We will look at these issues par-ticularly in the light of monetary policy choices and theplanned GCC monetary union.

Table 1: Population (millions)

Country 1995 2000 2005

GCC 25.3 29.5 34.6Bahrain 0.6 0.7 0.7Kuwait 1.6 2.2 2.9Oman 2.1 2.2 2.4Qatar 0.5 0.6 0.8Saudi Arabia 18.1 20.5 23.1United Arab Emirates 2.4 3.2 4.7

Non-GCC 171.6 192.5 214.3

Source: IMF, 2006.

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The development and strength of the financial sec-tor will depend both on economic diversification in theGCC and the long-term management of petrochemicalresources, and on the sector’s ability to serve the needsof the wider region.We conclude that the financial sec-tor in the GCC should be able to support continuing,broadly based economic development not only in theGCC itself, but also in the region more widely.

In view of the planned monetary union in theGCC by 2010, some comparisons are also drawn withthe experience of the monetary union in the euro area.The euro area has found that the different currenciesprevailing before the introduction of the euro constitut-ed just one of many barriers to financial market integra-tion, and there may be lessons for the GCC from thisexperience. But it may, conversely, be the case that ameasure of financial market integration in the regionbeyond the GCC may be possible without wider monetary union.

Fixed exchange ratesThe GCC countries have pegged their exchange ratesto the US dollar before the planned monetary union in2010. Most of these countries had adopted a peggedexchange rate prior to agreeing on the timetable formonetary union; since 2003 all have adopted this policy.The choice effectively constrains the day-to-day (or

even year-to-year) freedom of monetary policy actionfor the member countries. Domestic interest rates arelargely a function of US dollar interest rates, with varia-tions of up to 30 basis points from time to time.2

In fact, exchange rate stability is a policy choicebroadly adopted by nearly all the Arabic-speaking coun-tries, including two of the three that do not produceoil—Jordan and Lebanon.3 In common with many central banks around the world, central banks in Arabiccountries that adopted exchange rate stability as a policyfind that this is an effective way of providing credibilityto the domestic currency and delivering low price inflation, at least in tradable goods.

A stable nominal exchange rate does not necessarilydeliver full domestic price stability.The GCC countries,together with most countries in the region (and indeedmany commodity exporters elsewhere in the world),have found that increased export earnings resulting fromthe substantial increase in oil prices over the past threeyears, along with—in some cases—an increase in eitherremittances or capital inflows or both, has increased thereal wealth of the country. In the absence of nominalexchange rate adjustment, relatively high inflation innontradables (property, and some services where skilledlabor supply cannot easily respond to increased demand)has been prevalent.4 And there is of course some feed-through from nontradables to tradables.

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Table 2: GDP per capita, current prices (US$ thousands)

Country 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

GCCBahrain 9.9 10.1 10.2 10.2 9.7 10.0 11.9 11.7 12.1 13.7 15.3 18.4 21.4Kuwait 16.5 17.3 18.5 13.7 11.4 13.4 17.0 15.1 15.8 18.1 20.2 26.0 31.3Oman 6.3 6.6 7.2 7.4 6.5 7.1 8.9 8.8 8.8 9.3 10.4 12.7 15.5Qatar 12.5 16.0 17.4 21.6 18.5 21.1 28.5 27.3 28.9 33.0 37.6 43.1 53.5Saudi Arabia 7.6 7.9 8.5 8.7 7.5 8.1 9.2 8.7 8.8 9.8 11.1 13.4 15.4United Arab Emirates 17.2 17.8 19.7 19.9 17.1 18.2 21.6 19.7 19.9 21.8 24.1 27.7 35.1

Non-GCCLebanon 3.0 3.6 4.1 4.8 5.1 5.0 4.9 4.9 5.3 5.6 6.0 6.0 6.0Libya 5.8 6.5 7.0 7.5 5.4 5.9 6.6 5.6 3.5 4.2 5.3 6.7 8.3Other (pop weighted) 1.1 1.1 1.1 1.1 1.2 1.2 1.3 1.3 1.2 1.2 1.2 1.3 1.5

Source: IMF, 2006.

Table 3: Oil production per capita (barrels per day)

Country 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

GCC 0.55 0.54 0.53 0.50 0.51 0.46 0.47 0.45 0.39 0.44 0.45 0.46Bahrain 0.25 0.25 0.29 0.29 0.29 0.27 0.27 0.27 0.27 0.27 0.26 0.25Kuwait 1.34 1.27 1.18 0.91 0.90 0.83 0.90 0.84 0.72 0.83 0.83 0.90Oman 0.39 0.41 0.42 0.42 0.41 0.41 0.40 0.39 0.36 0.33 0.30 0.29Qatar 0.64 0.76 0.76 0.78 1.12 1.04 1.04 0.98 0.83 0.94 1.00 0.96 Saudi Arabia 0.45 0.44 0.44 0.42 0.42 0.38 0.40 0.38 0.33 0.38 0.39 0.40United Arab Emirates 0.97 0.89 0.88 0.84 0.79 0.68 0.67 0.61 0.51 0.56 0.54 0.51

Non-GCC 0.03 0.03 0.02 0.03 0.03 0.03 0.03 0.03 0.03 0.02 0.03 0.03

Source: OPEC, 2005; IMF, 2006.

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Inflation certainly appears to be positively correlatedto oil prices in the GCC region. Domestic demand isboosted when oil prices are high, and incomes aretherefore higher; and this feeds through to higher inflation.5 In the last few years this has helped to pushinflation in two GCC countries above the average ofthe non-GCC Arabic-speaking nations. However,because pegged exchange rates provide a degree of stability to prices and price expectations, thus far therise in inflation associated with higher demand (to someextent, a real exchange rate adjustment) does not appearto be a problem.6

The rising level of inflation does, however, raise animportant question for these countries: will the increasein the real exchange rate, reflecting oil wealth, damagecompetitiveness? This can be particularly important asthe oil sector typically employs a relatively small numberof people—perhaps 1 percent of the workforce—whilecontinued rapid population growth means that the laborforce is showing strong growth. Currently, a large part ofthe native population of the GCC countries is employedby state organizations, while a predominantly maleimmigrant workforce—in some countries this accountsfor more than half of the population—supplies the laborneeds of much of the private sector, whether in construc-tion, shops, or hotels. (Oman is an exception to this, hav-ing promoted a policy of “Omanization” since 1988,encouraging and training locals to replace expatriates inboth the public and private sectors.) But a strongly grow-ing native population will make it increasingly difficult

for the state to provide meaningful work, which in turnindicates that economic diversification and competitive-ness will become more important in the years ahead.

At the same time, the fixed exchange rate in theGCC countries has some important benefits. Given thatit is a fully credible monetary policy regime in view ofthe substantial level of foreign exchange reserves held bythe relevant central banks (and also by their respectivegovernments in various forms of stabilization funds heldoffshore), US dollar markets can be used as a proxy forsome domestic financial markets. Derivatives marketsscarcely exist in the GCC countries. In some cases, thisis because they are simply not needed: a foreignexchange forward contract against the US dollar wouldnot be worth buying when the market is fully convincedthat the exchange rate will not change in the future.Aforeign exchange forward contract against the euro orother currencies might be useful; but the US dollar-euroforward market is a perfect proxy, and being a very liquidmarket is relatively cheap to use. Similarly, the morecomplex interest and exchange rate derivative products—futures, options, and so on—can make use of the veryliquid US markets without any exchange rate risk.Thus,although it may appear that this area of the financialmarket is undeveloped, the GCC countries have prettymuch full access to a liquid market in these products:the monetary policy decision to peg the exchange ratehas allowed an effective outsourcing here. It would bedifficult to argue that economic development is in any way being held back by the absence of domestic

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Bahrain Kuwait Oman Qatar Saudi Arabia United Arab Emirates Non-GCC average, excluding Iraq

Figure 1: Inflation: Annual percent change

Source: IMF, 2006.

Note: Iraq is excluded because hyperinflation in the early 1990s and relatively high inflation over the past two years distorts the picture for non-GCC countries.

1994 1996 1998 2000 2002 2004 2006

Perc

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derivatives markets; and, as equity markets develop, albeit slowly, the local exchanges are keen to be able to offerderivative products to match them.

This benefit, of buying-in the provision of deriva-tives, is not available to all the other currencies in theregion. In some cases, exchange controls restrict theability of players in the economy to use offshore financialservices. In others, the weaker (though not necessarilyweak) balance of payments position means that domesticinterest rates have to be higher than the US dollarequivalent, and US markets can therefore be only animperfect proxy.

The real economyThis paper will not dwell at length on the real economiesof the GCC countries, but will be restricted rather to afew observations.

The high per capita GDP and the relatively inhos-pitable climate mean that the GCC countries are unlikelyto be able to compete in certain global markets, such asthose relying on cheap labor or fertile soil,7 or onnon–petroleum natural resources.8, 9 This contrasts with,for instance, Egyptian cotton production, which canprovide employment in agriculture and in upstreammanufacturing. In tourism, the GCC cannot competewith the history of ancient Egypt or some of theancient cities in the Levant and North Africa.

That said, the GCC countries can of course importrelatively cheap labor in order to support a constructionboom. In some cases this does strengthen competitiveness,for instance by improving infrastructure, including theprovision of top-quality hotels.The United Arab Emiratesis developing a niche in certain areas of tourism, takingadvantage of its investment strength to develop sometop-of-the-market resorts: the Burj Al-Arab hotel isinternationally known.And Oman, leveraging off its history and geographical diversity, is also developingniche tourist markets. Here the competitiveness of theGCC region is supported by its ability to invest in high-quality infrastructure. Internet cafés abound in theregion from Morocco to Syria, but connection speedand reliability are better in the GCC.The GCC countriesalso have something to offer to each other: significantdifferences in culture and governance mean that intra-GCC travel can generate business—which may be assimple as an evening trip across the causeway betweenBahrain and Saudi Arabia.

There is also scope for attracting transit, or entrepôt,trade, whether for physical goods—the Dubai gold market is well known, but the range of goods traded ismuch wider and attracts entrepreneurial merchants frommany countries (Russian is often heard in the Gulfregion)—or as a hub for airlines. It is not possible forevery country to host a regional hub; but by developinghigh-class airport facilities and running attractive airlineoperations, the GCC countries are able to compete

for global business.As with tourism, they can invest ininfrastructure and modern, top-quality equipment (forexample, airplanes) in a way that other countries in theregion cannot, and in this way can gain competitiveadvantage leveraged off their strong financial situation.

Financial servicesIn many countries, the first financial markets to developare those for foreign exchange and government securities.But, as noted earlier, there is relatively little need for for-eign exchange trading when the exchange rate is fixedand when local banknotes can be used in neighboringcountries fairly easily.10 And strong government revenuesmean that the GCC governments have little need toborrow at present, so the supply of government securitiesis bound to be restricted (though several of the regionalcentral banks issue their own securities).The foreignexchange and securities markets in the GCC are conse-quently relatively thin. In this, again, there is a clear contrast with most other countries in the region, whereforeign exchange trading flourishes—in some cases tobypass exchange controls—and where governments aremuch more likely to have a borrowing need (governmentsecurities market liquidity is weak in most of the non-GCC Arabic-speaking countries, for other reasons).

For most central banks around the world, developingrobust payment systems is seen as part of their monetaryand financial stability remit. Preserving the external valueof the currency, and providing high-quality banknotes, isa key part of this. But noncash payment services are alsoimportant. Developing a culture of financial intermedia-tion may help in the development of financial marketsmore generally.The jump from keeping savings in physi-cal assets, such as gold, to an intangible investment incorporate equities is a big one. It may be facilitated byfamiliarity with reliable financial intermediaries. In this,the GCC countries and their neighbors may have thesame goals, but the wealthier countries are more likelyto see widespread use of financial intermediation and tosee a high enough volume of transactions to justify thedevelopment of noncash payment systems.

In the GCC, there is a much stronger demand forthe more sophisticated financial services than there is intheir more cash-based neighboring economies.There isalso sufficient volume of business—a product of higherlevels of consumption as well as of savings—to justifythe cost of building the infrastructure.The cafés in theKhan el-Khalili or al-Hamidiyeh souks may be morepicturesque than the sea fronts in Kuwait or Abu Dhabi,but in the latter the air-conditioning works, price-visibility is good, and you can pay with a credit card.

Statistics support the picture of financial sophistica-tion in the GCC countries as being much higher thanthat of their non-GCC Arabic-speaking neighbors. Cashin circulation as a percentage of GDP tends to fall withthe growth of financial intermediation, and the figures

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for GCC countries are significantly lower than they arein neighboring counties—4–5 percent in GCC countriescompared with 14 percent in the non-GCC area—withthe (not surprising) exception of Lebanon (see Table 4).

Interestingly, the low cash-to-GDP ratio is not sole-ly a function of recent strong growth in GDP reflectinghigh oil prices—it has been evident over the past decadeand more.There are a number of possible explanationsfor this: it may be that noncash payment systems devel-oped with the increase in wealth after the first oil-pricehike; or that wealth is held in forms other than domesticcurrency cash (whether gold or US dollars); or morepossibly it may reflect a different pattern of wealth dis-tribution. For instance, the increase in wealth in pastyears may have been skewed toward a relatively smallpart of the population and so has not increased the general demand for cash; and many of the nonnativeworkforce send a large part of their savings back to theirfamilies, rather than holding it in domestic currency.

Stock exchangesThe existence of a stock market, or financial sophistica-tion more generally, are of course not sufficient conditionsto guarantee economic growth. But it is hard to thinkof a competitive economy with strong and balancedgrowth that does not also exhibit a measure of financialmarket development.There may be a two-way causalityhere: a wealthier country is more able to generate savingsand support financial intermediation—the necessaryinfrastructure may simply be too expensive for a relativelypoor economy—but at the same time, an economy isunlikely to grow strongly without a supporting financialinfrastructure.The growth of the financial sector in theGCC countries—not just Bahrain and the United ArabEmirates—promises well for the future of theseeconomies (although some financial services can be out-sourced to the United States and other financial centers,others are more efficiently produced domestically). GCCcountries are taking advantage of oil wealth in order topromote diversification.

Again, high oil production by itself does not meanstrong capital market growth, but there does appear tobe a reasonable correlation between higher oil productionper capita and stock market capitalization.This relation-ship is stronger than the relationship of total oil produc-tion vs. market capitalization: beyond a certain point,more income may not generate a need for more locallyproduced goods and services, and thus there will be noadditional need for listed companies.

Channeling investment funds in a way that willdevelop the domestic economy rather than puttingthem into US government securities, for instance, canoccur in a number of ways. It could be that governments,or individuals who have accumulated wealth from theoil or gas sectors, have the vision to make such invest-ments. Or they may choose to employ others—whetheras ministers or staff in government, or as private financialadvisers—who do have such vision and the skills toimplement it. Or the investments can be intermediatedby the financial markets—notably stock exchanges, butalso investment companies—and possibly drawing innonresident investors as well as residents.11 There is areal role in the GCC for financial intermediation in taking advantage of the current economic strength ofthe region for competitive economic development. Datafrom the regional exchanges indicate that they are risingto the challenge.

There has clearly been very strong stock marketgrowth in a number of the GCC countries, as well as inother regional exchanges (see Figure 3). In the GCCcountries, stock market activity appears to be associatedwith sharp movements in oil prices (see Tables 5 and 6for country details).

Turnover in the GCC countries was high in 1997,when oil prices had fallen to a particularly low level; butin the following years—until oil prices rebounded—turnover in the GCC markets was notably lower as apercentage of total Arab market turnover compared withthe years of higher oil prices. Some of the trading isspeculative—as in any such market—but it is also likelyto reflect improved prospects for large infrastructure andservice providers when regional income is strong.Thesustained high level of oil prices over the past threeyears has inevitably led to a revision of prospects forinvestment and demand in the region.The GCC’s shareof market turnover in the region has jumped from 60percent in 2000 to around 96 percent over the pastthree years.

Equities tend to be concentrated in property/construction and petrochemicals; some of the other listed securities are investment funds operating in thesame spheres. It is interesting to note that Egypt, with byfar the largest population amongst the Arabic-speakingcountries (one-third of the total Arabic-speaking popu-lation of the region), also has the largest number ofcompanies listed (around 45 percent of the total) but—reflecting the relative wealth of the country—a low

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Table 4: Currency in circulation (percent of GDP)

Country 1995 2000 2005

GCC 7 6 4Bahrain 5 4 4Kuwait 4 4 3Oman 4 4 3Qatar 5 3 2Saudi Arabia 8 7 6United Arab Emirates 4 4 4

Non-GCCLebanon 6 6 5Other (excluding Iraq, pop weighted) 14 13 14

Source: IMF International Financial Statistics.

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200

250

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Figure 2: Oil production per capita vs. market capitalization (percent GDP)

Source: OPEC, 2005; IMF, 2006; Arab Monetary Fund, data available at www.amf.org.ae/venglish/default.asp.

0.0 0.2 0.4 0.6 0.8 1.0 1.2

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Oil production (barrels per day per capita)

GCC Non-GCC

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Figure 3: Stock exchanges: Market capitalization

Source: Arab Monetary Fund; Federation of Euro-Asian Stock Exchanges.

US$

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Table 5: Market capitalization (US$ billions)

Country 1995 2000 2001 2002 2003 2004 2005

GCC 62.0 97.2 109.1 163.3 305.1 533.7 1,131.0Bahrain 4.7 6.6 6.6 7.7 9.7 13.5 17.4Kuwait 14.4 19.8 26.7 35.1 59.5 73.6 123.9Oman 2.0 3.5 2.6 5.3 7.2 9.3 12.1Qatar 10.6 26.7 40.4 87.1Saudi Arabia 40.9 67.2 73.2 74.9 157.3 306.3 646.1United Arab Emirates 29.8 44.6 90.6 244.4

Non-GCC 22.6 51.0 43.1 45.5 55.8 87.7 152.2

Source: Arab Monetary Fund, available at http://www.amf.org.ae/venglish/default.asp.

Table 6: Turnover (value traded/market capitalization)

Country 1995 2000 2001 2002 2003 2004 2005

GCC average 0.21 0.23 0.32 0.34 0.72 1.03 1.21Bahrain 0.02 0.04 0.04 0.03 0.03 0.03 0.04Kuwait 0.44 0.21 0.44 0.63 0.92 0.70 0.79Oman 0.11 0.16 0.16 0.11 0.18 0.21 0.28Qatar 0.08 0.12 0.16 0.32Saudi Arabia 0.15 0.26 0.30 0.41 1.01 1.54 1.71United Arab Emirates 0.04 0.05 0.20 0.57

Non-GCC average 0.1 0.3 0.2 0.2 0.2 0.2 0.4

Source: Arab Monetary Fund, available at http://www.amf.org.ae/venglish/default.asp.

0

300

600

900

1,200

1,500

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Figure 4: Stock exchanges: Value traded

Source: Arab Monetary Fund; Federation of Euro-Asian Stock Exchanges.

GCCNon-GCC

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share of turnover. Indeed, although market capitalizationin Egypt has grown strongly over the past three yearsand turnover has increased, its share of turnover in theregion is now only 2 percent.

A more efficient capital market infrastructure shouldmake it easier for borrowers and investors to operate;this in turn should support stronger, and more diversified,economic growth. Cross-border activities clearly happenalready. GCC investment funds are looking for investmentopportunities in the region, especially in the countrieswith a stronger development need. Importantly, thecountries with larger populations—Egypt, Iraq, Morocco,Syria,Tunisia,Yemen—have the lowest per capita GDPfigures, and so are likely to be capital importers, neatlymatching the (current) capital exporting needs of mostor all of the GCC.12 But a greater measure of harmo-nization and transparency in rules and regulations,mirroring the “common market” approach of the GCCitself, might make it easier for borrowers to link in toinvestors.

SpecializationSpecialization and relative advantage are key conceptswhen thinking about competitiveness. But not all coun-tries can successfully specialize in the same area. In theGCC region, two centers stand out as seeking to carve aniche in financial markets: Bahrain (since the mid 1970s,but re-launched more recently with the BahrainFinancial Harbour development since in 2002) and theDubai International Financial Centre (since 2004).Bahrain initially developed strongly as a financial centerto handle recycling the so-called petro-dollars in theearly 1970s.The substantial increase in oil prices overthe past three years means that there is once again astrong impetus to the growth of financial intermediationservices, and both Bahrain and Dubai are benefitingfrom this.They are not alone in seeking to developfinancial centers: Qatar and Saudi Arabia also have plansfor Doha and Riyadh respectively. Bahrain has morerecently sought to develop a niche as an Islamic financialcenter, while still working in conventional markets.Issuance of Sukuk bonds by the government was part ofthis strategy. But Bahrain faces competition here not justfrom other regional financial centers, but also from mar-kets in Indonesia and Malaysia, and even London, where“Islamic” products have been developed.13 The morerecent Dubai International Financial Centre aims tooffer a broad range of financial services, and in part aimsto attract business by doing this in a free trade zone,offering zero tax rate and allowing full foreign ownershipand free repatriation of profits.

There is still plenty of scope for other markets todevelop. For instance, the Riyadh Stock Exchange isdominant in terms of size, reflecting the larger size ofthe Saudi economy, and might be able to attract morebusiness from neighboring countries, especially as

currency union looms.This could mirror a pattern seenin other regions, where trading tends to converge tolarge centralized exchanges, reflecting the fact that dom-inant investors often have an international portfolio andprefer to trade (and clear) their investments on oneregional platform rather than a number of small nationalexchanges. Future privatizations and large-scale infra-structure investments should provide more assets to betraded on the exchanges.

There is certainly more business being generated—notably project finance and wealth management, both ata government and an individual level—and it makessense to develop local expertise.

The strong growth of the financial sector in recentyears, stimulated by the oil price increase, has drawnmore participants into the market, often from othercountries, and has inevitably put some pressure on thelabor market.14 The requisite human infrastructure takestime to develop, while cultural differences may make itharder for some centers to attract nonlocals (indeedthere are indications that some centers do not particu-larly want to do so).15 There can be particular difficultiesin developing Islamic financial products, since to thenormal design and approval process for new productsmust be added approval by a competent shari’a board.Since there is an element of textual interpretationinvolved, boards will reach different conclusions aboutwhat it acceptable, and they may revise their opinionsfrom time to time. For instance, a savings product wasdeveloped in one GCC country that gave (uncertain)prizes to some savers, rather than a fixed return to all;but after operating for some time this was deemedharam. Such uncertainty may make some people reluc-tant to participate in new markets, thus delaying theirdevelopment.

One question for the region’s financial centers, inview of the strong cyclicality in the markets in recentyears (reflecting the importance of the [cyclical] oil sec-tor), is whether the market growth and deepening canbe sustained for long enough to train and retain thequantity of skilled professional staff required for thepeak times.

As the market deepens, this should become less of aproblem. One factor that could be important in reducingthe strong cyclicality of the GCC markets is the increasinguse and sophistication of oil stabilization funds. Kuwaitwas the first to formalize this, in 1976, and Kuwait’smodel may still be the most sophisticated and transparent;but all the GCC countries have a stabilization fund inone form or another.The use of such funds can help toreduce the cyclicality of fiscal operations: budgets aremuch less likely to respond to short-term movements inthe price of oil.This may support a less cyclical patternof demand growth and so allow for more stable devel-opment of the financial markets.

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TaxationThe GCC states, in their efforts to attract larger volumesof foreign investment, are increasingly willing to enterinto and conclude bilateral foreign investment treaties,including bilateral investment treaties, free trade agree-ments, and double taxation agreements.

In general, taxation rates are low as governmentshave strong income from petrochemicals. In SaudiArabia, for instance, no income tax is levied on GCCnationals (others may have to pay income tax), thoughGCC nationals are subject to zakât.16 Bahrain and theUnited Arab Emirates are also low-tax countries, wheremost companies outside the petroleum and petrochemi-cal sectors do not pay tax.There are, at least formally,some taxes on nonresident investments (but also taxincentives provided in certain areas such as the DubaiInternational Financial Centre). But these do not appearto be a significant problem, and it must be said that theregion does not need to import capital.

Currency union: New opportunities?Will the planned GCC currency union have an impacton intra-GCC competition, and on the competitivenessof the region vis-à-vis other regions? The services sec-tor, and in particular the financial sector, may be thearea that benefits most from the intra-GCC commonmarket, as the similar nature of output on theseeconomies reduces the scope for intraregional trade inphysical goods.

Currency union will also mean that monetaryoperations undertaken by the GCC central banks willneed to be harmonized.The current structures are quitevaried, with some putting more emphasis on providingincentives for market development than others. Centralbanks are typically also interested in financial sector stability as well as monetary stability.There is a strongawareness of the need for supervision of banks andother financial intermediaries to meet international prudential standards, and for transparency and clarity inthe appropriate legislation, if the financial markets are tobe attractive and compete internationally. But moreprobably needs to be done in this area.

Currency union could also raise the opportunityfor the region to de-couple the exchange rate from theUS dollar, although this is certainly not necessary. InEurope, a number of smaller countries linked theirexchange rate to the Deutschemark prior to the intro-duction of the euro, but now, as part of a larger currencyzone, have a floating exchange rate.The parallel with theGCC is not exact, of course. But it is conceivable that,just as high oil revenues are leading to some realexchange rate appreciation in the GCC at present, afuture cyclical weakening of the economies might, forcompetitiveness reasons, make a depreciation attractive.This might be easier to achieve by nominal exchangerate adjustment than by negative inflation (though

negative inflation in property prices and skilled laborrates has a number of precedents).

Against the background of the planned currencyunion in 2010, the recent strong growth in GCC stockexchange trading begs the question: should the financialinfrastructure follow the currency harmonization? Ingeneral, currency areas require a unified, or at leastinterlinked, payment system in order to avoid segmenta-tion in liquidity leading to varying interest or exchangerates in different regions.17 But it is less clear whetherthere should be a regional stock exchange with central-ized settlement.Would this support stronger financialdevelopment? Should the central banks of the region,and the financial sector authorities more widely, promotesuch regional integration?

There are a number of facets to this question.Reference to a parallel situation in what is now theeuro zone may be illuminating. Currency unionundoubtedly made it easier for investors in the euro areato broaden their portfolios, since currency risk that hadpreviously inhibited some cross-border investments waseliminated.A number of major financial intermediariesfound that they could unify aspects of their investmentmanagement, and their dealing rooms.This permitseconomies of scale, allows for better diversification ofrisk, and so on. But currency risk does not existbetween the GCC countries now: the exchange rateshave been firmly pegged to the US dollar, and thereforeto each other, for years.A unified currency in the GCCwill not affect risk, but it should eliminate some fric-tional costs—moving from one currency to another—and also some of the costs of segmented liquidity.

In other respects, the euro area found that currencyunion was not a sufficient condition for the free flow ofcross-border investments. Stock exchanges, clearing, andsettlement systems were not unified just because thecurrency was.18 Since the introduction of the euro, therehave been a wide range of initiatives to break down thebarriers. Even legal barriers can take a long time toovercome—do exchange controls, prudential regulations,or restrictions on the nationality of investors constraincross-border activity? Where the market segmentationreflects an institutional structure in the private sector,the problems can be much greater. If there is to be asingle stock exchange, which exchange survives? Inwhich country should it be located? What problems areraised if settlement of a security is not in the same legaljurisdiction as the issuer or as those using it as collateral?Is there a risk that a single infrastructure will so reducecompetition that it is in fact bad for the market?

These are all questions that will need, at somepoint, to be addressed by the GCC countries as part oftheir desire to promote financial sector development.But since many of these questions do not relate directlyto the choice of currency, they could be extendedbeyond the GCC. Is there a case for facilitating cross-border investments throughout the whole region? If

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companies in other regional countries wish to raisefunds in the capital markets, whether via bonds or equi-ty issuance, could they use a regional exchange insteadof their national exchange, or both simultaneously?

Some countries in the region still give preferentialtreatment to investors from other Arab countries. Inpractice this may simply mean that non-Arab investorshave to set up front-companies to make an investment;but it will put off some participants in the market.Regional investors are clearly happy to invest outsidethe region; most welcome investment from other areas.Economic efficiency and the demands of competition inthe global economy may indicate that such artificial bar-riers should be removed. Some of the GCC authoritiesmay not be fully convinced of this.There is still somelegislation that favors nationals in particular, and residentsof Arabic-speaking countries in general.There is alsosome employment legislation that promotes the use ofnational labor, for instance through differential labortaxes penalizing non-nationals. But this form of protec-tionism may not have a serious impact on competitive-ness. Indeed, one might argue that protectionism hashistorically worked for countries with a strong econom-ic position, although it demonstrably fails for those whoneed to compete aggressively to win market share.19

ConclusionsIt may be that the combination of an appreciating realexchange rate (because of higher inflation than in thecountry of the anchor currency, the US dollar) togetherwith high aspirations of the native population implies aneed for increased education and efficiency if theeconomies are to be competitive—at least in terms ofproviding attractive employment opportunities for thegrowing national labor force. Fortunately, oil wealthallows the GCC countries to fund these educationalneeds and to invest in infrastructure that will boost economic efficiency as well as the quality of life; it isimportant that this opportunity be well used.

The GCC countries have more-developed financialmarkets than the other Arabic-speaking countries in theregion.To some extent, this is a function of greaterwealth. But it also reflects clear policies of using (someof) that wealth to promote economic diversification andto strengthen the non-oil economy. In some areas, theGCC makes use of parallel—predominantly US dollar—financial markets, as this is more efficient than trying tocreate independent domestic markets. But capital mar-kets, investment, and project management services havebeen developing strongly, and appear sufficiently com-petitive not only to serve the needs of the GCC butalso to export such services to other countries in theregion.The planned currency union will enhance thestrength of the financial sector, but is unlikely to be suf-ficient on its own to give a substantial boost to theseeconomies.

The dominance of oil in total GDP (see Table 7)may indicate that economic diversification in some ofthe GCC countries (Bahrain and the United Arab Emiratesare probably furthest along the road of economic diver-sification) is not sufficient to support a vibrant stockmarket under all conditions.While oil prices are high,and consequently the prospects for infrastructure invest-ment are good and there is a surplus of capital forinvestment abroad, the financial sector is likely to thrive.But if oil prices weaken, it is not clear that the rest ofthe economy would generate sufficient business tomaintain the financial sector.All financial sectors willface cyclical peaks and troughs, but the GCC regionmay for some time have to cope with stronger cyclicalswings than other centers.20 This cannot necessarily beavoided, although fiscal smoothing through the well-planned use of oil stabilization funds can be a powerfulcountercyclical instrument—but it can be managedmore easily with some advance planning.

Whether any of the GCC financial centers will beable to become truly global centers is not yet certain.Some elements of protectionism—favoring nationals andrestricting the role of foreign investors—may militateagainst this. Nevertheless, the level of financial sectordevelopment and the credibility of the currencies willbe important factors in supporting further economicdiversification.Without bureaucratic constraints, thefinancial sector in the GCC will probably be able tosupport continued broad-based economic development,not only for the GCC countries but also for the entireregion. But the development and strength of the financialsector will also depend on economic diversification inthe GCC and long-term management of petrochemicalresources, as this will reduce exposure to the stronglycyclical oil sector, and on its ability to serve the needs ofthe wider region.The relationship between the financialsector and the broader economy is symbiotic. For theGCC, this suggests both considerable opportunities andreal risks.This is particularly the case if there is insufficientdiversification in the real sector, but also if remainingbarriers to cross-border activity become more of a constraint.

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Table 7: Oil dependence, proxied by oil as a percent of total exports

Country 1995 2000 2005

GCC average 75 81 79Bahrain 72 72 79Kuwait 95 93 93Oman 77 79 83Qatar 78 92 84Saudi Arabia 85 91 89United Arab Emirates 43 55 47

Non-GCC average 16 26 27

Source: World Trade Organization.

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Notes1 The non-GCC Arabic-speaking countries included here are Egypt,

Iraq, Jordan, Lebanon, Libya, Morocco, Syria, Tunisia, and Yemen.

2 A sustained spread of more than 25 basis points tends to generatecapital flows.

3 Egypt, Morocco, and Tunisia have a more flexible exchange rate poli-cy. The unofficial rate for the Iraqi dinar showed strong move-ments until 2003; the Iraqi dinar has been very stable from early2004 until late 2006, when the central bank encouraged an appre-ciation of the dinar.

4 Banks do lend for property purchase, but in the GCC security oftenrelies on future salaries (civil servants have a job for life) ratherthan the property itself, so banks are not so exposed to propertyprice shocks as they are in other regions.

5 It is not clear to what extent property prices are reflected in the con-sumer price index (CPI) data for the region. Anecdotal reports indi-cate property and skilled labor (services) inflation in recent yearsin the region has been much higher than the CPI series mightsuggest.

6 There are, however, indications that official measures of inflation insome GCC countries may understate the real level.

7 The use of desalination plants in a region with limited fresh watersupplies and growing demand from a growing population doesmean that some agricultural production can take place in additionto the traditional production—for example, a wide variety of dates.

8 For instance, pearl fishing in Bahrain, at one time very important tothe local economy, is now a matter of history.

9 If the international response to global warming affects demand forhydrocarbons in future decades, the GCC countries would be wellplaced to make use of solar energy.

10 . . . and occasionally unscrupulously: a taxi driver in Manama triedonce to persuade one of the authors that 10 Saudi riyals wasequivalent to 10 Bahraini dinar.

11 Some GCC markets still place restrictions on nonresident invest-ment.

12 Saudi Arabia is the only GCC country with a large population,accounting for some two-thirds of the GCC total.

13 In a speech to the Middle East/North Africa Forum on October 30,2006, the Economic Secretary to the (UK) Treasury noted: “wealso want to do more to make Britain the gateway to Islamictrade and the City a global centre for Islamic finance” (Balls 2006).

14 One employment market website noted in early 2006: “Areas withthe greatest demand-supply mismatch reportedly include privatebanking, corporate finance, compliance and certain specializationswithin Islamic banking.”

15 See, for instance, comments in Fasano and Iqbal (2003) and ArabMonetary Fund (2003).

16 Zakât is one of the five pillars of Islam—the required giving of a pro-portion of one’s wealth. The Wikipedia definition is: “The paymentof zakât is obligatory on all Muslims. In current usage it is inter-preted as a 2.5% levy on most valuables and savings held for afull lunar year, if the total value is more than a basic minimumknown as nisab (3 ounces or 87.48g of gold). At present (as of 3March 2007), nisab is approximately US $1922.40 or an equivalentamount in any other currency.”

17 The United States introduced the Fedwire payment system in orderto harmonize the yield curve across the country; the Eurosystemcentral banks interlinked their wholesale (RTGS) payment systems(in TARGET) in order to ensure that a single monetary policy couldbe delivered across the whole region.

18 Neither were the retail payment systems.

19 See Chang (2002).

20 See, for instance, Financial Times (2006).

ReferencesArab Monetary Fund. Available www.amf.org.ae/venglish/default.asp.

Arab Monetary Fund. 2003. Contribution of the Arab Monetary Fund tothe Development of Arab Capital Markets. June. Abu Dhabi: ArabMonetary Fund. Available at http://www.amf.org.ae/venglish/stor-age/other/EPI%20DEPT/PUBLICATIONS/Econnomic/Arab%20Capital%20Market-Eng.pdf.

Balls, E. 2006. Speech to the Middle East/North Africa Forum, London,October 30. Available at http://www.hm-treasury.gov.uk/news-room_and_speeches/speeches/econsecspeeches/speech_est_301006.cfm.

Chang, H.-J. 2002. “Kicking Away the Ladder: How the Economic andIntellectual Histories of Capitalism Have Been Re-Written toJustify Neo-Liberal Capitalism.” Post-Autistic Economics Review.15 (September 4), article 3. Available athttp://www.paecon.net/PAEtexts/Chang1.htm.

Fasano, U. and Z. Iqbal. 2003. GCC Countries: From Oil Dependence toDiversification. Washington, DC: IMF.

Financial Times. 2006. “Gulf Markets.” November 21.

IMF (International Monetary Fund). International Financial Statistics.Washington, DC: IMF.

IMF (International Monetary Fund). 2006. World Economic OutlookDatabase, September 2006. Washington, DC: IMF.

OPEC. 2005. Annual Statistical Bulletin 2005. Available atwww.opec.org/library/Annual%20Statistical%20Bulletin/pdf/ASB2005.pdf.

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CHAPTER 2.1

Gulf Cooperation CouncilHealth Care: Challenges andOpportunitiesMONA MOURSHED, McKinsey & Company

VIKTOR HEDIGER, McKinsey & Company

TOBY LAMBERT, McKinsey & Company

The coming decade will bring significant new challengesto health care in the Gulf Cooperation Council countries.These challenges will require new strategies on the partof government and private health-care players.

Health-care demand in the Gulf Cooperation Council is undergoing fundamental changeThe Gulf Cooperation Council (GCC) countries—Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and theUnited Arab Emirates—will face an unparalleled andunprecedented rise in demand for health care over thecourse of the next two decades.We estimate that totalhealth-care spending in the region will reach US$60billion in 2025, up from US$12 billion today. No otherregion in the world faces such rapid growth in demandwith the simultaneous need to realign its health-caresystems to be able to treat the disorders of affluence.Moreover, although GCC health-care systems are farbetter than they were 20 years ago, many residentsremain unsatisfied with the availability and quality ofcare at government-run hospitals and clinics. Governmentagencies mostly lack the managerial skills needed to runhealth-care facilities, and cash incentives alone haven’tbeen enough to attract specialists to treat the risingnumbers of people with ailments such as heart diseaseand cancer.

Government-run hospitals and clinics are ill preparedfor a rapidly growing and aging population, nor are theyprepared for the rise in chronic diseases such as diabetes,whose prevalence has grown as countries have developed.To augment services and raise standards of care, someGCC governments have already encouraged internationallyrenowned academic institutions to set up health-carefacilities in their countries. Many more private health-careproviders are required, however, to meet future demand.

For the most part, GCC governments intend to goon subsidizing robust medical benefits—at least for theirown citizens. Governments now shoulder more than 75percent of this burden, but even those with the deepestpockets may not have enough, in 20 years, to pay for thecost of health care. Most now recognize that they willsoon need private-sector help to finance it.

Fundamental changes will be required of payors,providers, and government. Private payors that buildvolume by competing in more than one GCC state arethe most likely to succeed. For private providers, thedecision must be whether to enter into governmentcontracts to manage public facilities or to open theirown. Finally, big changes to government policy and regulation are needed to ensure that private players canattract patients and succeed.The two most importantchanges are that governments must reimburse their citizens for private as well as public health care, and thatindependent regulatory bodies must be established todefine and enforce quality standards for public and private providers alike.

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Factors driving health-care demand in the GulfCooperation CouncilGCC governments have made substantial investments inhealth-care infrastructure during the past 25 years,building hospitals and clinics and promoting a moremodern approach to tackling the infectious diseases,such as malaria and measles, that were once rampant inthe region.Although differences exist from country tocountry, the overall improvement has been impressive.Life expectancy rose from 60.5 years in 1978 to 73 yearsin 2004; in the same period, infant mortality fell from69 deaths per 1,000 live births to 18.1

But GCC health-care systems still struggle today.The primary reason is that governments are notequipped to manage health-care providers and feel littlepressure to set quality, service, or financial-performancetargets. More troubling is that the GCC faces threedrivers that will dramatically increase health-caredemand in the region: population growth, aging, andunique health-risk factors:

• Population growth. Until 2015, the size of thepopulation will increase at a compound annualgrowth rate (CAGR) of around 3.0 percent, one ofthe highest in the world. In the longer term, thegrowth in population will ease back to 1.8 percentCAGR.As a result, total GCC population in 2025will be almost twice the size it is today.

• Aging populations. Older people generally needto seek more medical care and have more expensivehealth profiles than younger people. Improvementsin life expectancy over the past quarter of a centuryhave left the GCC with an increasing number ofelderly people requiring care. Combined with thesuccess achieved in reducing infant mortality rates,this demographic segment will continue to grow inthe years ahead. In Saudi Arabia, for example, thenumber of people over 65 will increase more thansevenfold during the next 25 years.2

• Health-risk factors. The GCC shows a uniquepattern of risk factors.Among GCC nationals,the prevalence of Type 2 diabetes and obesity isunusually high relative to the rest of the world. Forexample, a joint study between the UAE Ministryof Health and the World Health Organization in2001 showed that 25 percent of UAE citizens suffer from diabetes (as compared with an averageof 5 to 7 percent globally).This figure rises to anunprecedented level of 40 percent for those aged 60 or above.This prevalence has been described asbeing of crisis proportions. In addition, the obesityrate for GCC nationals stands at 40 percent, one ofthe highest in the world.The health complicationsof both diabetes and obesity will correlate withmuch higher medical costs in the coming years.

Gulf Cooperation Council health-care demand in 2025Although demand for health care in the GCC is clearlyrising, the extent of this increase and the forces that willdrive it have been matters of wide debate.To inform thedebate, McKinsey & Company constructed a proprietarymodel of health-care demand covering each of the sixGCC countries across 20 specialties and five age brackets(Figure 1).We believe this model to be unique both interms of the depth of the data used to build it and thecomprehensiveness of the health-care profile. Our modelprojects a substantial increase in health-care costs, as wellas in the number of inpatient and outpatient treatmentsand hospital beds, over the next 20 years.The modeltakes into account five drivers of changing demand:population growth, the demographic profile, the devel-opment of risk factors, treatment patterns, and medicalinflation.

The model projects the following by 2025:

• Treatment demand. Over the next 20 years,treatment demand will rise in the GCC by 240percent (see Figure 2). In particular, cardiovasculardisease will experience a steep increase (419 percent),as will diabetes-related ailments (323 percent).

• Hospital beds. By 2025, demand for hospital beds in the region will more than double, requiringalmost 162,000 beds to meet this demand (seeFigure 3). Saudi Arabia and the United ArabEmirates will register the greatest percentageincrease in demand for hospital beds.

• Cost. Health-care delivery in GCC countries willcost about US$60 billion by 2025, increasing five-fold from today (Figures 4 and 5). Cardiovasculardisease will become an enormous cost burden onthe GCC.Whereas today it already accounts for 12percent of total health-care expenditure in GCCcountries, this will double by 2025.This means thatexpenditure for cardiovascular diseases will grow ata rate of almost twice that for health care as a whole.

In addition, patient expectations in the GCC arerising in parallel to disease-based demand.The McKinseysurvey of GCC patient satisfaction shows that higherexpectations do not merely reflect generalized discontent,but rather are the result of direct patient experience.Comparing satisfaction levels for public and private hospitals, our survey data of 600 patients show that public hospitals come under substantially more patientcriticism than do private hospitals. Survey respondentsreported that public hospitals have limited appointmenthours, long waiting times, and unattractive and uncom-fortable facilities.

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Figure 1: McKinsey’s model to estimate disease demand in Gulf Cooperation Council countries

Source: McKinsey & Company.

Figure 2: Projected increase in treatment demand in the Gulf Cooperation Council countries by 2025 (percent)


*Primarily eye**Primarily household; not occupational or road traffic

• Saudi Arabia• UAE• Bahrain• Qatar• Kuwait• Oman

• Infectious diseases• Maternal and perinatal conditions• Nutritional deficiencies• Cancer• Diabetes• Endocrine disorders• Mental disorders• CNS disorders• Sense organ diseases• Cardiovascular diseases

• Non-infectious respiratory diseases• Digestive diseases• Genitourinary diseases• Skin diseases• Musculoskeletal diseases• Congenital anomalies• Dental and gum diseases• Road traffic injuries• Occupational injuries• Other injuries

20 DISEASE GROUPS6 COUNTRIES

5 age brackets• 0–14• 15–29• 30–44• 45–64• 65+

SHAPING FACTORS• Population growth• Aging• Risk factors• Treatment pattern• Medical inflation

5 AGE BRACKETS

X X

Cardiovascular

Diabetes

Sense organ diseases*

Musculoskeletal diseases

Cancer

Other injuries**

Genitourinary diseases

Mental disorders

Digestive diseases

Skin diseases

Nutritional deficiencies

CNS disorders

Road traffic injuries

Dental and gum diseases

Non-infectious respiratory diseases

Infectious diseases

Occupational injuries

Maternal and perinatal conditions

Endocrine disorders*

Congenital anomalies

229

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227

221

216

220

210

185

205

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Today 2015 2025

Figure 3: Projected demand for hospital beds in the Gulf Cooperation Council countries by 2025 (percent)


* CAGR is compound annual growth rate.

80

110

100

100

145

160

140

Today 2025

11.9

57.3

Figure 4: Projected spending growth in the health-care market in the Gulf Cooperation Council countries by 2025 (US$ billions)


Bahrain

Kuwait

Oman

Qatar

Saudi Arabia

United Arab Emirates

GCC

Growth in demand for hospital beds across the GCCNumber of beds

Growth in demand for hospital beds by countryPercent increase required from today to 2025

CAGR*: 3.8%

CAGR*: 3.5%

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Implications for government and private health-careplayersAs GCC policymakers prepare to grapple with the challenges of this substantial rise in overall health-caredemand and costs, as well as with the challenges presentedby patients seeking better care, they are increasinglyturning to private sector for help with both provisionand financing.

Finding a private-sector solution requires changingthe GCC’s unique system of health-care delivery. In2005, GCC governments spent about US$9 billion run-ning public health-care facilities and reimbursing theircitizens for care received abroad. But the private sectorreceives no more than 25 percent of all health-carespending in the GCC.The main reason is that, whilepublic care is free, patients must pay for private treatmentthemselves. Generally, public care is free for nationals.Expatriates pay a fraction of what it actually costs thegovernment to provide care. Private facilities not reim-bursed or subsidized by the government therefore havefewer patients and lower revenues than they might oth-erwise. In one Gulf state, McKinsey experience foundthat private hospitals not affiliated with the governmentoperate at 10 to 40 percent of capacity, since patientstend to pay private providers for diagnoses and then goto a free public hospital for treatment.

Some governments have helped private providerssucceed, primarily by engaging them to manage public facilities and then reimbursing them for treatinggovernment-funded patients. In the past three years, for

instance, generous cash incentives and a guaranteednumber of public patients have been offered to top-ratedinternational teaching hospitals, such as Johns Hopkinsand the Cleveland Clinic, to get them to manage oropen new facilities.The governments’ hope is that big,branded players will create competition and raise standardsof care throughout the region. Generally, governmentstry to lure these top hospitals to take over the manage-ment of public facilities or to open up shop in the GCCin exchange for cash, including payment for a guaranteednumber of public patients.

In reality, the GCC governments need many moreprivate health-care providers, and they cannot solve theproblem by rolling out a red carpet for every single one.It is impractical to guarantee volumes of patients foreach private provider—such guarantees are costly andreduce the incentive for providers to raise their qualityand compete for patients. Since most private providerscompete with public facilities to attract patients, govern-ments must create a system in which both public andprivate health-care providers issue claims and get reim-bursed at equal prices for services rendered.To achievethis goal, a vital first step would be for governments tomove away from the current practice of writing largechecks to public health-care facilities irrespective ofpatients treated and services rendered.

Most governments acknowledge that such sweepingpolicy changes are needed, though few have beenimplemented. GCC policymakers have all hit on thesimilar solution of seeking to bring the private sector

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12

24

8

77

6

5244

12

1110

GCC 2025GCC 2006

7

Figure 5: Projected burden of cardiology in the Gulf Cooperation Council countries by 2025 (percent)


Note: The public sector currently funds approximately 75 percent of GCC health-care spending.

100% =

Others

Genitourinary disease

Digestive diseases

Maternal & perinatal diseases

Infectious diseases

Cardiovascular diseases

US$ 11.9 billions US$ 57.3 billions

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into health-care delivery in order to manage ever-greaterdemand and provide a better quality of care in a moreefficient manner. Based on our interviews and research,we categorize opportunities for local and internationalprivate players into three areas: health-care delivery,health insurance, and support services.

• Health-care delivery. The GCC governmentsincreasingly want to focus on policymaking andregulation while gradually minimizing their role inhealth-care service delivery.As such, they are seekingto encourage private provision in areas that areunderserved today, as well as to bring private playersto manage public health-care facilities.

In light of the GCC’s unusual risk-factor profile,substantial opportunity exists in primary care tobetter manage chronic diseases such as diabetes andobesity before they result in cardiovascular compli-cations. Moreover, some GCC countries are activelyseeking private-sector involvement in managingpublic primary-care facilities. In addition, the GCClacks experienced hospital management. Increasingand improving hospital services to keep pace withthe estimated rise in patient demand represents asignificant opportunity for experienced private hospital players.

For providers who wish to move forward ontheir own, our disease-demand profile for 2025indicates high demand for oncology and cardiologycare that could present significant profit opportuni-ties to private health-care providers willing to makelarger capital investments in more sophisticatedequipment. For example, although oncology willshow the fifth-highest demand increase by 2025,few facilities in the GCC are equipped to care forcancer patients. Opportunities will also presentthemselves in treatment areas where little infrastruc-ture exists today. Our research shows that physio-therapy, renal dialysis, acute rehabilitation, elderlycare, home care, occupational therapy, and speechtherapy are among the areas in which capital investment is relatively low and potential returns toprivate providers are high. Finally, outpatient surgerycenters (for example, day-cases) are likely tobecome an important mechanism for reducing theaverage length of hospital stay and increasingpatient throughput.

• Health insurance. The GCC governments currently provide the lion’s share of health-carefinancing today—approximately 75 percent.Tolessen the government burden, all GCC countrieshave recently passed, or are in the process of passing,sweeping health-care insurance legislation. Forexample, Saudi Arabia and Abu Dhabi have alreadypassed laws requiring employers to purchase privatehealth insurance for their expatriate workers.

Though no more than 10 percent of the populationof any one GCC country is covered currently, weexpect that this will quickly change.Workers coveredunder these plans can choose care at either publicor private institutions—a system that has the benefitof ensuring that public providers must learn to generate claims in order to be reimbursed by thegovernment. Once private health insurance takeshold, we expect that patient volumes for privateproviders will rapidly increase as patients are allowedto pursue reimbursed care at private institutions.

The policymakers’ objective is to move from apurely public payor system to a mixed public-privatepayor model. In this regard, all GCC countries facesimilar needs for international private payors toenter the market to provide health insurance forexpatriates today, and ultimately for nationals in the future. Depending on the country, the healthinsurance opportunity could either be to enter as a stand-alone private player, or to form a joint venture with the government to establish and manage a national payor.

• Support services. As governments focus more onpolicymaking and regulation, they are likely to turnto the private sector for help on several fronts. Suchsupport is necessary for defining the organizationfunctions of the policymaker and regulators and forsetting and enforcing minimal regulatory require-ments for providers, payors, and medical staff. Inparticular, we see an opportunity for IT providersto establish systems that report clinical quality andfinancial data at the procedure, department, andinstitutional levels, creating transparency for decisionmakers on current performance and areas forimprovement. Little to no experience exists in public health-care institutions with such systems,and so policymakers are seeking the support ofeither niche international private players or govern-ment entities in developed countries that haveestablished similar transparency systems in the past.

The experience of private players in the GCC todate, however, suggests that serious challenges exist tocapturing these opportunities, particularly during thetransition period (the next five to seven years) of thepolicy changes taking hold in the health-care sector.The main challenges to private players are fivefold:

1. guaranteeing a threshold patient volume,because of the lack of systematic channels andreferral systems in the GCC;

2. hiring, training, and retaining a sufficient caliberof clinical staff, because of the high share ofexpatriate doctors and nurses in the GCC;

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3. agreeing on adequate reimbursement from payors (governments, insurance companies, andindividuals), because of the lack of clear pricingsystems, free public care for citizens, and com-plex contracting rules between government andprivate players;

4. differentiating from competitors in an environ-ment where quality standards are not transparentto patients; and

5. contracting with government to manage publicfacilities.

Government plays a critical role in facilitating thesechallenges and facilitating the development of privatesector.

1. Patient threshold volumePatient threshold volume is important for two reasons:first, to ensure viable economics, particularly for inter-ventions requiring high levels of capital equipment (forexample, heart surgery). Second, the outcomes of manyprocedures are correlated to volumes—simply, the moreof a particular type of procedure a surgeon carries out,the better the outcomes.At present, many private hospi-tals in the Gulf simply do not have the volumes to carryout more complicated procedures.This is the result oftwo factors: a lack of referral networks and crowdingout by the public sector.

Primary care throughout the region is almostexclusively the domain of governments.Although thesuccess of systematized health-care delivery in the areaof primary care varies from country to country, in nocountry has a private model of care based on generalpractice taken off.Thus patients going private do so inorder to go directly to a specialist in whichever clinicalarea they feel necessary.As such, no one physician trulyowns the patient relationship. Private providers enteringthis space will need to catalyze the creation of a high-quality primary-care network in order to capturepatients, whether through direct delivery of primarycare or by working with existing specialists to createnetworks.An alternative model would be to follow themodel adopted by a few private players in the region tointegrate primary care into their hospitals.

Crowding out by the public sector is particularlyacute for more specialist procedures, as few are able orwilling to pay for such procedures.Those that can currently tend to leave the region for treatment atAmerican, European, or Singaporean centers of excel-lence.The current trend of government-supportedbrand name centers of care in the Gulf—such as theTeaching Hospital in Qatar supported by Cornell, orJohns Hopkins’ collaboration with the Emirate of AbuDhabi in cancer at Tawam—will probably make itincreasingly difficult for lesser-known private names todistinguish themselves. However, the current trend away

from government delivery of services to governmentalpayment for services will begin to create a more levelplaying field for private providers alongside existing governmental providers.

2. Clinical staffAt present, the GCC is unable to produce sufficientnumbers of clinical staff to provide health care for itspopulation.As a result, foreign workers can comprise upto 80 percent of physicians in some countries (Figure6). Existing medical education is now being extendedand strengthened by collaboration with European andUS medical schools, such as Cornell’s undergraduatemedical education program in Qatar and the RoyalCollege of Surgeons of Ireland’s postgraduate facilities inBahrain. But the numbers of new medical graduatesbecoming available in the foreseeable future will notkeep pace with the GCC’s population increase. Hencereliance on imported physicians and nurses will continuefor some time to come.

Such large-scale importation of staff poses two chal-lenges. First, private providers will need to meld togeth-er staff from very different cultures, with differing med-ical practices and approaches to patient care. Second, theGCC is viewed by few of these staff as a permanenthome, leading to high turnover rates. Staff from devel-oping countries—for example, the Philippines andIndia—view the GCC as a stepping stone to morelucrative careers in the West, whereas many staff fromthe West view a tour of service in the Gulf as an oppor-tunity to save funds before returning home. Meetingthese challenges will require creating a strong ethoswithin the provider to make it capable of absorbingnewcomers on a regular basis.

Private providers can help to make nursing andother medical professions more attractive to local stu-dents by creating professionally and financially rewardingcareer paths for clinicians who stay in the region. Bettersalaries, substantial investments in professional trainingand development (such as residencies), and more flexiblecareers made possible by a greater degree of private-sec-tor participation in the health-care system should allhelp to attract GCC nationals.

For their part, policymakers must find ways to enlistmore nationals in the medical profession. GCC govern-ments have had difficulty doing this in the past, particu-larly in nursing, since many nationals consider it ademeaning profession. However, given the increasingunemployment rates for nationals in the region, it istime to reconsider the attractiveness of the health-careprofession to nationals.An estimated 42 percent of theGCC’s local population is currently under the age of 15and will soon be looking for jobs.Although the publicsector has historically employed up to 90 percent of theGCC national workforce, its ability to do so movingforward is limited. Given the high demand growth ofthe health-care sector—and therefore the increasing

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need for professionals, particularly nurses—policymakersshould explore investing in creating vocational trainingprograms for nurses and allied staff and should partnerwith relevant international training providers.

3. Reimbursement systemAs governments fashion their new health-care systems,they will make drastic changes in insurance requirementsand eligibility for both nationals and expatriate workers.In the next five to ten years, these governments willlikely design basic health benefit packages and providethem free of charge to all nationals. In most GCCcountries, the law now requires companies to providebasic health-care benefits (including insurance) for theirexpatriate workers, who account for 40 to 80 percent ofGCC populations (depending on the state). Until recently,expatriates enjoyed virtually free access to public healthcare, which accounted for as much as 20 percent of itstotal cost.

Because these expatriates have relatively low incomesand governments strictly regulate premiums to makethem affordable, insurers competing for market sharewill likely lose money on basic benefit packages for thispopulation. Unless private insurers have the exclusiveright to sell their benefit packages in certain states orregions of the GCC, they’re unlikely to reach the vol-ume necessary to turn a profit.

For nationals and the more affluent expatriates,changed insurance and eligibility requirements shouldopen up more opportunities for international healthinsurers.To give one example, we expect competition to

thrive in the premium-benefit market, which servesnationals and expatriates who want coverage for servicesexcluded from basic packages. Premium policies fordental care or elective plastic surgery or for insurancethat covers high-end hotel-style services for the affluentwill always be in demand.We estimate that the marketpenetration of these premium benefit packages, sold at agood profit margin, could reach 4 to 5 percent of theGCC’s population.

Further opportunities for international payors willarise from the governments’ lack of experience and skillsto build and run complex health insurance businesses.Government administrators will need experiencedinsurers to process and validate claims, to teach providersto issue claims, and to reimburse them. Governmentshave two choices until they can effectively transfer thenecessary skills to local businesses: they can partner withhealth insurance companies or temporarily outsourcesome key functions (such as claims processing and man-agement) to international companies that specialize insettling claims. In the Gulf, few people have experienceor skills at the point where health care and financeintersect. For governments and the insurance companiesthey work with, the biggest challenge will therefore beto find qualified professionals to build and run complexhealth insurance businesses in the region.

To gain the best competitive position, internationalhealth insurers and companies that specialize in managingclaims must attempt to generate a critical mass of businessby striking deals with governments in more than oneGCC state. Building more volume by entering several

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Figure 6: Source of human resources in the health-care sector, 2001–02

Source: GCC ministries of health.* 2003

Bahrain*

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Saudi Arabia*

UAE

GCC

Expatriate physicians Percent of total

Expatriate nurses Percent of total

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states and regions of the GCC helps insurers from botha financial and a talent management perspective, sincethey need to justify their investments and deploy scarcetalent. By bringing senior, experienced people into theregion and making a commitment to coach, train, andtransfer knowledge to locals, the payors can make them-selves much more attractive to governments searchingfor partners.

For many payors, a winning approach might startwith offering an experienced expatriate team an oppor-tunity to lead the majority of all claims-managementactivity. Over 10 or so years, coaching and training pro-grams in which locals shadow the expatriates couldmake it possible for governments to manage the businessthemselves.At that point, though locals would staff theadministration, the international insurer could continueto own and oversee the claims-management business.Whether or not the insurer did so, these arrangementsmight be quite lucrative. GCC governments often paybig money to insurers for hiring and training locals.Over this initial training period, insurers could expect toearn profit margins of up to 5 percent or more on basichealth benefit plans for nationals—far above what canbe expected from competing in open markets.

For governments to encourage the development ofsuch a payor system, they must require all health-careproviders, public or private, to gather and report accuratedata on their costs and services. Given the current lackof robust data on costs, public health-care systems mustembark on long-term efforts to achieve transparency.Governments must also invest substantial sums in IT systems to collect cost data and use these data to informdecisions on reimbursement levels for both public andprivate providers.

4. Quality standardsToday, GCC patients make their private health-caredecisions based on word of mouth, advertising, and thephysical external appearance of the institution. Qualitystandards of providers are neither transparent nor under-stood by patients, thus high-quality providers can struggleto distinguish themselves in the market. Even worse,patient safety can be compromised by the lack of effective regulation of the health-care sector.

Policymakers will have to undertake comprehensiveregulatory reform in order to weed out low-qualityproviders and protect patients. Currently, to the extentthat standards exist, they apply to the private sector onlyand are not applied to public health-care institutions.Moreover, the content of the standards, and theirenforcement, tends to be weak and haphazard.

In order to raise the quality level of the health-caresector and to allow competent private players to thrive,policymakers must create regulatory bodies that willdefine a set of comprehensive operational quality andfacility standards for all public and private providers.Thisbody would be responsible for licensing, inspecting, and

enforcing these standards. Because this regulatory bodymust equally apply and enforce standards to public andprivate health-care institutions, it should ideally be independent of the ministry of health. In addition, thisregulatory body would also be responsible for thelicensing and renewal of medical professionals such asdoctors, nurses, and allied staff.Although processes doexist today in GCC countries for this function, theytend to suffer from two problems. First, they can be verybureaucratic and take a long time, resulting in providerslosing their ability to attract clinical staff from overseas.Second, the criteria for licensure and renewal can beweak when compared with international best practice,resulting in substandard professionals practicing medicine.

In small GCC states, regulatory bodies may alsochoose to guide the strategic capital investments ofproviders (regardless of ownership). Because a criticalthreshold of patient volume is required for specialtyservices in order to maintain quality, it is important thatinvestment in these specialities is carefully monitored soas to prevent excess supply relative to case volume (andtherefore a decline in quality).A regulator has theunique ability to manage capacity in these services bydeciding whether to grant a provider a license. Conversely,it can encourage providers to offer services in areas withthe greatest unmet needs, such as the management ofprimary-care facilities and hospitals, long-term care,rehabilitation, and dialysis.

In short, by establishing a strong regulatory body todefine and firmly enforce higher-quality standards forhealth-care providers and medical professionals, policy-makers will build the confidence of patients in the quality of health care, no matter who provides it.

5. Contracting with private providersHospital and primary-care management skills are inshort supply in the GCC. If private institutions have thepatience to wade through the bidding process, many canprosper in the Gulf by managing public hospitals andprimary-care facilities as well as laboratories and phar-macies. Depending on the deal structure, these privateplayers can earn substantial cash incentives by meetingperformance targets for clinical outcomes and care standards.

In one GCC state, the government holds an auctionwhen it wants to contract with the private sector.Theprocess starts with a hospital’s current budget, and privatecompanies are invited to bid on how much less fundingthey could accept while still meeting specified qualityand service standards.Another government is currentlyaccepting bids for managing its secondary-care hospitals.That contract would give the winning partner totaloperational freedom but also full accountability for itsperformance, as well as a budget that’s only 90 percentof the hospitals’ current level of government-issuedblock funding. Given similar constraints, a few private

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players have managed public hospitals much more effectively and efficiently than governments do.

For private management of public health-care facilities to become a more widespread reality, govern-ments must improve the way they contract with privateplayers.Too many private players are thwarted in theirattempts to take over the management of public facilities,simply because government agencies lack the managerialskills and the data needed to structure deals. Governmentsregularly send out tenders, but though many providersrespond with bids, their questions (for example, aboutguaranteed patient volumes or prices for services) areseldom answered. Governments may not have consideredthe goals of an outsourcing effort, and the data may notbe available.These unanswered questions have generateda high level of frustration among international health-care providers, and very few contracts have been signed.

Governments will struggle to find the answers tothese detailed questions until new reimbursementschemes and more transparent data systems are in place.However, they can immediately increase their chances ofattracting more private health-care entities by adoptingclear strategies. In short, governments must know exactlywhat they want from their partners, establish a clearprocess and timeline, and have competent, well-informedpeople available to answer questions about the bids.

ConclusionHealth-care demand and spending are rising sharply inthe GCC. Policymakers want the private sector to play abigger role in their health-care systems, in both the pro-vision and the financing of care.To promote the privatesector’s involvement, GCC governments must makemajor regulatory and policy changes—above all, usingpublic funds to reimburse nationals for the privatehealth-care services they consume, and defining andenforcing a single set of quality standards for both publicand private providers.To have the best chance of success,private providers will need to decide whether to enterinto government contracts to manage public facilities orto run their own facilities.The private payors most like-ly to succeed will build volume by competing in morethan one GCC state.

Notes1 See WHO (2006).

2 McKinsey analysis based on Global Insight data.

ReferencesWHO (World Health Organization). 2006. World Health Report 2006:

Working Together for Health. Geneva: WHO. Available atwww.who.int/whr/2006/en/index.html.

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CHAPTER 2.2

Assessing Travel & TourismCompetitiveness in the ArabWorldJENNIFER BLANKE, World Economic Forum

IRENE MIA, World Economic Forum

There is a growing consensus among policymakers andanalysts that a very effective means by which Arabcountries can achieve sustainable growth is the promo-tion of trade in services.The Arab world largely missedout on the surge in global trade and investment experi-enced by developing nations during the 1980s and1990s, and, to date, the region’s integration in worldtrade remains low. By modernizing key services such as transport, telecommunications, power, and financialservices, countries in the region can tap into the grow-ing global trade in services, the fastest-growing area of international trade.

In this regard,Travel and Tourism (T&T) hasbecome an important focal point for policymakers inthe Arab world. Over the past several decades, the T&Tsector has risen significantly worldwide, becoming animportant driver of growth and employment. In 1950,international tourism arrivals totaled 25.3 million; thishad grown to 806.8 million by 2005, a nearly 32-foldincrease.

Many countries in the Arab region have a naturalcompetitive advantage in the T&T sector.The manycultural heritage sites, natural beauty, and warm climatemake it an attractive destination for tourists from aroundthe world. Furthermore, its strategic location betweenAsia and Europe provides a natural stopover point forinternational travelers and transport vessels.T&T servicesin the Middle East and North Africa promise to be amajor driver of regional economies in the future.

Travel & Tourism in the Arab regionThe T&T industry has taken on a growing importancein the Arab world, which has experienced a significantincrease in tourism over the past decade.According tothe World Tourism Organization (UNWTO), theMiddle East’s average annual increase in tourist arrivalsbetween 2000 and 2004 was 9.5 percent, the fastestgrowth of any region and comparable with worldwideT&T growth of 2.7 percent during the same period.1

Importantly, the T&T sector in the Arab world has provenresilient to regional conflict and security concerns. Mostrecently, the Israel-Lebanon conflict of 2006 saw thetourism industry rebound rapidly after a short-liveddecline. Similarly, although the United States experienceda significant decline in tourism following September 11,2001, this was not the case in the Arab world.Tourismremained strong due in large part to an increase inintraregional tourism.2

Table 1a provides a historical perspective of theindustry’s growth in the region over the past decade,showing the evolution of international tourist arrivalsand receipts between 1995 and 2005.The table showsthe impressive growth in tourism over the decade.Arrivals more than doubled over the period. Specifically,countries such as Algeria, Egypt, Libya, and Saudi Arabiasaw a tripling of arrivals and the increase was even more

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impressive in countries such Oman, Syria, and Yemen(albeit in these three cases rising from a low level). Inparallel with the arrivals, tourism receipts have alsodeveloped positively, especially in Bahrain, Morocco, andthe United Arab Emirates, and even more strikingly inAlgeria, Libya, and Yemen.

The T&T sector is now an important employer inmany Arab countries, providing many jobs particularlyin the countries of North Africa, Bahrain, Jordan, andSyria.At the regional level, the World Travel & TourismCouncil (WTTC) estimates that the T&T sectoraccounts for 3.7 percent of total employment in theMiddle East and 6.3 percent of total employment inNorth Africa. Both of these figures are expected to risein the coming decade.3

Table 1b provides information on employment andGDP generated by the T&T industry in 2006 as well asforecasts for these indicators over the coming decade.The table shows that the T&T industry is an importantemployer in many countries, especially in Bahrain,Jordan, Morocco and Tunisia.The sector’s contributionto employment creation is expected to increase in com-ing years, particularly in countries that are starting froma low base. In more than half of the countries the pre-dicted rate of employment creation lies above the overallemployment growth in the MENA region between2000 and 2005, which averaged 4.0 percent (see Chapter1.3 by Dyer and Yousef in this volume).The table alsoshows the importance of the T&T industry for econom-ic activity, especially in countries such as Bahrain, Egypt,Jordan, Morocco and Tunisia.As the forecast numbersshow it is expected to contribute increasingly to overallGDP in coming years across the region.

Despite the excellent growth numbers and the pos-itive outlook, there remains significant untapped poten-tial, given the extraordinary growth in world tourismover the same period. In 1990, the Middle East’s 9.6million arrivals accounted for just 2.2 percent of inter-national tourist arrivals. In the same year, tourist arrivalsin all of Africa, including North Africa, were just 15.2million.4 Today,Travel & Tourism in the Arab world stillaccounts for only about 6 percent of internationaltourist arrivals showing the growth opportunities thatremain for the sector.

The potential for Travel & Tourism in the regionshould not be underestimated.Within the Arab world,the T&T industry helps to reduce dependency on oilrevenues and attracts foreign currency while providingemployment opportunities and lowering unemployment.In this context, it is not surprising that many governmentsin the region have recognized the importance of Travel& Tourism for diversifying and growing their economiesand have placed the T&T sector increasingly at the centerof regional policymaking.This has led many of them topursue tourism-friendly strategies, such as improvementsin border facilities and an easing of visa requirements.Many countries have embarked on important destination-

marketing and promotion campaigns in an effort to better communicate to potential travelers their traditionalattributes and emerging offerings. In these efforts,Arabpolicymakers have increasingly targeted new markets,particularly in Asia and “untapped” parts of Europe.5

The increasing importance of the T&T sector inthe region has been accompanied by significant levels ofprivate and public investment in tourism-related infra-structure in recent years, including accommodation,transportation, theme parks, and resorts.This investmenthas been facilitated in many countries, particularly inthe Gulf, by sustained high oil prices.6 The air transportinfrastructure in the Middle East is developing rapidly—the number of passengers increased fourfold between1999 and 2005.To support this demand, airlines areplacing substantial aircraft orders, adopting modernreservation and commercial technologies, and investingheavily in primary and secondary airports.7

Overall, it is estimated that capital investment inTravel & Tourism–related infrastructure accounts formore than 10 percent of total investment in the Arabworld.8 As well as supporting T&T development, manyof the infrastructure improvements resulting from thisinvestment will have important spillover effects, improv-ing overall productivity and economic competitiveness.Given the importance of T&T investment for the Arabworld, and the related strategies that many countrieshave adopted to develop the industry’s potential, ananalysis of the factors and policies driving the sector’scompetitiveness is highly relevant.This chapter intendsto provide such an analysis, focusing on results from therecently launched Travel & Tourism CompetitivenessIndex.

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Table 1a: Selected Travel & Tourism indicators for Arab world countries: Tourist arrivals and tourismreciepts

International tourist International tourismarrivals (thousands) receipts (US$ millions)

Country 1995 2005 1995 2005

Algeria 520 1,443 33 178*Bahrain 1,396 3,914 247 920Egypt 2,871 8,244 2,684 6,851Jordan 1,075 2,987 660 1,441Kuwait 72 91* 121 164Lebanon 450 1,140 n/a n/aLibya 56 149* 2 218*Mauritania n/a n/a 11 n/aMorocco 2,602 5,843 1,296 4,617Oman 279 1195* n/a 481Qatar 309 732* n/a 760Saudi Arabia 3,325 9,100 n/a 6,111Syria 815 3,368 1,258 2,175Tunisia 4,120 6,378 1,530 2,063United Arab Emirates 2,315 5871** 632 2,200Yemen 61 336 50 262

Source: UNWTO, various years.*2004**2003

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The Travel & Tourism Competitiveness IndexThe World Economic Forum launched the first Travel &Tourism Competitiveness Index (TTCI) in March 2007.The TTCI aims to measure the factors and policies thatmake it attractive to develop the T&T sector in differentcountries.The goal of the Index is twofold. First, byproviding a cross-country analysis of the drivers ofT&T competitiveness, the study provides the industrywith useful comparative information and an importantbenchmarking tool for making decisions related to business and industry development. Second and moreimportantly, the analysis provides an opportunity for theT&T industry to highlight to national policymakers theobstacles to T&T competitiveness that require policyattention, enabling dialogue between the private andpublic sectors about improving the T&T environment at the national level.9

The TTCI measures the T&T competitiveness of124 economies covering all the world’s regions. It isbased on three broad categories of variables that facilitateor drive T&T competitiveness.These categories aresummarized into the three subindexes: (1) the T&T regulatory framework subindex, (2) the T&T businessenvironment and infrastructure subindex, and (3) theT&T human, cultural, and natural resources subindex.The first subindex captures those elements that are policy-related and generally under the purview of thegovernment, the second subindex captures elements ofthe business environment and the “hard” infrastructureof each economy, and the third subindex captures the“softer” human and cultural elements of each country’sresource endowments.

In turn, each of these three subindexes is composedof a number of “pillars” of T&T competitiveness, ofwhich there are 13 in all.These are:

1. Policy rules and regulations2. Environmental regulation3. Safety and security4. Health and hygiene5. Prioritization of Travel & Tourism6. Air transport infrastructure7. Ground transport infrastructure8. Tourism infrastructure9. ICT infrastructure

10. Price competitiveness in the T&T industry11. Human resources12. National tourism perception13. Natural and cultural resources

Figure 1 summarizes the structure of the overallIndex, showing how the 13 component pillars are allocated within the three subindexes.

Each of the pillars is, in turn, made up of a numberof individual variables.The underlying dataset includesboth hard data and Survey data from the WorldEconomic Forum’s annual Executive Opinion Survey.The hard data were obtained from publicly availablesources, international T&T institutions, and T&T experts(for example, IATA, the International Civil AviationOrganization, UNWTO,WTTC, and UNESCO).TheSurvey is carried out among CEOs and top businessleaders in all of the economies covered by our research.Since these are the people making the investment

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Table 1b: Selected Travel & Tourism indicators for Arab world countries: Travel & Tourism industry employment and GDP

T&T industry employment T&T industry GDP

Annual growth Annual growth Jobs (thousands) Percent of total in percent In US$ millions Percent of total in percent

Country 2006 estimates 2006 estimates 2007–16 (forecast) 2006 estimates 2006 estimates 2007–16 (forecast)

Algeria 121 1.4 5.2 1,581 1.5 7.0Bahrain 38 11.0 3.8 1,137 8.3 5.8Egypt 1,313 6.7 1.8 8,374 7.9 5.0Jordan 147 8.7 2.6 1,250 9.2 4.2Kuwait 22 1.9 7.0 923 1.3 5.9Lebanon 52 3.1 5.5 690 3.0 6.7Libya 50 3.5 4.1 1,092 2.5 7.4Mauritania n/a n/a n/a n/a n/a n/aMorocco 1,036 8.8 3.3 5,601 10.1 4.6Oman 28 3.6 4.3 723 2.6 5.1Qatar 7 2.0 2.8 524 1.4 5.2Saudi Arabia 90 2.8 3.9 6,805 2.0 4.1Syria 417 7.3 5.1 1,556 6.4 3.9Tunisia 271 9.0 2.2 2,760 9.2 4.7United Arab Emirates 40 1.6 5.3 1,483 1.1 8.7Yemen 85 1.5 4.9 308 1.8 4.6

Source: WTTC, 2006c.

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decisions in their respective economies, the Survey pro-vides unique data on many qualitative institutional andbusiness environment issues.

The overall score for each country is derived as anunweighted average of the three subindexes.The detailsof the specific variables included in the TTCI are shownin the appendix to this chapter. For further details onthe construction and composition of the Index, seeChapter 1.1 in The Travel & Tourism CompetitivenessReport 2007.

The TTCI 2007 results for the Arab world: A regionalsnapshotTables 2, 3, 4, and 5 show the rankings and scores of the10 Arab countries included in this year’s assessment(based on data availability).They include Algeria, Bahrain,Egypt, Jordan, Kuwait, Mauritania, Morocco, Qatar,Tunisia, and the United Arab Emirates (UAE). Scores areon a scale of 1 to 7, with higher scores reflectingstronger performance. For comparison, we also includethe top performers from each region, as well as a num-ber of countries that offer interesting comparisons forthe region because of size or development level.Thesecomparisons provide an international context to theregional ranking.10

Table 6 displays the best performer in the regionfor each of the 13 pillars composing the TTCI. For ref-erence, the last line of the table shows the global leaderin each pillar out of all 124 economies covered.

The regional picture emerging from these results israther mixed, reflecting heterogeneous T&T performances.

These range from the world-class T&T competitivenessof the top regional performer, the United Arab Emirates(18th), to the much weaker performances of Mauritania(92nd) and Algeria (93rd).The remaining Arab worldcountries are scattered between these extremes. It isworth noting how the T&T industry impacts the differ-ent economies in the region in different ways, as shownin Tables 1a and 1b. For example, annual internationaltourist arrivals differ significantly from country to coun-try, from the large numbers entering Saudi Arabia (9.1million) and Egypt (8.2 million) to the much fewerarrivals for smaller countries such as Qatar (732 thou-sand) and Kuwait (91 thousand). Similarly, the industry’scontribution to national GDP varies from 9 to 10 per-cent in the cases of Jordan, Morocco, and Tunisia, to aslow as 1 to 1.5 percent in the cases of Algeria, Kuwait,Qatar, and the United Arab Emirates. Likewise, the T&Tindustry has a varied impact on national levels ofemployment, accounting for nearly 10 percent of totalemployment in countries such as Bahrain and Tunisia toaround 1.5 percent for Algeria and the United ArabEmirates.

Moreover,Table 6 allows for some interesting cross-regional analysis at the pillar level. Starting withthe T&T regulatory framework, the region has an overallaverage ranking of 69.4, but individual countries presentrather diverse performances. Jordan (29th) and, to a certain extent,Tunisia (42nd) and Morocco (48th) havepolicy rules and regulations that are quite conducive toT&T industry development, including visa requirementsthat are not very restrictive, policies that encourage

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Figure 1: Composition of the three subindexes of the Travel & Tourism Competitiveness Index

Subindex A:T&T regulatory framework

Health and hygiene

Safety and security

Environmental regulation

Policy rules and regulations

Prioritization of Travel & Tourism

Subindex B: T&T business environment

and infrastructure

ICT infrastructure

Tourism infrastructure

Ground transport infrastructure

Air transport infrastructure

Price competitiveness in the T&T industry

Subindex C: T&T human, cultural, and

natural resources

Human resources

National tourism perception

Natural and culturalresources

Travel & Tourism Competitiveness Index

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Table 2. The Travel & Tourism Competitiveness Index 2007: Arab world and selected comparators

SUBINDEXES

Business environment Human, cultural, OVERALL INDEX Regulatory framework and infrastructure and natural resources

Country/Economy Rank Score Rank Score Rank Score Rank Score

Switzerland 1 5.66 2 5.80 2 5.36 2 5.81Hong Kong SAR 6 5.33 4 5.75 14 4.81 14 5.44France 12 5.23 13 5.34 5 5.10 28 5.27Spain 15 5.18 25 5.15 7 5.05 19 5.34United Arab Emirates 18 5.09 18 5.28 19 4.68 24 5.31Cyprus 20 5.07 29 5.09 23 4.50 3 5.62Estonia 28 4.90 32 5.07 25 4.45 34 5.18Barbados 29 4.86 31 5.08 36 4.14 17 5.38Malaysia 31 4.80 27 5.12 27 4.44 57 4.84Israel 32 4.80 36 4.93 33 4.28 35 5.18Tunisia 34 4.76 12 5.34 47 3.77 37 5.15Qatar 36 4.71 34 5.04 39 4.10 49 4.99Croatia 38 4.66 58 4.37 40 4.06 11 5.55Mauritius 39 4.63 35 4.96 46 3.77 39 5.15Costa Rica 41 4.60 39 4.80 52 3.66 20 5.34Jordan 46 4.52 30 5.09 54 3.65 58 4.82Bahrain 47 4.45 61 4.24 34 4.24 54 4.86Turkey 52 4.32 53 4.45 63 3.49 48 5.00Morocco 57 4.27 47 4.60 72 3.27 52 4.93Egypt 58 4.24 50 4.52 60 3.51 68 4.70South Africa 62 4.18 59 4.35 44 3.81 96 4.37Kuwait 67 4.08 71 4.07 50 3.71 86 4.46Mauritania 92 3.71 95 3.68 97 2.80 74 4.67Algeria 93 3.67 89 3.81 93 2.82 97 4.37

Table 3. The Travel & Tourism Competitiveness Index 2007: Regulatory framework subindex

PILLARS

Regulatory Policy rules Environmental Safety Health Prioritizationframework and regulations regulation and security and hygiene of Travel & Tourism

Country/Economy Rank Score Rank Score Rank Score Rank Score Rank Score Rank Score

Algeria 89 3.81 113 3.37 82 3.66 74 4.18 53 4.91 109 2.92Bahrain 61 4.24 62 4.71 77 3.74 61 4.55 61 4.76 81 3.46Barbados 31 5.08 27 5.24 42 4.43 35 5.13 42 5.40 11 5.19Costa Rica 39 4.80 17 5.40 35 4.63 67 4.40 50 5.05 34 4.54Croatia 58 4.37 72 4.55 52 4.26 63 4.54 66 4.59 57 3.89Cyprus 29 5.09 49 4.87 53 4.26 34 5.17 36 5.69 4 5.49Egypt 50 4.52 69 4.59 75 3.79 64 4.54 69 4.50 12 5.18Estonia 32 5.07 47 4.92 32 4.78 28 5.25 30 5.75 28 4.67France 13 5.34 40 5.00 15 5.50 29 5.22 9 6.27 27 4.69Hong Kong SAR 4 5.75 2 5.76 24 5.11 6 6.07 1 6.62 13 5.18Israel 36 4.93 30 5.18 30 4.86 69 4.34 7 6.31 53 3.93Jordan 30 5.09 29 5.18 56 4.21 19 5.53 41 5.41 17 5.10Kuwait 71 4.07 100 3.69 96 3.35 22 5.38 37 5.67 120 2.28Malaysia 27 5.12 26 5.25 20 5.31 26 5.30 62 4.75 21 4.98Mauritania 95 3.68 112 3.38 98 3.34 54 4.71 115 3.05 55 3.90Mauritius 35 4.96 63 4.67 34 4.67 40 4.95 46 5.25 9 5.24Morocco 47 4.60 48 4.90 64 3.97 43 4.88 81 4.11 15 5.16Qatar 34 5.04 65 4.66 29 4.89 17 5.61 24 5.88 40 4.17South Africa 59 4.35 46 4.94 28 4.97 95 3.77 82 4.10 51 3.99Spain 25 5.15 45 4.95 40 4.51 46 4.84 21 5.93 3 5.54Switzerland 2 5.80 21 5.33 4 6.04 5 6.08 8 6.29 8 5.28Tunisia 12 5.34 42 4.98 16 5.47 14 5.64 52 5.02 1 5.59Turkey 53 4.45 51 4.82 61 4.04 56 4.61 54 4.90 54 3.91United Arab Emirates 18 5.28 54 4.78 25 5.07 10 5.83 25 5.84 23 4.85

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Table 4. The Travel & Tourism Competitiveness Index 2007: Business environment and infrastructure subindex

PILLARS

Business environment Air transport Ground transport Tourism ICT Price competitiveness and infrastructure infrastructure infrastructure infrastructure infrastructure in T&T industry

Country/Economy Rank Score Rank Score Rank Score Rank Score Rank Score Rank Score

Algeria 93 2.82 101 2.25 78 3.00 114 1.69 118 1.63 9 5.52Bahrain 34 4.24 27 3.95 39 4.21 31 4.18 52 3.00 3 5.84Barbados 36 4.14 53 3.22 41 4.14 42 3.78 25 4.62 33 4.93Costa Rica 52 3.66 44 3.49 93 2.59 36 4.10 45 3.32 42 4.83Croatia 40 4.06 80 2.71 46 3.98 11 5.73 34 3.79 96 4.09Cyprus 23 4.50 34 3.83 51 3.84 5 6.10 31 4.26 72 4.48Egypt 60 3.51 49 3.35 58 3.73 85 2.39 74 2.39 5 5.68Estonia 25 4.45 56 3.17 31 4.48 21 4.84 19 4.86 34 4.92France 5 5.10 4 5.45 4 6.44 15 5.40 21 4.83 118 3.35Hong Kong SAR 14 4.81 12 4.83 2 6.46 70 2.79 16 4.98 31 4.98Israel 33 4.28 40 3.59 24 4.94 41 3.79 23 4.78 78 4.32Jordan 54 3.65 67 2.88 47 3.95 49 3.56 72 2.44 12 5.42Kuwait 50 3.71 62 3.06 43 4.02 52 3.49 53 2.98 29 5.01Malaysia 27 4.44 31 3.91 15 5.58 60 3.14 37 3.69 2 5.89Mauritania 97 2.80 111 2.03 99 2.47 72 2.71 96 1.90 38 4.88Mauritius 46 3.77 60 3.12 53 3.79 38 3.99 59 2.75 20 5.23Morocco 72 3.27 83 2.66 54 3.78 62 3.11 92 2.02 46 4.76Qatar 39 4.10 29 3.93 48 3.94 26 4.40 49 3.12 25 5.12South Africa 44 3.81 30 3.92 35 4.34 48 3.58 70 2.46 48 4.74Spain 7 5.05 7 5.17 18 5.42 2 6.80 32 3.93 105 3.93Switzerland 2 5.36 9 4.97 5 6.36 4 6.48 9 5.54 115 3.46Tunisia 47 3.77 78 2.74 27 4.78 45 3.70 69 2.46 23 5.17Turkey 63 3.49 51 3.34 59 3.66 55 3.30 54 2.95 86 4.21United Arab Emirates 19 4.68 8 5.05 26 4.82 24 4.47 42 3.53 8 5.53

Table 5. The Travel & Tourism Competitiveness Index 2007: Human, cultural, and natural resources subindex

PILLARS

Human, cultural, National Naturaland natural resources Human resources tourism perception and cultural resources

Country/Economy Rank Score Rank Score Rank Score Rank Score

Algeria 97 4.37 86 4.82 114 4.01 65 4.28Bahrain 54 4.86 79 4.94 36 5.37 66 4.27Barbados 17 5.38 42 5.32 2 6.56 68 4.25Costa Rica 20 5.34 28 5.49 39 5.30 28 5.22Croatia 11 5.55 54 5.22 4 6.52 36 4.90Cyprus 3 5.62 49 5.24 5 6.48 31 5.15Egypt 68 4.70 69 5.06 85 4.55 55 4.49Estonia 34 5.18 30 5.45 31 5.54 49 4.54France 28 5.27 32 5.42 96 4.42 9 5.95Hong Kong SAR 14 5.44 7 5.93 27 5.60 39 4.78Israel 35 5.18 13 5.69 78 4.61 27 5.23Jordan 58 4.82 63 5.13 34 5.51 86 3.83Kuwait 86 4.46 16 5.64 117 3.94 89 3.80Malaysia 57 4.84 34 5.38 26 5.64 101 3.52Mauritania 74 4.67 101 4.19 1 6.58 110 3.23Mauritius 39 5.15 89 4.80 14 6.10 50 4.54Morocco 52 4.93 72 5.04 45 5.24 52 4.50Qatar 49 4.99 19 5.60 41 5.28 75 4.08South Africa 96 4.37 111 3.64 56 5.08 59 4.40Spain 19 5.34 45 5.30 55 5.09 17 5.62Switzerland 2 5.81 1 6.25 62 4.88 6 6.30Tunisia 37 5.15 22 5.54 50 5.17 40 4.75Turkey 48 5.00 65 5.09 43 5.28 47 4.63United Arab Emirates 24 5.31 29 5.47 3 6.53 80 3.92

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FDI and foreign ownership, and open bilateral air serviceagreements. On the other hand,Algeria (113th),Mauritania (112th), and Kuwait (100th) maintain regulations that are among the least Travel & Tourismfriendly of all countries assessed.

In the related issue of environmental regulations, theArab world as a whole registers an average ranking of61.8. Countries such as Tunisia (16th), the United ArabEmirates (25th), and Qatar (29th) have strong levels ofenvironmental protection and are prioritizing the sus-tainable development of the T&T industry.The rest ofthe countries are distributed rather uniformly betweenthe 64th rank of Morocco and the 98th rank ofMauritania.This suggests that although sustainable tourismis increasingly finding its place in the policy agendas ofcountries in the region, it does not yet seem to be a pri-ority for some, such as Algeria (82nd), Kuwait (96th), orMauritania (98th).

The region ranks well with regard to the safety andsecurity environment (a regional average rank of 37.8, thesecond best among the 13 pillars). Indeed, 7 out of the10 countries covered are in the top half of the ranking,with the United Arab Emirates (10th),Tunisia (14th),Qatar (17th), and Jordan (19th) having achieved safetyand security levels that are among the best in the world.In particular, a number of Arab world countries standout for their efficient and reliable police services, thenegligible business cost of crime and violence, and, insome cases, the low or moderate terrorism risk.Thisreflects the effectiveness of efforts made by some gov-ernments and national actors throughout the region tocombat terrorism and increase levels of security.

With an average ranking of 55.8, regional health andhygiene standards show some margin for improvement.Aside from Qatar (24th), the United Arab Emirates

(25th), and, to a certain extent, Kuwait (37th), manycountries in the region are characterized by limitedaccess to improved drinking water and sanitation and bya rather low physician density. Mauritania, ranked 115th,lags way behind the second-worst performer, Morocco(81st). Improving the regional health and hygiene levelsmust be considered a priority to increase the region’sT&T competitiveness.

With regard to the prioritization of the T&T sector,the overall regional ranking of 47.3 conceals a largevariety in country-specific policies and achievements.Outcomes range from that of Tunisia—ranked 1st out of all 124 countries due to its effective, targeted destination-marketing strategies—to Kuwait, which at120th seems to attach little priority to the T&T sectorin its national agenda. Predictably, the largest tourist destinations in the region, Egypt and Morocco, rankquite highly in this category, at 12th and 15th respectively.They are followed by Jordan (17th) and the United ArabEmirates (23rd).The high rankings of these countriesdemonstrate that there are strong regional examples to beemulated by those countries lagging behind in this area.

Looking at the four pillars assessing the state ofT&T infrastructure in the region, the average rankingsare somewhat mediocre (61.5, 51.9, 56.0, and 71.7 forair transport, ground transport, tourism, and ICT infra-structure respectively). In terms of quality of the airtransport infrastructure, there seems to be a clear dividebetween a few Gulf states, such as United Arab Emirates(8th), Bahrain (27th), and Qatar (29th), which haveestablished themselves into major regional hubs, and theothers, particularly Mauritania (111th) and Algeria(101st).These Gulf states have developed high-quality airtransport infrastructures, a large number of operatingairlines given their size, significant numbers of aircraft

Country/Economy

Algeria 113 82 74 53 109 101 78 114 118 9 86 114 65

Bahrain 62 77 61 61 81 27 39 31 52 3 79 36 66

Egypt 69 75 64 69 12 49 58 85 74 5 69 85 55

Kuwait 100 96 22 37 120 62 43 52 53 29 16 117 89

Jordan 29 56 19 41 17 67 47 49 72 12 63 34 86

Mauritania 112 98 54 115 55 111 99 72 96 38 101 1 110

Morocco 48 64 43 81 15 83 54 62 92 46 72 45 52

Qatar 65 29 17 24 40 29 48 26 49 25 19 41 75

Tunisia 42 16 14 52 1 78 27 45 69 23 22 50 40

UAE 54 25 10 25 23 8 26 24 42 8 29 3 80

Global top Hong Unitedperformer Singapore Denmark Finland Kong SAR Tunisia States Germany Austria Sweden Indonesia Switzerland Mauritania Germany

Table 6. The Travel & Tourism Competitiveness Index 2007: Top performer per pillar

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departures, and international air transport networks thatlink them to key markets overseas.This demonstrates thepotential for the region in the growing air transport sec-tor, which is so critical to overall T&T competitiveness.

The ground transport infrastructure presents lessregional variance, with the United Arab Emirates (26th),Tunisia (27th), and Bahrain (39th) presenting the mostdeveloped and efficient roads, ports, and railways in theArab world. Most other countries lie in the middle ofthe rankings, although Mauritania (99th) and Algeria(78th) lag behind the rest.Although most countries arein the top half of the rankings in this area, it is clear thatsome upgrading of the ground transport infrastructure iswarranted to bring the region up to world-class levels.Similarly, the tourism infrastructure is especially well devel-oped in the United Arab Emirates (24th), Qatar (26th),and Bahrain (31st), with good hotel infrastructure,extensive car rental facilities, and ATM networks. Onthe other hand,Algeria (114th) and, to a lesser extent,Egypt (85th) and Mauritania (72nd) would be wellserved by upgrading and extending their respectivetourism infrastructures.

ICT infrastructure is one of the two areas of T&Tcompetitiveness in which the region demonstrates theweakest performance. Indeed, the best regional perform-ers in this pillar are the United Arab Emirates and Qatar,at a mediocre 42nd and 45th position, respectively.Theother countries are distributed at the bottom half of theglobal rankings, and Algeria (118th), Mauritania (96th),and Morocco (92nd) display particularly discouragingstandings. Given the importance of ICT adoption—notonly for the T&T sector, but for all industries and theeconomy’s productivity as a whole—a special effortshould be made to enhance regional levels of ICTreadiness and to upgrade the regional ICT infrastructure.The United Arab Emirates has been in the forefront ofICT progress in the region, investing heavily in ICTinfrastructure and launching several cluster initiatives inthis sense, including the Dubai Media City, the DubaiInternet City, and the Knowledge Village.11

The price competitiveness of the T&T industry, with anaverage regional score of 19.8, is the area in which theregion is most strongly assessed. Notwithstanding ratherhigh price levels in a number of countries in the region,they are assessed well as a result of low comparative fuelprices and overall tax rates, as well as low ticket taxesand airport charges. Bahrain (3rd), Egypt (5th), theUnited Arab Emirates (8th), and Algeria (9th) are rankedamong the top 10 globally, while the lowest-rankedregional performer, Morocco, still places at a moderatelyhigh 46th position.

The region ranks 55.6 on average for the quality ofits human resources. Once again, we see a large variationin the regional rankings, with 4 out of the 10 countriescovered (Kuwait, Qatar,Tunisia, and the United ArabEmirates at 16th, 19th, 22nd, and 29th respectively) inthe top 30 and all other countries among the bottom

half of the global rankings. Mauritania lags behind therest of the Arab world at 101st. It is important to notethat education, at all levels, is a particularly problematicarea for all countries, including the Gulf states.Tacklingthis problem will require significant investment inimproving the quality of teaching, ensuring that educa-tional institutions perform at international standards andthat school curricula reflect the demands of rapidlychanging modern economies. On a positive note, anumber of national initiatives have been launched tothis end.

The pillar assessing national tourism perception—withan average regional ranking of 71.8—shows a highdegree of diversity among the 10 countries covered.Thepopulations of Mauritania (1st) and the United ArabEmirates (3rd) demonstrate an extremely welcomingattitude toward tourists and international travelers, aswell as high degrees of tourism openness. On the otherside of the spectrum, tourism perceptions in Kuwait(117th) and Algeria (114th) receive among the weakestassessments of all countries covered, with a perceivedlack of openness toward visitors and tourism as a whole.The rather low tourism perception of the latter coun-tries mirrors a similar lack of prioritization of the sectorby the respective governments. Improvements in theseareas would help them to more fully leverage the enor-mous opportunities offered by the T&T industry.

Finally, the region registers an average rank of 71.8for its natural and cultural resources.This can be attributedto the relatively few UNESCO World Heritage sites insome countries and to the low percentages of nationallyprotected land areas throughout the region. Even thebest regional performers (Tunisia, Morocco, and Egypt)receive rankings of 40th, 52nd, and 55th respectively.The remaining countries are all in the bottom half ofthe global rankings.While this demonstrates that forsome countries it may be a bit more difficult to attracttourists, it is by no means an obstacle that cannot beovercome given sufficient strengths in the other criticalareas of T&T competitiveness, as the T&T success of theUnited Arab Emirates shows.

The T&T competitiveness of individual Arab countriesHaving looked at the general picture for the region’sT&T competitiveness, the rest of this chapter will focuson the country-specific T&T performances.The analysisbelow details particular areas of strength or weakness foreach assessed country on the level of subindex, pillar,and individual indicator.

United Arab EmiratesThe United Arab Emirates, ranked 18th and with anoverall score of 5.09 (out of seven), is the highest-rankedcountry in the region, well ahead of the second-bestregional performer,Tunisia (34th), and performing bet-ter than most international comparators.The country

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demonstrates a rather even performance in all the threeTTCI subindexes (18th in the T&T regulatory frame-work, 19th in the T&T business and infrastructure, and24th in T&T human, cultural, and natural resources).

The United Arab Emirates is characterized byexcellent safety and security (ranked 14th), notably forthe reliability of the police to protect from crime andthe negligible business cost of crime and violence.Thecountry’s air transport infrastructure also gets goodmarks (8th) due to a well-developed and high-qualityair transport network. Indeed, the United Arab Emirateshas been at the forefront of the extraordinary growthexperienced by the Middle Eastern air transport sectorin recent years, with the Dubai airport establishing itselfas a primary regional hub.The United Arab Emirates isalso rated strongly for its overall price competitiveness(8th), notwithstanding a high price level (the country’shigh price level places it 101st), which is offset byextremely low ticket taxes and airport charges, lowcomparative fuel prices, and low taxation more generally.

The country’s tourism perception is strongly rated(3rd), which is explained by the welcoming attitudetoward tourists and travelers (5th) and an eagerness ofbusiness executives to recommend that important busi-ness contacts extend their business trips for leisuretourism in the country (7th).This perception is mirroredby a strong prioritization of the T&T sector in the government agenda (ranked 4th).The country maintainsan important presence at the main T&T fairs and eventsworldwide, and has carried out effective destination-marketing campaigns (ranked 1st out of all countriescovered).

Our data show that the United Arab Emirates couldstrengthen its performance further by focusing on a fewremaining obstacles to T&T competitiveness. For exam-ple, the country’s regulatory environment (ranked 54th)is not fully conducive to T&T sector development.Regulations limit foreign ownership (93rd), bilateral airservice agreements are not assessed as being extremelyopen (44th), and visa rules remain somewhat restrictive(42nd).We also note inadequate levels of education andtraining, with extremely low primary (73rd) and sec-ondary (115th) education enrollment. Significant invest-ment will be necessary to improve the quality of teach-ing and to ensure that educational institutions meetinternational standards and schools prepare students forrapidly changing modern economies. On a positivenote, the United Arab Emirates has started movingtoward improving training, with Abu Dhabi establishingan alliance with Singapore’s National Institute ofEducation for the provision of training services.12

Although the T&T industry does not currentlyaccount for a large portion of the UAE economy, it isbound to become increasingly important. Its develop-ment has been prioritized by the government, and therehas been massive investment in upgrading the tourisminfrastructure.The country now enjoys all the facilities

needed to attract and host different types of tourism(cultural, health, and sport).13 The WTTC projects 8.7percent annual growth of the T&T industry in theUnited Arab Emirates from 2007 to 2016.

TunisiaOne of the most popular tourism destinations in NorthAfrica,Tunisia ranked 34th in the international rankingand has a score of 4.76. It is the second-best performerwithin the Arab world after the United Arab Emirates.Tunisia is endowed with rich natural and culturalresources (it is ranked 24th for the number of WorldHeritage sites, for example).These endowments areboosted by a friendly regulatory framework (ranked12th), clear and stable environmental regulations (16th),and low levels of crime and violence, including terror-ism. Moreover,Tunisia is ranked 1st worldwide for theprioritization of T&T strategies, with high governmentspending on the sector (7.2 percent of GDP in 2006),highly effective and innovative destination-marketingcampaigns, and representation at all the main interna-tional T&T fairs and events.This level of prioritization isperhaps not surprising given the importance of the T&Tindustry for the country’s economy, which accounts for9.2 percent of GDP, 9 percent of total employment, and20.2 percent of total exports in 2006.14

Tunisia is assessed as having good ground infrastruc-ture (27th) and hotel facilities (17th). In this respect,recent national programs for upgrading the tourism sec-tor have focused on raising hotel standards, with a pilotproject involving 40 hotel units.15 The country also ben-efits from satisfactory levels of overall price competitive-ness (23rd) due to a relatively low cost of living (32ndin purchasing power parity), relatively inexpensive fuel(21st), and taxation that is not distortionary (18th).Thecountry is also endowed with high-quality humanresources (22nd) and universal enrollment at the pri-mary school level. It receives excellent marks for thequality of the educational system (11th).

On the other hand,Tunisia’s overall T&T perform-ance is hindered by a few elements that, if addressed,could help the country realize its immense T&T poten-tial. In particular, the air transport and the ICT infra-structures ranked 78th and 69th, respectively.Thesecould be upgraded and extended to support a furtherexpansion of the T&T industry.Another competitivedisadvantage is health and hygiene, in which Tunisiaranked 52nd.This remains an area of concern, particu-larly linked to a lack of access to improved drinkingwater (78th) and a low physician density (66th). Finally,with regard to price competitiveness, the level of tickettaxes and airport charges is extremely high (ranked103rd) compared with the other countries in the regionand most of the 124 countries covered by the Index.

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QatarQatar ranked 36th internationally, with a score of 4.7. Itfollows closely behind Tunisia, with a somewhat similarassessment in the first two pillars of the Index (34th inT&T regulatory framework and 39th in T&T businessenvironment and infrastructure) and demonstrating aslightly weaker performance in the area of T&T human,cultural, and natural resources (49th).

Qatar is perceived to be a safe country with regardto crime and violence (13th), with reliable police servic-es (21st).The country also demonstrates satisfactoryhealth and hygiene conditions (24th), and the access toimproved sanitation and drinking water is second tonone. Qatar ranks well for human resources (ranked19th overall), with universal enrollment at the primarylevel, an educational system that gets good marks forquality (20th), available qualified labor in the country(22nd), and relatively flexible labor markets (23rd).

The country is also assessed as having good-qualityair transport infrastructure, with many aircraft departures(ranked 8th)—reflecting, in large part, the increase intravelers from Europe,Asia, and Australia in recent years.The overall tourism infrastructure is ranked a reasonablyhigh 26th, due to the prevalence of car rental companiesand the network of ATMs (23rd). Qatar also demon-strates good price competitiveness (25th), notwithstand-ing having one of the highest comparative price levelsin the world (115th).This is attributable to its low tickettaxes and airport charges (4th), comparatively low fuelprices (4th), and low taxation (5th).

Finally, the Qatari government is seen to be priori-tizing the sector (ranked 24th), which is reflected in thehigh level of government expenditure on the T&Tindustry (5.5 percent of GDP). In addition to investingin infrastructure, the government has focused its atten-tion on the development of niche markets, includingsports, wellness, and educational tourism.16

On a less positive note, policy rules and regulations(65th) are not totally conducive to the development ofthe T&T sector. In particular, rules on foreign ownership(91st) and visa requirements (85th) are restrictive.Thereis room for improvement in the quality of ground trans-port infrastructure, including roads (48th) and ports(42nd). In this context, the government’s focus in recentyears on developing and improving roads should becommended.17

JordanJordan ranked 46th in the international ranking, scoring4.52 out of 7. Its performance across the threesubindexes is somewhat uneven. It is assessed as doingquite well with regard to the T&T regulatory frame-work (30th), but does less well in the T&T businessenvironment and infrastructure (54th) and T&T human,cultural, and natural resources (58th). In particular,Jordan is characterized by excellent safety and securitylevels. Notwithstanding the 2005 terrorist attacks in

Amman, which are reflected in a high business cost ofterrorism (96th), Jordan is perceived as one of the safestdestinations in the region, with minor levels of crimeand violence (10th) and a reliable police force (10th).Another of Jordan’s strengths is the T&T industry’s pricecompetitiveness, with low comparative fuel prices (7th)and relatively low ticket taxes and airport charges (24th).

Considering the importance of the T&T industryfor the country, accounting for 9.2 percent of GDP and8.7 percent of total employment in 2006, it is not sur-prising that the sector is given top priority in the gov-ernment’s agenda.This is demonstrated by a number ofindicators, such as the government prioritization of theT&T industry (22nd), the considerable level of govern-ment T&T expenditure (10.7 percent of total spend-ing)—ranked 7th worldwide and the highest in theregion—and the country’s liberal visa requirements(15th). Furthermore, the few restrictions on foreignownership (20th) and favorable FDI policies represent aconducive regulatory framework for the development ofthe T&T sector and its openness to foreign investors.

Turning our attention to Jordan’s main T&T com-petitive weaknesses, we find the lack of qualified labor(92nd) to be a major hindrance. Indeed, primary and, toa lesser extent, secondary education enrollment levels(92nd and 59th) are low by international standards.Thelack of flexibility of the labor market (90th) and the dif-ficulty in hiring foreign labor (83rd) provide further dif-ficulties to securing a sufficient pool of qualified labor.Another obstacle can be found in the quality of thetourism-enabling infrastructure, which could be upgrad-ed to improve the country’s T&T competitiveness.Thisis particularly the case for the air transport infrastructure(67th), the railroad infrastructure (75th), and the ICTinfrastructure (72nd).

Last, there is room for improvement in the area ofenvironmental protection. Jordan’s environmental regu-lations are not perceived as sufficiently stringent (58th)nor clear and consistent (58th) enough to ensure thatthe sector develops on a sustainable basis.This concernis echoed by the high level of carbon dioxide damage(96th) and the limited number of nationally protectedareas (92nd).

The government is actively working towardimproving in a number of these areas. It adopted a six-year National Tourism Strategy in 2004, and created aStrategy Implementation Unit at the Ministry ofTourism and Antiquities, which is based on private-public partnership.This strategy stresses the importanceof upgrading tourism infrastructure to internationalstandards and places an emphasis on human resourcesdevelopment.18

BahrainBahrain is ranked 47th in the TTCI, just behind Jordan,and receives a total score of 4.45 out of 7. As in the caseof Jordan, the T&T sector accounts for a significant

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percentage of Bahrain’s economy—on the order of 8.3percent of GDP and 11 percent of total employment.This is captured by the high degree of tourism opennessin the country (where it is ranked 11th). Overall, Bahrain’scompetitive strengths are to be found more in the areaof T&T business environment and infrastructure (34th)than in its human, cultural, and natural resources (54th)or the T&T regulatory framework (47th).

More specifically, Bahrain possesses a rather devel-oped air transport (27th) and tourism infrastructure(31st) with a large number of aircraft departures (9th), arelatively extensive international air transport network(28th), ample hotel availability (18th), and relativelywidespread car rental facilities (35th). Moreover, thecountry has good-quality port (26th) and road (29th)infrastructure. Price competitiveness is another notableadvantage (3rd), with low taxation, cheap comparativefuel prices (7th), and low ticket taxes and airport charges(5th). Bahrain also performs well in selected educationand health and hygiene indicators, with excellent accessto improved sanitation and universal primary enrollment.

With regard to competitive disadvantages, Bahrain’sT&T competitiveness is pulled down by weakness intwo main areas: a lack of prioritization of the T&Tindustry (81st) and the quality of human resources(79th).With respect to the first issue, Bahrain is repre-sented at few T&T fairs and events (70th) and is assessedas having ineffective destination marketing and branding(107th).The lack of prioritization is also reflected byaspects of the policy environment that are not support-ive of Travel & Tourism, such as the country’s relativelyonerous visa requirements (85th).This is mirrored bywhat is perceived as a lack of openness of its citizenstoward tourists and travelers (89th).

In terms of the country’s human resource base,there is a perceived lack of qualified workers (115th).This is a major hindrance not only for the T&T indus-try’s growth potential but also for the country’s overallcompetitiveness. Indeed, relevant reforms and policiescould be undertaken to liberalize the labor market, cur-rently assessed as very rigid (104th); to improve the localavailability of training (96th); to upgrade the quality ofthe educational system (ranked at 79th); and to facilitatethe hiring of foreign workers (107th) in order toenhance the local pool of talent available in the country.

MoroccoMorocco, which together with Tunisia is one of the twomain tourism destinations in North Africa (attractingapproximately 5.8 million tourists in 2005), ranks 57thoverall in the TTCI (with a score of 4.3).The countrydemonstrates a rather even performance in the T&Tregulatory framework (47th) and human, cultural, andnatural resources (52nd), while receiving a comparativelyweak assessment for the T&T business environment andinfrastructure (72nd).

Morocco is characterized by a rich cultural heritage(ranked 24th for the number of World Heritage sites)and a comparatively open and positive attitude towardtourists (35th).These measures of attractiveness are cou-pled with a favorable policy environment. In this regard,the country gets superior marks in the prioritization ofthe T&T strategies pillar (15th), with effective destination-marketing campaigns (19th), strong representation atmain international T&T fairs and events (23rd), govern-ment prioritization of sustainable development in theT&T sector (18th), and tourism-friendly visa regulations(15th).

However, Morocco displays competitive weaknessesin a number of areas.There are some concerns related tohealth and hygiene (ranked 81st), with a low physiciandensity (93rd) and limited access to improved drinkingwater (83rd) and improved sanitation (74th). Security isalso of concern, particularly the threat of terrorism (88th).With regard to environmental protection, the clarity andstringency of government environmental regulation getspoor marks, although the government seems to be mak-ing efforts to develop the industry in a sustainable way.Businesses are not assessed as demonstrating great con-cern for environmental protection (97th).

In terms of moving around the country, the trans-port infrastructure is somewhat underdeveloped, partic-ularly air transport infrastructure.There are few airports(103rd) and aircraft departures (67th). Some weaknessescan also be found in the ICT infrastructure (92nd),especially the extent of business usage of the Internet(109th), one of the weakest assessments in the region.

With regard to human resources, secondary educa-tion enrollment rates are low (100th) and the quality ofthe educational system is assessed as quite poor (91st).On a more positive note, labor markets in Morocco areassessed as more flexible than those in a number ofother countries in the region.

Considering the importance of the T&T sector forMorocco (accounting for 10.1 percent of GDP and 8.8percent of total employment in 2006), it would seemthat removing some of these obstacles to T&T competi-tiveness would be extremely important for the country’seconomic prospects going forward.

EgyptEgypt, a country rich in cultural heritage (with 7 WorldHeritage sites), ranks a low 58th in the TTCI.This isdespite a number of clear strengths beyond its culturalrichness. For example, Egypt has excellent price com-petitiveness, where it is ranked 5th overall with lowcomparative prices generally, including fuel prices, aswell as relatively low ticket taxes and airport charges.Furthermore, the government is seen to be prioritizingthe T&T industry, with high government spending onthe sector (19th).Also, the government has ensured thecountry’s presence at major tourism fairs (4th).This levelof prioritization is also reflected in policy areas such as

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the favorable policy on visa requirements (15th) as wellas the government’s efforts to develop the T&T industryin a sustainable way (36th). It should be noted, however,that environmental regulations are still not seen as suffi-ciently stringent and ranked 92nd.

Egypt also has some strengths with regard to humanresources, particularly the country’s universal primaryschool enrollment and the relative ease with whichcompanies can hire foreign labor compared with manyother countries in the region (27th). However, secondaryenrollment remains relatively low by international stan-dards (60th), and the overall quality of the educationalsystem rates poorly (104th).There is also limited on-the-job training provided in the economy (83rd).

Other weaknesses include Egypt’s infrastructure,which is somewhat underdeveloped, particularly thetourism infrastructure (85th), with limited hotel roomavailability (70th), few ATMs for withdrawing cash(87th), and limited rental car choices (66th).Also ofconcern is the country’s ICT infrastructure (74th),which displays low telephone and Internet penetrationrates. In this light, a further upgrading of the quality ofthe country’s human resources available to work in thissector, as well as the country’s “hard” infrastructure,should be a priority.

KuwaitLast among the Gulf states is Kuwait, which is ranked67th overall and received a score of 4.1 out of 7. Kuwaitis assessed as performing better in the areas measuredwithin the T&T business environment and infrastructure(50th), with more apparent weaknesses in the T&T reg-ulatory environment (71st) and especially in the human,cultural, and natural resources pillar (86th).

Kuwait’s T&T performance presents several brightspots associated with good health and hygiene indica-tors, such as excellent access to improved sanitation anddrinking water, as well as extremely low rates of diseasessuch as HIV.The country is also perceived as extremelysafe overall (22nd) despite concerns about the risk ofterrorism (71st). Kuwait also has a relatively developedT&T infrastructure, with a satisfactory number of air-craft departures (35th) and airlines operating in thecountry (43rd), quality roads (27th), and one of theworld’s most comprehensive car rental networks.Withregard to human resources, Kuwait is assessed as havingan extremely flexible labor market. Moreover, the coun-try has strong price competitiveness in the T&T sector(29th overall), with among the lowest levels of tickettaxes and airport charges in the world, coupled withcomparatively inexpensive fuel prices (10th) and lowtaxation more generally (4th).

Despite the encouraging picture that emerges fromthe above analysis, a few serious weaknesses remain tobe addressed before Kuwait is able to fully leverage thepotential of Travel & Tourism for its overall competi-tiveness and economic development.A major difficulty

seems to be a lack of prioritization of the industry with-in the government strategy. Indeed, Kuwait ranks amongthose countries where the government is seen as priori-tizing the sector the least (119th).The country has inef-fective destination-marketing and branding strategies(116th), low levels of government T&T expenditure (1.2 percent of total spending, ranked 103rd), and limitedparticipation in international T&T fairs to promote thecountry for tourism (90th).

The lack of prioritization of the sector can also beenseen in specific tourism-related policies. For example,Kuwait has among the most restrictive foreign ownership(124th) and FDI (122nd) regulations, and it demonstratesa lack of openness with regard to bilateral air serviceagreements (119th). Furthermore, the government is notseen to be prioritizing the development of the sector ina sustainable way (111th), with environmental regulationsthat are seen as neither stringent (81st) nor clear (73rd).The approach of Kuwait’s citizens vis-à-vis tourism isalso perceived as quite lukewarm, as indicated by therank given to their attitude toward foreign travelers(124th—the lowest ranking).

The scarcity of clear cultural and natural resources(ranked 107th and 100th respectively for the number ofWorld Heritage sites and nationally protected land areas)might have prevented tourism from featuring as anobvious priority area in Kuwait’s development strategies.This is indicated by a limited contribution of the T&Tsector to GDP and total employment (1.3 percent and1.9 percent respectively in 2006). However, as discussedabove, a further expansion of the T&T sector could helpthe country diversify away from oil dependency andtoward a more balanced economic structure, as it is thecase in a number of other countries in the region.

MauritaniaThe overall T&T competitiveness picture for Mauritaniais quite discouraging, with an overall ranking of 92 andlow standing in all the three subindexes of the TTCI: itranks 95th in the T&T regulatory framework, 97th inthe business environment and infrastructure, and aslightly more positive 74th position for human, cultural,and natural resources.

The country is among the top half of all assessedwith regard to safety and security issues (ranked 54th),especially concerning perceived terrorism threats (37th).Mauritania has rather competitive price levels (38th),with low comparative fuel prices (3rd) and low taxes(13th). Moreover, the government and civil society alikeshow a high degree of openness and interest in develop-ing tourism. Indeed, the T&T sector occupies an impor-tant place in the public agenda (33rd), and it is fairlyefficiently branded and marketed (31st). Mauritaniansappear to value tourism highly.They express an eagernessto recommend visiting business counterparts to extendtheir trips to get to know the country better (3rd) andhave a generally welcoming attitude toward foreign

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travelers (13th).The country also has an extremely flexi-ble labor market, characterized by flexibility in hiringand firing (3rd) as well as a relative ease of hiring for-eign labor (22nd).

These trends bode well for the country’s potentialto increasingly attract tourism and investments in theT&T sector, but they will need to be complemented byconcrete measures and remedial steps in several otherTravel & Tourism–related dimensions.To begin,although tourism is seen as a priority area, this is notsupported by the regulatory environment. Mauritaniahas a stringent visa regime (113th) and strict FDI regu-lations (96th).Also, environmental regulations do not getgood marks for their stringency (104th) or their clarity(94th). Furthermore, Mauritania’s T&T infrastructurelags behind the rest of the region and is in serious needof upgrading.This is particularly true for the air trans-port (111th) and ground transport (99th) infrastructure,as well as the ICT infrastructure (96th).

The country also has weak health and hygieneindicators, such as low life expectancy (101st), a lack ofphysicians (110th), and difficult access to improveddrinking water (104th) and sanitation (95th).Furthermore, there are strong prevalence rates of diseasessuch as malaria (111th) and tuberculosis (109th).

The quality of human resources in Mauritania, crit-ical not only for T&T competitiveness but also for thecountry’s overall development prospects, is poor (101st).Of particular concern is the level and quality of educa-tion and training, with extremely low primary (108th)and secondary (115th) enrollment rates, an educationalsystem that is assessed as highly inefficient (110th), andlittle on-the-job training (121st).

AlgeriaAlgeria, ranked 93rd in the TTCI, closes the rankingsfor the Arab world countries, with weak assessments inthe T&T regulatory framework (89th), business environ-ment and infrastructure (93rd), and cultural, human, andnatural resources (97th) subindexes.Although the coun-try displays a few competitive advantages for the flour-ishing of a healthy tourism industry, the TTCI’s overallassessment is rather negative and points to the necessityof urgent reforms and measures to set the basis for acompetitive T&T sector.

In terms of competitive advantages,Algeria is wellendowed in cultural and natural beauty (ranked 30th forthe number of World Heritage sites), demonstrating thatalong with its North African neighbors, it has the basisfor developing a strong T&T industry. It also benefitsfrom competitive prices in the T&T sector (9th), notablyfuel prices (3rd) and taxation levels (32nd). In terms ofsecurity, the police force is seen as reliable for protectingfrom crime. In the area of human resources,Algeria hasattained universal primary education enrollment.

On the other hand, the development of the T&Tsector is scarcely prioritized by the government (82nd),

with a low level of public expenditures allocated to thesector (105th, corresponding to 1.1 percent of totalspending). Furthermore, the country has rather ineffec-tive marketing and branding strategies for its T&T sector.This lack of prioritization is also reflected in the generalregulatory framework, which is characterized by tightvisa regulations (113th), restrictions on FDI (91st), andforeign ownership (84th).The lack of priority given toTravel & Tourism in the public agenda is mirrored bywhat is perceived to be a comparatively unwelcomingattitude of the society toward foreign visitors (107th).

Moving forward, the T&T infrastructure wouldrequire important investments to be upgraded andextended, in particular the air transport network (101st),the tourism infrastructure (114th), and the ICT infra-structure (118th).Also, with regard to security, the tur-bulent recent history of Algeria continues to resonate inthe country, with concerns about terrorism (114th) andcrime and violence (80th) remaining high.

Finally, the labor market in Algeria is assessed aslacking flexibility (the country is ranked 117th for theease of hiring foreign labor and 100th for rules on hiringand firing workers).With regard to training, secondaryenrollment rates remain low (73rd), the formal educa-tional system gets poor marks for quality (92nd), andcompanies provide limited staff training (98th).

Although the contribution of T&T to GDP andtotal employment is almost negligible (1.5 percent and1.4 percent respectively), the WTTC forecasts that itscontribution will increase dramatically in the comingdecade, with an estimated 7 percent and 5.2 percentannual growth in these respective indicators.The greatprogress made in political stabilization has started to bearfruit in terms of a tourism recovery, with 1.4 milliontourists recorded in 2005. Increased attention is beingpaid by the government to the sector.19 However, as evident from the above discussion, many challengesremain for the country to achieve truly sustainable T&T competitiveness.

ConclusionsThis chapter has analyzed the Travel & Tourism compet-itiveness of countries in the Arab world, based upon theresults of the World Economic Forum’s new Travel &Tourism Competitiveness Index (TTCI).The analysishas placed the region’s performance in a global context,benchmarking individual countries’ performancesagainst the 124 economies included in the Index,spanning all regions of the world.

While the discussion has shown that much stillremains to be achieved in order to improve the T&Tcompetitiveness of many countries in the Arab world,there is also reason for optimism.We have seen thatsome countries within the region have environmentsthat are quite attractive for developing the T&T sector,as measured by the TTCI.These include the United

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Arab Emirates,Tunisia, and Qatar in particular.Thesecountries can serve as benchmarks for other countries inthe region in their efforts to increase their T&T com-petitiveness.

Given the growing importance of the T&T sectorfor the region as a vehicle for diversifying economies,attracting foreign currency, and easing unemployment,improving the industry’s competitiveness is critical. Byhighlighting specific success factors and obstacles toT&T competitiveness in the region’s countries, we hopethat the TTCI will serve as a useful tool for the businesscommunity and for national policymakers to worktogether to improve the T&T competitiveness of theireconomies and contribute to improving the growthprospects and prosperity of citizens within the region.

Notes1 See UNWTO (2006).

2 See Al-Hammarneh and Steiner (2001).

3 See WTTC (2006 a, b).

4 See UNWTO, Historical Perspective of World Tourism. Available atwww.unwto.org/facts/menu.html.

5 See UNWTO (2005).

6 See UNWTO (2005).

7 See Majali and Weston (2007).

8 See WTTC (2006a, b).

9 The TTCI was developed in close collaboration with Booz AllenHamilton, the International Air Transport Association (IATA), theUNWTO, and the WTTC. Important feedback was also providedby a number of key companies that are industry partners in theeffort: Bombardier, Carlson, Emirates Group, Qatar Airways, RoyalJordanian Airlines, Silversea Cruises Group, Swiss InternationalAirlines, and Visa International.

10 The TTCI includes a more limited number of countries than thisReport because of the unavailability of the data at the time of itscomputation. In this sense, Libya, Syria, and Oman are notassessed in this chapter.

11 See Chapter 2.3 by Dutta, Shalhoub, and Samuels in this Report fora more detailed discussion of the United Arab Emirates’ ICT initia-tives.

12 See UNWTO (2005).

13 For an extensive review of the many projects undertaken recently,see UNWTO (2005), page 96-97.

14 See WTTC (2006).





19 For an extensive review of the projects/measures recently undertak-en, see UNWTO (2005, pp. 105–07).

ReferencesAl-Hammarneh, A. and C. Steiner. 2004. “Islamic Tourism: Rethinking

the Strategies of Tourism Development in the Arab World afterSeptember 11, 2001.” Comparative Studies of South Asia, Africaand the Middle East 24: (1 Spring): 18–27.

De Boer, K. and J. M. Turner. 2007. “Beyond Oil: Reappraising the GulfStates.” The McKinsey Quarterly, Web exclusive, January.Available at www.mckinseyquarterly.com.

Majali, S. and G. Weston. 2007. “The Challenge of Open Skies in theMiddle East: How to Manage Competition in the High-Growth AirTransport Sector.” In The Travel & Tourism CompetitivenessReport 2007, ed. J. Blanke and T. Chiesa. Geneva: WorldEconomic Forum.

UNWTO (World Tourism Organization). No date. Historical Perspectiveof World Tourism. Available at www.unwto.org/facts/menu.html.

———. 2005. Tourism Market Trends: Middle East, 2005. Madrid:UNWTO.

———. 2006. Tourism Barometer 4 (3). Madrid: UNWTO.

World Economic Forum. 2007. Travel & Tourism CompetitivenessReport 2007. Ed. by J. Blanke and Th. Chiesa. Geneva. WorldEconomic Forum.

WTTC (World Travel & Tourism Council). 2006a. Middle East: The 2006Travel & Tourism Economic Research. London: WTTC.

———. 2006b. North Africa: The 2006 Travel & Tourism EconomicResearch. London: WTTC.

———. 2006c. TSA Research 2006. London: WTTC.

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This appendix provides details about the constructionof the Travel & Tourism Competitiveness Index(TTCI).The TTCI is composed of three subindexes:the T&T regulatory framework subindex, the T&Tbusiness environment and infrastructure subindex, andthe T&T human, cultural, and natural resourcessubindex.These subindexes are, in turn, composed ofthe 13 pillars of T&T competitiveness shown below:namely, policy rules and regulations, environmentalregulation, safety and security, health and hygiene, pri-oritization of Travel & Tourism, air transport infra-structure, ground transport infrastructure, tourisminfrastructure, ICT infrastructure, price competitive-ness in the T&T industry, human resources, nationaltourism perception, and natural and cultural resources.These pillars are calculated on the basis of both “harddata” and “survey data.”

The survey data comprise the responses to theWorld Economic Forum’s Executive Opinion Surveyand range from 1 to 7; the hard data were collectedfrom various sources.

The standard formula for converting each harddata variable to the 1-to-7 scale is

6 x country value – sample minimum + 1( sample maximum – sample minimum )The sample minimum and sample maximum are thelowest and highest values of the overall sample, respec-tively. For some variables, a higher value indicates aworse outcome. For example, higher carbon dioxidedamage is bad. In this case we “reverse” the series bysubtracting the newly created variable from 8. In someinstances, adjustments were made to account forextreme outliers in the data.

All of the data used in the calculation of theTTCI can be found in the Data Tables section of theTravel & Tourism Competitiveness Report 2007, availableonline athttp://www.weforum.org/en/initiatives/gcp/TravelandTourismReport/index.htm.

Each of the pillars has been calculated as anunweighted average of the individual component vari-ables.The subindexes are then calculated as unweight-ed averages of the included pillars. In the case of thehuman resources pillar, which is itself composed ofthree subpillars (education and training, availability ofqualified labor, and workforce wellness), the overallpillar is the unweighted average of the three subpillars.The overall TTCI is then the unweighted average ofthe three subindexes.

The variables of each pillar and subpillar aredescribed below. If a variable is one of hard data, thisis indicated in parentheses after the description.

Subindex A: T&T regulatory framework

Pillar 1: Policy rules and regulations1.01 Foreign ownership restrictions1.02 Property rights1.03 Rules governing foreign direct investment1.04 Visa requirements (hard data)1.05 Openness of bilateral Air Service Agreements

(hard data)

Pillar 2: Environmental regulation2.01 Stringency of environmental regulation2.02 Clarity and stability of environmental regulations2.03 Government prioritization of sustainable Travel &

Tourism

Pillar 3: Safety and security3.01 Business costs of terrorism3.02 Reliability of police services3.03 Business costs of crime and violence

Pillar 4: Health and hygiene4.01 Government efforts to reduce health risks from

pandemics 4.02 Physician density (hard data)4.03 Access to improved sanitation (hard data)4.04 Access to improved drinking water (hard data)

Pillar 5: Prioritization of Travel & Tourism 5.01 Government prioritization of the T&T industry5.02 T&T government expenditure (hard data)5.03 Effectiveness of marketing and branding to attract

tourists5.04 T&T fair attendance (hard data)

Subindex B: T&T business environment and infrastructure

Pillar 6: Air transport infrastructure6.01 Quality of air transport infrastructure6.02 Available seat kilometers (hard data)6.03 Departures per 1,000 population (hard data)6.04 Airport density (hard data)6.05 Number of operating airlines (hard data)6.06 International air transport network

Pillar 7: Ground transport infrastructure7.01 Road infrastructure7.02 Railroad infrastructure7.03 Port infrastructure7.04 Domestic transport network

(cont’d.)

Appendix A: Composition of the Travel & Tourism Competitiveness Index

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Pillar 8: Tourism infrastructure8.01 Hotel rooms (hard data)8.02 Presence of major car rental companies (hard

data)8.03 ATMs accepting Visa cards (hard data)

Pillar 9: ICT infrastructure9.01 Extent of business Internet use9.02 Internet users (hard data)9.03 Telephone lines (hard data)

Pillar 10: Price competitiveness in the T&T industry10.01 Ticket taxes and airport charges (hard data)10.02 Purchasing power parity (hard data)10.03 Extent and effect of taxation10.04 Fuel price levels (hard data)

Subindex C: T&T human, cultural, and naturalresources

Pillar 11: Human resources

Education and training11.01 Primary education enrollment (hard data)11.02 Secondary education enrollment (hard data)11.03 Quality of the educational system11.04 Local availability of specialized research and

training services11.05 Extent of staff training

Availability of qualified labor11.06 Hiring and firing practices11.07 Ease of hiring foreign labor

Workforce wellness11.08 HIV prevalence (hard data)11.09 Malaria incidence (hard data)11.10 Tuberculosis incidence (hard data)11.11 Life expectancy (hard data)

Pillar 12: National tourism perception12.01 Tourism openness (hard data)12.02 Attitude toward tourists12.03 Recommendation to extend business trips

Pillar 13: Natural and cultural resources13.01 Number of World Heritage sites (hard data)13.02 Carbon dioxide damage (hard data)13.03 Nationally protected areas (hard data)13.04 Business concern for ecosystems13.05 Risk of malaria and yellow fever (hard data)

Appendix A: Composition of the Travel & Tourism Competitiveness Index (cont’d.)

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CHAPTER 2.3

Promoting Technology andInnovation: Recommendationsto Improve Arab ICTCompetitivenessSOUMITRA DUTTA, INSEAD

ZEINAB KARAKE SHALHOUB, American University in Sharjah

GEOFFREY SAMUELS, INSEAD

The Middle East has begun to embrace the Internet.During the past six years, the region recorded the largestgrowth in Internet users among the major world areasas the number of Middle Eastern citizens accessing theWeb soared by more than 600 percent, three times theworld’s average increase.The mobile telephone markethas become a prodigy market, as liberalization across theregion has led multiple vendors competing to lowercosts and improve performance to attract record num-bers of new customers.

However, more important than rising Internetaccess or ringing mobile telephones is official awarenessat the highest levels of Middle Eastern governments thatit is no longer possible to relegate information andcommunication technology (ICT) policies to an admin-istrative sideshow.A country’s ICT capabilities can pro-foundly affect its capacity to innovate and its globalcompetitiveness, as well as improve the socioeconomicprospects of its less-advantaged citizens. Senior-levelattention to ICT as a key enabler of innovation hasbeen expressed in different ways in different countries,but a fundamental and salutary change is that theseissues now rank as top agenda items.Whether this atten-tion will usher in effective policies, however, remains adebatable issue.

The Middle Eastern technology challengeThe international community has confirmed ICT’spotential to enable innovation and to advance a country’sdevelopment agenda.Although innovation is often asso-ciated with large projects in cutting-edge sectors, such asbiotech or nanotechnology, the cumulative effect ofsmall improvements occurring throughout the entirespectrum of economic activity is likely to have an evenmore pronounced effect on the development process ofa country as argued by Mokyr (1990) and Trajtenberg(2006). ICT, the leading general purpose technology ofour time is probably the most important enabler of suchimprovements, which cumulate to innovation in prod-ucts as well as processes.1 At the same time, a particularcharacteristic of general purpose technologies is thatthey entail interdependencies—for example, the use ofICT can also trigger innovation by requiring productsand processes to be adapted to the new technology.Thisin practice is often carried out by small- and medium-sized enterprises (SMEs). Countries that do not use ICTtechnology intensively forego many opportunities forfostering innovative activity.

Recording the world’s highest growth rate ofInternet access over the past six years is an encouragingsign that Middle Eastern countries are approaching thetechnology challenge with much more dedication.However, delay investing in ICT technologies, infra-structure, and human skills has meant the Middle Eastlags considerably in its development relative to the rest

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of the world. Only sub-Saharan Africa posts lower aver-age ICT access and performance standards.2

If Middle Eastern governments are to lift theircountries’ technology capabilities to developing andemerging world averages, they will need to make con-siderable financial and resource investments as well asintroduce policy changes to encourage innovation that,in some areas, will rub against long-established businesspractices. New policies must be carefully consideredbecause their impact and scale are considerable, theissues are complex, and they must coordinate with on-going development programs to ameliorate pressingsocioeconomic, and even political, needs. Prioritizinginitiatives is essential.

Equally important are designing and supportingprocesses to implement these initiatives.The cultural andadministrative challenges for Middle Eastern economieswhere state bureaucracies play a prominent role shouldnot be underestimated.This is especially true becausetechnologies and innovative capabilities evolve at ever-faster rates. New ways to connect users to the Web, suchas WiMax, can potentially extend access to more citizensat more affordable costs. If Middle Eastern governmentsare to make the right investment and regulatory deci-sions to encourage innovation, they should engage theprivate sector from consulting on priorities and technol-ogy potential to participating in various forms of pub-lic-private partnerships.

Public-public partnerships across the region alsohold the promise to help governments share experience,expertise, and resources to craft innovative regionalapproaches that could advance each country’s specificdevelopment agenda and priorities.There is considerablepotential for regional partnerships by pooling cross-countryinfrastructure investments, negotiating with vendors, andsharing best practices.The region is home to countriesconsiderably more advanced than their neighbors—suchas Jordan,Tunisia, and the United Arab Emirates—indeveloping and applying technologies.These countries’shared expertise and experience can greatly assist all

governments in assessing appropriate policies, investment priorities, and innovative development techniques.

This chapter will explore the link between ICTand innovation in the region and present an overview ofcurrent technology capabilities and issues for a subset ofMiddle Eastern countries (Western Asia) to indicate thewide variations in the Arab world for this key enabler ofinnovation.3 The chapter will then link these variationsto the results of a recent Arab world executive surveyabout innovation, present brief case studies of innovation-enabling initiatives in the United Arab Emirates andJordan, and recommend policies to improve ICT per-formance by stimulating innovative approaches acrossthe Arab world.

Innovation and dividesA visitor to the Middle East’s Western Asian region willquickly see vast differences between and within eachstate.All these countries confront divides—in demo-graphic, economic, social, educational, and naturalresource arenas, for example.The digital divide is themost recent, but it mirrors long-standing regional andhistorical issues because technology touches and reflectsso many facets of a country’s economy and society.Table1 provides a snapshot comparison of each nation’s majorICT statistics.

These statistics and rankings have been assembled,compiled, or analyzed by, among others, the InternationalTelecommunication Union (ITU), the World Bank, theUnited Nations, the Economist Intelligence Unit, andthe World Economic Forum. For reasons beyond thescope of this paper, acquiring basic technology andinnovation data in developing countries, let alone accu-rate market statistics, can be problematical.The MiddleEast is no exception, and various statistical techniqueswere applied to produce these figures.4

The reason this caveat is not a footnote is becausemonitoring and evaluating technology development ini-tiatives are essential to discovering what works and whatdoes not. Domestic and cross-country performance

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Table 1: Summary of country indicators

GCI EIU Internet Broadband Secure SchoolsNRI rank NRI rank Innovation e-readiness Internet bandwidth PCs per subscribers Internet servers connected to2005–06 2003–04 Rank rank 2006 users per 100 (Mbps per 1,000 per 1,000 per 1 million the Internet

Country (out of 115) (out of 102) 2006–07 (out of 68) population 10,000 population) population population population (percent)

Bahrain 49 — 101 — 21.61 2.75 — — — —Egypt 63 65 82 55 4.37 0.11 22 0.4 0.4 66Jordan 47 46 64 54 8.11 0.17 55 0.9 3.9 18Kuwait 46 — 81 — 22.82 0.32 122 5.4 21.1 —Oman — — — — 7.1 — 37 0 2.3 —Qatar 39 — 41 — 19.93 2.5 190 — — —Syria — — — — 4.5 — 19 0 — —United Arab Emirates 28 — 40 30 33.99 2.69 117 13.1 40.4 —

Source: World Economic Forum and INSEAD, 2005; World Economic Forum, 2006, Economist Intelligence Unit, 2006; World Bank, 2006.

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comparisons require surveys to be conducted in a consistent manner. Government officials and corporateofficers are at a serious disadvantage if they cannot referto reliable, timely data to assess and modify policies.Unfortunately, this is largely not the case today in theMiddle East.

Notwithstanding the above caveats, the general out-lines of the region’s relative technology developmentcan be discerned.The Gulf Cooperation Council (GCC)countries exhibit the highest level of ICT development.A Madar Research study finds these states have morethan 40 percent of all Internet users in the Arab world,but only 11 percent of the total Arab population.5

The United Nations Economic and SocialCommission for Western Asia (UN-ESCWA) for thepast several years has conducted major investigationsinto the region’s ICT evolution. On a scale of 1 to 4(with 4 being the highest), the Commission ranked eachcountry’s performance (see Table 2).

The GCC subregion scored an average of 2.53points, compared with the non-GCC Western Asianaverage of 1.8 points. However, the entire region’s shortfall in comparison with the developed world canbe appreciated by observing that developed countrieswould earn top (4) or nearly top scores in every category.

The UN Commission raised a number of importantissues the policy recommendations will address, mostnotably:

• There are deficiencies in monitoring and evaluatinge-strategies, as well as in financing initiatives.

• ICT sector development scores the lowest perform-ance because Western Asian countries have a poorrecord producing and exporting ICT products andservices; there is weak official support for developingthe ICT sector; and, until recently, foreign companieshave been reluctant to consider investing.

• Improving ICT legislation, regulations, and enforce-ment are high priorities because most of the regionlacks laws and regulations protecting consumers’confidential information and privacy, national copyright and intellectual property laws are poorlyenforced, and inadequate regulatory structures govern the Internet and telecommunications.

Technology infrastructureTechnology infrastructure in the Middle East is relativelymore advanced because, candidly, it is a less politicallycontentious issue. Laying cables, stringing wires, andbuying boxes are largely a question of finance. By con-trast, changing legal, regulatory, and institutional structuresrequires transforming well-established socio-culturalpractices.

The region has recently been upgrading connectivityto the global Internet. For example, Internet bandwidthin Egypt increased considerably in one year, from 850Mbps in 2003 to 2,060 Mbps the following year; Syriaraised Internet capacity to 2.1 Gbps by year end 2005.6

The United Arab Emirates has the region’s highest band-width capacity at 10 Gbps, according to an Etisalat source.

However, Middle Eastern intraregional connectivityis not as well developed, partly reflecting long-standinghistorical regional relations. Most Middle Eastern Internettraffic is exchanged outside the region through networkaccess points (NAPs) in the United States and othercountries, resulting in higher costs and suboptimal per-formance.The ITU’s Arab Regional Office is seeking tointroduce new regional electronic connections bylaunching a regional US$200 million initiative—NAPfor the Arab states—to engineer closer Arab Internetnetworks.7

However, if the region is to approach ICT infra-structure levels of the developed world, a much higherrate of investment is necessary.The UN Commission

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Table 2: Ranking of Middle Eastern countries according to maturity level in information society, 2005

Legal ICT Capacity ICT sector Commerce ArabicCountry Policies framework infrastructure building building Government Education and business Health content Average

United Arab Emirates 3 3 4 3 3 3 3 4 3 3 3.2Bahrain 4 3 4 3 1 3 3 4 3 2 3.0Jordan 4 3 2 3 3 3 3 3 2 3 2.9Kuwait 3 2 3 2 1 2 3 3 3 2 2.4Saudi Arabia 3 2 3 2 2 2 2 3 2 3 2.4Qatar 2 2 3 3 1 3 2 3 2 2 2.3Egypt 3 2 2 3 2 2 2 2 2 3 2.3Lebanon 2 2 2 2 2 3 2 3 2 2 2.2Oman 2 2 2 2 1 2 2 3 2 1 1.9Syria 2 1 2 2 1 2 2 1 2 2 1.7Palestine 1 1 2 2 1 1 1 1 1 2 1.3Iraq 1 1 1 2 1 1 1 1 1 1 1.1Yemen 1 1 1 2 1 1 1 1 1 1 1.1Average 2.38 1.92 2.38 2.38 1.54 2.15 2.08 2.46 2.00 2.08 2.14

Source: UN-ESCWA, 2005.

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estimates average regional ICT spending, as a percentageof GDP, at 2.87 percent—considerably below the globalaverage of more than 6 percent.8 Reflecting the GCCregional divide, estimated Egyptian ICT 2004 spendingwas 2.37 percent of GDP; UAE ICT spending was val-ued at 3 percent; while Bahrain invested twice as much,6 percent of GDP, to record the region’s highest ICTspending.9

As another sign of limited ICT integration in theeconomy, Middle Eastern average spending on ICTresearch, development, and innovation (RDI) is verylow as a percentage of GDP even compared with that of developing countries.The Arab region invests 0.2percent of GDP in RDI; global developing country esti-mates are 1.6 percent. Developed countries average 2.5percent of GDP. Jordan is a notable exception, however,allocating a high RDI budget as a major component ofits strategy to position the country as a knowledge-based economy.10

Legal and regulatory issuesThe Middle East features an underdeveloped legal andregulatory environment that hinders efficient technologydevelopment and innovation. Laws and regulationsregarding intellectual property rights (IPRs) and theICT sector have, for the most part, been created to meetinternational demands such as WTO requirements,rather than responding to local business or publicdemand.The critical role of coherent and enforceablelaws to encourage ICT investment and development isnot widely appreciated in the Middle East. For example,because information privacy and security is not current-ly required by international entities, no country in theregion has ventured independently to impose its ownlegal protections.11

Most countries have joined several internationaltreaties and enacted some laws pertaining to IPRs.However, respondents to the World Economic Forum’sExecutive Opinion Survey, which forms the basis of theGlobal Competitiveness Report, indicate that the level of IPprotection and enforcement varies across countries—yeteven the technologically most advanced countries in the region do not reach the levels found in innovation-driven economies such as Japan or the United States(see Table 3). Several international organizations, such asthe International Intellectual Property Alliance and theBusiness Software Alliance (BSA), consider enforcementto be inadequate and have placed several countries onwatch lists. Software piracy is the most visible indicationof lax regard to IPR.With the exception of the UnitedArab Emirates, whose strenuous efforts to control piracyearned it a position among the world’s 20 countriesexhibiting the lowest piracy rates, other Middle Easterncountries tolerate high piracy levels.

Lax IPR enforcement has direct and, perhaps,unanticipated consequences.According to a 2005 studyundertaken by the International Data Corporation and

BSA between 2000 and 2004 Egyptian demand for soft-ware increased by 48 percent.12 Egypt today hosts thelargest regional software sector as a fraction of its ITsector. However, the study estimates the country couldnearly double the size of its IT sector by 2009 if it wereto reduce its 65 percent piracy rate by 10 percent.

The UN Commission notes that, although mostWestern Asian countries have proposed or are in theprocess of formulating IPR and ICT legislation, progressis slow.With the exception of Saudi Arabia, which hasmade strenuous efforts recently regarding IPRs andcopyrights, no country has seen major changes in thisarea since 2003.13

The Commission further observes that no countryin the region is in the process of developing regulationsand laws regarding consumer privacy and security overthe Internet.With the exception of e-banking services,which are largely on e-government sites, no warrantiesor laws guarantee consumer information privacy.Thereare no official consumer protection associations and nospecific consumer protection laws. However, e-com-merce laws have been enacted in Bahrain, Jordan, andthe United Arab Emirates. Bahrain, Egypt, and Jordanhave also approved electronic signature laws.

Most recently, the UAE Electronic Transaction andCommerce Law combined the United Nations guide-lines with local qualifications.The United Arab Emiratesalso passed a Cyber Crime Law to fight misuse ofcyberspace and new technologies.Although these newmeasures construct a sound platform on which to builda regulatory framework, they do not address someimportant aspects of electronic transactions, such as pri-vacy, jurisdiction, data protection, and domain names.

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Table 3: IP protection in the Arab world in internationalcomparison

Rank on pillar Country Score (out of 128 economies)

Algeria 3.28 73Bahrain 4.08 48Egypt 3.55 63Israel 5.48 21Japan 5.88 12Jordan 4.21 44Kuwait 3.62 59Libya 2.80 94Mauritania 3.25 78Morocco 3.82 54Oman 5.30 23Qatar 4.84 28Syria 2.89 90Tunisia 4.62 32United Arab Emirates 4.80 29United Kingdom 6.20 6United States 5.65 17

Source: World Economic Forum, Executive Opinion Survey.

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Personal computer penetration and digital contentWith the exception of the Gulf countries, MiddleEastern personal computer (PC) penetration rates aresignificantly below the world average (see Table 4). Since2003, there have been some national campaigns in suchcountries as Egypt, Jordan, Saudi Arabia, and Syria toencourage citizens to buy computers under a variety offinancing schemes and promotions. However, for manycitizens, cost remains an issue; more importantly, there isa general shortage of Internet services considered essen-tial by the average user.

A scarcity of Arabic digital content on the Web fur-ther diminishes the average user’s perceived need toacquire a computer.While the world’s Arabic speakersnumber 300 million,Arabic Web pages represented only0.2 percent of total Web pages in 2006, or an estimated100 million pages compared with approximately 40 bil-lion pages in all other languages. By contrast, KoreanWeb pages account for 4.4 percent of the Web’s content,although Korea has a population of 45 million.14

The low (10 percent) penetration rates across theentire Middle East limit the commercial incentive tocreate Arabic pages, as does the expectation of mostArab Internet users that information and Arabic contentshould be free. Unfortunately, penetration rates are nothigh enough to justify advertising-supported websites, soa cycle of neglect is perpetuated. Regional governments,to varying degrees, recognize the need to invest inArabic content, but in most cases such investments takethe form of e-government online publications and gov-ernment information.

A previous barrier to finding Arabic content—the lack of a full search engine optimized for Arabic—will likely be removed in early 2007, when a jointSaudi-German project plans to launch the Sawafi searchengine. Its anticipated high-powered local Arabic pagessearching capabilities will undoubtedly assist the Arabic-speaking Internet users who do not speak English (thiswas 65 percent in 2005, according to Madar Research).15

But the search engine will of course not create com-pelling content, so new policy initiatives should be con-sidered to help the private sector produce content tostimulate consumer demand.

E-commerceE-commerce activity is generally low in the region. In2004, business-to-business (B2B) e-commerce was esti-mated at US$9 billion, or 1.45 percent of total regionalGDP valued at US$620 billion, in substantial contrast toa global average estimated at 5 percent of GDP.16

Indeed, across the Middle East only 28 percent of firmsuse the Internet for conducting business, almost a thirdless than the average 38 percent for the remainingdeveloping world.17 The principal drivers for B2B e-commerce are multinationals that require distributorsand agents to use online channels.The second majorfactors encouraging e-commerce are local and federalgovernments moving increasing amounts of tender offerand payment activities online.

Domestic transactions are expanding at a muchslower pace. E-commerce offers the potential to lowercosts, increase business opportunities, and stimulatecooperation among business partners and suppliers.However, many Middle Eastern firms—most notablysmall, domestically owned or nonexporting firms—donot appreciate the value ICT strategies or applicationscould bring to their business. SME owners see fewincentives to change business models and operating pro-cedures when the costs of adopting ICT are significantand known while returns are uncertain.There is also ageneral lack of alliances between governments and busi-ness sectors that would promote B2B e-commerce.

According to the UN Commission, this slow take-up is exacerbated by several other issues:

• the small number of regional institutions using theInternet in their operations;

• a limited set of companies willing and capable ofmigrating to online purchase and sale transactions;

• the paucity of integrated technologies linking elec-tronic purchase applications and back-end systems,particularly enterprise resource planning applica-tions; and

• an absence of a legal framework to protect e-com-merce (with the exceptions of Bahrain, Jordan, andthe United Arab Emirates).

A prominent regional exception is the e-commercemarketplace Tejari.com, launched by Dubai World andnow franchised in Jordan, Kuwait, Lebanon, Oman,Pakistan, and Saudi Arabia. However, although the tradingplatform recorded over US$3 billion in transactions bythe close of 2006 since its founding six years earlier,18

this represents a small percentage of intraregional trade.Limited Internet access, as well as cultural reasons—

that is, when people value holding products before pur-chasing—have restricted B2C e-commerce. However, ascredit card penetration rates increase, online purchasingof products and services not available locally will

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Table 4: Personal computer penetration rate in selectedcountries and regions, 2004

PCs per 100 people (percent)

GCC countries 11.7Non-GCC Western Asia members 3.5Total Western Asia region 4.3World average 12.0

Source: Madar Research Group and Gartner (2005), cited in UN-ESCWA, 2005 p. 73.

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become more significant. Indeed,Visa Internationalreported a sizable increase in online purchases in 2005,primarily in the Gulf and Saudi Arabia.

E-governmentMiddle Eastern governments are making progress offer-ing citizens e-government services, although, as may beexpected, substantial disparities reflect regional inequali-ties in income and ICT availability. In 2005, Egypt andthe United Arab Emirates recorded some of the bestworld improvements in the UN e-government readinessrankings (see Table 5).The United Arab Emiratesmerged information and services into a single gateway,while Egypt further improved its e-government centralportal. Qatar has made significant investments toenhance e-government capabilities, which likely willaccelerate and expand because the government enteredinto a partnership in late 2006 with the SingaporeInfoComm Development Authority to improve ICT inboth the public and private sectors.

A number of countries have innovative e-governmentinitiatives that could serve as regional best practices toguide the improvement of e-government services.Thefollowing examples are merely illustrative:

• Bahrain’s smart card technology, as part of a broadere-government strategy, enables such activities asconducting official procedures, accessing money,and recording personal educational and health data.

• The Emirates Identity Authority was created as afederal government organization to develop andmanage a modern and integrated population registry and identity management system for UAEcitizens and residents.The new system will encom-pass several key technologies, such as smart cards,biometrics, and public key infrastructure.

• Bahrain, Egypt, and the United Arab Emirates areleading regional countries offering public informa-tion through portals and official sites.

InnovationFor innovation to spring from the spread and use of ICTtechnologies, a number of conditions need to be in placein the economy. In the autumn of 2006, Moutamarat,INSEAD, and PricewaterhouseCoopers surveyed executives across the Arab world about their views oninnovation.These views provide insight into factors that facilitate and impede innovation; the survey points toareas that need to be addressed to make the economybenefit more from spillover effects ICT generates.

Executives were asked a number of questions abouttheir companies’ successes and challenges in innovating.The overall finding was that if businesses are to innovateto become stronger regional and global competitors,

Middle Eastern governments must make a strongercommitment to promote innovation.

Executives stated that the most important challengefor successful innovation in the region is the lack ofadequate resources (see Figure 1)—both qualified per-sonnel (30 percent of respondents) and financialresources (17 percent). Interestingly very few executivesstate that internal organizational rigidities hinderedinnovation in their companies. Firms in the regionwould innovate more with improvements in marketconditions—such as the provision of greater informationabout market practices and opportunities (11 percent),less restrictive regulatory policies (13 percent), and alower overall level of economic risk (12 percent).

Executives were also asked to rank the countrieswith the highest potential for becoming the innovationhub for the region (see Figure 2).The United ArabEmirates comes up dominant in the top spot with thesupport of 42 percent of the respondents.The UnitedArab Emirates has earned this distinction because of anumber of investments it has made in developing itstechnological and innovation capabilities.The followingsection provides more details on the innovation strategyof the United Arab Emirates. Other countries in theregion should examine their own innovation strategiesand market conditions if they wish to emulate theUnited Arab Emirates and take advantage of the oppor-tunities available in transitioning to a more innovation-driven economy.

In terms of sectors, the ICT and the energy, mining,and utilities sectors are ranked as the most innovative inthe Arab world by about a quarter of the respondentsfor each (see Figure 3).There is a lot of potential forinnovation in other sectors, such as health care, retailand consumer goods, and financial services.

Case studies of innovative initiativesThe instrumental role of Middle Eastern governmentsin stimulating technology development and innovationis documented in the following two case studies:

Since 2000, UAE policymakers have promotedbuilding the Emirates into information-rich societies.

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Table 5: UN e-Government Readiness Western Asiarankings

Country 2005 Rank 2004 Rank

United Arab Emirates 42 60Bahrain 53 46Qatar 62 80Jordan 68 68Kuwait 75 100Saudi Arabia 80 90Egypt 99 136Oman 112 127Syria 132 137

Source: UN, 2005.

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0 5 10 15 20 25 30

Don’t know

Refused

Internal organization rigidities

Lack of time to encourage innovation

Lack of physical infrastructure

Lack of access to new markets

Lack of information on technology

Lack of information on markets

Economic risks

Restrictive regulatory policies

Lack of financial resources

Lack of qualified personnel

10

4

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5

6

7

8

11

12

13

17

30

Figure 1: What are the greatest challenges to your company’s ability to innovate?

Source: Moutamarat, INSEAD, and PricewaterhouseCoopers survey.

0 10 20 30 40 50

Don’t know

Refused

Tunisia

Lebanon

Jordan

Qatar

Saudi Arabia

Egypt

United Arab Emirates 42

10

8

6

6

4

3

2

9

Figure 2: Which Arab country has the greatest potential for becoming the innovation hub for the region?


Percent of responses


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The UAE case study discussed below describes some ofthe innovation- and ICT-based initiatives they have pur-sued to realize their intentions.

In the second case study, Jordan, lacking naturalresources, has elected to reinvent its educational systemthrough innovative education initiatives. Investing ineducation was deemed the most appropriate mechanismto improve employment opportunities for the country’slarge, youthful population; at the same time, lack ofhuman capital has been identified as the key obstacle toinnovating in the region. Jordan, seeking to become aninformation-work economy, has created a number ofcutting-edge ICT-based educational programs throughpublic-private-partnerships that are now exported toother countries.

Case study 1: Innovative policies: The United Arab Emirates success storyThe United Arab Emirates has combined innovativegovernment policies and the forces of petro-dollars to redefine its economic landscape.The country’s percapita income is on par with those of leading WesternEuropean nations (US$28,581 in 2005). Certain observ-able parameters indicate that the country has a greatpotential for becoming a top-notch knowledge-basedeconomy stimulated and energized by a host of innova-tive initiatives and programs; public- and private-sectorentities in the United Arab Emirates have started theirjourney of focusing on innovation as a driver for further

development and growth. Supportive market mechanismsand policies are fueling the innovation wheel. Currentlythe country enjoys high levels of broadband Internetpenetration, particularly in Dubai (64 percent) and a highmobile telephony penetration rate (close to 100 percent).The country is significant today as a business, technology,education and health-care hub in the region.19

The recent Moutamarat-INSEAD-PricewaterhouseCoopers survey on innovation placesthe United Arab Emirates as the forerunner in the region,rating it as the country most likely to become theregion’s innovation hub.The survey respondents rated itfour times more likely than its closest rival, Egypt, tobecome the dominating innovation influence in theArab world. One might argue here that the United Arab Emirates has reached a high-tech frontier and thatinnovation, one of the pillars of competitiveness, is, ifnot the only driver, certainly among the self-sustainingdrivers of growth and development.

Responding to the rapidly growing importance ofthe United Arab Emirates and riding the wave of inno-vation in this market, many global corporations areestablishing “innovation centers” in that country. Onesuch facility was established by Bayer MaterialScienceAG in November, 2006—this is the first developmentcenter for high-quality polymer materials in the regionto have access to a wide range of options for technicalservice, the development of new applications, and trainingfor customers and employees.The United Arab Emirates,

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Entertainment and media

Health care

Retail and consumer goods

Financial services

Travel & Tourism

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Energy, mining and utilities

Information and communication technologies 24

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Figure 3: Which industry sector has the highest level of innovation in the Arab world?



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like many other Arab countries, is concentrating ondeveloping its innovative capacity and providing possiblesolutions—such as raising awareness of the need todevelop an innovative capacity—to many of the hurdlesassociated with these bold initiatives.The area is witness-ing a surge of public- and private-sector cooperation andpartnerships to deal with these issues.

Unlike any other country in the Gulf, the UnitedArab Emirates has worked very hard on its technologyinitiatives.This is manifested in a maturing IT market,which has been estimated to be worth US$1.46 billionas of the end of 2005 and is expected to top the US$2.2billion mark in 2008.20 Dubai has been in the lime lightfor the past six years, but, unsurprisingly,Abu Dhabi, thenation’s capital, is currently emerging as the biggesttechnology spender in the country, with total IT spendingin 2005 valued at US$769 million (46.89 percent of themarket).21 With regard to the latest advancements relatedto technology applications in the country, new develop-ments have evolved rapidly, from imaging and archivingsolutions to enterprise portal and content managementsystems.The United Arab Emirates is becoming moreadvanced very quickly as it is driven by the desires ofboth private businesses and the government toward adigital- or knowledge-based economy.

The first of the technology-intensive innovationinitiatives in the United Arab Emirates was Dubai MediaCity (DMC), launched in November 2000. Next toDMC are Dubai Internet City (DIC) and KnowledgeVillage.The major goal of the multibillion dollar DMC,DIC, and Knowledge Village complex is to create acluster of innovation comprising educators, incubators,logistic companies, multimedia businesses, telecommuni-cations companies, remote service providers, softwaredevelopers, and venture capitalists in one place.

DIC is the region’s first technology-innovationzone and is viewed by decision makers in this countryas an economic driver not only of Dubai’s economy,but also of the United Arab Emirates as a whole.Todayhundreds of high-tech firms are housed in DIC. DMChouses more than 550 media companies, including global giants, along with regional companies and newstartups. Companies in this high-tech corridor employmore than 7,000 knowledge workers from all aroundthe world.

Another mover and shaker in the high-tech corridoris Knowledge Village; this project is designed to create awired community to help build the region’s talent pooland advance its move to the knowledge economy.Knowledge Village is located in the Dubai Technologyand Media Free Zone with DIC and DMC. By being inthe high-tech corridor, Knowledge Village offers itspartners the prospect of forging partnerships with thebusiness community and creating a vibrant learning andinnovation environment. Currently, Knowledge Villagehas more than 70 educational and research institutions as partners.

Also worth mentioning is Dubai Silicon Oasis(DSO), which is intended to be one of the world’s lead-ing high-technology parks for the semiconductor andmicroelectronics industry. DSO is an innovation-driventechnology community, housing microelectronics- andoptoelectronics-related enterprises, a state-of-the-artmicroelectronics innovation center (MIC), fabricationplants, research and development centers, and specializedacademic institutions and residential areas.

The government of the United Arab Emirates hasbeen a key driver in the innovations within the country.The Dubai e-government initiative is an integral com-ponent of Dubai Vision 2010, which aims to establishDubai as a knowledge-based economy by leveragingtourism, IT, media, trade, and services as pivotal indus-tries in an effort to move away from dependence on oil-related products.The Dubai e-government initiativeaims to improve and innovate in government services byusing technology as a key enabler for a customer-centricapproach to providing government services.To achievethese goals, the Dubai e-government has developed andimplemented a number of projects that were successfullycompleted in the past four years (2002–06). Examples ofthese projects are ePay, askDubai, mDubai, eIntegrate, eHostand eHost, eJob, eSurvey, and eCitizens.

Many Dubai government departments have reachedthe fifth stage of e-government evolution—seamlessintegration.A case in point is the eService, which wasrecently launched between Tejari and the Department ofEconomic Development (in January 2006); all 50,000organizations licensed by the department now haveautomatic access to Tejari LINK—the service thatenables online market-making for businesses of all sizesand is facilitated through a quick and affordable one-time registration on the Tejari trading community.Thisinitiative specifically supports SMEs, which are growingat a fast pace.Through Tejari LINK these organizationsautomatically receive a designated website to ensure asignificant Web presence for each company. In addition,they are added to a national online directory, join amessage center to facilitate trading leads, and receivespace for electronic product showrooms and e-exhibitionfunctionality.Another feather in the cap of Tejari is thecreation of specialized subcommunity portals that caterto specific community clusters or industry segments.One such portal is the one created for the more than5,000 companies located in the Jebel Ali Free ZoneAuthority (JAFZA), which enables the free zone com-panies to send and receive trade leads, create onlinecompany profiles and product showrooms, and find suit-able trading partners through Tejari Exchange.22

Case study 2: Innovative classrooms: The Jordan Education InitiativeJordan is a small desert country that lacks the oil andnatural gas resources found in the Persian Gulf; yet, likeits foreign policy, Jordan’s education philosophy has been

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developed with an eye to the country’s unique positionin the region. English is taught in all Jordanian publicschools, and the country has marketed itself as a safe andopen place for foreign college students. Jordan invests ahigher percentage of its gross domestic product in edu-cation than any other country in the Arab world.24

With a high level of unemployment (estimatedbetween 15 and 20 percent), a young population (34percent are under 14 years of age, and there is a medianage of 23 years), and a low per capita income (US$4,700in 2005), the political leadership in Jordan is convincedthat the real wealth is in young people. It has thereforechampioned innovation in the educational system in thecountry through the use of technology.Through theJordan Education Initiative (JEI), the country’s mainobjectives are to enable its students to compete globallyin the knowledge economy, train teachers and adminis-trators to use technology in the classroom, and guidestudents through critical thinking and analysis.Today, theJEI is being replicated in Rajasthan, India (launched inNovember 2005), the Palestinian territories, Bahrain,and most recently Egypt (launched in May 2006), aswell as in other countries.

The JEI runs parallel to and shares dependencieswith two existing national programs in Jordan: (1) theEducation Reform for the Knowledge Economy(ERfKE) program, a reform program supported byWorld Bank; and (2) the National Broadband Learningand Research Network, a nationwide high-speed broad-band network connecting all of Jordan’s public schools,universities, community colleges, and community accesscenters, which reached 1.5 million learners by the endof 2006.

The JEI initiative was officially launched in June2003 by the World Economic Forum’s IT and telecom-munications industry governors to transform publiceducation through technology in Jordan. In addition tothe Forum, which sponsored the JEI, the initiative hasover 45 organizations that include 25 international pri-vate-sector partners, especially in the ICT sector; 17local establishments; and 11 government agencies andNGOs. It has four major objectives:

• Improve the delivery of education in Jordanthrough public-private partnerships.

• Unleash the innovation of teachers and studentsthrough the effective and efficient use of ICT.

• Build the capacity of the local ICT industry.

• Create a model of reform that can be used in otherdeveloping and emerging countries.

Two distinctive features set this initiative apart fromothers. First, it is an ambitious blueprint that uses tech-nology as a catalyst to innovate in the educational systemand accelerate Jordan’s development into a knowledge

economy. Second, it is an application of ICT through apublic-private partnership.These partnership arrange-ments have been win-win situations for the JEI and thecountry in general. Public schools have benefitedtremendously from what the private sector has con-tributed in terms of skills, innovation, project manage-ment, technical expertise, and so on.With the assistanceof substantial investments from companies—(financial, inkind, and expert-based) such as Cisco, ComputerAssociates, Dell, DHL, IBM, France Telecom, Microsoft,Intel, and many others—tremendous improvementswere provided to e-Contents, especially in mathematics,science, and English as a foreign language (EFL).As ofNovember 2006, 35 partners had been engaged indeploying the technical infrastructure to 100 DiscoverySchools; helping in designing, developing, and/or rollingout five e-Content curricula (in math,Arabic, English,ICT, and science). In February 2006, Math e-Content,which had been piloted in the previous year, was rolledout online to all Discovery Schools. Currently, the ini-tiative is piloting an ICT e-curriculum that will applytechnology to subjects such as music, language, and sci-ence, rather than teaching technology for its own sake.In terms of the initiative impact, and as of November2006, 85,000 students, teachers, and principals benefitedfrom the initiative in one form or another.

Rewards to private-sector entities are in the formof strengthening their reputation and polishing theirimage within society, yielding a long-term return onsocial capital and social investment. For the private sectorin particular, an effective educational system is criticalfor economic growth and social development, in buildinga skilled labor force, and improving productivity. But theultimate winner in this educational public-private part-nership initiative is the group of students and teachers,especially in public schools, who are having theirschools fully wired and equipped and their humanresources fully trained and skilled.

Another major objective of the JEI initiative is tohelp the country build a model of education reform andinnovation that can be exported to and/or replicated inother developing countries. Currently, the JEI is viewedas a success story and has helped spur off other educa-tion initiatives around the world, such as the RajasthanEducation Initiative (begun in November 2005) and theEgyptian Education Initiative (May 2006), among oth-ers. Based on the success of the JEI initiative, amongother factors, the World Economic Forum is launching anew project—Partnership for Education— withUNESCO, under the auspices of the Forum’s GlobalEducation Initiative (GEI).

Notwithstanding the discernible accomplishmentsof this initiative, unfortunately the JEI still lacks a set offormal performance evaluation criteria for impact assess-ment in terms of ensuring access, improving quality, andproviding the right teaching.Another challenge that hasto be addressed is capacity building and cultural change

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management, both at the micro and macro levels.Therole of the private sector does not stop at offering finan-cial and technical support; it really has a role to play indefining the standards of education and in offeringinternship and training programs.

Policy recommendations to promote innovationAs Middle Eastern policymakers consider how to positionand prepare their countries for the future, it is especiallyimportant that they consider the process to assess andimplement innovations.Technology is evolving at evermore rapid rates and decisions cannot be deferred in thehope that a new more powerful or cheaper technologywill make decisions easier.The history of post-war devel-opment is a progression of ever more versatile technolo-gies arriving in ever faster waves. If the developed worldhad waited for the next set of technology inventions toimprove investment cost-benefit ratios, the developedeconomies would not stand where they do today.

Estimating cost-benefit ratios of technology andinnovations is not a science.The potential for improvingeconomic, social, and educational prospects hinge uponmyriad governmental and business decisions, as well ason cultural issues. US companies, as a group, have gainedmore from technology investments in terms of produc-tivity and innovation than European companies.However, this is an average generalization. NumerousEuropean and Asian companies are world leaders, apply-ing technology to boost innovation levels and, ultimate-ly, performance.They have applied technologies to theirunique requirements, and at the same time adapted andchanged their business practices in a restless process ofassessment and innovative renewal.

There is extensive sharing of information, regionalinitiatives, and collaborative alliances in the developedworld. Fast-changing technology introduces novel appli-cations for new and established markets. It is beyond asingle major company or government’s capabilities tohazard substantial investments alone, and no sector seesmore joint ventures or alliances than ICT. Monopolisticpractices are frequently incompatible with keeping pacewith, let alone anticipating, chameleon technology evolutions.

This pace of change introduces two major challengesfor Middle Eastern policymakers: managing the changesinnovative technology development requires, and enter-ing into regional and public-private partnerships todefray risks and maximize technology’s potential forsupporting innovation and improving the economicprospects of all citizens.

It is hoped the following recommendations to stim-ulate innovation will help policy leaders review strate-gies and practices most suitable for their country, recog-nizing that each Middle Eastern country has differenteconomic priorities, cultures, and social dynamics.Thesedifferences should not obscure the potential to exchange

useful information, best practices, and explore launchingpublic-private and regional initiatives.

Encourage innovation in small- and medium-sized enterprisesSMEs comprise the greatest number of service compa-nies and they employ the largest total numbers ofemployees in the region. Because of their aggregateprominence, technology take-up among SMEs couldbring substantial economic benefits to Middle Easterncountries, provided SMEs can adapt and innovate intheir business practices to capture productivity improve-ments. Unfortunately, SMEs face formidable hurdles inadopting technology and innovating in business practices.Many SME owners and managers assess technology interms of immediate cost rather than as an investment forinnovation, to gain more customers, reduce long-termcosts, and improve performance.These attitudes will bedifficult to change, but they must evolve if the MiddleEast is to enjoy the potential economic and social gainsstimulated by technological progress.

However, in defense of conservative Middle EasternSME owners and managers, it should be noted they arefar from alone in hesitating to use technology beyondbasic administrative and accounting functions. ManyEuropean SMEs have also been slow to integrate tech-nology into their businesses.24 If substantial numbers ofMiddle Eastern SMEs are to adopt technology moreaggressively, governments must make patient and persist-ent efforts to change long-settled business methods. Inparticular, governments should consider the initiativeslisted below.

EducationThere simply are not enough ICT professionals availablewhom SME managers can hire full-time to supervise acompany’s technology program. Educational investmentsare required to provide training and attract students tonew ICT career choices. Higher funding to supportteachers’ professional development is also needed. Forthose students who do not choose an ICT career,schools should improve general technology literacy byoffering basic business-related technology training andskills as part of the standard curriculum.

SME software and providersMany SME applications are not optimized, in terms oflanguage or functions, for Middle Eastern SMEs.Thepaucity of digital Arabic content and software presentsan ideal opening for Middle Eastern countries to sponsornational plans to promote an Arabic software industry.

The timing is particularly auspicious with theplanned inauguration in 2007 of the Saudi-German full-featured Arabic search engine, Sawafi. Software, rangingfrom tools and packaged software to tailored applicationsand multimedia tools, is a high-growth industry that canbe launched and supported with relatively low capital

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and financing expenditures.25 Moreover, measures tosupport and encourage Arabic software developmentwill rebound to the greater benefit of Middle Easterntechnology evolution because the software industry willrequire IPR and patent protection, as well as supporting e-commerce legislation. Furthermore, as more computersare installed in increasing numbers of schools and uni-versities, there will be greater demand for more Arabiccontent and software to advance e-education initiatives,both at schools and at home. National software andcontent development programs can also open anothervenue for regional cooperation. Last, and most impor-tantly, a robust local software industry can help reversethe “Arab brain drain” by offering attractive careers inthe Middle East.

ICT-related financial incentivesResearch and development (R&D) in technology-relatedservices and innovative business practices should enjoyR&D tax credits, especially as services command such alarge amount of Middle Eastern economic activity.Whilethese R&D tax credits would also benefit large compa-nies, they would encourage SMEs to experiment withintroducing new business practices using technology andinnovative processes.Tax credits could also be introducedfor businesses to purchase computers and software.

Public awarenessThe government should invest in publicity campaignsand organize technology resource centers in businessdistricts to inform and educate SME owners about theinnovative potential of new technologies. Financialincentives to encourage SME owners to assess technolo-gy options could be offered, for example, by issuing consultancy vouchers.

Introduce innovative financing approachesOver the past decade, Middle Eastern countries havefinanced technology infrastructure (with the exceptionof mobile communications) principally from twosources: government budgetary allocations, primarilythrough revenues generated by the telecommunicationsmonopolies, and donor and international financial insti-tution programs. However, the scale of investmentsrequired to improve technology infrastructure capacityand performance is beyond the ability of these tradition-al methods in many countries. Even those countriesenjoying a surge in oil revenues should consider newfinancing techniques, because they face so many com-peting and pressing socioeconomic needs.Technologypresents many potential openings to attract investors,unlike such public priorities as improving health care,literacy, and roads. Notable ways to encourage privateand foreign investment, especially recommended by theWorld Bank, include: 26

Competitive subsidiesCompetitive bidding to award cash subsidies to technol-ogy providers can stimulate private investment by lower-ing up-front risk. Subsidies help public finances remainwithin budget because they are not open-ended com-mitments or based on percentage formulas.Technologyproviders must meet performance goals to receive pay-ment, which encourages compliance. Moreover, subsi-dies can be targeted to social or economic priorities,such as improving Internet access in rural areas.

Aggregate demandPooling government departments’ and agencies’ technol-ogy purchasing needs and soliciting competitive tenderscan stimulate the private sector to invest in new infra-structure and services. For example, governmental cross-departmental commitments to purchase broadbandcapacity can limit the commercial risk of installing newnetworks while reducing the overall cost to the govern-ment. However, if demand aggregation is to succeed,departments must coordinate their plans and requirements.Unless officials at the highest administrative levels giveforceful direction to support interdepartmental technol-ogy purchasing, administrative rivalries will likely scuttlejoint departmental tenders.

Private funding guaranteesGovernments can develop loan guarantee schemes, ashave been applied in Europe, to encourage privatelenders to finance technology investments. However, asMiddle Eastern debt markets tend to favor fundingworking capital, this approach may appeal more to foreign lenders and financial intermediaries than todomestic businesses.

Lower administrative obstacles to encourage investmentsMiddle Eastern states are not alone among developingcountries in shouldering a legacy of extensive bureau-cracies and administrative procedures.Although someMiddle Eastern countries have made significant recentprogress in improving the business environment forentrepreneurs, conditions are far from ideal.There is nota single entrepreneur in any country who does notcomplain about red tape, but Middle Eastern administra-tive burdens can especially hinder innovative ventures,which, by nature, must adapt at relatively short notice.Perhaps technology can serve as a useful wedge to helpgovernments negotiate administrative reforms.

Public-private partnershipsRegional and national cultural, social, and traditionalvalues strongly influence investment priorities andmethods.The Middle East has few successful public-private partnerships, or, for that matter, public-publicregional initiatives to date. However, there are signs ofchange. Over the past several years, Egypt, Jordan, andthe United Arab Emirates have encouraged investments

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and partnerships in technology projects. Egypt has con-vinced international companies, such as Microsoft andCisco Systems, as well as national companies, to partici-pate in multimillion dollar investments. Jordan hasforged partnerships between its software developmentsector and international companies to increase softwareexports to developed countries.

The large scale and cost of infrastructure investments,the specific technologies, and their implications forfuture development are all sound reasons for MiddleEastern countries to explore new financing, partnerships,and regional initiatives to share resources and expertise.Public-private partnerships are well suited to long-termtechnology investments where risk is higher than otheropportunities that typically attract private MiddleEastern investors, such as real estate or commercial trad-ing. However, such partnerships require new sets ofnegotiating and oversight skills for governments to beable to participate effectively. Because the MiddleEastern technology sector is in the early stages of devel-opment, foreign companies must participate to transferknowledge and expertise. Until a full set of IPR andpatent protection laws are promulgated and enforcementis raised to the standards of developed countries, attract-ing foreign partners will be difficult and time-consuming.

Innovate by sharing best practicesThe Middle East is home to several innovative initiativesthat could serve as models for best regional practices,and possibly extend to other forms of cooperation andmutually beneficial endeavors. For example, Egypt,Jordan, Saudi Arabia, and Syria have recently introducedprograms to promote family-owned computers throughdifferent types of government-supported financingplans. Foreign technology manufacturers, such asHewlett Packard and Acer, are beginning to invest in theregion, constructing new plants in Saudi Arabia.Innovation parks, clusters, and free trade zones, encour-aged and fostered by different types of financial and reg-ulatory incentives, have appeared throughout the MiddleEast. Information about, and access to governmentalprograms have been priorities for many countries, ande-government programs hold great promise for advanc-ing the sharing of best practices.

However, as a general rule and in contrast to Asia,where National Information Technology Councils shareinformation and experiences, regional sharing of knowl-edge is not common among Middle Eastern countries.For example, although the League of Arab States identi-fied 19 projects well suited for regional cooperation in2001—such as establishing technology indicators, devel-oping an Arab regulatory framework, creating a centerfor digital documentation and archiving heritage, devel-oping access nodes to connect Arab internet networks,and translating and Arabizing ICT terminology—progress has been slow.

Recognizing the importance of regional coopera-tion, in 2003 the United Nations DevelopmentProgramme announced an initiative, Information &Communities Technologies for Development in theArab Region (ICTDAR) to assist all Arab countriesimprove their ICT capabilities.As previously mentioned,the International Telecommunication Union,ArabRegional Office has also launched an inter-ArabInternet connection project.

A promising route to encourage innovative regionalprojects would commence by developing formal institu-tional channels to share information about best practices.As these contacts built mutual confidence, more elabo-rate projects requiring resource commitments couldthen be planned and considered. Identifying regionalprojects that respect a member country’s national cultureand priorities has not been an issue. Rather, summoningthe political will to explore ways that regional coopera-tion can advance each country’s development agendaremains a concern. Sharing best practices in innovationoffers Middle Eastern countries a useful and noncom-mittal path toward regional cooperation.

Invite private-sector innovation by opening marketsRecent liberalizations in the Middle Eastern mobiletelephone markets have proven the power of competi-tion to introduce new innovative services, lower prices,and stimulate demand. However, main telephone linesremain a monopoly in many countries. Governmentsshould introduce competition to stimulate much-neededprivate-sector investment and innovations.

Opening monopoly main telephone lines to com-petition is only the start to crafting a new regulatoryregime better suited for stimulating innovation. Forexamples, novel fixed wireless technologies andadvanced digital processing techniques could spreadInternet connectivity at far more affordable costs tomuch more of the population.The developed world isin the midst of devising new regulatory approaches forsome of these new transmission technologies by replac-ing individual operator licensing with shared andlicense-exempt use. Because state-of-the-art digital pro-cessing techniques let operators share spectrum withoutinterference, they promise to reduce regulatory burdensand encourage competing vendors to deliver more serv-ices to the public and business at more affordable rates.27

Share regulatory and legislative informationRegulatory issues are complex in the fast-moving worldof technological innovation. Regulators in the developedworld regularly share information and analysis to developpolicies and monitor developments. Middle Easterngovernments should endorse this model of internationalcooperation.The recently formed Arab RegulatorsNetwork is a promising new regional initiative; it hasadvocated exchanging information and possibly mergingpilot projects across the entire Arab region.

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A viable and enforced legal regime must be in placefor the Middle East to accelerate technology develop-ment and e-commerce. Governments should share legalresearch and analysis to speed promulgating laws andregulations to:

• protect personal data and information privacy;

• protect Internet-related intellectual property,publishing rights, and software applications;

• accelerate signing, ratification, and joining international agreements relating to IPR, includingthe Patent Cooperation Treaty and the Patent LawTreaty; and

• accelerate the introduction of e-commerce legislation.

Monitor and measure development and innovationwithin and across countriesMiddle Eastern strategies differ in many respects, but allshare a need to devote more resources to collectingtimely data to monitor innovation and developmentprogress.Without reliable data, governments cannotaccurately assess progress and refine plans.The UN, theWorld Bank, the International TelecommunicationUnion, and regional organizations have embarked on amajor project—Partnership on Measuring ICT forDevelopment—to convince all countries to collect asmall set of relevant data to render analysis much moreaccurate and up to date. Middle Eastern countriesshould strive to track and compile these basic statisticsbecause they will greatly aid monitoring and improvingtheir technology and innovation strategies.

Encourage entrepreneurial opportunities such as offshore call centersThe global offshore call market—currently valued atbetween US$40 billion and US$50 billion—is growingrapidly at around 30 percent annually. India has domi-nated the market, serving US and UK clients, but nowcontinental European companies are seeking to out-source call centers; such centers require multilingualcapabilities beyond English.They also prefer call centersthat fit more closely, geographically and culturally, withtheir home base.

Middle Eastern call centers that cater to this newmarket are now appearing. In 2005,A.T. Kearney’sannual ranking of global services locations placed Egyptas 12th, followed by Jordan at 14th and the United ArabEmirates at 20th.28 The strong commercial potential ofthese locations is best suggested by noting that the 2004survey included none of these countries.

Egypt has encouraged the development of call cen-ters through the support of the Information TechnologyIndustry Development Agency, formed in 2004.Thisagency, which includes a public-private task force, helps

local and foreign investors secure tax breaks and organ-ize call centers in free trade zones, notably Smart Villagein a Cairo suburb. Smart Village is the first of severalplanned innovation clusters the agency intends to estab-lish. Furthermore, to improve the cost competitivenessof Egyptian call centers, the government has plans togrant the first two licenses for international Voice overIP (VoIP) services.VoIP licenses are an exception in theMiddle East as most countries restrict VoIP to protecttheir main telephone line monopoly revenue.

Egyptian support of its nascent call center industryexhibits a number of characteristics important to stimu-lating innovation: a special agency with public-privateparticipants to oversee developing call centers, tax andother financial incentives to attract domestic and foreigninvestors, innovation clusters to encourage a favorableenvironment for technology companies, and flexibilityto liberalize telecom regulations to introduce new com-munication technologies.

ConclusionSince 2000 most Middle Eastern countries have madesubstantial progress designing strategies to integrate andweave the new strands of the information society intotraditional social, economic, and cultural patterns.Thesestrategies have begun to yield results. Most countrieshave seen a surge of mobile telephone use. Increases inInternet access considerably outpaced world averagegrowth. Some countries have enthusiastically embracede-government initiatives to deepen communicationswith citizens and deliver government services.The pioneering Tejari e-marketplace has demonstrated e-commerce’s ability to accelerate trading and businessactivity.The promise of the Internet and computers toimprove the lives of less-advantaged citizens has beenacknowledged by policymakers as several countries seekto disseminate computers widely through PC financingand distribution programs.

If policymakers are to leverage these encouragingdevelopments into innovation and faster progress, theyshould refine the process to prioritize, implement, andmonitor initiatives.The process will also be substantiallymore robust, innovative, and versatile if more initiativescan include new models of public-private partnershipsand regional associations. For in the Middle East, policywill likely play a greater role than technology in settingthe pace for how innovation evolves.This is becauseaccess to technology is not the bottleneck in many partsof the Middle East, but creating the overall environmen-tal conditions for innovation to thrive remains an ongoing challenge, even in the more developedeconomies of the region.

A top policy priority should be to develop ways toencourage SMEs to invest in technology and innovativebusiness processes, because the wider economic andsocial benefits could be substantial. Nurturing and

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supporting the formation of an Arab software industry isa most necessary parallel policy initiative to help SMEsmaximize the ways technology could potentially stimu-late innovative and more productive business activities.

The considerable scale and range of investmentsrequired to raise Middle Eastern technology and inno-vation performance suggests policymakers should nowexplore new financing methods to build infrastructureand innovation capabilities.These techniques, drawingupon competitive principles and private-sector partici-pation, will challenge conventional attitudes toward thestate’s role in the economy, but they hold the promise ofunlocking much-needed new funding sources.

Novel technologies inevitably bring change, unset-tling at times, as economies and societies adapt.This isespecially true for many conservative Middle Easterncountries. However, this conservatism can become anally to innovation if policymakers reduce risk by sharingbest practices, encouraging information exchanges, andcreating regional innovation ventures.

Notes1 General purpose technologies are innovations that potentially

affect a wide range of industries in the economy.

2 See ITU (2006).

3 One widely used definition of Middle East is the airline industry’sIATA standards, which lists Afghanistan, Bahrain, Egypt, Iran, Iraq,Israel, Jordan, Kuwait, Lebanon, Palestinian territories (West Bankand Gaza strip), Oman, Qatar, Saudi Arabia, Sudan, Syrian ArabRepublic, United Arab Emirates, and Yemen (Wikipedia, MiddleEast, http://en.wikipedia.org/wiki/Middle_East). The subset,Western Asia, comprises Bahrain, Egypt, Jordan, Kuwait, Oman,Qatar, Saudi Arabia, Syrian Arab Republic, and the United ArabEmirates.

4 See World Economic Forum and INSEAD (2005, 2007) for details.

5 See World IT Report (2003), available at www.worlditreport.com.

6 See UN-ESCWA (2005, p. 21).

7 See NAP for the Arab States, International Telecommunication Union, Arab Regional Office. Available at www.ituarabic.org/IPS-IDN/Documents/Doc08-%20NAP%20FOR%20THE%20ARAB%20STATES.ppt.

8 See UN-ESCWA (2005, p. 34).

9 See UN-ESCWA (2005, p. 34).

10 See UN-ESCWA (2005, p. 30).

11 See UN-ESCWA (2005, pp. 10–15).

12 See BSA/IDC (2005a, b); Middle East and Africa Report, available at www.bsa.org/idcstudy/.

13 See UN-ESCWA (2005, p. 15).

14 See Mrad (2005).

15 See ABC Newsonline (2006).

16 See UN-ESCWA (2005, p. 61).

17 See Poortman (2005).

18 Tejari executive conversation with one of the authors.

19 See Madar (November 2006).

20 See Zawya.com (accessed December 13, 2006).

21 See Zawya.com (accessed December 13, 2006).

22 Mr Hijazi described this portal to one of the authors on November30, 2006.

23 See Zoepf (2006).

24 See EU ICT Task Force (2006).

25 For a detailed analysis of Arab software industry potential, see Mrad (2005).

26 See Wellenius (2006).

27 See The Economist (2004).

28 See A. T. Kearney (2005).

ReferencesABC Newsonline. 2006. “Search Engine to Target Arabic Speakers.”

April 26. Available at www.abc.net.au/news/newsitems/200604/s1624108.htm.

A. T. Kearney. 2005. Global Services Location Index 2005. Available atwww.atkearney.com/shared_res/pdf/GSLI_Figures.pdf.

BSA/IDC (Business Software Alliance/International Data Corporation).2005a. Expanding the Frontiers of our Digital Future: ReducingSoftware Piracy to Accelerate Global IT Benefits. White Paper,December. Available at http://www.bsa.org/idcstudy/.

———. 2005b. Middle East and Africa Report. Available athttp://www.bsa.org/idcstudy/.

The Economist. 2004. “A Brief History of Wi-Fi.” June 10.

Economist Intelligence Unit. 2006. The 2006 e-readiness rankings, awhite paper from the Economist Intelligence Unit, London.Available at www.eiu.com/site_info.asp?info_name=eiu_2006_e_readiness_rankings.

EU ICT Task Force. 2006. Fostering the Competitiveness of Europe’sICT Industry. EU ICT Task Force Report. November. Available athttp://ec.europa.eu/enterprise/ict/policy/doc/icttf_report.pdf .

ITU (International Telecommunication Union). 2006. WorldTelecommunication/ICT Development Report 2006: MeasuringICT for Social and Economic Development. Geneva : InternationalTelecommunication Union.

Mokyr, J. 1990. The Lever of Riches: Technological Creativity andEconomic Progress. New York: Oxford University Press.

Mrad, F. 2005. “Meeting Arab Socio-economic Development throughICT.” Presentation at the School of Computer Science, CarnegieMellon. Available at www.cs.cmu.edu/~cfr/talks/2005-Feb-4.ppt.

Poortman, C. Speech to World Economic Forum in the Middle East onInfrastructure Challenges, May 20, 2005.

Trajtenberg, M. 2006. “Innovation Policy for Development: AnOverview.” Foerder Institute for Economic Research WorkingPaper 6-06. Tel Aviv: Foerder Institute for Economic Research.

UN (United Nations). 2005. Global E-Government Readiness Report2005. New York: United Nations.

United Nations ICT Task Force. 2005. Measuring ICT: The Global Statusof ICT Indicators, Partnership on Measuring ICT for Development.New York: The United Nations Information and CommunicationTechnologies Task Force.

UN-ESCWA (United Nations Economic and Social Commission forWestern Asia). 2005. Regional Profile of the Information Societyin Western Asia. United Nations Economic and SocialCommission for Western Asia, October 31. New York: UnitedNations. Available at www.escwa.org.lb/information/publications/edit/upload/ictd-05-6.pdf.

Wellenius, B. 2006. “Extending Communication and InformationServices: Principles and Practical Solutions.” In Information andCommunications for Development: Global Trends and Policies, ed.P. Guislain, C. Zhen-Wei Qiang, B. Lanvin, M. Minges, and E.Swanson, pp. 41–55. Washington, DC: World Bank.

World Bank. 2006. Information and Communications for Development:Global Trends and Policies. Washington, DC: World Bank.

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World Economic Forum. 2005. The Global Competitiveness Report2005–2006: Policies Underpinning Rising Prosperity, ed. A. Lopez-Claros, M. Porter, and K. Schwab. Hampshire: PalgraveMacmillan.

———. 2006. Global Competitiveness Report 2006–2007: Creating anImproved Business Environment, ed. A. Lopez-Claros, M. Porter,X. Sala-i-Martin, and K. Schwab. Hampshire: Palgrave Macmillan.

World Economic Forum and INSEAD. 2005. The Global InformationTechnology Report 2005–2006: Leveraging ICT for Development,ed. S. Dutta, I. Mia, and A. Lopez-Claros. Hampshire: PalgraveMacmillan.

———. 2007. The Global Information Technolgy Report 2006–2007:Connecting to the Networked Economy, ed. S. Dutta and I. Mia.Hampshire: Palgrave Macmillan.

Zoepf, K. 2006. “Jordan’s Ambitious Plan: A Country with Few NaturalResources Hopes to Build its Intellectual Capital by Expanding itsHigher-Education System.” Chronicle of Higher Education. 53 (7):A39.

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CHAPTER 2.4

Promoting the Growth andCompetitiveness of theInsurance Sector in the Arab WorldPETER VAYANOS, Booz Allen Hamilton, Beirut

MAHER HAMMOUD, Booz Allen Hamilton, Beirut

Insurance is one of the cornerstones of the modern-dayfinancial services sector. In addition to its traditional roleof managing risk, the insurance sector promotes long-term savings and serves as a conduit to channel fundsfrom policyholders to investment opportunities, includingmortgage lending.As such, a thriving insurance sector isnot only evidence of an efficient financial services sector,but it is also a key enabler of a healthy economy.

Insurance in the Middle East and North Africa(MENA) region has traditionally lagged in growth anddevelopment relative to other elements of the region’sfinancial services sector.This is evidenced by the lowlevel of demand as measured by penetration and densitylevels, undercapitalized supply, and generally underdevel-oped legal and regulatory environments.

This paper outlines a set of policy recommendationsto be adopted to promote the growth and competitive-ness of the insurance sector in the MENA region.Webegin by reviewing and assessing the existing state of the insurance sector across the region.Thereafter, weexamine the key enablers that underpin a successfulinsurance sector before recommending policy changesto promote the growth and competitiveness of theMENA insurance sector.

Review and assessmentThe locally admitted insurance market of the MENAregion is small and underdeveloped.According to theSwiss Re Sigma report and other publicly availableinformation, the total gross premium income of theMENA region amounted to around US$9 billion in2005.This compares with US$47 billion for the coun-tries of Middle and Eastern Europe, and US$1,177 bil-lion for the initial 15 countries of the European Union(EU). In terms of share of the world market, the MENAregion accounted for roughly 0.26 percent in 2005.Figure 1 compares the size of the insurance markets ofmajor regions of the world.

A measure of the development of an insurance sec-tor is insurance penetration, defined as gross premiumincome (GPI) as a percentage of gross domestic product(GDP).When comparing the MENA region with otherregions of the world, this measure reveals the extent towhich the MENA market is underdeveloped. In 2005,the level of insurance penetration in the MENA regionwas approximately 1 percent, compared with an averageof 6 to 9 percent in industrialized countries and 2.5 to 4percent in emerging markets. Figure 2 compares GPI asa percentage of GDP for major regions of the world.

To better understand the insurance sector of theMENA region, we assessed the existing state of the mar-ket from a demand-and-supply perspective.This assess-ment revealed a number of findings that are unique tothe region.Although there are differences betweencountries, these findings are present to a greater or lesserdegree in each of the countries of the region.

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North America Western Europe EU15 Central and EasternEurope

Middle East andNorth Africa

1,222 1,2411,177

479

Figure 1: Gross premium income by region, 2005 (US$ billion)

Source: Swiss Re, 2006b; Bahrain Monetary Agency, 2006j.

North America EU15 Western Europe Central and EasternEurope

Middle East andNorth Africa

8.97%8.64% 8.44%

2.66%

1.05%

Figure 2: Gross premium income as a percentage of GDP (2005)

Source: Swiss Re, 2006b; Bahrain Monetary Agency, 2006j.

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The market is growing and has significant potential forfuture growthThe markets of the MENA region, albeit small, areundergoing rapid growth. Many countries in the regionexperienced double-digit growth between 2004 and2005. Furthermore, this growth has not been limited tothe most recent years: between 2000 and 2005, theinsurance market in the MENA region grew at a com-pounded annual growth rate of 12.5 percent. Figure 3illustrates the size of the market by country for 2004and 2005, and its growth rates between 2000 and 2005.

Further growth is expected during the foreseeablefuture, fueled by a combination of factors, including:

• Macroeconomic growth. Above-average levels ofmacroeconomic growth will spur the demand forinsurance. In particular, many countries in theregion, especially the energy-rich countries of theGulf, are witnessing large investments in infrastruc-ture and growing trade internationally and acrossthe region. Both of these factors will create strongdemand for insurance coverage.

• Emergence of compulsory insurance classes.The recent introduction of compulsory insuranceclasses, principally automotive and health insurance,in many countries of the region will drive thedemand for insurance on the retail side and make these the largest classes of insurance in the

marketplace. By way of example, we estimate thatin Saudi Arabia, by 2009, the combined health andautomotive market could represent up to 75 percentof the total insurance market of around US$4 billion.

• Privatization and restructuring of governmentpensions. Government privatization programs willserve as a catalyst for the development of the insur-ance sector, since entities that were formerly self-insured will now require insurance coverage. In thefuture, the expected restructuring of state pensionfunds and the reduced role of the state in providingpensions will also lead to rising demand for lifeinsurance and long-term savings products.

• Growth of financial services. The growth inasset-based financing, such as housing and autoloans, will lead to an increase in the demand forinsurance products to mitigate the risks associatedwith the underlying assets.

From a slightly different perspective, the emergence of the capital markets has provided analternative source of investments for insurance companies.Although the emergence of the capitalmarkets will not in itself drive demand for insurance,the maturing of these markets will provide oppor-tunities for insurance companies to diversify thesources of their investment income.

0.0 0.5 1.0 1.5 2.0

Algeria

Tunisia

Morocco

Egypt

Jordan

Lebanon

Bahrain

Oman

Qatar*

Kuwait


Saudi Arabia

Figure 3: Gross premium income of MENA countries (US$ billions)

Source: Swiss Re, 2006b; Booz Allen Hamilton analysis.

* Qatar CAGR (compound annual growth rate) is for 2003–05, as 2000 data are not available.

CAGR 2000–05 (percent)

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• Demographics of the region. The population ofthe MENA region is generally very young.As thepopulation matures, the demand for insuranceproducts will increase.

Despite the recent rapid growth of insurance in theregion, the market still has significant potential for futuregrowth.As mentioned above, the level of insurance pen-etration (GPI/GDP) is very low in the region. Figure 4provides a comparison of the countries of the MENAregion with selected other countries and reveals the sector’s future growth potential.

Another indicator of the potential for futuregrowth is the level of insurance density, measured interms of GPI per capita. In 2005, the insurance densityin the Middle East ranged from US$10 to US$440; thiscompares with a range of US$40 to US$1,000 inEastern Europe, US$1,400 to US$5,500 in WesternEurope, and US$2,400 to US$2,900 in North America.Figure 5 presents a comparison of insurance density forcountries in the MENA region against selected othercountries.

Life insurance is significantly underdevelopedLife insurance has historically had limited take-up in theregion, resulting in an average level of insurance pene-tration for life insurance in 2005 of around 0.3 percent

versus 1.4 percent for general and health insurance.Webelieve the reasons for this low level of penetration are:

• Shari’a sensitivity. The purchase of life insuranceproducts is strongly influenced by perceptions ofwhether or not the products are compliant withshari’a. Similar to other conventional financial prod-ucts, life insurance is perceived to have prohibitedelements of uncertainty (gharar), gambling (maiser),and interest income (riba). Uncertainty stems fromthe notion that the outcome of the insurance con-tract is not known at the time it is created andvaries according to the time of death of the insured.Gambling stems from the notion that the insuredmay gain large amounts (that is, profit) from theinsurance coverage if certain events take place.Interest income stems from the notion that the premiums are invested in non-shari’a-compliant,interest-bearing instruments.

• Lack of awareness of life insurance products.A limited awareness of life insurance and its benefitsamong the citizens of selected countries in theregion has limited the take-up of such products.This is partly driven by cultural factors, such as thereliance on the extended family network, and partlyby structural factors, such as the provision of gener-ous benefits by the state in the event of death ordisability.

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10

Saudi Arabia


Lebanon

Jordan

United Kingdom

Germany

United States

SpainMalaysia

KuwaitQatarOman Egypt

Morocco

Tunisia

Algeria

Bahrain

Figure 4: Insurance penetration by country (2005)


Premium value (US$ billions)

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• Absence of life insurance in related financialservices. Until recently, there were few relatedfinancial products (such as mortgage lending) thatstipulated the purchase of life insurance to settleoutstanding obligations in the event of the death ordisability of the borrower.

Emergence of takaful as an alternative to conventionalinsuranceIn response to shari’a sensitivity, takaful—a form ofinsurance that complies with the principles of shari’a—emerged as an alternative to conventional insurance.While there is limited information as to the size andpenetration of the takaful market, interviews with marketparticipants and the increase in the number of Islamicinsurance companies point to rising demand for takaful.

Fragmented supply base with a large number of smallcompetitors, limited presence of foreign insurersFrom a supply perspective, many markets of the MENAregion are characterized by a large number of smallplayers when measured by capital employed. Selectedcountries (including Egypt, Jordan, and Lebanon) haverecently introduced legislation to raise the minimumlevel of capital. However, average levels remain very lowwhen compared with international standards.

There is also a limited presence of foreign insurersin the market in terms of market share. Furthermore,many of the international insurers have a narrow focus,particularly on the life side.

Intermediary distribution channels remain informalThe role of intermediaries in developing markets isimportant since they not only increase the distributionof products, but also serve as a means to educate cus-tomers about products.

Across the region, the level of penetration of bro-kers and agents varies. In the cases of Lebanon andSaudi Arabia, brokers are very active, especially on thecorporate side. In other markets, intermediaries are lessactive and the business is driven through sales forces tiedto companies.

The informal conditions under which brokers andagents operate, however, are common across the region.There are a number of reasons for these conditions,including:

• Absence of regulatory frameworks to governintermediaries. Until recently most countries inthe region did not have a regulatory framework togovern the activities of agents and brokers.This inturn undermines the credibility of companies andindividuals acting in this capacity.

• Lack of qualifications, accreditations, andlicensing requirements. The absence of thesestandards undermines the development of interme-diaries since there is no way for customers to inde-pendently verify the quality of the agent or brokerwith whom they are dealing.

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15,0000 30,000 45,000

1,500

3,000

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Lebanon Kuwait

United Kingdom

Germany

United States

Spain

Jordan

Malaysia

Saudi Arabia

Qatar

OmanEgypt

Morocco

Tunisia

Algeria

Bahrain

Figure 5: Insurance density by country (2005)


Insu

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(US$

)

GDP per capita

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Bancassurance, or the sale of insurance productsthrough a bank, is a similarly informal channel. Specificchallenges facing bancassurance include ensuring adequatetraining and incentive schemes for bank staff to sellinsurance products, implementing systems to facilitatethe processing of policies, addressing regulatory issuessuch as which regulator (banking or insurance) shouldoversee bancassurance activities, and determining whetherconventional banks are able to distribute takaful products.

In summary, our assessment has revealed that themarket is underdeveloped on both the demand and sup-ply sides.That said, there is significant potential forfuture growth. Capitalizing on this potential will requireregulators and policymakers to address gaps in theunderlying enablers of growth.

Evaluation of the enablers of growthThe development of an insurance market is a functionof the underlying enablers of growth, and the existingstate of the market is a reflection of the maturity ofthese enablers.We believe that there are five types ofenablers that shape an insurance market (see Table 1).

In order to develop policy recommendations toaddress the underlying enablers (and consequently pro-mote the growth and development of the market), it isnecessary to evaluate the maturity of each of theseenablers. Since the state of development of the enablersdiffers by country, it is necessary to perform this evalua-tion at the country level.Accordingly, we have reviewedthese enablers for nine of the major countries withinthe MENA region.The results of this evaluation arepresented in Appendix A and summarized below.

Legal frameworkAt the legal and regulatory levels, there is wide variabilityin the maturity of the frameworks that govern regionalinsurance markets. Until recently, almost all MENAcountries had outdated insurance laws and regulations;some countries had no insurance law at all. Over the pastfew years, many countries have initiated serious effortsto upgrade their regulatory frameworks, as evidenced bythe enactment of new laws.They have strengthened theindependence and supervisory capabilities of regulatoryentities in line with the core principles of the InternationalAssociation of Insurance Supervisors (IAIS); they havealso issued sector guidance notes covering, for example,governance, market conduct, and risk management.

That said, there still remains a wide variation in thecomprehensiveness and application of legal frameworksacross the region.At one end of the spectrum, Bahrainhas a well-established and applied legal framework forinsurance activities. In April 2005, Bahrain issued theInsurance Rulebook, which sets out elaborate licensing andoperational regulations for both conventional and takafulinsurance.A recent report by the Financial SectorAssessment Program (FSAP), a joint venture between

the International Monetary Fund and the World Bank,acknowledged the comprehensiveness of this regulatoryframework.1

At the other end of the spectrum are countries suchas Kuwait, Qatar, and the United Arab Emirates (UAE),whose regulations are limited. For example, in the UnitedArab Emirates, regulations do not require companies toadhere to solvency regulations but rather only meetminimum capital requirements. In the case of Qatar, thelaw lacks adequate legislation that lays out the rights andobligations of parties entering into insurance contracts.

The existence of a robust and comprehensive legalframework is one of the core underpinnings of a healthyinsurance market. In addition to building the confidenceof local market participants, an established legal frame-work serves to attract international players and, at aregional level, avoid potential regulatory arbitrage.

Regulatory bodiesRegulatory bodies operate in tandem with legal frameworks. Not surprisingly, the level of maturity ofthese bodies is a reflection of the underlying laws andregulations.

All the countries surveyed in this study have aninsurance regulator, although the form of the regulatorvaries. In some countries, the insurance sector is super-vised by an existing financial services regulator, such asthe central bank or capital markets authority. In othercountries, the sector is supervised by a government ministry.

Our assessment did reveal the existence of morethan one regulator with overlapping responsibilities inselected countries, which leads to inconsistent applicationof the regulations, potential confusion in the marketplace,and unnecessary bureaucracy for market participants. Forexample, in Saudi Arabia there is an overlap in the areaof health insurance between the Council of CooperativeHealth Insurance (CCHI) and the Saudi Arabian MonetaryAgency (SAMA).This is in addition to existing overlapsbetween SAMA, the Capital Markets Authority (CMA),and the Ministry of Commerce. Similarly, in Lebanonthere appears to be duplication between the activities ofthe Insurance Control Commission and the Directorateof Insurance Affairs of the Ministry of Economy.

The comprehensiveness and effectiveness of regula-tory processes, especially supervisory processes, variesconsiderably across the region.As mentioned above, thisis a function of the maturity of the underlying legal andregulatory frameworks. Countries such as Bahrain andJordan, which have well-developed regulatory frameworks,are either applying or developing risk-based supervisionprocesses that comply with the standards of internationalbodies such as International Association of InsuranceSupervisers (IAIS). Other countries, such as Qatar, Kuwait,and the United Arab Emirates, have less-developedsupervisory processes that are more administrative inorientation.

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The effectiveness of a legal and regulatory frame-work is directly correlated to the existence of regulatorybodies to enforce the law.Within the MENA region,there is a need to upgrade the capabilities of selectedregulators to ensure comprehensive and consistentenforcement of regulations.

The nature of competitionThe insurance markets of the Middle East are generallycompetitive.This can be measured by the extent towhich foreign insurers are present in the market, thelevel of state involvement through government-ownedfirms, and the extent to which the market is fragmented.

Over the past few years, countries in the region havelifted restrictions and/or moratoriums on the operationsof foreign insurers.As a result, the markets of thesecountries are now open to foreign insurance companies,which are present to various degrees throughout the

region. However, their share of the local market tends tobe small; this circumstance can be traced to previousrestrictions on market entry, regulations that requireinsurers to invest a large proportion of premiums inlocal markets, and the fact that the individual markets ofthe region may not have been attractive given theirsmall size.With the lifting of restrictions and expectedmarket growth, the level of activity of foreign insurers isexpected to grow significantly.

Additionally, foreign insurers in many cases havefocused exclusively on the life business.This can beascribed to the fact that local insurers have been lessactive in this area due to less-developed capabilities andlimited demand from nationals owing to shari’a implica-tions. International insurers also benefit from the naturalaffinity of expatriates who are more inclined to purchaselife insurance.

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Legal framework

Table 1: Insurance market enablers

ENABLER ROLE SUPPORTING EVIDENCE

• Protect the rights of policyholders, regulatethe activities of market participants, andensure the financial health of the sector

• Existence of an insurance law appropriate toexisting market conditions

• Existence of insurance regulations/implementing guidelines

Regulatory bodies • Oversee and supervise the sector andensure the enforcement of laws and regulations

• Existence of an insurance regulator

• Evidence of regulatory processes beingapplied

• Evidence of an insurance judicial authority

Skills and training • Assess the risks to be insured

• Provide customers with the appropriateproducts/services

• Ensure the availability and development of local skills

• Availability of skilled professionals

• Availability of training programs, traininginstitutes, and accreditations

Market-led initiatives • Drive self-regulation and the development of the industry at the country and regionallevels

• Existence and application of insurance standards

• Availability of insurance statistics and market data

• Existence of professional associations

• Existence of industry-level programs to create awareness

• Existence of regional forums

Nature of competition • Drives innovation, competitive pricing, andthe adoption of best practices

• Evidence of foreign insurers and the extentto which foreign ownership is allowed

• Extent of private- sector involvement—market share of private vs. public insurers

• Extent to which large, well-capitalized insurers exist

Source: Booz Allen Hamilton analysis.

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The insurance sector in the Middle East is charac-terized by a high degree of private-sector involvement.There are notable exceptions, such as Egypt and, untilrecently, Saudi Arabia. In the case of Egypt, the state-owned insurers command around 75 percent of thenon–life insurance market and 60 percent of the lifeinsurance market. However, there are moves afoot toconsolidate the activities of the state insurers with aview to ultimately privatizing the resulting entities.

Although there is significant involvement of theprivate sector in the insurance industry, this is offset tosome extent by a high degree of market fragmentation.In particular, many markets of the MENA region arecharacterized by a large number of small players whenmeasured by capital employed.

There are a number of ramifications of the currentlow levels of capitalization.At an overall industry level,this results either in insurance being placed directly out-side of the region through international brokers or inthe practice of fronting, whereby local insurers retain asmall portion of the risk and transfer the remaining riskto their international reinsurance partners.As a conse-quence of the lack of capacity, risk-management andactuarial capabilities in the region remain underdeveloped,resulting in a disproportionate reliance on internationalreinsurers to assess the risks and provide appropriatepricing guidelines.

At an individual company level, low levels of capi-talization limit the resources available to build therequired capabilities to serve customers efficiently andeffectively.

Encouraging the formation of large (but not domi-nant), well-capitalized insurers is vital to the developmentof the regional insurance sector, since these companiescan invest in the capabilities needed to promote growth.In addition, creating the conditions to attract foreigninsurers is important to ensure the transfer of skills andbest practices to the region.

Skills and trainingAcross the region, the insurance sector is characterizedby a shortage of skills—particularly product development,underwriting, and actuarial skills.The absence of skillsclearly affects the development of the sector, specificallyin the areas of product innovation, risk assessment, andpricing.This situation is exacerbated by nationalizationrequirements in some countries, which extend the timerequired to train and equip staff for key positions, andthe availability of highly attractive positions in otherareas of the financial services sector.

The generally limited number of training institutesand the absence of international accreditations hampersthe development of skills.Again, there is wide variabilityacross the region in terms of training facilities. Bahrainstands out by virtue of the Bahrain Institute of Bankingand Finance (BIBF), which offers 20 insurance programs—including courses in underwriting, risk management,

and information technology that meet the requirementsof four internationally recognized professional designations.

The shortage of skills and limited training facilitiesare perhaps the greatest impediments to the developmentof the insurance sector in the region.

Market-led initiativesMarket-led initiatives refer to initiatives at an industrylevel that seek to develop the sector as a whole.Thisincludes market standards and the availability of statisticsto enable insurers to improve product development andpricing, the existence of industry associations to fostercooperation between industry players, and the existenceof industry programs to create awareness among thepopulation of the concept and benefits of insurance.

Although these initiatives occur at the countrylevel, our assessment also covered efforts to improvecoordination among individual regulators and players atthe pan-regional level.

Across the region, there is a lack of reliable marketdata. In the markets that do collect data, the data areneither comprehensive nor sufficiently granular to pro-vide insurers with the necessary insights to improveproduct development and pricing.

Almost all of the region’s markets either have aninsurance industry association or are in the process offorming such an association.These associations play animportant role in promoting the sector by facilitatingcooperation between insurance companies and profes-sionals.

On the awareness level, there are limited programsin place in the countries of the MENA region. Bahrainand Jordan appear to be the only countries with formalprograms in place to promote such awareness. In thecase of Bahrain, the Insurance Market DevelopmentCommittee (IMDC) initiated its first awareness campaignin 2005, which was aimed at increasing insurance pene-tration using educational messages through a speciallycreated cartoon character,“Taamina.” In Jordan, theInsurance Commission (IC) has launched an awarenesscampaign consisting of three phases: introducing the roleof the IC, raising awareness of the benefits of insurance,and introducing various insurance products to the public.

Similarly, there are limited, if any, programs aimed atraising the profile of the insurance industry and attractinguniversity/college graduates and other professionals.

On a regional level, pan-regional cooperation hasmanifested itself in numerous forums, associations, andstandard-setting organizations. Each of these bodies aimsto foster the development of the regional insurance sec-tor and promote regulatory coordination.

At the regulatory level, the Arab InsuranceRegulatory Commission (AIRC) was established inSeptember 2006 with the participation of 12 countries.ARIC’s objectives are to provide a forum for Arabinsurance commissioners to share expertise and trainingprograms, develop regulatory and supervisory standards,

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and coordinate their activities with those of internationalorganizations such as the IAIS.

At the sector-development level, the General ArabInsurance Federation (GAIF) plays a regional role, withannual recommendations geared toward the developmentof the insurance markets through initiatives led by thepublic and private sectors.

Finally, regional insurance forums play a positiverole by using panels of experts to address issues andemerging trends facing the markets. Key regional forumsinclude the annual Middle East Insurance Forum and,on a Gulf Cooperation Council (GCC) level, the GulfInsurance Forum, which is organized by the UAE-basedCoordination Commission for Gulf Insurance andReinsurance Companies.

However, while there is no shortage of regionalbodies, there is limited evidence of coordination amongpan-regional bodies, leading to overlapping efforts anddiverging priorities.

In summary, our evaluation revealed that there are anumber of gaps to be addressed at the enabler level. Inparticular, there is a need to ensure a consistent level ofmaturity for legal and regulatory frameworks and theconcomitant regulatory bodies, as well as to address theshortage of skills in the marketplace.

Policy recommendations to promote growth and competitivenessPolicymakers in the MENA region have the opportunityto play a central role in unlocking the growth potentialof their respective insurance markets.We have identifieda set of recommendations to be adopted by policymakersor regulators that builds on our evaluation of growthenablers and takes into account best practices from othermarkets.The recommendations will not apply in theirentirety to all the countries of the region, given the var-ied state of development of individual markets.Therefore,we encourage policymakers to select the recommenda-tions that are most applicable to their respective markets.

We have grouped our recommendations within thesame framework adopted for the evaluation of growthenablers.

Legal frameworkEnacting a modern legal framework and designating aspecial judicial authority to handle insurance-relatedcases are key requirements to enable market developmentby protecting the rights of policyholders and regulatingthe activities of market participants.

As noted earlier, there is wide variability in thematurity of legal environments across the region, and anumber of countries have underdeveloped legal frame-works. Insurance regulators in such countries shouldseek to upgrade their legal frameworks and ensure thatthey reflect international best practices, such as the prin-ciples of the IAIS. In addition, policymakers should seek

to establish a specialized insurance judicial authority toresolve insurance disputes in countries where such anauthority does not exist.

A modern legal framework should regulate allinsurance market participants, including insurance com-panies, intermediaries, and professionals.The regulationscovering insurance companies should address a numberof areas, including, among others, licensing, productapproval, financial reporting, investments, reinsurance,and solvency margins. In addition, and in line with IAISprinciples, the regulations should stipulate the minimuminternal capabilities of market players, such as governanceand risk management.The regulations covering inter-mediaries and insurance professionals should entail, at aminimum, qualifications criteria, licensing requirements,and a code of conduct.

In countries where there is a rapidly growingdemand for takaful insurance, the legal framework shouldalso promulgate adequate legislation to address this formof insurance.There are three main challenges in takafulregulation: capital requirements, corporate governance,and consumer protection from misinterpretation.

Although the underlying risk is the same, the riskprofiles of conventional and takaful insurers are differentbecause the latter has higher operational risk. It isuncertain whether this leads to increased capital require-ments for takaful insurance, especially in the Al-Wakalahstructure that is predominant in the Middle East.Asound governance system, including risk managementand internal control processes, is crucial for meetingthese capital requirements. Furthermore, the regulationhas to ensure that the shari’a compliance claim of atakaful insurer is valid.To do so, the operations of theshari’a board have to be scrutinized by the regulator.

There are two different approaches to the regulationof takaful insurance.While some countries have establisheda special takaful law, others have modified their existingregulatory frameworks and adjusted them to the specificneeds of Islamic insurance.Whether or not there needsto be a separate takaful regulation should depend on thedefinition of the term insurance in the conventional reg-ulation. Separate takaful-specific regulation is notrequired where takaful can be interpreted as a subset ofconventional insurance.

In implementing a legal framework, countries inthe region should start from a compliance-based legalframework that involves setting prescriptive rules andguidelines to be complied with by the market.This is amodel that is commonly adopted by newly regulatedand underdeveloped markets. In such a model, forexample, insurance products are subject to form and rate approval by the regulator prior to being sold in themarketplace.

In time, and as the market matures, the regulatoryframework can move toward a principle-based modelthat allows regulated entities more flexibility in meetingregulatory requirements. In contrast to the example

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above, this model would allow insurance products to besold in the marketplace immediately after the regulatoryfiling has been completed. Regulators then would havethe authority to intervene at their discretion.

A critical component of the legal framework is theestablishment of minimum capital requirements to givereasonable assurance that policyholders’ interests will beprotected, and capital adequacy requirements (a solvencymargin), to ensure that insurers are able to absorb signif-icant unforeseen losses.2

In setting minimum capital requirements, regulatorsshould consider an appropriate amount based on thecharacteristics of their markets and the insurance classesbeing regulated. In the case of solvency margins, regula-tors are encouraged to adopt risk-sensitive approaches.At present, there are two regimes that govern solvencyrequirements: Solvency I and Solvency II.

Countries in the region can pursue a two-stageplan to adopt risk-sensitive solvency margin require-ments. Initially, regulators should adopt an easy-to-applysolvency model (for example, Solvency I) and use collected market data to fine-tune the risk factorsapplied to premiums or claims by insurance class. Overtime, regulators can apply more risk-sensitive formulas(for example, risk-based capital) after developing therequisite internal capabilities (in terms of data availability,advanced staff skills in risk assessment, and understandingof key risks in the marketplace) and after fostering thedevelopment of insurers’ capabilities (especially in termsof risk measurement).

In addition to the above, MENA countries thathave not established a dedicated insurance judicialauthority should do so.This would require a competentjudicial authority staffed with experienced insurancestaff and legal professionals who have proficient knowledgeand expertise in the field of insurance legislation.

The chosen judicial authority can be in the form of a special court or committee that deals with insur-ance disputes and litigations. Such a court should beindependent from the regulatory body.The court shouldaim to build public confidence through efficiency inhandling cases, consistency in interpreting the legislation,independence, and fairness.

Regulatory bodiesAn empowered insurance regulator with well-developedcapabilities enables market development by ensuringappropriate market oversight and enforcement of enactedlaws and regulations.

In parallel with upgrading legal frameworks, policy-makers in the region should seek to empower theirinsurance regulatory bodies.The empowerment of theregulatory body should be constituted in the legalframework, which should address the body’s legal form,ensure its independence, vest appropriate authorities, andclarify any overlapping responsibilities with other gov-ernmental entities.

In addition, regulators should seek to enhance theircapabilities, especially in the area of supervision (includingstaff and IT). In upgrading supervisory capabilities, regu-lators should take into account the guidelines set out aspart of the IAIS core principles.

In general, there are two approaches to supervision:an audit-based (or data-focused) model, under whichthe regulator focuses on data collection and ensuringcompliance with the rules and requirements; and a risk-based model, under which the regulator focuses on earlyidentification of risk, systematic prioritization of risk toallocate supervisory resources to the highest areas ofrisk, and timely and proportional intervention to helpreduce insolvencies.

In practice, most international regulatory regimesfall within these two approaches, with developed marketsgravitating toward the risk-based model.The choice ofthe appropriate supervisory approach should be alignedwith the development stage of the regulatory body andthe legal framework, insurers’ risk-management capabili-ties, the qualifications of insurance professionals, and thestage of development of the overall financial market.

From an implementation perspective, MENA coun-tries should devise and pursue a medium-term plan toapply a risk-based supervision approach.The adoptionof such an approach consists of building advanced competencies in five integrated areas, which collectivelyprovide the regulator with a risk-based view of thehighest-risk insurers and the areas of greatest concernwithin such insurers.These areas include financialreporting, solvency monitoring, financial analysis,on-site inspection, and market analysis.

In addition to the above capabilities, supervisorsshould design an intervention framework with clearstages that link the legal framework, supervisoryapproach, supervisory conclusions, enforcement powers,and actions of the regulator under various marketevents.The stages of intervention serve as a primary toolto ensure the consistency of supervisory actions and,when they are communicated to the market, they setmarket expectations in terms of supervisory responsesunder certain conditions.

The nature of competitionFostering a competitive environment drives innovation,competitive pricing, and the adoption of best practices,and is a key enabler for the development and growth ofinsurance markets in the MENA region.

The ultimate objective from the standpoint of marketgrowth should be to have a profitable sector adequatelyserving market demand, with local insurers equipped towithstand the competitive pressures of increasingly liber-alized markets.

Although the insurance markets in the region aregenerally competitive, regulators should seek to raise the competitive bar further through higher capitalrequirements and the introduction of governance and

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risk-management requirements. In highly fragmentedmarkets, regulators should investigate the option ofincreasing capital requirements to stimulate market consolidation and increase the level of risk-retentioncapacity.This in turn would result in larger local companies with the resources to invest in capabilities,and would also reduce the level of fronting.

On the governance side, regulators should introduceminimum governance requirements such as the estab-lishment of internal functions (for example, an internalaudit), the definition of fit and proper criteria for boardmembers and senior management, the development ofpolicies and procedures manuals, and the formation ofan investment policy subject to review and approval bythe board.

In countries where there is a rapidly growingdemand for takaful insurance, regulators should identify,develop, and disseminate risk-management best practicesthat take into account the contractual relationships ofIslamic insurance products.

Skills and trainingCultivating the growth of a pool of skilled local insur-ance professionals is paramount to the development ofthe insurance sector, given the existing acute shortage of skills. Policymakers and regulators should act as cata-lysts in the development of professional knowledge inthree ways:

• Setting qualification and accreditationrequirements for the insurance profession.In general, it is customary to set minimum requirements for insurance professionals that gobeyond general educational attainment and includespecialized insurance qualifications. Regulators caninfluence the market in raising the standards oftraining programs by adopting internationallyaccredited programs and selectively approving local programs that meet minimum criteria.

• Organizing specialized training programs.Training programs can be organized by the regulator,the industry itself (such as associations of insurancecompanies and the companies themselves), and bythe private sector as the demand for such trainingincreases. In the absence of market-led training pro-grams, regulators should bridge this gap by organiz-ing accredited training programs through affiliationswith specialized training institutions (for example,institutes of banking), general academic institutions(such as universities), or leading training institutionsin more developed markets.

In countries where the demand for takafulproducts is growing rapidly, regulators need toensure the availability of training programs to edu-cate the market on these relatively new products.

• Encouraging companies to build up theknowledge of their staff. Regulators can requirecompanies to take a more active role in developingthe expertise of their employees by mandatingtraining budgets and staff training programs.Theseprograms would be subject to audits by the regula-tor to ensure companies’ compliance.As an incen-tive, regulators can consider subsidizing part of the training budget through a reduction of annualregulatory fees.

Market-led initiativesPromoting the involvement of industrywide bodies,whether at a local or regional level, is a valuable enablerfor the development of the market by providing forumsfor the harmonization of standards and activities, and forthe sharing of best practices. By definition, market-ledinitiatives lie outside the boundaries of regulators’ directcontrol. Nevertheless, insurance regulators can play a keyrole in bridging market gaps while stimulating theemergence of more-effective industry-led market devel-opment initiatives.

In particular, policymakers and regulators can play avaluable role in promoting more active involvementfrom industry associations, encouraging the adoption ofmarket standards, fostering the availability of granularmarket statistics, generating consumer awareness ofinsurance, and raising the profile of the industry toattract new talent. Policymakers and regulators shouldencourage the formation of industrywide associations asa way to harmonize the representation of market partic-ipants. In countries where associations exist, regulatorsshould emphasize the role of the association by channel-ing regulatory consultation efforts through these bodiesor adopting industry standards endorsed by associations.

Regulators can also mandate the adoption of inter-nationally accepted accounting standards—such as IFRS4 issued by the International Accounting StandardsBoard in 2004—to ensure consistent treatment of insur-ance contracts and appropriate disclosure.

Fostering the availability of insurance market data isa requirement for promoting better understanding ofthe market and supporting informed decision making.By virtue of their access to market data, regulatorsshould support the publication of accurate, consistent,and up-to-date information on the market. Some coun-tries in the region have made significant improvementsin this regard; however, the lack of good market dataremains a visible weakness in many MENA markets.

In addition to sector-level data, granular statistics(for example, pricing, claims, and loss statistics) arerequired to support product development and pricing.The private sector can fill this gap by collecting andproviding such statistics. For example, a private companyin the United States—the Insurance Service Office(ISO)—provides statistical, actuarial, and claims data.TheISO gathers information from insurance companies on

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hundreds of millions of policies, including the premiumscompanies collect and the losses they pay. In the MENAregion, regulators should encourage the establishment ofsuch specialized data services organizations and mandatethat product pricing decisions be based on relevant mar-ket data and statistics.

Creating consumer awareness of the advantages ofrisk coverage provided by insurance products and servic-es is a key enabler to stimulate the demand side.Promoting awareness among retail consumers is particu-larly important in the GCC countries, where awarenessof the benefits of insurance is considered low.

Insurance regulators can increase awareness bylaunching public communication initiatives, publishingeducational material, setting up a function to handleinquiries (whether telephone- or Web-based), andencouraging insurance companies to launch informativepromotional programs geared at raising consumerknowledge.

The programs to raise the level of awareness of lifeinsurance in Malaysia are a good case in point. In 2003a joint initiative, InsuranceInfo, was launched by BankNegara (the Central Bank and insurance regulator ofMalaysia) and other industry players. InsuranceInfo covers topics such as standard life insurance, annuities,investment-linked insurance plans, and child educationplans. InsuranceInfo disseminates this information pri-marily through its website, as well as through bookletsmade available in branches of selected insurance compa-nies and articles published in major newspapers.Thisprogram has contributed to the development of the lifeinsurance market, which generated premiums of US$4.8billion in 2005—more than three times those in theentire MENA region.

Furthermore, policymakers should seek to promotethe industry as a whole to attract talent.This can best beachieved by industry associations targeting universityand college graduates through career days, internships ininsurance companies, and similar initiatives.

At a regional level, it is important that a standardizedregulatory and compliance framework exists across theregion before attempts are made to create a regionalmarket.As such, policymakers should seek to harmonizethe efforts of the many pan-regional bodies to ensureconsistent attention on the key issues. Specifically,regional cooperation should focus on promoting finan-cial stability, participating in the global trend towardcooperation and harmonization (for example, SolvencyII), improving risk management and corporate governancepractices, protecting the integrity of the financial systemsfrom illegal activities, and preventing regulatory arbitrage(that is, offshore entities that seek out the least restrictiveregulatory environment from which to operate locallyand cross-border).

Cooperation among regional insurance regulatorswould create significant economic advantages for their respective insurance markets. Primarily, active

coordination would accelerate the development of astandardized regulatory framework and harmonize theregulatory compliance requirements, which in turnwould enhance the attractiveness of the regional insur-ance market to international insurance groups and facili-tate the formation of regional insurers. In addition,active cooperation among insurance regulators wouldfacilitate the transfer of acquired supervisory knowledgeand expertise, and improve the efficiency of supervisoryactivities by avoiding duplication of supervisory effortsacross the region.

ConclusionThe insurance markets of the MENA region show significant potential for future growth. Realizing thisgrowth, however, will require policymakers and regula-tors to address the existing gaps in the underlyingenablers of growth.

Specifically, selected countries in the region need toupgrade the existing legal and regulatory frameworksand improve the capabilities of regulators. Similarly,there are opportunities to improve the competitive land-scape and thereby drive innovation, competitive pricing,and the adoption of best practices by mandating highercapital levels and introducing governance and risk-management requirements.Across the region there is aneed to address the skills shortage by introducing mini-mum qualification levels and fostering internationallyaccredited training programs.And finally, at a marketlevel, the use of industry associations, improvements inmarket data, and the introduction of consumer awarenessprograms will go a long way toward the overall develop-ment of the sector.

In the end, each country will need to chart its owncourse and take into account local circumstances.Thespeed of development of individual insurance marketswill be a function of how rapidly policymakers and regulators are able to address the individual enablers of growth.

Notes1 See IMF (2006).

2 AIS core principle number 23.

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AME Info. 2006a. “Qatar Financial Center Authority Announces SeniorAppointment.” Available at www.ameinfo.com/80929.html.

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Bahrain Institute of Banking and Finance. Available atwww.bibf.com/home.html.

Bahrain Monetary Agency. 2006a. “AAOIFI Standard on Takaful.” TheInsurance and Takaful Review11: 5.

———. 2006b. “Bahrain Financial System Robust.” The InsuranceReview 9: 4.

———. 2006c. “Bahraini Market Posts Health Growth in ’05.” TheInsurance Review 10: 1.

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———. 2006h. “Progress on Takaful Association.” The InsuranceReview 10: 4.

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———. 2006j. “Local Firms Post Strong Gains.” The Insurance Review10:2.

Bakri, A. “The Law and Practice of Insurance in the State of Qatar.” TheLaw Offices of Sultan M. Al-Abdulla Advocates and LegalConsultants. Available at www.qatarlaw.com/English/Articles/qtr.htm.

Bank Muscat. 2006. “Oman: Insurance Sector.” Sector Snapshot, July.

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———. 2006b. “United Arab Emirates Insurance Report Q2 2006.”Industry Reports and Forecast Series. London: Business MonitorInternational.

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Donabie, I. 2006. “Kuwait’s Climb to the Top.” Zawya Article. Availableat www.zawya.com/printstory.cfm?storyid=ZAWYA20061121103518.

Egyptian Insurance Supervisory Authority. No date. “EISA at a Glance.”Available at www.eisa.com.eg/eisa_at_a_glance.htm.

———. 2006. Monthly Publications.

Available at www.eisa.com.eg/publication.htm.

Emirates Institute for Banking and Financial Studies. No date.“Insurance Diploma Program.” Available atwww.eibfs.com/EIBFS/insurancediploma.aspx.

Emirates Insurance Association. No date. Available atwww.eia.ae/index.html.

FIRST Initiative. 2003. “Review and Drafting of a New Insurance Law.”FIRST Projects. Available at www.firstinitiative.org/Projects/pro-jectdisplay.cfm?iProjectID=168.

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———. 2006. “Kingdom of Bahrain: Financial System StabilityAssessment,

including Reports on the Observance of Standards and Codes.”Financial System Stability Assessment, Financial SectorAssessment Program (FSAP). Washington, DC: IMF.

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———. 2006b. “A Step Forward to Enhance Insurance Regulation.”Press Release. Available at www.irc.gov.jo/doc/press/2005/press-releaseno.4.pdf.

———. 2006c. “Insurance Business in Jordan: Financial Report 2005.”Annual Report. Available at www.irc.gov.jo/doc/Annual2005.pdf.

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The evaluation of growth enablers at a country levelwas based on publicly available information. In evalu-ating the enablers, we adopted the following symbolsto reflect the performance of each enabler:

0 Nonexistent

1 Below-average performance/underdeveloped

2 Average performance/basic development level

3 Above-average performance/intermediate development level

4 High performance/advanced development level

SAUDI ARABIA

Legal framework 2

• Until recently the Saudi insurance market was unregu-lated. In 2002 the Cooperative Heath Insurance Lawwas enacted, which sets mandatory health insurancerequirements for expatriates. An independent govern-ment body, the Council of Cooperative Health Insurance(CCHI), was established to regulate the health insurancemarket.

• In 2003 the Cooperative Insurance Companies Law wasenacted, which requires all insurance companies tooperate under the Shari’a-compliant Takaful insurancemodel. The insurance law is complemented by theimplementing regulations. In October 2006, the Councilof Ministers approved the licenses of 13 insurance com-panies under the new law.

• At present the market is in a transition phase wherebyexisting players are allowed to operate under a graceperiod ending in the first quarter of 2008. At that point,insurers must either have a license or exit the market.

• Overall the insurance legal framework in Saudi Arabia isin its early stages and has yet to be fully implementedand tested.

Regulatory bodies 1

• The Saudi Arabian Monetary Authority (SAMA) has beenentrusted with regulating the insurance sector. SAMAhas established a dedicated unit, the InsuranceSupervision Directorate (ISD), to carry out its regulatoryand supervisory mandate.

• At present there is an overlap with respect to healthinsurance between CCHI and SAMA; this is expected tobe clarified in 2007.

• A special court has been established to settle insurancedisputes: the Committee for Resolution of InsuranceDisputes & Violations.

• Overall, as a new regulatory body, ISD is in the processof building up its supervisory capabilities and is expect-ed to become fully operational in 2007.

Nature of competition 1

• There are more than 70 insurers in the market, all ofwhich are in the private sector except for the state-owned National Company for Cooperative Insurance(NCCI).

• NCCI dominates the market with over 35 percent ofmarket share, focusing mainly on general insurance.This dominance will come under pressure as newlylicensed companies will be able to tap public-sectorbusiness, which was traditionally accessible only toNCCI.

• The majority of existing insurers are based in othercountries, mostly Bahrain. In addition, most have lowcapitalization, relying extensively on reinsuring a signifi-cant portion of their risk portfolios.

• The recently enacted insurance laws and regulations areexpected to stimulate market consolidation (by settinghigh capital requirements) and foster the developmentof improved insurers’ risk-management capabilities (bylimiting reinsurance levels).

• As a result of the new legal framework, which allowsforeign insurers to operate in Saudi Arabia, severalmultinational companies have applied for licenses toestablish a local presence. This is expected to bring ininternational expertise and raise the competitive playingfield to a new level.

Skills and training 1

• There is a significant shortage of skills within the indus-try, and the Saudization requirements mandated by thenew law are likely to compound this situation.

• At present, there are limited training programs available.The Institute of Banking offers some insurance training,but the programs are not accredited.

Market-led initiatives 1

• At present, the market lacks reliable market statistics,professional associations, and consumer awareness pro-grams needed to develop the market at an overall level.

Appendix A: Country Evaluation of Enablers

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UNITED ARAB EMIRATES (UAE)

Legal framework 1

• The UAE insurance market is regulated by the 1984 fed-eral law on Insurance Companies and Agents andExecutive Regulation, issued by the Ministry ofCommerce.

• The existing legal framework is in need of significantupgrading in light of the evolution and rapid growth ofthe insurance market. For example, the regulations donot require insurance companies to adhere to solvencymargins but only to meet a minimum capital require-ment. In addition, the regulations require insurers toinvest in the local market without putting clear limita-tions on risks and asset classes.

• The United Arab Emirates has initiated work to upgradethe regulatory framework. A special committee, theUAE Insurance Committee, is entrusted with developingand proposing the regulations for the insurance sector.

• There is no dedicated insurance judicial authority in theUnited Arab Emirates.

• Overall, the insurance legal framework in the UnitedArab Emirates has significant limitations that are expect-ed to be addressed in the planned regulations.

Regulatory bodies 1

• The sector is regulated by the Insurance CompaniesDivision of the Ministry of Economy.

• Existing supervisory processes are undermined by theunderdeveloped regulatory framework.

• In line with the new regulatory framework, an insurancecommissioner position is expected to be established in2007.

• Overall, the capabilities of the regulatory body areunderdeveloped as a result of the gaps in the existingregulations. The regulator’s capabilities are expected tobe enhanced through the establishment of a commis-sioner post and the updating of the legal framework.


• There are 49 insurers serving the UAE market, including5 foreign insurers.

• Overall, local insurers are privately held although severallarge players are partially state-owned.

• Local companies hold around 75 percent of the non–lifeinsurance market, while foreign insurers are morefocused on life insurance. Recently, some foreign insur-ers have announced their intention to focus on expand-ing their non–life insurance business.

• The market is competitive with several large local com-panies in the market. The largest 10 insurers accountfor around 50 percent of market premiums.


• There is a shortage of qualified staff, especially amongnationals. The law requires that 15 percent of total staffbe nationals; at present it is only 6.2 percent.

• To support Emiratization, the Supreme InsuranceCommittee and National Human Resource DevelopmentCommittee in the insurance sector are implementing anumber of insurance training programs to develop thecapabilities of nationals.

• The Emirates Institute of Banking and Financial Studiesalso offers a one-year insurance diploma program.


• The Ministry of Economy publishes high-level marketdata. However, there is a significant shortage of granularstatistics that would improve the understanding of mar-ket performance and profitability.

• The Emirates Insurance Association (EIA) plays anindustrywide role in promoting the insurance sector byfacilitating cooperation between insurance companies,setting standards, providing training to insurance profes-sionals, and promoting insurance awareness.

• The Coordination Commission for Gulf Insurance andReinsurance Companies is a UAE-based entity that pro-motes coordination among GCC insurance companies.

BAHRAIN

Legal framework 4

• In an effort to strengthen its position as a center forIslamic finance operations (including takaful and re-taka-ful), Bahrain issued the Insurance Rulebook in April2005. The rulebook sets out elaborate licensing andoperational regulations for both conventional and takafulinsurance.

• A recent report by the Financial Sector AssessmentProgram (FASP), a joint venture between theInternational Monetary Fund and the World Bank,acknowledged the comprehensiveness of this regulato-ry framework.

• Overall, Bahrain’s insurance legal framework is welldeveloped and is one of the most-established legalframeworks in the region.

Appendix A: Country Evaluation of Enablers (cont’d.)

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Regulatory bodies 3

• Since 2002, the insurance sector has been regulated bythe Bahrain Monetary Agency (BMA). In September2006, the BMA was succeeded by the Bahrain CentralBank (BCB) which is mandated with carrying out theactivities previously undertaken by the BMA, but withstronger operational independence and wider enforce-ment powers.

• A recent FASP report indicated that prudential supervi-sion is generally effective. However, the report alsohighlighted the limited resources available to the BCB toimplement the supervisory activities promulgated underthe Rulebook.

• Overall, the regulator is experienced and appears tohave well-developed capabilities.


• As of 2005, there were 19 insurance companies servingthe local market, comprising 11 that are locally incorpo-rated as well as 8 branches of foreign insurers.

• The market is led by private-sector insurers.

• Local insurers dominate the non–life insurance marketwith 87 percent market share, whereas foreign insurersdominate the life insurance market with 82 percent mar-ket share.

• There are three local large insurance players controlling45 percent of the market. The largest insurer is BahrainNational Insurance with 22 percent market share. Nextare the Bahrain Kuwait Insurance Company and GulfUnion Insurance and Reinsurance, with market sharesof 12 percent and 10 percent respectively.


• Bahraini nationals account for 63 percent of the insur-ance workforce, one of the highest figures in the GCC.

• The Bahrain Institute of Banking and Finance (BIBF)offers 20 insurance programs, including courses inunderwriting, risk management, and information tech-nology that meet the requirements of four international-ly recognized professional designations. These designa-tions are: Associate of Risk Management of theAmerican Institute for Chartered Property CasualtyUnderwriters (USA); Associate of the CharteredInsurance Institute (UK); Certificate in IT for InsuranceProfessionals (UK); and the Professional InsuranceCertificate, which is jointly awarded by UK’s CharteredInsurance Institute and BIBF.

• In 2006, BIBF signed an agreement with London-basedChartered Insurance Institute (CII) to be the exclusiveprovider of CII training courses in the Middle East.


• Bahrain is reinforcing its role as a leading center fortakaful by fostering the development of industry associ-ations and professional organizations. For example, theBahrain-based International Takaful Association (ITA) iscurrently being formed. It aims to play a leading role inpromoting the takaful industry, encouraging cooperationamong members of the association and educating thepublic about the unique features and benefits of takaful.Another example is the Bahrain-based Accounting andAuditing Organization for Islamic Financial Institutions(AAOIFI), which is responsible for developing standardsfor the international Islamic finance industry, includingtakaful.

• The Bahrain Insurance Association (BIA) plays an indus-trywide role in developing the sector. For example, theBIA facilitated the Insurance Rulebook public consulta-tion process by putting in place industry teams thatliaised with the BMA to finalize draft modules of theRulebook.

• In 2003, the BMA established the Insurance MarketDevelopment Committee (IMDC) to undertake programsto raise awareness about insurance in the market andenhance the image of the Bahrain insurance industry atan international level. In 2005, IMDC initiated its firstawareness campaign aimed at increasing insurance pen-etration using educational messages through a speciallycreated cartoon character, “Taamina.”

QATAR

Legal framework 1

• Qatar enacted an insurance law in 1966 that has notbeen amended since.

• The existing law lacks adequate legislation laying outthe rights and obligations of parties entering into insur-ance contracts. An effort is underway to issue a newinsurance law in the near future.

• Overall, the insurance legal framework in Qatar has seri-ous limitations that are expected to be addressed by thenew insurance law.


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Regulatory body 1

• The market is regulated by the Ministry of Economy.

• The regulator’s capabilities are undermined by the exist-ing legal framework.


• There are nine companies serving the market, compris-ing five local companies and four foreign insurers.

• The market is led by the private sector.

• The market is largely dominated by the few local insurers.The two largest companies, Qatar Insurance and QatarGeneral Insurance & Reinsurance, hold around 45 per-cent and 20 percent of market premiums respectively.

• Foreign insurers represent a fraction of the marketplaceand are estimated to command less than 5 percent mar-ket share.

• Overall, competition from foreign insurers is expectedto remain low and be limited to life insurance, given thestrong position of local firms and the relatively smallmarket size.

• In 2004, the government amended the Foreign CapitalInvestment Law to allow foreign investment in theinsurance sector. However, it is not clear whether multi-national insurers will be attracted, given the size andcompetitive characteristics of the local market.


• At present, there is a significant shortage of skills in themarketplace, and only a few insurance training pro-grams are available.


• At present, there is a lack of adequate market data andno existing insurance industrywide entities or profes-sional associations. However, Qatar has indicated plansto set up an association of insurance companies.

• The Qatar Financial Center is indirectly leading the effortto foster the development of the insurance sector. Forexample, as part of its efforts to establish itself as aregional financial center, it has mandated a senior officerwith the role of raising awareness of the Middle East’simproved regulatory environment and identifying higherstandards for the insurance industry.

OMAN

Legal framework 3

• Insurance companies in Oman are governed by theinsurance law issued by Royal decree in 1979. The lawhas been updated in 1987, 1995, and 2002.

• In addition to the law, the sector is governed by regula-tions, guidelines, and instruction papers issued by theregulator. These cover corporate governance, code ofconduct, and reinsurance management strategies. Theregulations were significantly upgraded following thecollapse of a local insurance company in 2001.

• In 2006, the regulator announced a major update of theinsurance law and executive regulations. The draft lawand regulations have been sent to insurance companiesfor their feedback prior to final approval.

• Overall, the legal framework in Oman has been upgrad-ed in recent years, and is undergoing an extensivereview to better reflect international best practices andaddress regulatory gaps.

Regulatory bodies 2

• The sector is regulated by the Capital Markets Authority(CMA).

• The CMA is in the process of implementing the IAIScore principle of supervision.


• There are 17 insurance companies serving the market,comprising 9 local insurers and 8 foreign players.

• The market is led by the private sector.

• The market is largely dominated by local companies,which collectively command 80 percent market share.

• There are three large local insurers in the market.Dhofar Insurance is the largest insurer with 30 percentmarket share, followed by ONIC and Oman UnitedInsurance, each holding around 15 percent marketshare.

• Overall the market is characterized by overcapacity,which has spurred price competition and negativelyaffected sector profitability.

• Recently a few multinationals, which previously operat-ed in the market through agency agreements, enteredthe market through joint ventures with local partners.


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• There is a significant shortage of skills within the indus-try; Omanization requirements mandated by the lawcompound this situation.

• There are no specialized insurance institutes offeringtraining programs in Oman.

• In response, the CMA is playing a key role in identifyingtraining needs and organizing training programs to buildthe skills of nationals by coordinating training workshopswith local and international academic and training insti-tutes.


• The CMA is leading the effort in setting and fosteringthe adoption of sectorwide best practices through theintroduction of guideline papers covering, for example,corporate governance, code of conduct, and reinsurancestrategies.

• Market data are available mainly through CMA’s publica-tions.

• In late 2006, the Oman Insurance Association wasunder formation.

KUWAIT

Legal framework 1

• The insurance law in Kuwait was enacted in 1961. In2004, FSAP commented on the weaknesses of theexisting law and recommended, as a priority, the needto enact a new law.

• Overall, the legal framework in Kuwait has significantlimitations. A new framework is required to addressexisting limitations.

Regulatory body 1

• The sector is regulated by the Insurance Departmentwithin the Ministry of Commerce and Industry.

• An informal review conducted in 2004 to assess theobservance of IAIS core principles indicated that theexisting regulations and supervision lacked key ele-ments of a modern supervisory regime. The existingsupervisory processes are mostly focused on adminis-trative work (such as licensing) in addition to ensuringthe insurers’ compliance with the regulations.

• Overall, the existing regulator’s capabilities are under-mined by the current legal framework.


• The market is served by a total of 21 companies, ofwhich 11 are local companies and 10 are branches offoreign insurers.

• he market is led by the private sector.

• The market is largely dominated by local companies,which hold over 85 percent of market share, includingfour large players that hold over 60 percent of the mar-ket. Gulf Insurance Company holds the largest marketshare of 25 percent.

• Competition from foreign insurers has been limited byregulatory restrictions. However, this restriction wasrelaxed in November 2003, and the sector has so farattracted a number of foreign insurers.


• At present, there is a significant shortage of skills in themarketplace, and only a few insurance training pro-grams are available.


• At present, only limited market data are available oninsurance activities in the country.

• In 2006, the Insurance Companies Union was estab-lished, with seven local companies as members.

LEBANON

Legal framework 1

• The insurance sector is governed by the Insurance Lawissued in 1968. The sector was substantially unregulat-ed until the issuance of an amendment law in 1999 fol-lowing the bankruptcy of three companies. However,the law remains rudimentary, particularly in the area ofsolvency requirements; these are fixed at 10 percent ofgross premiums. In addition, there is a lack of regulatoryguidelines for the sector.

• In 2004, the Ministry of Economy and Trade prepared a draft insurance law and regulations that raise the regulatory framework to international best practices and conform to IAIS core principles. The draft law andregulations are pending review and ratification by thegovernment.


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• The National Council of Insurance Companies (NCIC) isan advisory body entrusted with proposing sector regu-lations and reviewing license applications. NCIC ischaired by the Minister of Economy and Trade and con-sists of 11 other members from the public and privatesectors.

• Overall, the existing legal framework in Lebanon isunderdeveloped. A new and improved draft law and reg-ulations have been prepared, taking into account inter-national best practices; however, it is not clear whetheror when they will be implemented.

Regulatory bodies 1

• The insurance sector is regulated by the InsuranceControl Commission (ICC), which was created in 1999as an independent entity reporting directly to theMinister of Economy and Trade.

• There is an overlap and duplication of regulatory activi-ties between the activities conducted by the ICC andthe Directorate of Insurance Affairs, which is a depart-ment within the Ministry of Economy and Trade.

• The Insurance Arbitration Council, which is similar to asmall claims court, was set up to handle claims disputesof less than US$50,000, which account for 90 percentof total claims.

• Overall, the regulator has basic supervisory capabilitiesthat are mainly focused on ensuring compliance withapplicable regulations and close monitoring of dis-tressed companies.


• The market is highly fragmented, with more than 60 pri-vately owned insurers.

• The majority of the insurers operating in the market areincorporated in Lebanon. However, several foreign insur-ance companies are present in the market throughstrategic partnerships with local companies.

• The largest 10 insurance companies hold 65 percentmarket share in terms of premiums. Only one largecompany exists, MedGulf, with 27 percent marketshare, followed by nine medium-sized companies eachholding between 3 to 5 percent market share.


• There is a lack of accredited local insurance training pro-grams. Nevertheless, there are a number of trainingcourses and workshops that are occasionally organizedby professional organizations.


• Consumer awareness of insurance is among the highestin the region, as evidenced by high insurance penetra-tion rates.

• There is a lack of reliable data to support analysis ofmarket performance.

• The Association of Lebanese Insurance Companies(ACAL) is active in representing the interests of insur-ance companies.

• The Lebanese Insurance Brokers Syndicate (LIBS) wasset up in 1993 to promote the brokerage profession,raise the awareness of the role of brokers, and improveprofessional standards.

• The Lebanese Actuarial Association (LAA) was set up in2001. The LAA is a member of the InternationalAssociation of Actuaries (IAA).

JORDAN

Legal framework 3

• The insurance sector is governed by the InsuranceRegulatory Act of 1999.

• In 2004, the insurance regulator announced its intentionto draft new and more exhaustive legislation thatimproves the consistency of judicial interpretation ofinsurance contracts and better reflects existing marketpractices.

• The law is complemented by a set of regulations andinstructions papers, issued by the regulator, covering awide range of topics—including financial and technicalissues, corporate governance, and market conduct—inline with IAIS core principles.

• Overall, the legal framework is developed according tointernational standards. Ongoing efforts continue to fur-ther strengthen the legal framework and address exist-ing regulatory gaps.


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Regulatory bodies 3

• The Insurance Commission (IC) was set up in 1999 asan independent body to regulate and supervise theinsurance sector. Since its establishment, the IC hasplayed a leading role in driving and reshaping the sector.

• The IC set up an internal Settlement and Inquiriesdepartment to handle inquiries and act as the first line inhandling disputes through mediation.

• Insurance disputes are handled by the Committee forResolving Insurance Disputes.

• Overall, although a relatively young regulator, the IC hasmade significant progress in developing its capabilitiesin line with the core principles of the IAIS.


• There are 26 insurance companies in the local market;all but one foreign life insurer are locally incorporated.

• No single insurer has more than 10 percent marketshare, with the largest 10 companies holding around 60percent of the market.

• The non–life insurance market, which represents 90 per-cent of total market premiums, is dominated by localinsurers. The life market is dominated by one foreigncompany, American Life, which has 53 percent marketshare.


• The IC has announced a plan to foster the developmentof local expertise through training programs, and hasbeen active in organizing training forums and seminarsin coordination with leading local, regional, and interna-tional organizations.


• IC annual reports contain detailed market data andanalysis, which facilitate a good understanding of themarket. In addition, the IC is active in conducting marketstudies and surveys.

• The Jordanian Insurance Federation (JIF) is an activeorganization representing the interests of insurancecompanies.

• The IC launched an awareness campaign consisting ofthree phases: introducing the role of the IC, raisingawareness of the benefits of insurance, and introducingvarious insurance products to the public.

EGYPT

Legal framework 2

• The insurance sector is regulated by the InsuranceSupervisory and Control Act Number 10 issued in 1981,Act Number 91 of 1995, and Act Number 156 of 1998.

• The Supreme Council of Insurance was established in1981 with the objective of discussing and approvingsector-related policies. The Council is chaired by the regulator and includes representatives from the publicsector, private sector, and academic institutions.

• Overall, the insurance legal framework in Egypt has limitations. It is not clear whether there are plans toupgrade the existing legal framework.

Regulatory bodies 2

• The Egyptian Insurance Supervisory Authority (EISA)was set up in 1981 as an independent entity reportingto the Ministry of Investment. EISA is entrusted withregulating the insurance sector in addition to govern-ment insurance funds, cooperative societies, and privateinsurance funds.

• EISA established the Dispute Settlement Committee tospeed up the resolution of disputes outside of the courtsystem.

• Overall, starting from an initial focus on ensuring insur-ers’ compliance, EISA has started a number of efforts tostrengthen its risk-supervision capabilities in line withinternational practices.


• There are 20 insurance companies in the market.

• The market is dominated by the state-owned insurersthat command 75 percent of the non–life insurance mar-ket and 60 percent of the life insurance market. In par-ticular, the state-owned Misr Insurance alone com-mands a market share of 44 percent and 29 percent ofthe non–life and life insurance markets, respectively.

• In addition to local companies, there are more than 600private insurance funds (a form of pension fund) in themarket, accounting for 56 percent of life insurance pre-miums and 30 percent of total insurance premiums.

• In recent years, foreign players focused exclusively onlife insurance have emerged; this is expected to lead tothe overall development of the market and a reductionof the state’s dominance.


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• The Insurance Studies Institute is a local organizationactive in arranging and participating in insurance-relatedforums.

• In June 2006, EISA announced an initiative to coordinatethe job requirements of the insurance industry with theMinistry of Education and develop an educational pro-gram that would meet the sector’s requirements.

• EISA has announced plans to upgrade the knowledgeand expertise of staff of the private insurance funds,given their large stake in the insurance market.


• EISA publishes high-level market statistics. In 2006,EISA established a publications unit to publish insuranceguidelines, raise awareness, and increase the knowl-edge of insurance professionals.

• The Insurance Federation of Egypt is active in support-ing the insurance sector in technical areas such as rat-ing and loss minimization, promoting the sector throughknowledge dissemination, and cooperating with EISA inthe development of insurance legislation.

Note: See References section in this chapter for sources of this appendix.


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CHAPTER 2.5

Middle East Transport andLogistics at a CrossroadsFADI MAJDALANI, Booz Allen Hamilton, Beirut

ULRICH KOEGLER, Booz Allen Hamilton, Düsseldorf

SIMON KUGE, Booz Allen Hamilton, Munich

The Middle East region is in the middle of excitingglobal, regional, and local developments in terms oftransport and logistics. Beginning in the first century AD,the Silk Road brought intense trade and substantialwealth to the region, and the fundamental drivers forthis traffic have not changed since then.Today, theregion is still located halfway on the trade lane betweenAsia and Europe and provides a multitude of land andsea connections linking those economic mega agglom-erates.What has changed since then is the advent of airtransport, but even this development plays in favor ofthe region, as will be explained later. Hence, with theexplosive growth of global and regional trade, and especially the trade between Europe and Asia and withinthe broader region, the Middle East faces unprecedentedopportunities to capitalize on the unique strength of itsfavorable geographic location.

Transport and logistics: A unique opportunity for theMiddle EastThe Middle East region’s excellent geographic locationand very good accessibility by air, land, and sea havebrought it to the top of the agenda for global logistics as the strong growth of global trade requires efficienttransport and logistics structures. Hence, from a globalperspective, the region has a set of three unique opportunities.

First, the region can benefit from the strong growthof volume in the trade lane between Europe and Asia.Because the Asian region has become a key productionand manufacturing region for the rest of the world overthe last decade, trade volumes between Europe and Asiahave grown significantly, both in air and sea freight.Traditionally, air freight carriers have used a stopover inthe Middle East, halfway along this trade lane, to refueland thus maximize freight loads on their aircraft.Airfreight growth on the trade lane therefore translates intogrowth in stopover traffic.This does not hold true forthe majority of shipping volume, however, which istransported via sea freight and does not require astopover.

Second and more important, the Middle East willbenefit from the volume growth on the Europe–Asiatrade lane as shippers use larger vessels and apply more-advanced logistics concepts. Both factors are driving theneed for hubs along the trade lane—and for making itincreasingly favorable for that hub to be right in themiddle.

Basically there are two logistics concepts aroundhow to organize optimal loading and unloading runs for vessels. In the first instance, the vessel can make a so-called milk run along a set of different ports in theoriginating region (for example, loading subsequently inCopenhagen, Hamburg, Rotterdam, and finally TheHague), then make the long-distance journey to thedestination region, and finally do a similar milk run in

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the destination region.This requires the vessel to stop ata multitude of ports, increasing loading time and incurringport-handling fees at each stop, as well as leaving thevessel at less than full capacity over a series of these stops.

Although this may be the most cost-effectiveapproach for lesser volumes and smaller vessel sizes,another logistics concept—the hub-and-spoke approach—becomes more favorable as volumes and vessel sizesincrease. In this model, the volume from one originationpoint is loaded onto a vessel irrespective of its destinationand then transported to a central node—the “hub.” Inthe hub, freight to different destination points is unloadedand newly grouped, so that freight to only one destina-tion point is reloaded on each vessel.

With respect to the Europe–Asia trade lane, bothregions are multicentered and have a broad portfolio ofseaports and airports. Hence, if volumes and vessel sizesachieve a certain threshold size, a hub-and-spokeapproach is the ideal logistics concept to achieve cost-effective transport. However, the hub can be located inthe originating or the destination region as well as onany location along the trade lane. Current hubs inEurope are Rotterdam and Hamburg on the port sideand London,Amsterdam, and Frankfurt on the airportside. In sea freight, volume and vessel sizes have not yetachieved sufficient scale to make a hub-and-spokeapproach cost-effective; for the time being, sea freightwill likely continue to make several stops in the regionsof origination and destination. In air freight, however, asingle hub along the trade lane is the more favorableoption because of different economics, freighter sizes,and time sensitivity. Given the already-existing need fora refueling stopover halfway along the trade lane, thissituation yields a strong demand for air freight hubs inthe Middle East.

Finally, there is a third driver of the Middle East asa growth area for global logistics along the Europe–Asiatrade lane: the need for multimodal hubs. Historically,shippers have had one fundamental choice to make wellbefore they began transport: did they want to ship theirgoods quickly and expensively via air freight, or slowlybut less expensively via sea freight? Most shipperswent—and still are going—for the latter. In doing so,they need to accept larger stocks and a slower speed tomarket.As product cycles speed up, demand becomesless predictable because of a broader variety of products,and companies manage stock more closely, sea freighttransport increases the risk of outdated stock and is seenas an important cost driver.

Still, for most goods, a complete airfreight transportremains much too expensive to be viable. Hence, a newtransport concept that we call “acceleration in motion,”offering a conversion from sea transport to air transport,becomes more important. Such a service allows theshipper to start with cost-effective sea freight transport; ifneed arises—from better sales or unexpected additionaldemand, for example—while the goods are already in

motion, the shipper can manage almost in real time howfast additional supplies will be brought to market. Insum, this allows the shipper to achieve better tradeoffson speed to market, stock availability, and transport cost.Given the transport lengths and times between Europeand Asia, the Middle East is a natural location to do thesea-to-air transport conversion, for three reasons:

1. The Middle East is already the natural hub forrefueling stopovers for the air freight industry.

2. The region is easily accessible by sea and isincreasingly becoming a hub for the sea freightindustry.

3. “Acceleration in motion,” if done in the MiddleEast, achieves attractive reductions in transporttime—approximately five to seven days—whilestill conserving the cost-effective sea transportrates for half of the total transport.

In fact, Dubai has already made significant infra-structure investments in the integration of its airportand seaport in Dubai.With an annual volume of morethan 100,000 tons of freight converted from sea to air,this operation proves the viability of the concept.

However, there are a limited number of opportunitiesto establish global multimodal logistics hubs in theMiddle East.To be successful, such a hub must attractenough carriers for volumes to be easily transferred fromone carrier to another. Even on a global scale, there arevery few true global hubs—these include Los Angeles,New York,Amsterdam/Rotterdam, and Singapore.Wepredict that, at the most, there is an opportunity toestablish two global hubs in the region; one position willsoon be taken by Dubai, when the new airport becomesoperational and the port expansion is completed.

But the Europe–Asia trade lane is not the onlyopportunity for the Middle East to capitalize on globaltrade. Its favorable geographic location provides theMiddle East with a strong opportunity to establish theleading transport and logistics hubs for the broaderregion serving northern and middle Africa in the south-west; Pakistan in the east; and the Caucasian countries ofthe Commonwealth of Independent States (CIS)—suchas Kazakhstan,Turkmenistan, and Uzbekistan—in thenorth.Three key factors act in the region’s favor forsuch a positioning.

First, the Middle East has the advantage of a geographic location with equal proximity to all thesemarkets and very good connectivity by road and shortsea transport.The Caucasian CIS markets and middleAfrican markets in particular currently lack accessibilityfrom competing regional logistics centers, such as Europeand South Africa. For example, the Caucasian CIS mar-kets are not yet developed enough to make significantinvestments in local logistics networks; at the same time,they require very long and complex transport by road

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and rail if they are directly served from the Europeanlogistics centers. However, these markets can be quiteeasily accessed from the Middle East. Similarly, thenortheastern and inner African markets are far awayfrom European and South African regional logistics cen-ters while also easily accessible from the Middle East.

Second, the trend for regionalizing logistics and distribution structures drives the allocation of regionalheadquarters and distribution centers in the Middle East.Global and larger regional industry players in particularare increasingly focused on optimizing their logistics anddistributions chains, as they have identified these as keydrivers for additional value and profit generation andenhanced customer service. Such optimizations includeimplementing sophisticated management systems, trainingregional and local logistics managers, and consolidatingstocks formerly managed locally into one regional dis-tribution center.After having restructured the logisticsoperations according to these principles in their coremarkets in Europe, North America, and the Far East,they increasingly focus on the secondary markets. Inessence, these optimizations yield a strong focus onregional logistics and distribution structures located inthe markets with excellent accessibility to all means oftransport and the most liberal trade policies.

The third factor supporting the allocation ofregional logistics and distribution centers for the widerregion is the positive economic outlook for consumptionand increasing production in the Middle East. Becausethe Middle East already contains the strongest economiesin the broader region, efforts to extend the local pro-duction base will provide substantial growth potential forequipment and industrial products.The correspondingpopulation growth and increasing potential for per capi-ta consumption also foster the positioning of the MiddleEast as a core business market with a need for a stronglogistics sector.

Even though still limited in numbers, there are moreopportunities to establish specific countries or areas asregional logistics and distribution centers. On one hand,a substantial part of this opportunity will be driven byglobal and larger regional industry players coordinatinga mostly global production network. On the other hand,even though there are substantial efforts to grow thedomestic production base, the broader region will, forthe foreseeable future, still be strongly dependent onglobal imports, especially with respect to equipment,industrial, and more sophisticated consumer goods. Hence,excellent global accessibility based on an extensive logis-tics infrastructure of seaports, airports, and road networkswill be crucial for the establishment of such regionalcenters.This already qualifies the global hub locations,such as Dubai, to play a significant role in regional dis-tribution. Beyond these hubs, a few further locationswith strong local consumption markets and very goodlogistics infrastructure—such as the key Arabian Gulf,

Mediterranean, and Red Sea port locations—couldqualify to become regional centers.

Transport and logistics: A strategic must for furthereconomic developmentBeyond the opportunities arising from the rapid growthof global trade and enhanced regional logistics structures,which will be implemented primarily by robust globalor larger regional industry players, a strong and sophisti-cated transport and logistics sector will be essential forthe future economic development of countries in theMiddle East.

There are four economic elements making a strongand efficient transport and logistics sector a strategicnecessity:

• the enhancement of economic activity,• the enhancement of industry competitiveness,• the growth of the industry sector, and• the generation of sustainable job opportunities.

The enhancement of economic activityAccessibility of markets is fundamental to enhancingeconomic activity. In every market—whether local,domestic, regional, or global—easy market access and anefficient flow of goods are essential. If these are notpresent, industry value is not generated and businesspotential is foregone. Hence strong and efficient trans-port and logistics service offerings are essential to providequick and cost-effective access to markets for domestictrade and manufacturing and enhance economic activity.At the same time, the availability of efficient transportand logistics services is increasingly a key decision criterion for foreign direct investment, in addition tocompetitive factor costs and availability of skilledresources.This is especially true in industries withsophisticated supply chain requirements, includingindustrial equipment, automotive, electronics, anddownstream petrochemicals.

The enhancement of industry competitivenessOpening markets and abolishing import customs dutiesincreasingly expose domestic industries to global com-petition. Hence local manufacturers compete with theglobal “best in breed” mix of factor costs, skilled labor,production standards, and supply chain excellence.Astransport, logistics, and the supply chain service levels ofglobally distributed production capacities increasinglydetermine the overall production costs and are a keydriver for product variety and customer value generation,the availability of such high-quality services has a majorimpact on the competitiveness of companies. For theMiddle East, these realities have ramifications on twolevels. First, the effective removal of import barriers, aspromoted by the World Trade Organization, exposeslocal and domestic markets to global competition;thus Middle Eastern manufacturers face increasing

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competition in their home markets. Second, MiddleEastern manufacturers face stronger competition in their international export markets as global logistics andsupply chain services become more sophisticated on aglobal scale.

The growth of the industry sectorThe transport and logistics sector itself provides anattractive opportunity to enhance economic activity. Inmature markets, such as those of North America andEurope, the growth of the transport and logistics indus-try has outperformed overall GDP growth in the lastseveral decades and represents a substantial part of theeconomy.A key driver for such strong growth potentialis the ongoing disaggregation of value chains on thedomestic, regional, and global levels.

Although this growth potential holds true in mostmarkets, the Middle East’s opportunities globally and inits own broader geographic region, described earlier,make a strong transport and logistics sector crucial forthe Middle East in particular.

The generation of sustainable job opportunitiesFinally, besides providing a key building block for growing economic activity in manufacturing and othersectors and hence providing a basis for increasingemployment levels, the growth of transport and logisticsitself will provide the substantial potential for employmentgrowth for which Middle Eastern countries are eagerlylooking. Being a service industry with relatively limitedinvestment requirements compared with other industries,as well as limited automation possibilities, transport andlogistics is a labor-intensive economic sector with astrong focus on a less-skilled workforce.And whileother industries in the more mature North Americanand European markets have seen high levels of cyclicali-ty or, even worse, have faced substantial relocation toemerging markets, the transport and logistics sector inmost cases has mostly profited from such developmentsand provided a sustainable basis for employment andemployment growth.As in other emerging markets, anadditional supporting factor of the industry’s employ-ment potential is the Middle East’s competitive laborcost, which reduces pressure for automation and work-force efficiency.

Each of these four economic elements providesrationale enough on its own for the Middle East toposition the development of the transport and logisticssector very high on the government agenda; they areeven more compelling in combination.

Building blocks of a government strategy for the transport and logistics sectorAs Middle Eastern governments embark on the devel-opment of the transport and logistics sector, it should beclear that—although there is generally a broad set of

opportunities for the sector—these opportunities are notequally available to all countries in the Middle East.First, certain elements of the sector’s developmentrequire preferred geographic locations, such as seaports.Furthermore, certain opportunities, such as the develop-ment of a global multimodal hub, are limited in numberand require huge infrastructure investments—as can beseen in the historical and current infrastructure investmentbudgets of Singapore, the Chinese ports, and Dubai.

Hence, governments should consider and decide on a set of five building blocks for their transport andlogistics sector strategy.They should:

• Choose a strategic play for the sector on a global level.

• Focus infrastructure investments to fit the chosen sector play.

• Adjust policies and regulations to promote sector development.

• Optimize government services to meet the demand of the logistics sector.

• Promote the development of national transport and logistics champions.

Choose a strategic play for the sector on a global levelFundamentally, there are three different strategic playsthat governments can pursue for the transport and logistics sector.The options for governments are:

• a global multimodal transport and logistics hub,• a regional logistics and distribution hub; or• domestic-focused transport and logistics services.

1. The global multimodal transport and logistics hubstrategic play is the most demanding strategy forsector development. It must be built on a preferredgeographic location, and it requires huge investmentsin infrastructure. Furthermore, it requires a multi-tude of factors that have to be coordinated andstrategically aligned; just a few of these factors are:

• an economic environment that attracts foreigndirect investment by allowing for full ownershipof the local entity;

• the availability of a large free zone around theport-airport infrastructure, adhering to globalquality standards;

• a track record indicating that the port and airportoperator can manage complex processes smoothly;

• highly competitive handling charges; and

• the provision of living standards that can meetthe demands of a large expatriate community.

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In terms of the airport and port infrastructure,a multimodal hub requires both operations to beplaying—in both capacity and utilization—withinthe top league of their respective segments toprovide capacity and attractiveness for severaldozens of the global and regional transport carriers and logistics service providers.The onlyway to compete with the emerging global hub in Dubai and to mitigate the existing scaleeconomies is to have a more preferred geograph-ic location—for instance, Oman on the IndianOcean, or, to a lesser extent, the greater Jeddaharea on the Red Sea. However, as hubs encountera self-enforcing virtuous circle—that is, the moreconnections are provided by the hub, the moreattractive the hub becomes and the more carrierswant to be connected to it—the required num-ber of global multimodal hubs in the Middle Eastseems to be limited to a maximum of two.

2. In general, the regional logistics and distributionhub strategic play requires the same critical successfactors as a global multimodal hub, as key tenantswill also be global and larger regional industry andlogistics service players.Although the criteria areless demanding in terms of overall size and multi-modality, the quality of services and processes mustnevertheless adhere to global standards.As can beseen in both the greater Rotterdam/Amsterdamregion and in Dubai, global hubs tend to simultane-ously become natural regional hubs.As hubs pursuespecialization strategies, such as a specific industryfocus or a focus on a subregion, the consolidationof the regional logistics and distribution centersinto one single location is not as imperative. Henceit seems that a few traditional gateways to thebroader region—such as the Nile delta, the RedSea areas, the Kuwait area, and the northern shoresof the Gulf—qualify for such a positioning.

3. Finally, if a country does not have the qualifyingfactors to meet the criteria of a global or regionalhub play, the government should focus its sectorstrategy on the development of its domestic transport and logistics services.This still requires a demanding setup of appropriate infrastructure,such as excellent connections between the ports of entry/exit and the consumption or productionmarkets in the inner country, as well as the provi-sion of bonded or free zones near the consumptionmarkets.

The most difficult decision from a government perspective is the correct choice of the strategic play forthe sector development agenda.The choice must bebased on a thorough and honest assessment of how wellit achieves the qualifying factors. Countries with tight

budget constraints that do not match the qualifying factors for the global or broader regional play need toresist the temptation to establish mega-infrastructureprojects that will never become economically viable.Instead, they should focus on a broad set of local developments, providing excellent connections to theglobal and regional hubs and nurturing the domesticdevelopment of the sector.

Such a broad set of local development initiativescould be quite easily decided and executed in the smallerMiddle Eastern countries, such as Bahrain, the Emirates,or Qatar, with clear decision about ownership. In contrast,a well-coordinated development program in the largercountries, with a multitude of stakeholders and local andregional decision makers, is much harder to pursue.Hence, the ministry of transport should be tasked insuch situations to develop an overall transport and logistics master plan, strongly involving policymakers atdifferent levels; the ministry should also be responsiblefor execution oversight.As in such complex politicaldecision situations, enforcement of the implementationof a coordinated master plan usually is difficult, and thegovernment should consider providing the respectivefinancing budget to create positive incentives to complywith the overall strategy chosen.

Focus infrastructure investments to fit the chosen sector playIt seems obvious that the development of a global mul-timodal hub strategy requires a strong and unambiguousfocus on the development of a single mega-infrastructureincorporating a world-class integrated airport and portzone.As the development of such a strategic play willspan a very long time period, the investment plan andexecution of the investment need to be followedthrough and subjected to regular reviews.

In contrast, the ideal development of a regionallogistics and distribution hub play is less obvious: it isnot easy to measure the competing demands of providinginfrastructure against less tangible factors, such as the investment environment. However, it is clear that theinfrastructure potential needs simultaneously to allowfor very good connections to global hubs and exportingcountries and excellent connections to the neighboringregional markets.This requires the establishment of anappropriate road and short sea infrastructure on aregional level. On the level of global connectivity, multi-modality is of low importance and port and airportfacilities need only to accomplish the requirements of anoriginating or destination point of a strong trade lane.

Finally, a domestic-focused transport and logisticsservices play requires the most humble infrastructuredevelopment plan—although even this is complex,comprising a multitude of local developments.Thedevelopment of road infrastructure, for instance, shouldmodel the actual flow of trade and goods within thecountry.Additionally, the road and port infrastructures

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should be focused to provide excellent connectivity tothe regional hubs.The port infrastructure especiallyrequires a delicate balance to provide efficient handlingof short sea transport while simultaneously allowing fordedicated connections to long sea connections. Besidesthe basic road, seaport, and airport infrastructure development, free zones in the inner country, close tothe relevant consumption and production markets, are of significant importance.

Adjust policies and regulations to promote the sectordevelopmentAgain, the set of policies and regulations necessary forthe development of both global multimodal and region-al hub strategies seems to be obvious and can easily beadapted from world-class players such as Rotterdam,Singapore, or Dubai. In essence, these policies and regulations should promote foreign direct investment,provide a liberal economic environment, and allow for full foreign ownership of the respective entities, ascompetition for tenants happens on a global level andhence needs to adhere to these standards.

But which set of policies is appropriate for promot-ing sector development on a domestic level? Again, themore mature markets in North America and Europe canprovide model cases of a clear liberalization strategywith thorough and consistent regulatory oversight. Inthese markets, liberalization and the removal of marketentry barriers have resulted in substantial productivitygains, service level improvements, and volume growth.

As global and larger regional service providers compete in other markets on global quality and servicestandards, their investment and corporate activity shouldalso be actively pursued.This will allow the sector todevelop toward such standards and to educate a work-force in the respective business and process areas.

Finally, to ensure a level playing field for all industryparticipants, the government should establish thorougheconomic regulatory oversight, independent of strategysetting and policy definition.The most prominentexamples for such a structure are the postal, road, andrailway regulators in the most liberalized markets inEurope.

Optimize government services to meet the demand of thelogistics sectorThe key government services required by the logisticssector fall into three groups: business and equipmentlicensing, regulatory oversight and competitive regulation,and customs services.The former two have standardssimilar to those for other industry and service segments;optimization of government services in these areas shouldbe part of a broader economic development programthat promotes and fosters entrepreneurial activity.

Customs services, however, are substantially different;furthermore, they are essential to foreign trade andhence significantly affect the performance of the transport

and logistics sector. From the perspective of a logisticsservice provider, customs declaration is a purely transac-tional process, though it is resource-consuming andtime-critical.Thus, optimizing government servicesrequires the provision of processes that are highly auto-mated and seamlessly integrated into the logistics serviceproviders’ order-management system. Hence, governmentsshould pursue the basic principles of e-government,such as provision of Web-based applications, modularity,and thorough and seamless internal automation.

Promote the development of national transport and logistics championsIn most Middle Eastern countries, the industry structureof the outsourced transport carriers and logistics serviceproviders is highly fragmented and often not at all welldeveloped—dominated on one side by the leading glob-al transport and logistics service providers and on theother side by a vast number of “mom-and-pop shops,”while lacking a strong base of nationwide, medium-to-large logistics service providers.

Additionally, the outsourcing level of transport andlogistics services is still very low across the Middle Eastcompared with global standards, standing at approxi-mately 12 percent;Western Europe, for instance, hasoutsourcing levels of approximately 25 to 30 percent.Hence, large global industry players especially operatesignificant transport and logistics businesses.Within suchan industry structure, the development of high-quality,efficient transport and logistics processes and structuresis substantially hampered: small enterprises do not havethe means to establish sophisticated logistics processesand service offerings, whereas industry players focus pre-dominately on their core business, often neglecting theoptimization and sophistication potential of the logisticsprocesses. Global players are also often hampered byagent laws in broadening their businesses and bringingmore sophisticated concepts and processes to the market.

Hence, the development of the transport and logis-tics sector also requires an industry structure in whichmedium-to-large logistics service providers play a moreprominent role. Even with a liberal market approach,governments can actively promote and influence thedevelopment of the industry toward such a target structure using three focused measures:

• First, governments can carve out, consolidate, andsubsequently privatize the logistics functions oflarge state-owned industry enterprises. In mostMiddle Eastern countries, a quite substantial indus-try base is government-owned. Such government-owned entities include enterprises such as nationaloil and basic industry companies in the GCCcountries or enterprises in the steel, mining, cottontextile, and retailing industry in Egypt. Most ofthese enterprises still own substantial transport and logistics operations. For these enterprises, the

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government could pursue a comprehensive carve-out strategy integrating the transport and logisticsoperations into dedicated entities of substantial size.Once the consolidated entities have been formedand operations have been restructured, privatizationcould provide the desired medium-to-large logisticsservice providers ability to compete on a globallevel.

• Second, governments can expand state-ownedtransport players, such as post offices, railways, andport/airport operators, into the logistics business. InEurope, entities such as the Swiss post, the Swedishpost, the German post, and the German rail havesuccessfully embarked on such an expansion strategyto develop a broader transport and logistics serviceoffering. In doing so, they have become substantialplayers in their respective transport and logisticsmarkets on a domestic, regional, or global level.However, a word of caution is necessary:Almost allof these expansion strategies have been the growthpart of a fundamental restructuring program.Because they had previously been performingpoorly and sustaining losses, a fundamental restruc-turing of the core business was necessary beforethey “earned the right to grow.”

• Finally, governments should also pursue a “softstrategy” to promote outsourced logistics and logistics service providers.Two levers are necessaryto make such a strategy successful. First, the govern-ment—namely, the ministry of transport and theministry of economic development—should developa consistent communications strategy toward shippersto promote outsourced logistics and leverage theirinfluence on business leaders to implement theseconcepts. Second, governments could also awardlogistics contracts—such as contracts for militarylogistics, construction, or health care—to thoseplayers that provide the most promising platformfor becoming a market leader.

Summary and conclusionsThe Middle East region is favorably located along thesubstantially growing Europe–Asia trade lane and in themiddle of a broader region spanning from northernAfrica to the southern borders of Russia and to Pakistan.This provides a broad variety of opportunities for theMiddle East to gain a fair share of the global and broaderregional transport and logistics business.Additionally, thedevelopment of a strong domestic transport and logisticssector is a strategic must for further economic develop-ment of the Middle Eastern countries, to enhance their industry competitiveness and to build a stronglycontributing and growing sector that provides sustainableemployment opportunities.

Governments of Middle Eastern countries shouldtherefore embark on a well-defined development strate-gy for the sector, comprising the best choice of a long-term strategic play adapted to each particular country,the appropriate focusing of infrastructure investments,the adjustment of policies and regulations, and the opti-mization of government services to support the chosenstrategic play.Additionally, they should promote thedevelopment of national transport and logistics champions.

There are several examples of successful implemen-tation of a comprehensive development strategy for thetransport and logistics sector in different geographies;these include Belgium, Dubai, the Netherlands, andSingapore.All of these cases are based on a favorablegeographic location, a carefully considered strategic playfor the sector, and consistent execution over time.

From the experience of these cases, it seems obviousthat only the interplay of a clear and well-thought strategy with excellent execution will finally achieve thedesired results and economic benefits.

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CHAPTER 3.1

The Gulf Cooperation Council(GCC) Countries and the World:Scenarios to 2025: Implicationsfor CompetitivenessNICHOLAS DAVIS, World Economic Forum

CHIEMI HAYASHI, World Economic Forum

The World Economic Forum has developed three sce-narios for the future of the Gulf Cooperation Council(GCC) countries to 2025.1 From the underlying modelsof economic, social, and political development used tocreate the scenarios, it is possible to derive forces thatwill shape the economic environment of the GCC andassess their implications for the competitiveness of theGCC countries over the next 17 years.This chapterintroduces the three scenarios for the region from 2007to 2025 and examines their implications for the futureof the GCC countries competitiveness.

What are scenarios?Scenarios are stories about the future. Leading globalcompanies often engage in constructing large-scale sce-narios to help formulate their business and investmentstrategies. Scenarios enhance the robustness of strategies,allow better strategic decisions, raise awareness of theexternal environment, provide impetus for currentaction, and increase the speed of response to unexpectedevents.The World Economic Forum produces a diverseand wide-ranging set of scenarios as part of the WorldScenario Series. Previous projects include scenarios forIndia, Russia, China, the Digital Ecosystem, andTechnology and Innovation in Financial Services.

Good scenarios are plausible, challenging, and rig-orously constructed to address the most critical ques-tions that decision makers need to face.The GulfCooperation Council (GCC) and the World: Scenarios to2025 were developed over a period of one year andinvolved workshops in Abu Dhabi, Doha, London,Sharm El Sheikh, New York, and Washington, DC.Theysynthesize the perspectives of many leaders in business,society, government, and academia from both withinand outside the GCC countries. Supporting analysis hasadded insights from multiple stakeholders, and theunderlying economic basis is backed by rigorous model-ing in conjunction with research partners of this project.

For a region as diverse as the GCC, no single set ofscenarios can claim to describe all possible futures. Eachstory that has emerged describes one of many different,plausible futures for the GCC countries. Importantly,they are not predictions but rather possibilities.They areintended to provoke readers, challenging their assump-tions about what may happen and providing a usefulshared basis for debate.

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Notes:

The authors would like to thank Johanna Lanitis and Sandrine Perrollazfor their excellent research assistance.

The full text of The Gulf Cooperation Council (GCC) Countries and theWorld: Scenarios to 2025 will be available to Forum members followingits exclusivity period with our developing partners. For further informa-tion, please contact the World Economic Forum Scenario Team at [email protected].

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In developing these scenarios, the Forum closelyinvolved senior executives from leading global compa-nies, as well as thought leaders, scenario practitioners,and public figures.Together they identified the followingcritical questions:

• Will leaders in the GCC countries be willing andable to implement the necessary economic andpolitical reforms and enforce the rule of law, bothin public and in private governance?

• Can the GCC countries maintain internal orderand stability, in particular vis-à-vis a complex anduncertain regional situation?

Answering these questions in different ways provides thebasis for imagining different futures for the GCC coun-tries based on their progress in implementing economic,political, and social reforms and the various possibilitiesin terms of regional stability. Both questions are also ofvital importance for the evolution of national competi-tiveness and economic growth.

Key themes of the scenariosThe GCC countries have benefited enormously fromoil and gas reserves and assets that have generated signif-icant financial liquidity in the six years between 2001and 2007. Its present wealth poses an interesting questionfor those interested in the future of the GCC countries,and one that these scenarios seek to address: How canthis wealth be put to use to ensure that the GCC countries expand in affluence, and also ensure that theyovercome the internal and external pressures that couldshift them from the path of sustainable prosperity?In positing three possible futures that address these questions in different ways, two key themes consistentlyemerge as being crucial to the future of the GCC countries. Both of these directly and indirectly affect the competitiveness of the GCC countries:

• Education and innovation. The GCC countriesface the challenge that their collective oil reserves,although vast, will not last forever. Nor are oil andgas always a reliable source of wealth—there havebeen many times when GCC budgets were in deficitand public debt rose as a result of falling energyprices. However, in attempting to diversify awayfrom oil, the GCC countries face a major problemin that their existing skill base for workers is low byworld standards, and relatively little research, devel-opment, and innovation are occurring in the region.Data from the Global Competitiveness Index indi-cate that the region significantly lags behind in termsof education and innovation (see Chapter 1.1 ofthis Report for a more detailed discussion).Enrollment rates in educational institutions remain

low on average, particularly at the tertiary level, andthe quality of education is in need of upgrading. Inthe innovation category, all countries with theexception of the United Arab Emirates and Qatarrank in the lower half of the overall sample of 128countries.A closer look at the results points to theweak quality of local research institutions as well asshortages in qualified staff as the most importantreasons behind the lagging R&D performance ofthe GCC region.This creates an impediment todevelopment and exacerbates other problems asso-ciated with importing both foreign workers andtechnologies.As a result, the way in which educa-tion policies are handled by GCC governments willbe a significant determinant of the region’s abilityto develop as innovation-based economies that donot wholly rely on natural resources.

• Leadership and governance. The GCC countriesare ruled by traditionally organized family groups,with varying underlying executive, legislative, andjudicial models. Leadership and governance willtherefore be instrumental in determining the paththat the GCC countries will take over the next 20years.Although much is being undertaken today interms of reform to improve the efficiency andopenness of these systems, the strategies chosen andthe rates of change vary between GCC countries.In managing both internal stability and reforms, andthus in determining the structure and strength ofinstitutions, leadership plays a critical role at all levelsof GCC government as well as in the private sector.

Before discussing the scenarios and their implications indetail, it is useful to take a look at the competitivenesslandscape of the GCC countries that emerges in 2007.

Current competitiveness challenges in the GulfCooperation Council countriesThe results of the Global Competitiveness Index high-light a number of competitive strengths and weaknessesfor the five GCC countries it covers—Bahrain, Kuwait,Oman, Qatar, and the United Arab Emirates.The Indexassesses competitiveness of countries by looking at ninecriteria that affect competitiveness: institutions, infra-structure, macroeconomy, health and primary education,higher education and training, market efficiency, techno-logical readiness, business sophistication, and innovation.The average results in these categories are benchmarkedagainst Singapore in Figure 1.2

Not surprisingly, given the current surge in oilprices, members of the GCC display stable macroeco-nomic indicators. In particular, oil revenues combinedwith better fiscal management than in previous yearsfueled budget surpluses and enabled governments topartly repay public debt and increase national savings,

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but this also increased inflation. On average, countriesalso display well-run institutions with relatively wellprotected property rights and fairly low levels of corrup-tion. Businesses have trust in the honesty of politiciansand consider public spending to be well invested. Effortsto strengthen the financial sector have paid off in theregion, and financial markets display, on average, a fairlyhigh level of sophistication.At the same time, however,financial markets are not sufficiently geared toward fuel-ing entrepreneurship, and access to finance for localcompanies remains difficult in many countries, despitehigh liquidity levels.

In order to realize their full competitive potential,GCC countries should focus on strengthening the availability and quality of educational institutions at the primary, secondary, and tertiary levels, although theperformance on educational indicators among GCCcountries is very diverse. Some countries lag behind interms of primary education and display fairly high levelsof illiteracy, while other countries need to improve uni-versity education.A common problem that occurs acrossthe region, however, is that the educational institutionsdo not teach young people the skills necessary to succeedin the private sector.

In most GCC countries, more openness to domesticand international competition would benefit the econo-my.Also, the ability to adopt technologies from abroadand the capacity to innovate are on average limited.This is mainly because of the low quality of research

institutions, but also because of the scarcity of qualifiedstaff, such as scientists and engineers.

Overview of competitiveness aspects within the scenariosThree different paths for the GCC countries through to2025 are represented in Figure 2, displayed as movementsthrough a matrix defined by the key questions above.The resulting scenarios are called Oasis, Sandstorm, andThe Fertile Gulf.

OasisOasis describes a scenario where regional stability con-tinues to be a challenge for the GCC countries, whichare nevertheless able to achieve substantial institutionalreforms in an environment of relatively stable oil pricesthat have a floor of US$45 per barrel.The GCC coun-tries develop strong identities and work together tocoordinate diplomatic and economic policies throughtechnocratic governance and a strong internal market.Overregulation in world markets slows the process ofglobalization of the world economy to global GDPgrowth rates of 3–3.5 percent, affecting the GCC coun-tries; nonetheless, these countries are an oasis of stabilityand prosperity in an otherwise troubled region. By2025, the countries have all made significant gains interms of competitiveness, but have done so via a seriesof top-down reforms and industry policy rather than byfocusing on market liberalization.Thus, although health,

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Health andprimary

education

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Figure 1: Results of the Global Competitiveness Index for Gulf Cooperation Council countries benchmarked against Singapore

Source: World Economic Forum.

*excluding Saudi Arabia

� GCC countries*

� Singapore

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education, and technology have improved substantially,there remain some elements of friction within institutionsand markets that are geared toward strategic priorities,and infrastructure investments occasionally suffer frompoor planning. Nevertheless, efforts to build the privatesector and improve the efficiency of the public sectorhave paid off in terms of increased business sophistica-tion and reduced costs of bureaucracy and corruption.

2007–12As tensions rise in the Gulf with regard to Iran andproblems persist with sectarian and insurgent violencein Iraq, a new regional body known as the GCCEconomic Coordination and Development Board progressively develops a coordinated regional economicstrategy to make the most of relatively high oil prices—the “Three Pillars” strategy—that aims at (1) encouragingpublic-private partnerships, (2) encouraging economicdiversification, and (3) improving governance throughstronger and more efficient institutions.There is a focuson building the private sector through targeted incen-tives for domestic and foreign investment, particularly intourism, business services, and energy-intensive industriessuch as petrochemicals, aluminum, and steel. Financialmarkets develop strongly, and there is talk of marketconsolidation following monetary integration in 2012.

The skills shortage begins to be addressed by edu-cational reform aimed at enhancing human capital instrategic sectors, improving public infrastructure acrossthe region, and implementing on-the-job trainingthrough appropriate training schemes.Training programsfor nationals in both domestic and international firmsare being funded. Because the strategy indicated thathigh-tech industries should be developed within the oiland gas sector, a public-private partnership to train localengineers has been established.At the same time, areview of educational standards across the six GCCcountries has been undertaken, and a plan for regionalaccreditation of universities has been put in place.Leaders have been encouraged to be role models forprivate-sector participation; the educational system has reinforced this message.Taken together, all this hascontributed to upgrading the image of the professionalworker and strengthened meritocracy among the work-force.The GCC region achieves over 5 percent realcompound annual growth for the period.

2013–20Nuclear proliferation causes regional concerns andincreases the volatility of the price of oil. Efforts toaccelerate economic diversification continue with strategic research and development (R&D) investments,

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Figure 2: Gulf Cooperation Council scenarios to 2025

Source: World Economic Forum: The Gulf Cooperation Council (GCC) Countries and the World: Scenarios to 2025.

OasisSandstorm

The Fertile Gulf

Ineffective governance and reforms Effective governance and reforms

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capturing more of the energy value chain and increasingthe world market share of associated industries.TheGCC countries work toward possessing some of theleading technologies for oil-field mapping and enhancedoil recovery.The push in R&D is leading to advances inchemicals and starting to spill over to plastics; the GCCis set to become home to a very successful cluster offirms specializing in advanced materials.Top-down economic reform is broadly successful, and—following a significant joint effort on the part of the countries’leaders—educational standards are established across the GCC countries to create a deeper regional labormarket.Another particular focus is the creation of publicaffairs management colleges to educate a generation oftechnocrats in order to increase the effectiveness of thepublic sector. Political reforms progress slowly, withpressures from local populations managed through acombination of financial incentives and partial inclusionthrough (mostly symbolic) consultative bodies. Realgrowth over the period is slightly lower, at just under 5 percent, but some economies in the region far exceedthis. Despite diversification efforts, government revenuesremain dependent on resources and drop significantlyaround 2011 as oil prices hit a low, but recover in thefollowing years (see Figure 3).

2021–25Governance structures in 2025 are, in most cases,profoundly different from those in 2007, following 17years of streamlining the still-dominant public sector.Ageneration of talented, nationally educated technocratsensures that, for the most part, GCC national institutionsare efficient and effective. Ruling families primarily actas occasional advisers rather than executive leaders, andthere is a strong meritocratic culture throughout thepublic and private sectors.This is created through effectiveleadership by example and through instilling the meritprinciples in the educational system. Unemployment,although still important, remains contained below 13percent overall despite a population that has almost dou-bled in 25 years. Governments are focused on refiningtheir industry policies—these occasionally fail, but theyhave been fairly successful in a global environment char-acterized by solid GDP growth of 3.5 percent.Theseindustry policies have a distorting side-effect of skewingentrepreneurship toward government-favored sectors,and productivity remains below levels of internationalpeers.At the same time, the private-sector benefits fromwell-enforced corporate governance standards and fromworld-class financial institutions operating in the region.Oil continues to be the primary source of budget revenuefor the GCC countries because oil prices are robust, and

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2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Figure 3: Gulf Cooperation Council budget balance: Oasis scenario

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budgetary spending is largely contained. Despite asomewhat difficult environment, integration with theglobal economy continues and there is a strong increasein trade in goods and services. Both trade in goods andtrade in services more than quadruple.The politics ofthe region are not profoundly different from the begin-ning of the century, but wealth has increased significantly,with GDP per capita hitting levels above US$30,000 innominal terms. Despite ongoing calls for increasedtransparency in decision-making, people are generallysatisfied with their governments’ management of naturalresources and social issues.

SandstormSandstorm describes a future where regional instability isa defining factor, affecting the ability of GCC countriesto effectively carry out much-needed institutionalreforms. In a depressed global environment affected byextremely volatile oil prices, reforms deflate or collapsefrom a lack of attention to the root cause of internalissues and the tendency for governments to focus onshort-term stability at the expense of long-term solutions.Caught in a shifting, violent environment, the GCCcountries are blinded, unable to navigate their way out ofthe sandstorm and identify opportunities for prosperityfor their populations, despite the fact that low oil pricesfrom 2011, caused by the global slowdown, offer awealth of incentives for reform. In terms of competitive-ness, the GCC countries find themselves worse off thanthey were at the beginning of the century, with stagnant and inflexible institutions, eroded and irrelevant publicinfrastructure, a poorly developed and internationallystruggling private sector, and a lack of educational andfinancial capital with which to rectify the situation.

2007–12The Gulf region is thrown into chaos in 2009 when theUnited States undertakes a military strike against Iraniannuclear sites, provoking Iranian missile attacks on USbases in GCC countries along the Gulf and helping toprecipitate a global recession. Oil prices stabilize, after aninitial drop, when they reach levels as low as US$30 perbarrel in 2011 down from US$140 in 2009. In addition,populations in GCC countries react strongly to thedeteriorating security situation, resulting in a period ofinternal instability. GCC governments scramble to headoff internal and external threats to their authority. Fundsare diverted to military spending at the expense ofimproving institutions and education. Instead of fosteringR&D and creating a long-lasting capital base, investmentsare directed toward public infrastructure of limited utili-ty, creating only temporary employment.As a result ofthe political instability, military attacks, and the like, andthe failure to support private-sector reforms (negatingthe influence of fluctuating oil prices), the real economycontracts by 19 percent over the period.

Unemployment, in particular among the young,remains at high levels in most countries.

2013–20In a depressed global environment, a lack of attention tothe causes of internal problems mean that reforms areineffective. Governments have a tendency to focus onshort-term fixes rather than long-term solutions, andthey divert the oil revenues that do exist to extensivearms purchases and investment in nonproductive assets.Capital is leaked to Europe.A series of terrorist attackscauses Gulf populations to carefully consider their inter-nal security, and financial markets across the region suf-fer heavily as a result. Nevertheless, real non-oil GDPrecovers slightly to regain the levels prior to the conflictwith Iran, and success for Kuwait and United ArabEmirates brings the GCC current account balance backinto the black.

Labor markets continue to be strongly regulated in favor of national employees, who appear not onlyoften to lack the necessary skills but also to have a lessperformance-oriented attitude than foreign workers.This in particular affects executive positions in compa-nies. Reforms of government bureaucracies, althoughundertaken, are only superficially implemented, consti-tuting a major impediment to business. Huge delays andcosts for obtaining permits are the rule and governmentcontracts are awarded arbitrarily.The bureaucratic prob-lems intensify after reforms are scaled down in 2015 and2016. By 2020, businesses consider the inadequatelyeducated labor force and the inefficient governmentbureaucracy to be the two most problematic factors fordoing business.

During this time, GCC countries start falling furtherbehind the rest of the world in terms of the adoptionand implementation of new technologies, and they havemore and more difficulty competing with internationalplayers from China and India. Even in the explorationand production of oil, the value added is not capturedsuccessfully.And although a few pockets of excellenceemerge in selected sectors and countries, reforms arenot implemented effectively and a more prosperous andproductive private sector does not emerge.

2021–25The GCC countries are caught in a trap of needing tocontrol their populations out of fear of further unrest,but being thereby unable effectively to create the condi-tions for renewed growth, despite rising oil revenues.GDP growth in the GCC is stable at annual rates ofabout 5 percent. Reform efforts remain constrained bythe fears of a deteriorating security situation.Access toeducation remains difficult, and distance learning is theonly viable option.At the same time, ICT infrastructureis considered subversive by governments. Meanwhile,thanks to resilient populations making the most of the

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globalization of communications, a new sense of identityemerges although the broader humanitarian cost of theeconomic slowdown (the result of the inability to createthe conditions for renewed growth) is considerable—and at least partly avoidable. Succeeding generationshope to make a better start in 2025, but they have farless to work with than they might have had.

The Fertile Gulf

describes the rise of the GCC countries as innovationhubs in a global environment characterized by strongdemand for energy and increasing globalization.Regional stability gives the GCC countries the oppor-tunity to focus on enhancing their human capital at alllevels, investing heavily in education while proceedingcarefully with political and institutional reforms to sup-port their growing economies and societies. High oilprices resulting from sustained demand and globalgrowth provide GCC countries with ample resources. Inthis way, along the Persian Gulf modern, highly compet-itive economies make the most of the conditions ofglobalization, thanks to efficient institutions and marketsand a broad base of local, highly skilled workers.

2007–12Growing tensions and insecurity spur a series of multi-lateral conferences involving the leadership of GCCcountries.The problem of regional violence is addressedat political and cultural levels, resulting in increasedregional stability.At the same time, recognizing theimportance of education and innovation, a number ofGCC governments decide to spend their built-upwealth on educating their people and jump-startingR&D in a radical and dramatic fashion.As a result, anumber of huge education and R&D funds emerge,sponsored by private individuals and supported by GCCgovernments and commercial partners. Encouragingentrepreneurship by creating more business-friendly reg-ulatory and institutional environments through improv-ing corporate law and by significantly reducing thenumber of procedures required to set up a business werekey elements to the success of these reforms. Just asimportant was the establishment of funds that bothincentivize and aid the development of new businessideas, so that the GCC countries effectively begin toemulate the “Silicon Valley” model.The involvement ofthe private sector in these economic reforms is animportant aspect of their success, and is at least partlyresponsible for compounded real annual growth of over6 percent for the region as a whole.

2013–20Less volatile (but still bullish) oil markets do not distract GCC countries from private, non-energy sectordevelopment, the success of which reduces national

unemployment while creating an array of sought-after,highly skilled jobs for those coming out of the newlyreformed educational system.A series of internationalbilateral agreements to financially support research projects in exchange for intellectual property rightsresults in an innovation explosion in the GCC countries,and new R&D firms flood into the region. Incrementalimprovements in institutions (including strong reforms toproperty rights in terms of legislation and enforcement)to manage the burgeoning entrepreneurship combinedwith a more influential business community further sup-port regional development. Public investment in infra-structure is more efficient, and transparency andaccountability of public institutions are significantlystrengthened, reducing corruption and nepotism.A one-license approach is introduced in the GCC. Regionalinfrastructure is developed and it is easier for people tomove between countries, thereby rendering the laborallocation more efficient. In some countries, professionalethics are strengthened and the business sector benefitsfrom an increasing participation of women in the labormarket. Financial markets in the region are significantlystrengthened in terms of sophistication of both productsand regulation. Economic expansion continues stronglyon the back of monetary integration averaging over 5percent real growth for the period, with extremelystrong growth in Kuwait and the United Arab Emirates.

2021–25Political reforms, which have proceeded at differentstages across the GCC countries, find balance;Westerndemocratic ideals are not directly transplanted. Instead,governments generate their own models of participatorygovernance over a period of experimentation andincreasing engagement with their populations.After a sea change in both attitudes to and the provision oftertiary education,Arab graduates are keenly soughtafter for positions in finance, engineering, and medicalsciences in Asia, Europe, and North America. GCC-based business schools make it to the top 50 in worldrankings.Thanks to the improved education and goodbusiness climate, unemployment is greatly reduced whilethe proportion of migrant workers decreases. Credit iswidely available to a new generation of entrepreneurs,who drive much of the continuing strong growth in theregion. Economic diversification results in a greatlyreduced share of oil in GDP, and the GCC countriesemerge as an innovation hub, where the constraint ofdemographics is turned into a world-class asset, enhanc-ing the region’s competitiveness.This looks set to con-tinue with extremely healthy, and growing, positivebudget and current balances.

Figures 4–7 show the diverging evolution of themain economic indicators in the three scenarios;Table 1summarizes the impact on the nine categories used toassess competitiveness.

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OASIS SANDSTORM THE FERTILE GULF

2nd pillar: Infrastructure • Despite attempts to coordi-nate investment at aregional level, infrastruc-ture development is hap-hazard among the GCCcountries.

• Top-down implementationof clear economic strate-gies means infrastructureimproves over time, butlack of transparency and arigid approach to planninglead to occasional misallo-cation of resources.

• Scarce resources are notfocused toward infrastruc-ture development and leadto poor overall quality.

• Tendency to spend vastamounts on public infra-structure projects of limit-ed utility, creating tempo-rary employment ratherthan a long-lasting capitalbase.

• Infrastructure developmentis coordinated and heavilyinvested both within andamong the GCC countries,primarily in partnershipwith the public sector,resulting in an efficient allocation of budget surpluses toward criticalinfrastructure to supportsustainable economicdiversification.


1st pillar: Institutions • Public-sector reform leadsto technocrats ruling.National institutions aremore effective and lesswasteful, but weak areasremain. A focus on top-down reform and imple-mentation means the pub-lic sector is still the corner-stone of economic devel-opment.

• Property rights arestrengthened along withthe rule of law, but there isstill a lack of transparencyat high government levelsin a number of countries,and the elite still controlmany of the resources.

• Reform of corporate lawmeans that private institu-tions are stronger andmore effective; govern-ment remains fairly hands-off vis-à-vis corporations ina bid to encourage private-sector development.

• Corruption and lack oftransparency worsen asdefense spending risesacross the region and polit-ical reforms are pulledback.

• Property rights remain rela-tively undeveloped acrossthe region as governmentsseek maximum controlover their populations.

• Business reforms neededto survive the global eco-nomic downturn were notsufficiently implementedby the governments.

• Unaddressed tensions inthe region, occasionallyspilling over into domesticunrest, lead to reducedsecurity and higher busi-ness costs of terrorism.

• The GCC remains vulnera-ble to terrorism and oil-price volatility.

• Governments streamlineregulation to reduce redtape, introducing “one-stopshops” and improvingcoordination between andwithin ministries.

• Despite a rather slow start,GCC countries proactivelyembark on fundamentaland genuine political, legal, and administrativereforms for increasedtransparency and accountability, acceleratedby a push from corpora-tions. This results in lowercorruption and improvedjudicial independence.

• Improved regional securitylowers the business costof unrest.

Table 1: Qualitative comparison of the trends between 2006 and 2025 based on the Global Competitiveness Index

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3rd pillar: Macroeconomy • Despite relatively high oilprices, fast-growing popu-lations and governmentspending results in budgetdeficits by 2011 in manyGCC countries. Strong eco-nomic growth internallyand robust oil prices returnmost governments to sur-plus by 2015, enabling sus-tained public investment.

• GCC monetary integrationoccurs in 2012, positivelyinfluencing regional tradebut causing problems forsome countries in terms ofachieving inflation and fis-cal targets, given the eco-nomic differences betweenthe GCC countries.

• Oil-price volatility and a fail-ure to diversify away fromhydrocarbons means gov-ernments struggle to keeptheir budgets balanced.Government debt growssubstantially across theregion.

• GCC countries experienceproblems keeping their cur-rencies on their peg due tofluctuations in the value ofthe US dollar, and mone-tary integration (scheduledfor 2010 and then delayed)is eventually called off.

• Consistently high oil pricesand strong global demandin the non-oil sector drivesconsistent regional budgetsurpluses. This results indecreasing governmentdebt levels and healthysavings rates.

• High inflation rates fromstrong consumer demandand government spendingon infrastructure invest-ment causes concerns, butsubsides follow market-driven increases in thedomestic supply of bothgoods and labor.


4th pillar: Health and primary education

• Gradual improvement inboth health care and pri-mary education are theresult of large publicinvestment in both areas.

• Deterioration of the health-care systems in some GCCcountries result in reducedlife expectancy and higherinfant mortality. A failure toaddress shortcomings inprimary curricula and anoverall deterioration of theeducational system meansan ongoing lack of eco-nomically relevant skills inthe population.

• Modern health infrastruc-ture, skilled staff, and lowinfant mortality are rein-forced by civil society andprivate-sector involvement.

• School curricula are mod-ernized and revised on anongoing basis, ensuring the relevance of furthereducation.

Table 1: Qualitative comparison of the trends between 2006 and 2025 based on the Global Competitiveness Index (cont’d.)


5th pillar: Higher education and training

• Education standards areestablished across theregion as part of a bid tocoordinate skills and train-ing programs.

• Governments fund on-the-job training for nationalswith both local and interna-tional firms and launch aregionwide job searchwebsite.

• Lack of funding, restric-tions on curricula, and alack of incentives forachievement mean higher-education standards acrossthe region deteriorate.

• Alliances with foreign insti-tutions cease to exist andsome leave the region alto-gether.

• The very wealthy sendtheir children abroad, buttravel restrictions meanthat for the middle classdistance learning is theonly viable option.

• Government funding ismatched by private-sectorinvolvement, with interna-tional schools, vocationaltraining, and scholarshipschemes expanding region-ally. GCC-based businessschools enter the top 50 inworld ranking.

• Exchange programs withsecondary schools and uni-versities are encouraged todevelop cross-cultural andacademic learning.

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6th pillar: Market efficiency

• Marked improvement isseen in markets for goods,labor, and financial products.Reforms are top-down andoccasionally subject tooverregulation.

• Distortions occur becauseof government-directedindustry policy and theexistence of sectoral subsi-dies, leading to capital bias.

• Labor markets for GCC citizens are generally openand for the most part areregionally coordinated, withmovement of labor greatlyimproved.

• Financial markets occasion-ally suffer from interferenceby government interests.

• Market efficiency suffersas governments remainheavily involved with mostsectors, using regulation asa barrier to what they seeas a security threat fromforeign interests.

• Restrictions on the move-ment of people cause inefficiencies in the labormarket.

• Financial markets are inturmoil because of ongoingregional and increasingdomestic instability.

• Favorable market conditions(e.g., increasing foreignownership) lead to a higherdegree of competition andefficiency as governmentsliberalize their capitalaccounts.

• The introduction of standardized business regulations across the GCC enables the quickexpansion of firms to otherGCC countries.

• Financial markets arestrong and self-regulatingas the GCC capital marketsbecome a new source ofpower in the region.



7th pillar: Technological readiness

• Most GCC governmentssponsor large-scale invest-ments in ICT as part oftheir drive to improveskills.

• GCC countries continue tolag behind on adopting andimplementing new tech-nologies, while governmentsfail to stimulate the localbusiness elite to invest andimprove core ICT assets.

• Privatization of ICTimproves quality andaccess to the Internet, andgovernments auction therights to provide wirelessaccess across the GCC.


8th pillar: Business sophistication

• Governments support andmonitor a significant pro-portion of firms withinbusiness clusters, directingindustry policy towardenhancing strategic sectorssuch as oil and gas value-added activities.

• Firm strategies in chosenindustries are greatlyenhanced, and productivityrises. However, some sectors lag considerably.

• Business sophistication ishampered by a lack ofskills and the decliningcompetitiveness of localfirms.

• The formation of newindustry clubs and prolifera-tion of venture capital networks to support entrepreneurship increaseinter- and intra-industryknowledge transfer.

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9th pillar: Innovation • Innovation mainly focuseson the oil and gas sector.R&D increases significant-ly, but the bulk of this isdirected toward govern-ment-sponsored projects.Some protectionismremains in certain areas,with governments citingsecurity concerns.

• Limited innovation is pres-ent within the GCC. Mosttechnology is imported,and the little that emergeslocally is stifled.

• The GCC countries workhard to catch up oil andgas technologies, but alsoderegulate in R&D whileoffering large incentives forinvestment in the develop-ment of new technologiesacross all sectors

• Strong research cooperationwith foreign universitiesboosts the quality of R&D and technology commercialization.


Conclusion: The way forwardThe GCC countries are currently at a crossroad interms of their economic competitiveness.Althoughreforms to date have been, on the whole, well thoughtout and positively implemented, high oil prices and theresulting boom in revenue may distract governmentsfrom the need for further, more painful, reforms.Depending on their decisions now, the GCC countriescould remain primarily oil exporters, or they coulddevelop the Arabian Peninsula into an innovation hubthat leads the global economy.

The competitiveness of GCC countries will dependon how well elements contained in the nine pillars areintegrated, embedded, and constantly improved. Giventhe heterogeneity of countries, it is important to bear inmind that key themes such as leadership, strong and effi-cient institutions, diversification of the economy, effec-tive primary and job-aligned higher education, theadeptness on technological prerequisites, and the foun-dation for innovation will play out differently in eachcounty within each scenarios.

The stories that the scenarios present, supported bythe underlying quantitative research and modeling, clearlyindicate that the future of competitiveness for the GCCcountries relies heavily on investment in education andinnovation, supported by an enabling business environ-ment and well-functioning institutions.While the viewfrom 2007 is that institutional and economic reforms arewell underway and look set to continue across the GCCcountries, this is by no means certain. In addition, currentcompetitiveness bottlenecks related to workplace skills,access to credit, and innovation must be resolved witheffective investment and better incentives for increasedproductivity as well as improved labor force participa-tion.The scenarios indicate that serious efforts in theseareas must be accompanied by a strong leadership that iswilling to forge ahead with sometimes unpopular

reforms, using the region’s natural resource advantagesto absorb costs of adjustment in the short term in returnfor improved competitiveness and sustainable economicprosperity in the long term.

Having illustrated three plausible futures for thecompetitiveness of the GCC countries in these scenarios,the next step is to look to indicators that can signalwhich path the GCC countries are proceeding down.These scenarios suggest that keeping the pulse of thestate’s local education, R&D spending, and entrepreneur-ship could provide a useful indicator for the long-termhealth of regional economies.The Global CompetitivenessIndex, which comes to similar conclusions, providespolicymakers in the region with a framework of indica-tors that not only point to competitive strengths andweaknesses as well as areas for potential investment, butcan also be used to track progress over time.This Indexalso provides relevant benchmarks and can inform policydecisions by pointing to international best practice.Another way in which the scenarios can aid economiccompetitiveness is by opening policymakers up to newopportunities to improve GCC institutions, and toensure that they are well informed of alternative optionsand prepared for those times when expectations are notmet. GCC countries seem to be on the high road ofcontinued prosperity and improved competitiveness.However it is important that current investments bemade wisely to ensure that this continues for the next20 years and beyond.

Notes1 The Gulf Cooperation Council (GCC) countries are Bahrain, Kuwait,

Oman, Qatar, Saudi Arabia, and the United Arab Emirates.

2 Singapore has been selected as a benchmark because it operates atthe same stage of development as most of the GCC countries.

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The Country Profiles section presents a four-page profile for each of the 13 countries covered by The Arab World Competitiveness Report 2007.

Page 1

Key indicatorsThe first section presents a selection of key indicators.Population figures come from the United NationsPopulation Fund (UNFPA)’s State of World Population2006, available at www.unfpa.org/swp/2006.Macroeconomic data come from the September 2006edition of the International Monetary Fund’s WorldEconomic Outlook, available at www.imf.org/weo.TheHuman Development Index (HDI) ranking is computedby the United Nations Development Programme(UNDP) and is presented in the 2006 edition of theHuman Development Report, available at hdr.undp.org.

Competitiveness rankingsThis section details the country’s performance on theupdated Global Competitiveness Index 2007 (GCI2007). In the table on the left-hand side, the first col-umn shows the country’s ranks within its countrygroup; the second column shows ranks among the 128countries covered by the GCI 2007.The third columnpresents the scores. For more information on themethodology of the GCI 2007 and the notion of acountry group, please refer to Chapter 1.1 of this Report.

On the right-hand side, the figure shows the coun-try’s performance on the nine pillars of the GCI (blueline) measured against the average scores across all thecountries in the same stage of development (black line).

Below, where applicable, the Gender Gap Index2006 rank is reported.1

The most problematic factors for doing businessThis figure summarizes those factors seen by businessexecutives as the most problematic for doing business intheir economy.The information is drawn from theWorld Economic Forum’s Executive Opinion Survey2006. From a list of 14 factors, respondents were askedto select the five most problematic ones, and to rankthose from 1 (most problematic) to 5.The results werethen tabulated and weighted according to the rankingassigned by respondents.2

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AlgeriaKey indicators

Total population (millions), 2006......................................................................33.4

GDP (US$ billions), 2006 ....................................................................................124

GDP as share of world total (percent)...........................................................0.39

GDP (PPP US$) per capita, 2006 ...................................................................7,612

Current account balance (percent of GDP), 2006........................................24.8

Human Development Indicator rank (out of 177 economies), 2004...........102

Source: UNFPA, IMF, UNDP

Competitiveness rankings

Rank within Overallcountry group 2* rank (out Score

(out of 40) of 128) (1–7)

Global Competitiveness Index 2007...............29..........76 ......4.0

GCR 2005–06 (out of 117 economies) ......................................82 .......3.8

Basic requirements .....................................................7 ...........44 .......4.9

1st pillar: Institutions..................................................21 ...........65 .......3.9

2nd pillar: Infrastructure ...........................................30 ...........80 .......2.9

3rd pillar: Macroeconomy...........................................2 .............2 .......6.2

4th pillar: Health and primary education................12 ...........46 .......6.6

Efficiency enhancers.................................................34 ...........92 .......3.3

5th pillar: Higher education and training................33 ...........86 .......3.5

6th pillar: Market efficiency......................................33 ...........97 .......3.7

7th pillar: Technological readiness .........................36 ...........93 .......2.7

Innovation factors ......................................................32 ...........92 .......3.2

8th pillar: Business sophistication...........................38 .........106 .......3.4

9th pillar: Innovation ..................................................25 ...........77 .......3.1

Gender Gap Index 2006 (out of 115 economies) 97

* Country group includes the countries in the same stage of development

as well as those transitioning toward it.

The most problematic factors for doing business

Access to financing......................................................13.6

Inefficient government bureaucracy...........................9.2

Corruption.........................................................................8.7

Tax rates ...........................................................................8.5

Tax regulations ................................................................7.9

Inadequate supply of infrastructure ............................7.7

Inadequately educated workforce...............................6.7

Foreign currency regulations........................................6.7

Policy instability...............................................................6.3

Poor work ethic in national labor force ......................6.1

Inflation .............................................................................5.7

Restrictive labor regulations.........................................5.4

Government instability/coups .......................................4.3

Crime and theft ................................................................3.1

1Transition

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Note: From a list of 14 factors, respondents were asked to select the five most problematic for doing business in their country/economy and to rank them

between 1 (most problematic) and 5. The bars in the figure show the responses weighted according to their rankings.

Institutions

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How to Read the Country ProfilesTHIERRY GEIGER, World Economic Forum

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Page 2

This page presents the rank achieved by a countryon each of the indicators entering the composition ofthe updated Global Competitiveness Index 2007 (GCI2007). Next to the rank, a square indicates whether theindicator constitutes an advantage (blue square) or a dis-advantage (black square) for the country.To identifyvariables as advantages or disadvantages, the followingrules are applied:

• For those countries ranked in the top 10 in theoverall GCI 2007, individual variables rankedbetween 1 and 10 are considered to be advantages.Any variables ranked below 10 are considered to bedisadvantages.

• For those countries ranked from 11 to 50 in theoverall GCI 2007, variables ranked higher than thecountry’s overall rank are considered to be advan-tages.Any variables ranked equal to or lower thanthe country’s overall rank are considered to be dis-advantages.

• For those countries ranked lower than 50 in theoverall GCI 2007, any individual variables rankedhigher than 51 are considered to be advantages.Anyvariables ranked lower than 50 are considered to bedisadvantages.

For further analysis, the Data Tables at the end of theReport provide detailed rankings and scores for each ofthe 89 variables included in the GCI 2007.

Page 3

This competitiveness snapshot was prepared by anexpert who was asked to comment on the country’sperformance on the updated Global CompetitivenessIndex 2007 in the light of the recent developmentswithin the country. Most of the authors are affiliatedwith the Global Competitiveness Network’s localPartner Institutes. Note that all rankings quoted in thissection refer to the entire GCI 2007 sample of 128economies.

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The Global Competitiveness Index in detail � Competitve Advantage � Competitve Disadvantage

INDICATOR RANK/128

1st pillar: Institutions

1.01 Property rights ...........................................................67 .....�

1.02 Diversion of public funds...........................................80 .....�

1.03 Public trust of politicians ...........................................47 .....�

1.04 Judicial independence ...............................................65 .....�

1.05 Favoritism in decisions of government officials ........25 .....�

1.06 Government spending ...............................................36 .....�

1.07 Burden of government regulation .............................63 .....�

1.08 Business costs of terrorism ....................................118 .....�

1.09 Reliability of police services ......................................34 .....�

1.10 Business costs of crime and violence.......................83 .....�

1.11 Organized crime ........................................................70 .....�

1.12 Ethical behavior of firms............................................70 .....�

1.13 Efficacy of corporate boards....................................107 .....�

1.14 Protection of minority shareholders’ interests ..........38 .....�

1.15 Strength of auditing and accounting standards.......102 .....�

2nd pillar: Infrastructure

2.01 Overall infrastructure quality......................................72 .....�

2.02 Railroad infrastructure ...............................................73 .....�

2.03 Quality of port infrastructure .....................................79 .....�

2.04 Air transport infrastructure quality .............................93 .....�

2.05 Quality of electricity supply .......................................70 .....�

2.06 Telephone lines*........................................................90 .....�

3rd pillar: Macroeconomy

3.01 Government balance* .................................................6 .....�

3.02 National savings rate* .................................................4 .....�

3.03 Inflation* ..................................................................114 .....�

3.04 Interest rate spread* .................................................51 .....�

3.05 Government debt* ....................................................88 .....�

3.06 Real effective exchange rate*.................................113 .....�


4.01 Business impact of malaria .......................................65 .....�

4.02 Business impact of tuberculosis ...............................64 .....�

4.03 Business impact of HIV/AIDS....................................58 .....�

4.04 Infant mortality* ........................................................39 .....�

4.05 Life expectancy* .......................................................69 .....�

4.06 Tuberculosis prevalence* ..........................................70 .....�

4.07 Malaria prevalence*...................................................62 .....�

4.08 HIV prevalence* ........................................................79 .....�

4.09 Primary enrollment* ..................................................35 .....�


5.01 Secondary enrollment*..............................................75 .....�

5.02 Tertiary enrollment*...................................................75 .....�

5.03 Quality of the educational system.............................93 .....�

5.04 Quality of math and science education .....................74 .....�

5.05 Quality of management schools................................91 .....�

5.06 Local availability of research and training services..103 .....�

5.07 Extent of staff training.............................................100 .....�

INDICATOR RANK/128


6.01 Agricultural policy costs.............................................15 .....�

6.02 Efficiency of legal framework....................................54 .....�

6.03 Extent and effect of taxation .....................................33 .....�

6.04 No. of procedures required to start a business*.......10 .....�

6.05 Time required to start a business* ............................80 .....�

6.06 Intensity of local competition ....................................98 .....�

6.07 Effectiveness of antitrust policy ................................59 .....�

6.08 Imports* ....................................................................94 .....�

6.09 Prevalence of trade barriers ......................................83 .....�

6.10 Prevalence of foreign ownership...............................85 .....�

6.11 Exports*.....................................................................34 .....�

6.12 Hiring and firing practices..........................................81 .....�

6.13 Flexibility of wage determination ............................104 .....�

6.14 Cooperation in labor-employer relations ....................65 .....�

6.15 Reliance on professional management .....................66 .....�

6.16 Pay and productivity ..................................................80 .....�

6.17 Brain drain................................................................105 .....�

6.18 Private-sector employment of women......................74 .....�

6.19 Financial market sophistication................................125 .....�

6.20 Ease of access to loans...........................................114 .....�

6.21 Venture capital availability........................................117 .....�

6.22 Soundness of banks ................................................124 .....�

6.23 Local equity market access .....................................112 .....�


7.01 Technological readiness...........................................106 .....�

7.02 Firm-level technology absorption...............................69 .....�

7.03 Laws relating to ICT ..................................................95 .....�

7.04 FDI and technology transfer ....................................112 .....�

7.05 Mobile telephone subscribers* .................................69 .....�

7.06 Internet users* ..........................................................88 .....�

7.07 Personal computers*...............................................106 .....�


8.01 Local supplier quantity...............................................95 .....�

8.02 Local supplier quality .................................................99 .....�

8.03 Production process sophistication.............................85 .....�

8.04 Extent of marketing .................................................118 .....�

8.05 Control of international distribution .........................102 .....�

8.06 Willingness to delegate authority ............................115 .....�

8.07 Nature of competitive advantage ..............................99 .....�

8.08 Value chain presence...............................................118 .....�

9th pillar: Innovation

9.01 Quality of scientific research institutions ..................85 .....�

9.02 Company spending on R&D ......................................92 .....�

9.03 University-industry research collaboration...............104 .....�

9.04 Gov’t. procurement of advanced tech products........36 .....�

9.05 Availability of scientists and engineers......................21 .....�

9.06 Utility patents* ..........................................................80 .....�

9.07 Intellectual property protection..................................73 .....�

9.08 Capacity for innovation ............................................123 .....�

Algeria

* Hard data

Note: For descriptions of variables and detailed sources, please refer to “How to Read Country Profiles.”

10

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AlgeriaStability Sets Basis for Transition to Efficiency-Driven EconomySOFIANE KHATIB, World Economic Forum

Algeria is enjoying a period of

peace, stability, and growth

after a decade of political

violence and economic stagnation.

The military has gradually aban-

doned its traditional role of power

broker, strengthening civilian rule

over the country. The President,

Abdelaziz Bouteflika, appears to be

solidly in charge of public affairs.

The government has launched a

program of economic development

entailing massive investment in

infrastructure and a gradual opening

of the economy. High oil and gas

prices and increased gas output

have provided the means: US$60

billion is committed for infrastructure

and housing over the next five

years, the flagship project being an

east–west highway linking the

Moroccan and Tunisian borders.

This investment is needed, as the

current infrastructure environment is

a major roadblock to growth (rank

80/128).

The government is also gradual-

ly liberalizing key economic sectors,

such as utilities and infrastructure,

so foreign firms have an increasingly

active role. But oil and gas industries

remain in the hands of the govern-

ment, and the giant state-owned

Sonatrach—one of the world’s

largest energy companies—still con-

trols a majority stake in the sector.

Algeria has one of the most

stable macroeconomic environments

in the world. The economy has ben-

efited from sustained high gas and

oil prices and increased gas output,

as the hydrocarbon sector accounts

for roughly 60% of budget revenues

and 95% of export earnings. GDP

growth rate is expected to rise from

an estimated 5.5% in 2006 to

around 6.7% in 2007–08; both trade

and current account balances

achieved this year record surpluses;

and the Algerian Central Bank is

building up record foreign exchange

reserves. Inflation in 2006, despite a

strongly expansionary fiscal policy,

was still under control at 3.5%. The

government is also leveraging the

hydrocarbon revenues bonanza to

reduce the external debt burden

substantially.

A relatively weak institutional

framework (rank 65/128), corruption

problems, and a heavy bureaucracy

slow down government efforts to

diversify the economy and to imple-

ment its investment program.

Indeed, current revenues are well in

excess of the economy absorptive

capacity, and it seems unlikely that

the government will be able to dis-

burse all expected investments.

Extremely weak financial intermedia-

tion (financial market sophistication

rank is 125/128) hampers the devel-

opment of the private sector. The

government is slowly attempting to

strengthen the financial sector by

providing more transparent regula-

tion and privatizing some of the

state-owned commercial banks.

There is a relatively high primary

education enrollment rate (rank

35/128), but higher education and

training systems need to improve

(rank 86/128). The high secondary

school drop-out rate fuels youth

unemployment, affecting one-third

of those aged 16–19.

Algeria needs to advance in sev-

eral areas to prepare for transitioning

to an innovation-driven economy in

the future. Business sophistication

ranks low because of a shortage of

management know-how, inefficient

production processes, and inade-

quate corporate governance struc-

tures. The low-ranking technological

readiness reflects the difficulties of

quickly absorbing new technologies

and processes to improve competi-

tiveness. Although some structures

for innovation are in place, it is not

yet enough for innovation to be an

efficient contributor to economic

growth.

In an environment characterized

by weak institutions, Algeria sets

the basis for opening and diversify-

ing the economy. Challenges in the

financial sector higher education

and technological readiness

remain.

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GDP (PPP US$) per capita, 1980–2005This figure shows the evolution of gross domestic prod-uct per capita valued at purchasing power parity for thecountry (blue line) and for the region (black line). Datacome from the International Monetary Fund’s WorldEconomic Outlook (September 2006) and the WorldBank’s World Development Indicators 2006, respectively.

Foreign direct investmentThis figure presents the evolution of foreign directinvestment (FDI) inflows into the countries expressed inUS$ millions (left axis) and as a percentage of grossdomestic product (right axis). Data for 2000 and 2005come from the United Nations Conference on Tradeand Development’s FDI Online Database. Figures for2010 are projections by the Columbia Program onInternational Investment and appear in the WorldInvestment Prospects to 2010 Report, available atcpii.columbia.edu/pubs.

TradeThis section provides a snapshot of the country’s tradeprofile through a number of indicators:

• The first figure (top left) shows the breakdown ofexports by country or region of destination with thetotal value of the country’s exports appearing below.

• The second figure (top right) presents the breakdownof exports by product group.The adopted classifica-tion is the Standard International Trade ClassificationRev. 3 (SITC) at the two-digit aggregation level.

• The bottom left area features an indicator of thecountry’s export diversification, expressed as thenumber of exporting sectors and assuming equalsize of each sector, using SITC at the three-digitlevel. It varies from 1 (no diversification) to 261(total diversification). It is calculated as the inverseof the Herfindahl Index.

• The figure on tariffs (bottom right) indicates theaverage tariffs faced by the country when exportingto MENA countries and to the rest of the world, aswell as the average tariffs applied to products importedfrom MENA countries and from the rest of the world.

Trade data were provided by the International TradeCentre, complemented by data from United NationsComtrade Database.

Notes1 See the Global Gender Gap Report 2006 published by the World

Economic Forum and available at www.weforum.org/gendergap.

2 For more information about the Executive Opinion Survey, see WorldEconomic Forum, The Global Competitiveness Report 2006–2007.Hamsphire: Palgrave Macmillan.

11

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Exports by country of destinationVolume, 2005 (percent)

Trade diversificationNumber of exported product groups out of 261

2001..................................................................................2.6

2005..................................................................................2.5

Exports by sectorVolume, 2005 (percent)

TariffsPercent

AlgeriaGDP (PPP US$) per capita, 1980–2005

Source: IMF; World Bank

Foreign direct investment (FDI)

Source: UNCTAD; Columbia University; IMF

Trade

� MENA countries

� World

Pro

jec

ted

0

1,000

2,000

3,000

4,000

5,000

6,000

010250020002

0

1

2

3

4

5

6

2,000

3,000

4,000

5,000

6,000

7,000

8,000

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004

0

3

6

9

12

15

Average

faced tariff

Average

applied tariff

Others: 20%

UnitedStates: 36%

France: 15%

Canada: 11%

Brazil: 10%

Belgium: 7%

Petroleum,petroleumproducts: 52%

Algeria

MENA

� FDI inflows

(US$ millions)

FDI inflows

(percent of GDP)

US

$ m

illi

on

s

Pe

rce

nt

of

GD

P

Source: International Trade Centre; UN Comtrade

Note: For descriptions of variables and detailed sources, please refer to “How to Read the Country Profiles.”

Total value of exports (US$ millions): 29,998

Gas, natural and manufactured: 46%

Others: 2%

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es AlgeriaKey indicators

Total population (millions), 2006......................................................................33.4GDP (US$ billions), 2006 ....................................................................................124GDP (PPP US$) per capita, 2006 ...................................................................7,612

as share of world total (percent).................................................................0.39Current account balance (percent of GDP), 2006........................................24.8Human Development Indicator rank (out of 177 economies), 2004...........102


Competitiveness rankingsRank within Overall

country group 2* rank (out Score(out of 40) of 128) (1–7)

Global Competitiveness Index 2007...............29..........76 ......4.0GCR 2005–06 (out of 117 economies) ......................................82 .......3.8

Basic requirements .....................................................7 ...........44 .......4.91st pillar: Institutions..................................................21 ...........65 .......3.92nd pillar: Infrastructure ...........................................30 ...........80 .......2.93rd pillar: Macroeconomy...........................................2 .............2 .......6.24th pillar: Health and primary education................12 ...........46 .......6.6

Efficiency enhancers.................................................34 ...........92 .......3.35th pillar: Higher education and training................33 ...........86 .......3.56th pillar: Market efficiency......................................33 ...........97 .......3.77th pillar: Technological readiness .........................36 ...........93 .......2.7

Innovation factors ......................................................32 ...........92 .......3.28th pillar: Business sophistication...........................38 .........106 .......3.49th pillar: Innovation ..................................................25 ...........77 .......3.1


* Country group includes the countries in the same stage of developmentas well as those transitioning toward it.




Corruption.........................................................................8.7

Tax rates ...........................................................................8.5

Tax regulations ................................................................7.9






Inflation .............................................................................5.7



Crime and theft ................................................................3.1

1 Transition1–2 2 Transition

2–3

Factordriven

Efficiencydriven

Innovationdriven

3


0 5 10 15 20 25 30


Note: From a list of 14 factors, respondents were asked to select the five most problematic for doing business in their country/economy and to rank thembetween 1 (most problematic) and 5. The bars in the figure show the responses weighted according to their rankings.

Institutions

Infrastructure

Macro-economy

Health andprimary

education


Market efficiency



Innovation

2

1

3

4

5

6

7

Algeria Economies in transition from 1 to 2

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INDICATOR RANK/128


1.01 Property rights ...........................................................67 .....�1.02 Diversion of public funds...........................................80 .....�1.03 Public trust of politicians ...........................................47 .....�1.04 Judicial independence ...............................................65 .....�1.05 Favoritism in decisions of government officials ........25 .....�1.06 Government spending ...............................................36 .....�1.07 Burden of government regulation .............................63 .....�1.08 Business costs of terrorism ....................................118 .....�1.09 Reliability of police services ......................................34 .....�1.10 Business costs of crime and violence.......................83 .....�1.11 Organized crime ........................................................70 .....�1.12 Ethical behavior of firms............................................70 .....�1.13 Efficacy of corporate boards....................................107 .....�1.14 Protection of minority shareholders’ interests ..........38 .....�1.15 Strength of auditing and accounting standards.......102 .....�


2.01 Overall infrastructure quality......................................72 .....�2.02 Railroad infrastructure ...............................................73 .....�2.03 Quality of port infrastructure .....................................79 .....�2.04 Air transport infrastructure quality .............................93 .....�2.05 Quality of electricity supply .......................................70 .....�2.06 Telephone lines*........................................................90 .....�


3.01 Government balance* .................................................6 .....�3.02 National savings rate* .................................................4 .....�3.03 Inflation* ....................................................................13 .....�3.04 Interest rate spread* .................................................22 .....�3.05 Government debt* ....................................................28 .....�3.06 Real effective exchange rate*...................................13 .....�


4.01 Business impact of malaria .......................................65 .....�4.02 Business impact of tuberculosis ...............................64 .....�4.03 Business impact of HIV/AIDS....................................58 .....�4.04 Infant mortality* ........................................................90 .....�4.05 Life expectancy* .......................................................69 .....�4.06 Tuberculosis prevalence* ..........................................59 .....�4.07 Malaria prevalence*...................................................66 .....�4.08 HIV prevalence* ........................................................28 .....�4.09 Primary enrollment* ..................................................35 .....�


5.01 Secondary enrollment*..............................................75 .....�5.02 Tertiary enrollment*...................................................75 .....�5.03 Quality of the educational system.............................93 .....�5.04 Quality of math and science education .....................74 .....�5.05 Quality of management schools................................91 .....�5.06 Local availability of research and training services..103 .....�5.07 Extent of staff training.............................................100 .....�

INDICATOR RANK/128


6.01 Agricultural policy costs.............................................15 .....�6.02 Efficiency of legal framework....................................54 .....�6.03 Extent and effect of taxation .....................................33 .....�6.04 No. of procedures required to start a business*.....110 .....�6.05 Time required to start a business* ............................38 .....�6.06 Intensity of local competition ....................................98 .....�6.07 Effectiveness of antitrust policy ................................59 .....�6.08 Imports* ....................................................................94 .....�6.09 Prevalence of trade barriers ......................................83 .....�6.10 Prevalence of foreign ownership...............................85 .....�6.11 Exports*.....................................................................34 .....�6.12 Hiring and firing practices..........................................81 .....�6.13 Flexibility of wage determination ............................104 .....�6.14 Cooperation in labor-employer relations ....................65 .....�6.15 Reliance on professional management .....................66 .....�6.16 Pay and productivity ..................................................80 .....�6.17 Brain drain................................................................105 .....�6.18 Private-sector employment of women......................74 .....�6.19 Financial market sophistication................................125 .....�6.20 Ease of access to loans...........................................114 .....�6.21 Venture capital availability........................................117 .....�6.22 Soundness of banks ................................................124 .....�6.23 Local equity market access .....................................112 .....�


7.01 Technological readiness...........................................106 .....�7.02 Firm-level technology absorption...............................69 .....�7.03 Laws relating to ICT ..................................................95 .....�7.04 FDI and technology transfer ....................................112 .....�7.05 Mobile telephone subscribers* .................................69 .....�7.06 Internet users* ..........................................................88 .....�7.07 Personal computers*...............................................106 .....�


8.01 Local supplier quantity...............................................95 .....�8.02 Local supplier quality .................................................99 .....�8.03 Production process sophistication.............................85 .....�8.04 Extent of marketing .................................................118 .....�8.05 Control of international distribution .........................102 .....�8.06 Willingness to delegate authority ............................115 .....�8.07 Nature of competitive advantage ..............................99 .....�8.08 Value chain presence...............................................118 .....�


9.01 Quality of scientific research institutions ..................85 .....�9.02 Company spending on R&D ......................................92 .....�9.03 University-industry research collaboration...............104 .....�9.04 Gov’t. procurement of advanced tech products........36 .....�9.05 Availability of scientists and engineers......................21 .....�9.06 Utility patents* ..........................................................80 .....�9.07 Intellectual property protection..................................73 .....�9.08 Capacity for innovation ............................................123 .....�

Algeria

* Hard data


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es AlgeriaStability Sets Basis for Transition to Efficiency-Driven EconomySOFIANE KHATIB, World Economic Forum

Algeria is enjoying a period ofpeace, stability, and growthafter a decade of political

violence and economic stagnation.The military has gradually aban-doned its traditional role of powerbroker, strengthening civilian ruleover the country. The President,Abdelaziz Bouteflika, appears to besolidly in charge of public affairs.

The government has launched aprogram of economic developmententailing massive investment ininfrastructure and a gradual openingof the economy. High oil and gasprices and increased gas outputhave provided the means: US$60 billion is committed for infrastructureand housing over the next fiveyears, the flagship project being aneast–west highway linking theMoroccan and Tunisian borders. This investment is needed, as thecurrent infrastructure environment isa major roadblock to growth (rank80/128).

The government is also gradual-ly liberalizing key economic sectors,such as utilities and infrastructure,so foreign firms have an increasinglyactive role. But oil and gas industriesremain in the hands of the govern-ment, and the giant state-ownedSonatrach—one of the world’slargest energy companies—still con-trols a majority stake in the sector.

Algeria has one of the most stable macroeconomic environmentsin the world. The economy has ben-efited from sustained high gas andoil prices and increased gas output,as the hydrocarbon sector accountsfor roughly 60% of budget revenuesand 95% of export earnings. GDPgrowth rate is expected to rise froman estimated 5.5% in 2006 toaround 6.7% in 2007–08; both tradeand current account balancesachieved this year record surpluses;and the Algerian Central Bank isbuilding up record foreign exchangereserves. Inflation in 2006, despite astrongly expansionary fiscal policy,was still under control at 3.5%. Thegovernment is also leveraging thehydrocarbon revenues bonanza toreduce the external debt burdensubstantially.

A relatively weak institutionalframework (rank 65/128), corruptionproblems, and a heavy bureaucracyslow down government efforts todiversify the economy and to imple-ment its investment program.Indeed, current revenues are well inexcess of the economy absorptivecapacity, and it seems unlikely thatthe government will be able to dis-burse all expected investments.Extremely weak financial intermedia-tion (financial market sophisticationrank is 125/128) hampers the devel-opment of the private sector. Thegovernment is slowly attempting tostrengthen the financial sector byproviding more transparent regula-tion and privatizing some of thestate-owned commercial banks.

There is a relatively high primaryeducation enrollment rate (rank35/128), but higher education andtraining systems need to improve(rank 86/128). The high secondaryschool drop-out rate fuels youth

unemployment, affecting one-thirdof those aged 16–19.

Algeria needs to advance in sev-eral areas to prepare for transitioningto an innovation-driven economy inthe future. Business sophisticationranks low because of a shortage ofmanagement know-how, inefficientproduction processes, and inade-quate corporate governance struc-tures. The low-ranking technologicalreadiness reflects the difficulties ofquickly absorbing new technologiesand processes to improve competi-tiveness. Although some structuresfor innovation are in place, it is notyet enough for innovation to be anefficient contributor to economicgrowth.

In an environment characterized

by weak institutions, Algeria sets

the basis for opening and diversify-

ing the economy. Challenges in the

financial sector, higher education,

and technological readiness

remain.

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Exports by country of destinationShare of total volume, 2005 (percent)


2001..................................................................................2.62005..................................................................................2.5

Exports by sectorShare of total volume, 2005 (percent)

TariffsPercent

AlgeriaGDP (PPP US$) per capita, 1980–2005




Trade

� MENA countries� World

Proj

ecte

d

0

1,000

2,000

3,000

4,000

5,000

6,000

0102500200020

1

2

3

4

5

6

2,000

3,000

4,000

5,000

6,000

7,000

8,000

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004

0

3

6

9

12

15

Average faced tariff

Average applied tariff

Others: 20%

UnitedStates: 36%

France: 15%

Canada: 11%

Brazil: 10%

Belgium: 7%


AlgeriaMENA

� FDI inflows (US$ millions)

FDI inflows (percent of GDP)

US$

mill

ions

Perc

ent o

f GD

P




Gas, natural and manufactured: 46%

Others: 2%

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es BahrainKey indicators

Total population (millions), 2006......................................................................0.74GDP (US$ billions), 2006 ......................................................................................16GDP (PPP US$) per capita, 2006 .................................................................22,706

as share of world total (percent).................................................................0.03Current account balance (percent of GDP), 2006........................................20.6Human Development Indicator rank (out of 177 economies), 2004.............39





Basic requirements ...................................................32 ...........36 .......5.21st pillar: Institutions..................................................34 ...........44 .......4.42nd pillar: Infrastructure ...........................................35 ...........40 .......4.33rd pillar: Macroeconomy...........................................7 ...........13 .......5.54th pillar: Health and primary education................27 ...........30 .......6.7


Innovation factors ......................................................40 ...........78 .......3.58th pillar: Business sophistication .........................37 ...........55 .......4.29th pillar: Innovation ..................................................40 .........104 .......2.7




Restrictive labor regulations.......................................20.4

Poor work ethic in national labor force ....................20.2

Inadequately educated workforce.............................19.0

Inefficient government bureaucracy.........................13.5



Access to financing........................................................6.5

Corruption.........................................................................4.2

Inflation .............................................................................0.6

Crime and theft ................................................................0.4

Tax regulations ................................................................0.2


Tax rates ...........................................................................0.0



2–3

Factordriven

Efficiencydriven

Innovationdriven

3


0 5 10 15 20 25 30



Institutions

Infrastructure

Macro-economy

Health andprimary

education


Market efficiency



Innovation

2

1

3

4

5

6

7

Bahrain Economies in transition from 2 to 3

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INDICATOR RANK/128


1.01 Property rights ...........................................................48 .....�1.02 Diversion of public funds...........................................47 .....�1.03 Public trust of politicians ...........................................48 .....�1.04 Judicial independence ...............................................76 .....�1.05 Favoritism in decisions of government officials ........56 .....�1.06 Government spending ...............................................31 .....�1.07 Burden of government regulation .............................32 .....�1.08 Business costs of terrorism ....................................102 .....�1.09 Reliability of police services ......................................56 .....�1.10 Business costs of crime and violence.......................50 .....�1.11 Organized crime ........................................................21 .....�1.12 Ethical behavior of firms............................................42 .....�1.13 Efficacy of corporate boards......................................74 .....�1.14 Protection of minority shareholders’ interests ..........40 .....�1.15 Strength of auditing and accounting standards.........28 .....�




3.01 Government balance* ...............................................10 .....�3.02 National savings rate* ...............................................25 .....�3.03 Inflation* ....................................................................39 .....�3.04 Interest rate spread* .................................................80 .....�3.05 Government debt*....................................................n/a3.06 Real effective exchange rate*...................................25 .....�


4.01 Business impact of malaria .........................................7 .....�4.02 Business impact of tuberculosis ...............................33 .....�4.03 Business impact of HIV/AIDS....................................29 .....�4.04 Infant mortality* ........................................................41 .....�4.05 Life expectancy* .......................................................45 .....�4.06 Tuberculosis prevalence* ..........................................53 .....�4.07 Malaria prevalence*.....................................................1 .....�4.08 HIV prevalence* ........................................................52 .....�4.09 Primary enrollment* ..................................................33 .....�


5.01 Secondary enrollment*..............................................27 .....�5.02 Tertiary enrollment*...................................................56 .....�5.03 Quality of the educational system.............................80 .....�5.04 Quality of math and science education .....................89 .....�5.05 Quality of management schools................................78 .....�5.06 Local availability of research and training services....97 .....�5.07 Extent of staff training...............................................60 .....�

INDICATOR RANK/128


6.01 Agricultural policy costs.............................................21 .....�6.02 Efficiency of legal framework....................................73 .....�6.03 Extent and effect of taxation .......................................1 .....�6.04 No. of procedures required to start a business*......n/a6.05 Time required to start a business* ...........................n/a6.06 Intensity of local competition ....................................54 .....�6.07 Effectiveness of antitrust policy ................................70 .....�6.08 Imports* ....................................................................26 .....�6.09 Prevalence of trade barriers ......................................16 .....�6.10 Prevalence of foreign ownership...............................69 .....�6.11 Exports*.......................................................................7 .....�6.12 Hiring and firing practices........................................107 .....�6.13 Flexibility of wage determination ..............................29 .....�6.14 Cooperation in labor-employer relations ....................89 .....�6.15 Reliance on professional management .....................63 .....�6.16 Pay and productivity ..................................................75 .....�6.17 Brain drain..................................................................24 .....�6.18 Private-sector employment of women....................100 .....�6.19 Financial market sophistication..................................30 .....�6.20 Ease of access to loans.............................................47 .....�6.21 Venture capital availability..........................................56 .....�6.22 Soundness of banks ..................................................28 .....�6.23 Local equity market access .......................................25 .....�


7.01 Technological readiness.............................................39 .....�7.02 Firm-level technology absorption...............................53 .....�7.03 Laws relating to ICT ..................................................51 .....�7.04 FDI and technology transfer ......................................69 .....�7.05 Mobile telephone subscribers* .................................12 .....�7.06 Internet users* ..........................................................47 .....�7.07 Personal computers*.................................................41 .....�


8.01 Local supplier quantity...............................................39 .....�8.02 Local supplier quality .................................................57 .....�8.03 Production process sophistication.............................48 .....�8.04 Extent of marketing ...................................................65 .....�8.05 Control of international distribution ...........................47 .....�8.06 Willingness to delegate authority ..............................68 .....�8.07 Nature of competitive advantage ..............................69 .....�8.08 Value chain presence.................................................77 .....�


9.01 Quality of scientific research institutions ................120 .....�9.02 Company spending on R&D ....................................119 .....�9.03 University-industry research collaboration...............124 .....�9.04 Gov’t. procurement of advanced tech products........60 .....�9.05 Availability of scientists and engineers......................99 .....�9.06 Utility patents* ..........................................................80 .....�9.07 Intellectual property protection..................................47 .....�9.08 Capacity for innovation ............................................122 .....�

Bahrain

* Hard data


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es BahrainBeyond the Oil Boom: Challenges in Education and InnovationSULAF ZAKHARIA, Economic Development Board, Bahrain

High oil prices, along withstrong regional and globaleconomic growth, have sig-

nificantly strengthened Bahrain’seconomic position, resulting in realGDP growth of 7.3% in 2005.Government revenue, which remainsheavily dependent on oil, increasedby 21% in 2006. This in turn has led to increased public expenditure,particularly in infrastructure andhousing. The financial and realestate sectors are also benefitingfrom the oil boom, with the increasedliquidity fueling a real estate boom.

Despite record oil prices,Bahrain’s economic reform programremains focused on diversifyingaway from oil, privatizing, and stimulating domestic and foreigninvestment by transforming the government’s role from that of oper-ator to that of regulator, removingbarriers to market entry, and cuttingred tape.

The effects of high oil pricesand the various reform packagescurrently being implemented are evident in Bahrain’s most recent GCIrankings. Bahrain’s macroeconomicrank is 13 out of 128 countries; itsinfrastructure and institutions rank40th and 44th respectively. Bahrain’smarkets are efficient (40th) and its

technological readiness is relativelyhigh (43st).

However, Bahrain confronts significant challenges. This is particularly true as it transitions toan innovation-driven economy wherethe sustainability of its economicgrowth and its competitiveness willdepend on its ability to develop andcommercialize innovation and toupgrade business practices.

This ability depends on twointerrelated factors: Bahrain’s capaci-ty to innovate and the strength of itseducational system. These are thetwo factors on which Bahrain rankspoorly. In innovation, Bahrain needsto upgrade its capacity in university-industry research collaboration(where it now ranks 124th), itscapacity for innovation (122nd), thequality of its research institutions(120th), and company spending onresearch and development (119th).In order to meet these challenges,Bahrain must have an adequate educational system.

Bahrain’s secondary enrollmentlevels are relatively high (27/128),but graduates currently fail to meetthe needs of the business communi-ty, which has consistently cited aninadequately educated workforceand poor work ethic in the nationallabor force as two of the most prob-lematic factors for doing business inthe country.

To address workforce education,a comprehensive educational reformprogram is underway geared towardupgrading primary, secondary, andtertiary education. This programincludes upgrading curricula and creating new institutions to ensurethat training meets labor marketneeds and is of a standard highenough to create the capacity toinnovate within the economy. Other

key components of the programinclude a quality assurance regulatorand extensive teacher training. Labormarket reform has significantlyreduced market restrictions in aneffort to ensure that adequatelytrained and experienced labor—bothBahraini and foreign—is available tomeet labor market demand.

Despite considerable challenges,Bahrain is clearly making significantefforts to build its capabilities tomove to the innovation-driven stageof its development and improve itscompetitiveness.

Diversification away from oil

remains the priority for the

Bahraini government, but in order

to sustain the current wealth

beyond the oil reserves and

become a truly innovation-driven

economy, the country will have to

make more efforts to improve edu-

cation and enhance innovation.

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2001..................................................................................4.52005..................................................................................4.1


TariffsPercent

BahrainGDP (PPP US$) per capita, 1980–2005




Trade


Proj

ecte

d

0

200

400

600

800

1,000

1,200

1,400

1,600

0102500200020123456789

0

5,000

10,000

15,000

20,000

25,000

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004

0

2

4

6

8

10



Others: 93%

United States: 2%

Korea: 1%India: 1%United Arab Emirates: 1%

Saudi Arabia: 5%

Petroleum, petroleum products: 80%

BahrainMENA



US$

mill

ions

Perc

ent o

f GD

P




Non-ferrous metals: 11%

Metalliferous oresand metal scrap: 2%

Others: 7%

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es EgyptKey indicators

Total population (millions), 2006......................................................................75.4GDP (US$ billions), 2006 ....................................................................................103GDP (PPP US$) per capita, 2006 ...................................................................4,535

as share of world total (percent).................................................................0.50Current account balance (percent of GDP), 2006.............................................2Human Development Indicator rank (out of 177 economies), 2004...........111




Global Competitiveness Index 2007.................4..........65 ......4.1GCR 2005–06 (out of 117 economies) ......................................52 .......4.1

Basic requirements .....................................................4 ...........64 .......4.61st pillar: Institutions....................................................2 ...........50 .......4.22nd pillar: Infrastructure .............................................1 ...........56 .......3.73rd pillar: Macroeconomy.........................................35 .........111 .......3.74th pillar: Health and primary education..................3 ...........51 .......6.5

Efficiency enhancers...................................................6 ...........75 .......3.65th pillar: Higher education and training..................7 ...........77 .......3.76th pillar: Market efficiency........................................6 ...........66 .......4.17th pillar: Technological readiness ...........................8 ...........80 .......3.0

Innovation factors ........................................................7 ...........65 .......3.68th pillar: Business sophistication.............................3 ...........57 .......4.29th pillar: Innovation ..................................................19 ...........83 .......3.0







Corruption.........................................................................9.6


Tax regulations ................................................................7.3


Inflation .............................................................................6.2


Tax rates ...........................................................................3.4




Crime and theft ................................................................0.0


2–3

Factordriven

Efficiencydriven

Innovationdriven

3


0 5 10 15 20 25 30



Institutions

Infrastructure

Macro-economy

Health andprimary

education


Market efficiency



Innovation

2

1

3

4

5

6

7

Egypt Factor-driven economies

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INDICATOR RANK/128


1.01 Property rights ...........................................................58 .....�1.02 Diversion of public funds...........................................44 .....�1.03 Public trust of politicians ...........................................51 .....�1.04 Judicial independence ...............................................40 .....�1.05 Favoritism in decisions of government officials ........48 .....�1.06 Government spending ...............................................64 .....�1.07 Burden of government regulation .............................74 .....�1.08 Business costs of terrorism ....................................105 .....�1.09 Reliability of police services ......................................47 .....�1.10 Business costs of crime and violence.......................51 .....�1.11 Organized crime ........................................................30 .....�1.12 Ethical behavior of firms............................................50 .....�1.13 Efficacy of corporate boards......................................80 .....�1.14 Protection of minority shareholders’ interests ..........61 .....�1.15 Strength of auditing and accounting standards.........72 .....�




3.01 Government balance* .............................................127 .....�3.02 National savings rate* ...............................................69 .....�3.03 Inflation* ..................................................................112 .....�3.04 Interest rate spread* .................................................67 .....�3.05 Government debt* ..................................................104 .....�3.06 Real effective exchange rate*.....................................5 .....�


4.01 Business impact of malaria .......................................59 .....�4.02 Business impact of tuberculosis ...............................58 .....�4.03 Business impact of HIV/AIDS....................................53 .....�4.04 Infant mortality* ........................................................78 .....�4.05 Life expectancy* .......................................................82 .....�4.06 Tuberculosis prevalence* ..........................................45 .....�4.07 Malaria prevalence*.....................................................1 .....�4.08 HIV prevalence* ..........................................................1 .....�4.09 Primary enrollment* ..................................................41 .....�


5.01 Secondary enrollment*..............................................61 .....�5.02 Tertiary enrollment*...................................................57 .....�5.03 Quality of the educational system...........................106 .....�5.04 Quality of math and science education .....................96 .....�5.05 Quality of management schools................................89 .....�5.06 Local availability of research and training services....80 .....�5.07 Extent of staff training...............................................84 .....�

INDICATOR RANK/128


6.01 Agricultural policy costs.............................................92 .....�6.02 Efficiency of legal framework....................................55 .....�6.03 Extent and effect of taxation .....................................37 .....�6.04 No. of procedures required to start a business*.......63 .....�6.05 Time required to start a business* ............................27 .....�6.06 Intensity of local competition ....................................68 .....�6.07 Effectiveness of antitrust policy ................................74 .....�6.08 Imports* ....................................................................87 .....�6.09 Prevalence of trade barriers ....................................107 .....�6.10 Prevalence of foreign ownership...............................86 .....�6.11 Exports*.....................................................................84 .....�6.12 Hiring and firing practices........................................100 .....�6.13 Flexibility of wage determination ................................7 .....�6.14 Cooperation in labor-employer relations ....................78 .....�6.15 Reliance on professional management .....................89 .....�6.16 Pay and productivity ..................................................31 .....�6.17 Brain drain................................................................113 .....�6.18 Private-sector employment of women......................38 .....�6.19 Financial market sophistication..................................77 .....�6.20 Ease of access to loans.............................................82 .....�6.21 Venture capital availability..........................................89 .....�6.22 Soundness of banks ..................................................95 .....�6.23 Local equity market access .......................................55 .....�






9.01 Quality of scientific research institutions ..................96 .....�9.02 Company spending on R&D ......................................99 .....�9.03 University-industry research collaboration.................95 .....�9.04 Gov’t. procurement of advanced tech products........84 .....�9.05 Availability of scientists and engineers......................40 .....�9.06 Utility patents* ..........................................................72 .....�9.07 Intellectual property protection..................................63 .....�9.08 Capacity for innovation ..............................................84 .....�

Egypt

* Hard data


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es EgyptReforms Are Likely to Increase CompetitivenessAMAL REFAAT, The Egyptian Center for Economic Studies

Factors that explain Egypt’s cur-rent performance on the GCIvary, but two can be cited as

primarily responsible for the currentobserved outcomes. First, economicreform in recent years has lackedcontinuity. It picked up momentumin the early and mid 1990s but thenslowed (until 2004), eroding someearlier successes. Second, reformsundertaken have not always beenaggressive and comprehensiveenough to make a “real” difference.

The slowdown of economicreform in Egypt toward the end ofthe 1990s has been a key factorbehind its lagging performance onthe macroeconomy and market effi-ciency pillars of competitiveness. Asreform lost momentum, the econo-my’s stabilization indicators—espe-cially its fiscal stance—deteriorated.The fiscal deficit as a share of GDPreached a peak of 10.5% in 2002–03after declining to less than 1% in1997–98. Also, between 1997–98and 2002–03 there was a rise ininflation (from 4.2 to 7.1%) and dollarization (from 17.9 to 19.9% of total liquidity). The efficiency ofgoods and financial markets has alsobeen affected by stagnating reformsin trade and finance and by theslowdown of privatization. Currently,

Egypt ranks 107 (out of 128 coun-tries) on the prevalence of trade bar-riers, 95 on the soundness of banks,and 82 on ease of access to loans.

Egypt’s low performance oninstitutions—especially the burdenof compliance with government reg-ulations—and on the sophisticationof firms’ operations also reflects theinadequate nature of adoptedreforms. Attempts to reduce barriersto entry to and exit from the marketand to improve the tax system havebeen made, but it is evident thatimproving the regulatory environmentrequires more than just piecemealreforms. The majority of firms inEgypt remain underdeveloped intheir operations and strategies, andtheir export readiness is very limiteddespite many business-support programs, suggesting the need formore aggressive reforms.

Although Egypt performed rela-tively well in educational enrollment(with a rank of 41 on primary educa-tion and 57 on higher education), thequality of education (104) and theextent of staff training (84) remainproblematic. To enhance the qualityof its education, Egypt embarked onan education decentralization pro-gram in 2000. However, to reap theprogram’s benefits more fully, thecountry must remove social or struc-tural obstacles to its success byadopting a strategic communicationsplan capable of achieving thedesired behavioral changes amongthe main stakeholders of reform.

Egypt is expected to advanceon the GCI scale thanks to therecent increase of reforms, as longas these reforms continue. A betterperformance on the macroeconomyis expected with the full implemen-tation of the government’s fiscalconsolidation plan, which will reduce

its budget deficit by 1% annuallyover five years and improve its pub-lic debt and inflation performance.The efficiency of the financial mar-ket should also improve significantlywith progress on financial reforms—such as selling public shares in 10joint-venture banks, divesting a largestate-owned bank, and restructuringhalf of the private-sector nonper-forming loans. Other promisingreforms include speeding up the pri-vatization program and significantlystreamlining the tax and customsregimes.

Recent reforms have been under-

taken, but their incomplete nature

results in additional challenges in

the area of institutions and busi-

ness sophistication. Yet judging

from recently adopted measures,

performance is likely to increase in

the future, particularly with respect

to education, macroeconomy, and

the financial sector.

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2001..................................................................................6.92005................................................................................19.1


TariffsPercent

EgyptGDP (PPP US$) per capita, 1980–2005




Trade


Proj

ecte

d

0

1,000

2,000

3,000

4,000

5,000

6,000

0102500200020

1

2

3

4

5

6

7

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004

0

2

4

6

8



Others: 36%

UnitedStates: 24%

Italy: 17%

Germany: 9%

France: 7%

United Kingdom: 7%

Clothing andaccessories: 11%Petroleum,

petroleum products: 29%

Others: 45%

EgyptMENA



US$

mill

ions

Perc

ent o

f GD

P




Iron and steel: 6%

Vegetables and fruit: 6%

Non-metallic mineralmanufactures: 4%

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es JordanKey indicators

Total population (millions), 2006........................................................................5.8GDP (US$ billions), 2006 ......................................................................................14GDP (PPP US$) per capita, 2006 ...................................................................5,197

as share of world total (percent).................................................................0.05Current account balance (percent of GDP), 2006 .....................................–20.7Human Development Indicator rank (out of 177 economies), 2004.............86





Basic requirements ...................................................15 ...........54 .......4.71st pillar: Institutions....................................................6 ...........36 .......4.62nd pillar: Infrastructure ...........................................14 ...........53 .......3.93rd pillar: Macroeconomy.........................................34 .........106 .......3.84th pillar: Health and primary education................22 ...........64 .......6.4


Innovation factors ......................................................18 ...........61 .......3.68th pillar: Business sophistication...........................21 ...........67 .......4.09th pillar: Innovation ..................................................17 ...........64 .......3.3




Tax regulations ..............................................................15.2



Tax rates .........................................................................10.0




Corruption.........................................................................6.0

Inflation .............................................................................5.5





Crime and theft ................................................................0.3


2–3

Factordriven

Efficiencydriven

Innovationdriven

3


0 5 10 15 20 25 30



Institutions

Infrastructure

Macro-economy

Health andprimary

education


Market efficiency



Innovation

2

1

3

4

5

6

7

Jordan Economies in transition from 1 to 2

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INDICATOR RANK/128


1.01 Property rights ...........................................................47 .....�1.02 Diversion of public funds...........................................32 .....�1.03 Public trust of politicians ...........................................32 .....�1.04 Judicial independence ...............................................38 .....�1.05 Favoritism in decisions of government officials ........46 .....�1.06 Government spending ...............................................37 .....�1.07 Burden of government regulation .............................24 .....�1.08 Business costs of terrorism ......................................99 .....�1.09 Reliability of police services ......................................11 .....�1.10 Business costs of crime and violence.......................11 .....�1.11 Organized crime ..........................................................6 .....�1.12 Ethical behavior of firms............................................44 .....�1.13 Efficacy of corporate boards......................................72 .....�1.14 Protection of minority shareholders’ interests ..........44 .....�1.15 Strength of auditing and accounting standards.........48 .....�




3.01 Government balance* .............................................112 .....�3.02 National savings rate* .............................................124 .....�3.03 Inflation* ....................................................................56 .....�3.04 Interest rate spread* .................................................53 .....�3.05 Government debt* ....................................................93 .....�3.06 Real effective exchange rate*...................................40 .....�


4.01 Business impact of malaria .......................................32 .....�4.02 Business impact of tuberculosis ...............................31 .....�4.03 Business impact of HIV/AIDS....................................23 .....�4.04 Infant mortality* ........................................................72 .....�4.05 Life expectancy* .......................................................69 .....�4.06 Tuberculosis prevalence* ............................................8 .....�4.07 Malaria prevalence*.....................................................1 .....�4.08 HIV prevalence* ..........................................................1 .....�4.09 Primary enrollment* ..................................................70 .....�



INDICATOR RANK/128


6.01 Agricultural policy costs.............................................60 .....�6.02 Efficiency of legal framework....................................37 .....�6.03 Extent and effect of taxation .....................................51 .....�6.04 No. of procedures required to start a business*.......82 .....�6.05 Time required to start a business* ............................24 .....�6.06 Intensity of local competition ....................................41 .....�6.07 Effectiveness of antitrust policy ................................41 .....�6.08 Imports* ....................................................................20 .....�6.09 Prevalence of trade barriers ......................................47 .....�6.10 Prevalence of foreign ownership...............................20 .....�6.11 Exports*.....................................................................38 .....�6.12 Hiring and firing practices..........................................92 .....�6.13 Flexibility of wage determination ..............................25 .....�6.14 Cooperation in labor-employer relations ....................57 .....�6.15 Reliance on professional management .....................92 .....�6.16 Pay and productivity ..................................................64 .....�6.17 Brain drain..................................................................90 .....�6.18 Private-sector employment of women......................96 .....�6.19 Financial market sophistication..................................63 .....�6.20 Ease of access to loans.............................................62 .....�6.21 Venture capital availability..........................................71 .....�6.22 Soundness of banks ..................................................64 .....�6.23 Local equity market access .......................................35 .....�







Jordan

* Hard data


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es Jordan Moving Toward the Knowledge EconomyAMJAD ATTAR, Ministry of Planning and International Cooperation, Jordan

Under the call for a NationalAgenda, an initiative to out-line an action plan for com-

plete quality and quantity reform forthe Jordanian economy and the wel-fare of its citizens for the next 10years was issued by a Royal Decreein 2005. The National Agenda steer-ing committee, involving govern-ment and private-sector representa-tives, included—for the first time inthe region—a clear mechanism tomeasure implementation of the ini-tiatives and to assess impact of thereforms. The defined targets foreach initiative have to be met overthe initiative’s term with prioritiesreflected in the budget, supportedby performance indicators to meas-ure success.

With its chief objectives ofimproving the quality of life of its cit-izens through income-generatingopportunities, improving living stan-dards, and guaranteeing social wel-fare, the committee defined threesignificant tracks. The first concernscreating a favorable investment envi-ronment and labor policy by reform-ing governmental policy, stimulatingeconomic development, and improv-ing social welfare and security. Thesecond focuses on the basic rightsand freedoms; the last focuses onservices, infrastructure, and eco-nomic sectors including a safe

affordable transportation network,and universal access to ICT and ade-quate health-care services.

Implementation starts with pri-oritizing key economic sectors toenhance their competitiveness andappeal to investors. Three phasesare projected:

Phase I (2007–12): eliminatestructural unemployment andreshape the skills of the labor force,significantly enriching labor-intensiveindustries; progressively raise theknowledge of Jordanians by reform-ing basic and higher educational sys-tems.

Phase II (2013–17): progres-sively promote more capital-intensiveindustries and induce the newly edu-cated workforce into value-addedjobs. This tilts the country towardproductivity growth over the additionof labor, fueling socioeconomicdevelopment. Political life is expect-ed to develop by incorporating legis-lation regulating political development.

Phase III (2018 onward): now aworld-class competitor in the knowl-edge economy, focus on evolvingselected economic sectors in thateconomy.

Although qualitative goals wereclearly set, quantitative objectivesfor the coming decade were notcompromised—for example, achiev-ing an annual real GDP growth rateof 7.2%, converting the publicdeficit of GDP into a surplus of1.8%, increasing national savings upto 27% of GDP, and reducing unem-ployment by creating nearly 600,000new jobs.

Jordan has leaped toward economic competition and trade liberalization. Today the country isconsidered to be at the forefront ofthe Middle Eastern liberal economiesby overcoming dilemmas of natural

and economic resource scarcity withstrong economic ties, signing freetrade and association agreementswith the United States and theEuropean Union. Jordan also startedreinforcing competitiveness and lib-eralization legislation to establish ahealthy business environment.

In the context of enhancing itseconomic competitiveness, Jordanplans to establish an institutionalizedbody—the CompetitivenessObservatory—to monitor and assessits competitiveness status. This willuse a set of indicators for each keysector, enabling macro- and micro-economic performance assessmentand providing policymakers and busi-nessmen with an accurate essentialdatabase that can act as a centralizedearly-warning system, guiding the Jordanian economy toward prosperity.

Jordan started reforms to improve

competitiveness by liberalizing the

economy and improving the busi-

ness environment in the country.

Their aim is to improve macroeco-

nomic performance, create jobs,

and develop sectors in the knowl-

edge economy.

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2001................................................................................17.62005................................................................................20.8


TariffsPercent

JordanGDP (PPP US$) per capita, 1980–2005




Trade


Proj

ecte

d

0200400600800

1,0001,2001,4001,6001,800

0102500200020

2

4

6

8

10

12

14

2,000

3,000

4,000

5,000

6,000

7,000

8,000

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004

0

2

4

6

8

10

12



Others: 38%

UnitedStates: 26%

Iraq: 17%

India: 8%

Saudi Arabia: 6%

Syria: 5%

Crude fertilizers andminerals: 11%

Clothing and accessories: 25%

Others: 46%

JordanMENA



US$

mill

ions

Perc

ent o

f GD

P




Medicinal and pharma-ceutical products: 7%


Miscellaneous manufac-tured articles: 5%

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es KuwaitKey indicators

Total population (millions), 2006........................................................................2.8GDP (US$ billions), 2006 ......................................................................................93GDP (PPP US$) per capita, 2006 .................................................................16,593






Basic requirements ...................................................30 ...........34 .......5.31st pillar: Institutions..................................................32 ...........40 .......4.52nd pillar: Infrastructure ...........................................37 ...........46 .......4.13rd pillar: Macroeconomy...........................................1 .............3 .......6.14th pillar: Health and primary education................39 ...........77 .......6.3









Corruption.......................................................................11.3





Inflation .............................................................................2.4


Tax regulations ................................................................1.8

Crime and theft ................................................................1.7


Tax rates ...........................................................................1.2


2–3

Factordriven

Efficiencydriven

Innovationdriven

3


0 5 10 15 20 25 30



Institutions

Infrastructure

Macro-economy

Health andprimary

education


Market efficiency



Innovation

2

1

3

4

5

6

7

Kuwait Innovation-driven economies

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INDICATOR RANK/128


1.01 Property rights ...........................................................55 .....�1.02 Diversion of public funds...........................................28 .....�1.03 Public trust of politicians ...........................................44 .....�1.04 Judicial independence ...............................................31 .....�1.05 Favoritism in decisions of government officials ........78 .....�1.06 Government spending ...............................................55 .....�1.07 Burden of government regulation .............................73 .....�1.08 Business costs of terrorism ......................................74 .....�1.09 Reliability of police services ......................................27 .....�1.10 Business costs of crime and violence.......................22 .....�1.11 Organized crime ........................................................14 .....�1.12 Ethical behavior of firms............................................34 .....�1.13 Efficacy of corporate boards......................................94 .....�1.14 Protection of minority shareholders’ interests ..........66 .....�1.15 Strength of auditing and accounting standards.........36 .....�









INDICATOR RANK/128


6.01 Agricultural policy costs.............................................55 .....�6.02 Efficiency of legal framework....................................30 .....�6.03 Extent and effect of taxation .......................................5 .....�6.04 No. of procedures required to start a business*.......99 .....�6.05 Time required to start a business* ............................67 .....�6.06 Intensity of local competition ....................................63 .....�6.07 Effectiveness of antitrust policy ................................62 .....�6.08 Imports* ....................................................................97 .....�6.09 Prevalence of trade barriers ......................................25 .....�6.10 Prevalence of foreign ownership.............................128 .....�6.11 Exports*.....................................................................24 .....�6.12 Hiring and firing practices..........................................41 .....�6.13 Flexibility of wage determination ................................9 .....�6.14 Cooperation in labor-employer relations ....................27 .....�6.15 Reliance on professional management ...................103 .....�6.16 Pay and productivity ..................................................49 .....�6.17 Brain drain....................................................................9 .....�6.18 Private-sector employment of women......................52 .....�6.19 Financial market sophistication..................................41 .....�6.20 Ease of access to loans.............................................15 .....�6.21 Venture capital availability..........................................27 .....�6.22 Soundness of banks ..................................................32 .....�6.23 Local equity market access .......................................18 .....�


7.01 Technological readiness.............................................44 .....�7.02 Firm-level technology absorption...............................39 .....�7.03 Laws relating to ICT ..................................................91 .....�7.04 FDI and technology transfer ....................................121 .....�7.05 Mobile telephone subscribers* .................................32 .....�7.06 Internet users* ..........................................................43 .....�7.07 Personal computers*.................................................32 .....�




9.01 Quality of scientific research institutions ..................57 .....�9.02 Company spending on R&D ......................................81 .....�9.03 University-industry research collaboration.................85 .....�9.04 Gov’t. procurement of advanced tech products......102 .....�9.05 Availability of scientists and engineers......................64 .....�9.06 Utility patents* ..........................................................37 .....�9.07 Intellectual property protection..................................59 .....�9.08 Capacity for innovation ............................................112 .....�

Kuwait

* Hard data


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es KuwaitCompetitiveness and Reform in KuwaitMOHAMMED EL-SAKKA, Kuwait UniversityRAYADH FARAS, Kuwait University

Since the launch of the2005–06 GlobalCompetitiveness Report,

when Kuwait appeared for the firsttime on the global competitivenessmap, interest in the country’s com-petitiveness enhancers has beenincreasing. Kuwait’s score in certainareas was shocking. The NationalCompetitiveness Report issued bythe Kuwait National CompetitivenessCommittee (KNCC) established afast-track list to address the mostobvious weaknesses in Kuwait’scompetitiveness and enhance itsoverall scores. Since then, the paceof reform has accelerated.

On the political front, twoamendments have been introducedto election laws: (1) women areallowed full participation in the politi-cal process for the first time; (2) theelection districts have been reducedfrom 25 to 5 to reduce family andtribal effects on elections. This willsurely improve the public’s trust inpoliticians, in which Kuwait is ranked44 (out of 128). The press laws havealso been amended to allow for theestablishment of new newspapers,in an attempt to improve Kuwait’srank in the freedom-of-the-press category, which was 67.1

Two indicators of corruptiongive negative signals: favoritism indecisions of government officials(79) and wastefulness of governmentspending (56). Fighting corruptionhas become a very important issue,resulting in several specific steps.The country has now signed and rat-ified the United Nations anticorrup-tion agreement; a private society,Kuwait Transparency Society, hasbeen established and appears veryactive; and Kuwait has signed amemorandum of understanding withthe World Bank to establish an anti-corruption unit. A special conferenceabout transparency took place inKuwait in January 2007 to raise pub-lic awareness of corruption andexplore ways to improve Kuwait’sranking in this regard.

On the economic front, Kuwaithas shown greater commitment forenforcing disclosure law by neutral-izing the equity holdings of noncom-plying shareholders, and is protect-ing public revenues and interests by ending contracts with privatecompanies. Also there has been an extensive revision of the build-operate transfer (BOT) form offinancing. The parliament hasrefused to pass a law forgiving citizens’ consumer debts to thebanking sector, and is currentlyrefusing to raise public-sectorsalaries, instead planning to investsurplus public revenues. Finally, anantitrust law will soon be discussedin parliament.

Kuwait’s education rankings arelow. Its rank in the overall quality ofthe educational system is 64; in thequality of math and science educa-tion is 63, and in the quality of man-agement schools is 61. An extensiverevision of the secondary schoolsystem is now underway. To

improve the performance of teachersand attract highly skilled ones,salaries have been raised and moreattention has been given to mathand science education. New privateuniversity permits have been grant-ed, releasing pressure on the solepublic university and broadening thepublic’s choices for higher education.The government is currently review-ing the position of the KuwaitInstitute for Scientific Research(KISR) and exploring ways toenhance its performance and capaci-ty for innovation. It has reorganizedthe mobile telecommunications sec-tor by approving the establishmentof a third mobile telecommunicationscompany, improving accessibilityand competition in this market.

Kuwait’s NationalCompetitiveness Report 2006/2007is now being prepared. Its principleaim is to further improve publicawareness of the notion of competi-tiveness, its importance to Kuwait,and what it takes to enhance it.

Notes1 This variable is obtained through the Executive

Opinion Survey, but is not part of the GlobalCompetitiveness Index. The total number ofcountries in the sample is 125.

Kuwait has implemented a number

of reforms in the past year that aim

at enhancing competitiveness.

These include political reforms,

measures to increase transparen-

cy and accountability, and a

strengthening of the financial sec-

tor. A review of educational sys-

tems and innovative capacity is

also under way.

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2001..................................................................................1.62005..................................................................................2.0


TariffsPercent

KuwaitGDP (PPP US$) per capita, 1980–2005




Trade


Proj

ecte

d

0

100

200

300

400

500

600

0102500200020.000.050.100.150.200.250.300.350.400.45

0

5,000

10,000

15,000

20,000

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004

0

2

4

6

8

10



Others: 22%

United States: 14%

Korea: 18%Japan: 23%

Taiwan, China: 13%

Singapore: 11%

Gas, natural andmanufactured: 5%


Others: 4%

KuwaitMENA



US$

mill

ions

Perc

ent o

f GD

P




Plastics in primary forms: 2%

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es LibyaKey indicators


as share of world total (percent).................................................................0.11Current account balance (percent of GDP), 2006........................................47.9Human Development Indicator rank (out of 177 economies), 2004 ...........n/a




Global Competitiveness Index 2007...............26..........73 ......4.0GCR 2005–06 (out of 117 economies) ....................................n/a.......n/a

Basic requirements .....................................................8 ...........45 .......4.91st pillar: Institutions..................................................24 ...........75 .......3.82nd pillar: Infrastructure ...........................................38 .........100 .......2.53rd pillar: Macroeconomy...........................................1 .............1 .......6.94th pillar: Health and primary education................31 ...........81 .......6.3

Efficiency enhancers.................................................37 ...........95 .......3.25th pillar: Higher education and training................28 ...........73 .......3.96th pillar: Market efficiency......................................39 .........121 .......3.47th pillar: Technological readiness .........................40 .........115 .......2.5


Gender Gap Index 2006 (out of 115 economies) n/a



Inadequate supply of infrastructure ..........................13.5



Corruption.......................................................................11.2

Policy instability.............................................................10.5





Tax rates ...........................................................................4.2

Tax regulations ................................................................2.7


Inflation .............................................................................0.6

Crime and theft ................................................................0.3


2–3

Factordriven

Efficiencydriven

Innovationdriven

3


0 5 10 15 20 25 30



Institutions

Infrastructure

Macro-economy

Health andprimary

education


Market efficiency



Innovation

2

1

3

4

5

6

7

Libya Economies in transition from 1 to 2

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INDICATOR RANK/128


1.01 Property rights ...........................................................96 .....�1.02 Diversion of public funds...........................................37 .....�1.03 Public trust of politicians ...........................................80 .....�1.04 Judicial independence ...............................................50 .....�1.05 Favoritism in decisions of government officials ........51 .....�1.06 Government spending ...............................................72 .....�1.07 Burden of government regulation .............................99 .....�1.08 Business costs of terrorism ......................................19 .....�1.09 Reliability of police services ......................................66 .....�1.10 Business costs of crime and violence.......................25 .....�1.11 Organized crime ........................................................10 .....�1.12 Ethical behavior of firms............................................69 .....�1.13 Efficacy of corporate boards....................................127 .....�1.14 Protection of minority shareholders’ interests ..........76 .....�1.15 Strength of auditing and accounting standards.......116 .....�


2.01 Overall infrastructure quality....................................109 .....�2.02 Railroad infrastructure .............................................120 .....�2.03 Quality of port infrastructure ...................................105 .....�2.04 Air transport infrastructure quality ...........................113 .....�2.05 Quality of electricity supply .......................................78 .....�2.06 Telephone lines*........................................................75 .....�


3.01 Government balance* .................................................2 .....�3.02 National savings rate* .................................................3 .....�3.03 Inflation* ....................................................................34 .....�3.04 Interest rate spread* .................................................13 .....�3.05 Government debt* ......................................................2 .....�3.06 Real effective exchange rate*.....................................1 .....�




5.01 Secondary enrollment*..............................................17 .....�5.02 Tertiary enrollment*...................................................29 .....�5.03 Quality of the educational system...........................123 .....�5.04 Quality of math and science education .....................87 .....�5.05 Quality of management schools..............................118 .....�5.06 Local availability of research and training services....98 .....�5.07 Extent of staff training.............................................109 .....�

INDICATOR RANK/128


6.01 Agricultural policy costs...........................................106 .....�6.02 Efficiency of legal framework....................................50 .....�6.03 Extent and effect of taxation .....................................70 .....�6.04 No. of procedures required to start a business*......n/a6.05 Time required to start a business* ...........................n/a6.06 Intensity of local competition ..................................118 .....�6.07 Effectiveness of antitrust policy ................................77 .....�6.08 Imports* ....................................................................81 .....�6.09 Prevalence of trade barriers ......................................75 .....�6.10 Prevalence of foreign ownership.............................126 .....�6.11 Exports*.....................................................................47 .....�6.12 Hiring and firing practices........................................126 .....�6.13 Flexibility of wage determination ..............................94 .....�6.14 Cooperation in labor-employer relations ....................47 .....�6.15 Reliance on professional management ...................122 .....�6.16 Pay and productivity ................................................122 .....�6.17 Brain drain..................................................................91 .....�6.18 Private-sector employment of women......................56 .....�6.19 Financial market sophistication................................126 .....�6.20 Ease of access to loans.............................................92 .....�6.21 Venture capital availability..........................................82 .....�6.22 Soundness of banks ................................................122 .....�6.23 Local equity market access .....................................124 .....�


7.01 Technological readiness.............................................89 .....�7.02 Firm-level technology absorption...............................71 .....�7.03 Laws relating to ICT ................................................127 .....�7.04 FDI and technology transfer ....................................108 .....�7.05 Mobile telephone subscribers* ...............................120 .....�7.06 Internet users* ........................................................101 .....�7.07 Personal computers*.................................................92 .....�


8.01 Local supplier quantity...............................................58 .....�8.02 Local supplier quality ...............................................100 .....�8.03 Production process sophistication...........................101 .....�8.04 Extent of marketing .................................................124 .....�8.05 Control of international distribution ...........................19 .....�8.06 Willingness to delegate authority ............................116 .....�8.07 Nature of competitive advantage ..............................94 .....�8.08 Value chain presence...............................................113 .....�


9.01 Quality of scientific research institutions ..................92 .....�9.02 Company spending on R&D ....................................118 .....�9.03 University-industry research collaboration.................97 .....�9.04 Gov’t. procurement of advanced tech products........97 .....�9.05 Availability of scientists and engineers......................72 .....�9.06 Utility patents* ..........................................................80 .....�9.07 Intellectual property protection..................................95 .....�9.08 Capacity for innovation ............................................117 .....�

Libya

* Hard data


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es LibyaFast Progress after Years of IsolationOMRAN BUKHRES, National Economic Strategy, LibyaRAJEEV SINGH-MOLARES, Monitor Group

Coming out of its internationalisolation, Libya is taking slowbut certain steps to improve

its competitiveness. For a first-timeentrant to the Global CompetitivenessReport with a relatively recent tradi-tion of private enterprise, its 83rdrank is a good start. But a lot moreneeds to be done, and done rapidly,if Libya is to live up to its promiseand potential.

Libya is already performing wellon specific elements of the GCI. Itsmacroeconomic indicators are robustwith prudent fiscal, monetary, andexchange rate policies, which give itthe highest rank on macroeconomy.A safe law and order environmentmeans that crime is well under con-trol (ranked 10th on organized crimeand 25th on business costs of crimeand violence).

Libya is weak in overall environ-ment for business and productiveenterprise, and several areas requireimmediate attention. To addressthese, Libya launched the NationalEconomic Strategy (NES) project in2005. This project, under the adviceand guidance of the Monitor Group,is designing a series of campaignsthat address the cross-cutting issuesthat weaken the business environ-ment. To frame the reform process,the new Libyan Economic

Development Board (LEDB) will leadthe fast-track implementation ofreforms that address Libya’s corereform priorities of encouraging newbusiness formation, human capacitydevelopment, cluster development,and foreign partnerships.

To spur domestic entrepreneur-ship and increase local competition(ranked 119th), the LEDB is launch-ing a major campaign to promoteentrepreneurship. This will includesetting up a series of business advisory centers for prospectiveentrepreneurs, developing an effec-tive loans vehicle for small- andmedium-sized enterprises, andundertaking an information andawards campaign to recognize successful entrepreneurs.

In the area of human capacity,Libya has a long tradition of enroll-ment in higher education, especiallyin the sciences (ranked 17th and29th in enrollment in secondary andtertiary schools). However, improv-ing the quality of higher education(ranked 115th) and making educa-tion more relevant to the needs ofthe job market are a critical priority.With this aim in mind, a business-oriented leadership training programfor the 250 most promising businessleaders in Libya is being conducted.The program is intended to serve asa catalyst for a more broad-basedoutreach of business-relevant train-ing in Libya; it is accompanied byother proposals, such as setting upan elite academy for higher educa-tion, which are intended to addressthe low quality of higher education.To overcome the weaknesses inworkforce training (ranked 106th inon-the-job training), a national train-ing blueprint is being prepared. But reforms are needed to makeemployment regulation more efficient

and flexible, so businesses can allo-cate staff more efficiently. Currently,Libya ranks 118th on labor marketefficiency and flexibility.

Libya also ranks low in overallinfrastructure quality (110th) andfinancial market efficiency andsophistication (121st). The low levelof financial market sophistication aswell as overall soundness of thebanking system and local equitymarket access remain core priorities.In order to address these, the gov-ernment is seeking to attract foreignpartners to lead the development of key infrastructure and financialsector projects. Recent examplesinclude a deal signed by Libya’s government-owned Social andEconomic Development Fund andTameer Holdings of Dubai to under-take a US$20 billion investment tobuild a township, Wadi Al Sharqui.The entry of foreign banks has alsobeen proposed. The full potential ofnew technologies remains unused—in particular, the use of personalcomputers, Internet, and mobiletelephones remains very low (93rd,102nd, and 121st respectively) andincoming FDI brings little technologyinto the country (109th).

Libya will need to continue and

accelerate reform if it wants to

improve competitiveness. Current

priorities focus on spurring entre-

preneurship and competition in the

domestic economy, making educa-

tion more relevant to business, and

improving the performance of the

banking sector.

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2001..................................................................................1.22005..................................................................................1.4


TariffsPercent

LibyaGDP (PPP US$) per capita, 1980–2005




Trade


Proj

ecte

d

0200400600800

1,0001,2001,4001,6001,800

0102500200020.0

0.5

1.0

1.5

2.0

2.5

3.0

2,000

4,000

6,000

8,000

10,000

12,000

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004

0

2

4

6

8

10



(0)

Others: 12%

United States: 7%

Italy: 47%

Germany: 20%

France: 8%

Switzerland: 5%



LibyaMENA



US$

mill

ions

Perc

ent o

f GD

P




Organic chemicals: 2%Others: 2%

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es MauritaniaKey indicators

Total population (millions), 2006........................................................................3.2GDP (US$ billions), 2006 ........................................................................................3GDP (PPP US$) per capita, 2006 ...................................................................3,206

as share of world total (percent).................................................................0.01Current account balance (percent of GDP), 2006 ........................................-6.9Human Development Indicator rank (out of 177 economies), 2004...........153




Global Competitiveness Index 2007...............38........118 ......3.2GCR 2005–06 (out of 117 economies) ....................................n/a.......n/a

Basic requirements ...................................................37 .........117 .......3.41st pillar: Institutions..................................................11 ...........72 .......3.82nd pillar: Infrastructure ...........................................35 .........114 .......2.13rd pillar: Macroeconomy.........................................43 .........123 .......2.84th pillar: Health and primary education................30 .........108 .......4.9

Efficiency enhancers.................................................33 .........113 .......2.95th pillar: Higher education and training................44 .........124 .......2.36th pillar: Market efficiency......................................29 .........103 .......3.67th pillar: Technological readiness .........................11 ...........85 .......2.9

Innovation factors ......................................................30 .........108 .......3.08th pillar: Business sophistication...........................28 .........105 .......3.49th pillar: Innovation ..................................................33 .........111 .......2.6









Corruption.........................................................................6.9


Tax rates ...........................................................................6.2

Inflation .............................................................................6.1


Tax regulations ................................................................5.6



Crime and theft ................................................................3.6


2–3

Factordriven

Efficiencydriven

Innovationdriven

3


0 5 10 15 20 25 30



Institutions

Infrastructure

Macro-economy

Health andprimary

education


Market efficiency



Innovation

2

1

3

4

5

6

7

Mauritania Factor-driven economies

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INDICATOR RANK/128


1.01 Property rights ...........................................................95 .....�1.02 Diversion of public funds...........................................85 .....�1.03 Public trust of politicians ...........................................58 .....�1.04 Judicial independence ...............................................60 .....�1.05 Favoritism in decisions of government officials ........36 .....�1.06 Government spending .............................................108 .....�1.07 Burden of government regulation ...............................6 .....�1.08 Business costs of terrorism ......................................40 .....�1.09 Reliability of police services ......................................63 .....�1.10 Business costs of crime and violence.......................61 .....�1.11 Organized crime ........................................................63 .....�1.12 Ethical behavior of firms............................................73 .....�1.13 Efficacy of corporate boards......................................92 .....�1.14 Protection of minority shareholders’ interests ..........68 .....�1.15 Strength of auditing and accounting standards.......119 .....�


2.01 Overall infrastructure quality....................................126 .....�2.02 Railroad infrastructure ...............................................81 .....�2.03 Quality of port infrastructure ...................................101 .....�2.04 Air transport infrastructure quality ...........................121 .....�2.05 Quality of electricity supply .....................................106 .....�2.06 Telephone lines*......................................................109 .....�


3.01 Government balance* .............................................122 .....�3.02 National savings rate* .............................................119 .....�3.03 Inflation* ..................................................................114 .....�3.04 Interest rate spread* ................................................n/a3.05 Government debt* ..................................................106 .....�3.06 Real effective exchange rate*...................................46 .....�


4.01 Business impact of malaria .....................................110 .....�4.02 Business impact of tuberculosis .............................104 .....�4.03 Business impact of HIV/AIDS..................................106 .....�4.04 Infant mortality* ......................................................108 .....�4.05 Life expectancy* .....................................................105 .....�4.06 Tuberculosis prevalence* ........................................112 .....�4.07 Malaria prevalence*.................................................114 .....�4.08 HIV prevalence* ........................................................82 .....�4.09 Primary enrollment* ................................................111 .....�


5.01 Secondary enrollment*............................................119 .....�5.02 Tertiary enrollment*.................................................107 .....�5.03 Quality of the educational system...........................112 .....�5.04 Quality of math and science education .....................97 .....�5.05 Quality of management schools..............................126 .....�5.06 Local availability of research and training services..124 .....�5.07 Extent of staff training...............................................78 .....�

INDICATOR RANK/128


6.01 Agricultural policy costs...........................................119 .....�6.02 Efficiency of legal framework....................................53 .....�6.03 Extent and effect of taxation .....................................14 .....�6.04 No. of procedures required to start a business*.......82 .....�6.05 Time required to start a business*..........................110 .....�6.06 Intensity of local competition ..................................123 .....�6.07 Effectiveness of antitrust policy ................................88 .....�6.08 Imports* ....................................................................21 .....�6.09 Prevalence of trade barriers ....................................128 .....�6.10 Prevalence of foreign ownership...............................97 .....�6.11 Exports*.....................................................................88 .....�6.12 Hiring and firing practices............................................3 .....�6.13 Flexibility of wage determination ..............................99 .....�6.14 Cooperation in labor-employer relations ....................11 .....�6.15 Reliance on professional management .....................84 .....�6.16 Pay and productivity ..................................................85 .....�6.17 Brain drain..................................................................93 .....�6.18 Private-sector employment of women......................42 .....�6.19 Financial market sophistication................................106 .....�6.20 Ease of access to loans...........................................115 .....�6.21 Venture capital availability........................................116 .....�6.22 Soundness of banks ................................................102 .....�6.23 Local equity market access .....................................118 .....�


7.01 Technological readiness...........................................121 .....�7.02 Firm-level technology absorption...............................16 .....�7.03 Laws relating to ICT ................................................116 .....�7.04 FDI and technology transfer ........................................6 .....�7.05 Mobile telephone subscribers* .................................90 .....�7.06 Internet users* ........................................................117 .....�7.07 Personal computers*...............................................100 .....�


8.01 Local supplier quantity.............................................114 .....�8.02 Local supplier quality ...............................................111 .....�8.03 Production process sophistication.............................81 .....�8.04 Extent of marketing .................................................110 .....�8.05 Control of international distribution ...........................98 .....�8.06 Willingness to delegate authority ..............................97 .....�8.07 Nature of competitive advantage ..............................48 .....�8.08 Value chain presence.................................................88 .....�


9.01 Quality of scientific research institutions ................128 .....�9.02 Company spending on R&D ....................................128 .....�9.03 University-industry research collaboration...............127 .....�9.04 Gov’t. procurement of advanced tech products........19 .....�9.05 Availability of scientists and engineers......................80 .....�9.06 Utility patents* ..........................................................80 .....�9.07 Intellectual property protection..................................78 .....�9.08 Capacity for innovation ..............................................77 .....�

Mauritania

* Hard data


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es MauritaniaMauritania: Promise and ChallengeSTÉPHANE OERTEL, World Economic Forum

Like many other parts of sub-Saharan Africa, Mauritania isexperiencing strong growth

rates, with the start of oil productionboosting real GDP growth close to20% in 2006. Expansion of produc-tion in 2007 is expected to maintaingrowth above 10%.

Traditionally heavily dependenton a drought- and calamity-proneagricultural sector, the discovery ofoil will, at least in the short term,alleviate a number of constraintsthat have plagued the government—notably its chronic fiscal and currentaccount imbalances (its macroecon-omy rank is 124, based on 2005hard data).

Relations with donors haveimproved since the new military-transitional government came topower. The IMF, the World Bank,and the African Development Bankhave agreed to write off Mauritania’sdebts as part of the multilateral debtrelief initiative. The re-engagementof the donor community, a quid proquo for the promised democratictransition, is granting Mauritaniaaccess to increased direct budgetarysupport and technical assistance aswell as urgently needed investmentsin infrastructure and the servicessector.

Considerable investments arealso flowing into the iron ore sector.Together with multinational partners,the government plans to increaseboth iron ore output and processingwithin the country, resulting in anFDI and technology transfer rank of6. Mauritania’s rich fishing groundsconstitute the third important sectorof its economy.

Despite promising trends,Mauritania’s development challengesare formidable. It remains one of thepoorest countries in the world, witha quarter of the population living onless than $1 and close to two-thirdson less than $2 a day.1

The results of the GlobalCompetitiveness Index (where it hasan overall rank of 119) point towardsome crucial areas where Mauritanianeeds to make further progress inorder to build a strong basis for sustained growth and enhancedcompetitiveness. Major investmentsare needed in critical bottleneckareas—including higher educationand training, infrastructure, andhealth (ranked 125th, 115th, and109th respectively)—that presentlyhinder the transition from a largelyfactor-driven to a more efficiency-driven economy.

The transitional government hasput measures into place to improvethe transparency and oversight of itsmanagement of oil revenue (it ranks86th in diversion of public funds).These are part of a larger effort toreform the country’s financial sectorto enhance both its transparencyand its efficiency by combatingmoney-laundering and tightening itsbanking inspection regime.

Clearly transparency is beingtaken seriously; businesses surveyedappear to have faith in the govern-ment’s institutions (institutions ranks

73rd, public trust of politicians ranks59th; but auditing and accountingstandards (117th) and securing property rights (93rd) need to bestrengthened). But the sharpincrease in oil revenue and theapproaching end of the political transition may represent a majorchallenge to continuing to promotetransparency and fiscal discipline.

Additional fiscal pressures consist of increases in governmentspending, driven by oil productionand the pressures of election-relatedexpenditures, keeping inflation(ranked 111) above target levels.The only instrument currently at thecentral bank’s disposal for managingthe surplus liquidity consists of bankreserve requirements. The centralbank is therefore likely to graduallyliberalize the foreign-exchange market to be better able to managefuture excess liquidity (the realeffective exchange rate rank is 43).

From the perspective of marketefficiency (ranked 104th), most busi-ness sectors remain largely govern-ment-driven. Private entrepreneurslack access to financing (reflected inthe financial markets rank of 120),adequate infrastructure, and an educated workforce from which to recruit. On the other hand, thegovernment appears committed tointroduce market-friendly mechanismsand to intensify local competition,with the expanding telecommunica-tions sector leading the way as com-peting operators provide constantlyimproving services and coverage atincreasingly affordable rates.

Notes1 UNDP HDR 2006 data.

The recent discovery of oil fields

in the country bodes well for

Mauritania’s future and provides an

opportune moment for introducing

reforms. Current reforms focus on

transparency and stabilizing the

macroeconomic performance,

yet challenges in education,

health, and infrastructure remain

formidable.

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France: 17%

Germany: 12%

Fish, crustaceans,molluscs: 49%

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2001..................................................................................3.12005..................................................................................3.0


TariffsPercent

MauritaniaGDP (PPP US$) per capita, 1980–2005




Trade


0

20

40

60

80

100

120

140

(n/a)

0102500200020

1

2

3

4

5

6

7

0

2,000

4,000

6,000

8,000

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004

0

2

4

6

8

10

12



Others: 20%

Italy: 21%

Japan: 17%

Belgium: 12%

Animal feed stuff: 3%Metalliferousores andmetal scrap:46%

Others: 3%

MauritaniaMENA



US$

mill

ions

Perc

ent o

f GD

P



Total value of exports (US$ millions): 724

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es MoroccoKey indicators

Total population (millions), 2006......................................................................31.9GDP (US$ billions), 2006 ......................................................................................57GDP (PPP US$) per capita, 2006 ...................................................................4,819

as share of world total (percent).................................................................0.23Current account balance (percent of GDP), 2006..........................................0.5Human Development Indicator rank (out of 177 economies), 2004...........123





Basic requirements .....................................................6 ...........70 .......4.41st pillar: Institutions....................................................9 ...........68 .......3.92nd pillar: Infrastructure .............................................4 ...........61 .......3.63rd pillar: Macroeconomy.........................................18 ...........81 .......4.24th pillar: Health and primary education................17 ...........89 .......6.1

Efficiency enhancers...................................................7 ...........77 .......3.65th pillar: Higher education and training................14 ...........87 .......3.56th pillar: Market efficiency......................................11 ...........75 .......4.17th pillar: Technological readiness ...........................3 ...........70 .......3.3

Innovation factors ......................................................12 ...........73 .......3.58th pillar: Business sophistication .........................14 ...........80 .......3.89th pillar: Innovation ....................................................9 ...........61 .......3.3





Tax rates .........................................................................14.0

Corruption.......................................................................13.0

Tax regulations ..............................................................11.8







Inflation .............................................................................2.3



Crime and theft ................................................................1.4


2–3

Factordriven

Efficiencydriven

Innovationdriven

3


0 5 10 15 20 25 30



Institutions

Infrastructure

Macro-economy

Health andprimary

education


Market efficiency



Innovation

2

1

3

4

5

6

7

Morocco Factor-driven economies

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INDICATOR RANK/128


1.01 Property rights ...........................................................57 .....�1.02 Diversion of public funds...........................................77 .....�1.03 Public trust of politicians ...........................................53 .....�1.04 Judicial independence ...............................................77 .....�1.05 Favoritism in decisions of government officials ........53 .....�1.06 Government spending ...............................................52 .....�1.07 Burden of government regulation .............................48 .....�1.08 Business costs of terrorism ......................................91 .....�1.09 Reliability of police services ......................................36 .....�1.10 Business costs of crime and violence.......................47 .....�1.11 Organized crime ........................................................49 .....�1.12 Ethical behavior of firms............................................96 .....�1.13 Efficacy of corporate boards....................................102 .....�1.14 Protection of minority shareholders’ interests ..........64 .....�1.15 Strength of auditing and accounting standards.........88 .....�


2.01 Overall infrastructure quality......................................60 .....�2.02 Railroad infrastructure ...............................................50 .....�2.03 Quality of port infrastructure .....................................54 .....�2.04 Air transport infrastructure quality .............................66 .....�2.05 Quality of electricity supply .......................................53 .....�2.06 Telephone lines*......................................................100 .....�


3.01 Government balance* .............................................116 .....�3.02 National savings rate* ...............................................29 .....�3.03 Inflation* ......................................................................8 .....�3.04 Interest rate spread* .................................................87 .....�3.05 Government debt* ....................................................85 .....�3.06 Real effective exchange rate*...................................45 .....�




5.01 Secondary enrollment*............................................103 .....�5.02 Tertiary enrollment*...................................................94 .....�5.03 Quality of the educational system.............................92 .....�5.04 Quality of math and science education .....................49 .....�5.05 Quality of management schools................................26 .....�5.06 Local availability of research and training services....59 .....�5.07 Extent of staff training...............................................87 .....�

INDICATOR RANK/128


6.01 Agricultural policy costs.............................................98 .....�6.02 Efficiency of legal framework....................................56 .....�6.03 Extent and effect of taxation .....................................64 .....�6.04 No. of procedures required to start a business*.......16 .....�6.05 Time required to start a business* ............................15 .....�6.06 Intensity of local competition ....................................71 .....�6.07 Effectiveness of antitrust policy ................................55 .....�6.08 Imports* ....................................................................82 .....�6.09 Prevalence of trade barriers ......................................93 .....�6.10 Prevalence of foreign ownership...............................48 .....�6.11 Exports*.....................................................................96 .....�6.12 Hiring and firing practices..........................................49 .....�6.13 Flexibility of wage determination ..............................44 .....�6.14 Cooperation in labor-employer relations ....................84 .....�6.15 Reliance on professional management ...................108 .....�6.16 Pay and productivity ..................................................52 .....�6.17 Brain drain..................................................................79 .....�6.18 Private-sector employment of women......................84 .....�6.19 Financial market sophistication..................................83 .....�6.20 Ease of access to loans.............................................87 .....�6.21 Venture capital availability..........................................94 .....�6.22 Soundness of banks ..................................................70 .....�6.23 Local equity market access .......................................76 .....�







Morocco

* Hard data


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es MoroccoEconomic Reforms Fuel GrowthFOUZI MOURJI, Université Hassan II, Casablanca

Morocco has improved itsposition in the GlobalCompetitiveness Index

from 76th to the 70th rank in thelast edition of the GlobalCompetitiveness Report. Reasonsbehind this improvement are reflect-ed in its macroeconomic indicators.

One of Morocco’s advantageslies in its infrastructure facilities, par-ticularly the supply of energy, trans-port, and telecommunications. Theliberalization policies adopted sincethe 1980s contribute to these posi-tive results—in particular, thetelecommunications provider wasprivatized and the distribution ofelectricity was delegated to privatecompanies.

The fairly dynamic private sec-tor benefits from high demandresulting from demographic growthand the increase in the number ofhouseholds where members areemployed or entrepreneurs in eitherthe formal or the—very efficient—informal economy. The latter con-tributes about 40% of employmentin certain sectors, such as construc-tion, but is also growing amongsmall companies in the retail trade,handicraft, and restaurant business.This helps—with the quality of infra-structure, the availability of culturalheritage, and a dynamic tourism poli-cy—to favor the development of

tourism. The demand is furthermaintained by remittances ofMoroccan workers from abroad,which account for about 4.9% ofGDP and help to strengthen house-hold purchasing power and fuelinvestment.

Private-sector growth is alsofavored by a reduced number of pro-cedures required to start a businessfollowing the establishment ofregional centers for investment (RCI)in 2002, which provide “one stopshops” to facilitate operations andadministrative procedures ofinvestors. Positive factors for busi-ness operations are the ready avail-ability of engineers (rank 20) and thegood quality of the education provid-ed by management schools (rank26); the stable security environmentand the absence of pandemics areadditional advantages.

A number of large constructionprojects that contribute to increasinginternal demand and stimulate pri-vate-sector growth are under way:the large port of Tangier, the pro-gram for expanding the highway net-work, the “Azur” plan for tourismdevelopment, and the program forconstructing social housing. In addi-tion, a number of reforms and liber-alization measures in the areas offamily law and the status of women,labor market regulation, and theintroduction of an open sky policyare currently in different stages ofimplementation. These will all havea part to play in raising the country’scompetitiveness.

But business continues at lowlevels of sophistication (rank 79); asimilar assessment is made for thestock market, which witnessed anenormous success in the secondhalf of the 1990s, following thereform of financial markets in 1993

(modern regulation and creation of aprivate company to manage thestock market) and the privatizationof public companies. Since thenprogress has been slow, becauseonly a few companies have agreedto open up their capital base.Entrepreneurs, who often own fami-ly companies, are reluctant to dele-gate authority (rank 96) as well.

Morocco’s competitive disad-vantages remain corruption (rank66),1 the public deficit (–5.74% ofGDP), and the social inequalities andthe persistence of pockets of pover-ty (close to 15% of the population isliving below the poverty line).Illiteracy remains high (47% of thepopulation) but is slowly improving(primary enrollment reaches 86.1%).

The opening of the economyhas had advantages, but the tradedeficit is structural (the coverage ofimports stagnates at around 50%)because of the rigidity of the pro-ductive base and the slow pace ofadjustment of companies when con-fronted with international competi-tion. The beneficial effects of tech-nology transfer through FDI taketime to materialize, so the economy,still highly dependent on agriculture,remains sensitive to varying weatherconditions. The elasticity of GDP tothe variation of agricultural produc-tion is very high even if this sectorrepresents a smaller share of theeconomy (16%) than services andindustry.

Notes1 This weak score is consistent with the results of

Transparency International’s CorruptionPerceptions Index

A dynamic private sector fuels

growth in Morocco, supported by a

number of reforms, for example

with respect to domestic competi-

tion. Nevertheless, a large public

deficit and a lack of transparency

remain challenges to be

addressed.

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2001................................................................................16.82005................................................................................18.1


TariffsPercent

MoroccoGDP (PPP US$) per capita, 1980–2005




Trade


Proj

ecte

d

0

500

1,000

1,500

2,000

2,500

3,000

3,500

0102500200020

1

2

3

4

5

6

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004

0

2

4

6

8



Others: 36%

France: 30% Spain: 18%

United Kingdom: 6%

Italy: 5%

India: 4%

Electrical machinery,apparatus and parts: 12%


Others: 35%

MoroccoMENA



US$

mill

ions

Perc

ent o

f GD

P




Fish, crustaceans,molluscs: 9%


Inorganic chemicals: 8%

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es OmanKey indicators






Global Competitiveness Index 2007.................8..........40 ......4.5GCR 2005–06 (out of 117 economies) ....................................n/a.......n/a

Basic requirements .....................................................3 ...........31 .......5.31st pillar: Institutions....................................................1 ...........17 .......5.32nd pillar: Infrastructure .............................................7 ...........43 .......4.23rd pillar: Macroeconomy...........................................3 .............6 .......5.94th pillar: Health and primary education................36 ...........95 .......5.9

Efficiency enhancers.................................................10 ...........51 .......4.15th pillar: Higher education and training................16 ...........55 .......4.26th pillar: Market efficiency........................................4 ...........32 .......4.77th pillar: Technological readiness .........................20 ...........61 .......3.4

Innovation factors ......................................................21 ...........71 .......3.68th pillar: Business sophistication .........................22 ...........70 .......4.09th pillar: Innovation ..................................................19 ...........66 .......3.2










Tax regulations ................................................................1.7

Tax rates ...........................................................................1.4

Corruption.........................................................................1.2


Inflation .............................................................................0.7



Crime and theft ................................................................0.2


2–3

Factordriven

Efficiencydriven

Innovationdriven

3


0 5 10 15 20 25 30



Institutions

Infrastructure

Macro-economy

Health andprimary

education


Market efficiency



Innovation

2

1

3

4

5

6

7

Oman Economies in transition from 1 to 2

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INDICATOR RANK/128


1.01 Property rights ...........................................................19 .....�1.02 Diversion of public funds.............................................9 .....�1.03 Public trust of politicians ...........................................18 .....�1.04 Judicial independence ...............................................39 .....�1.05 Favoritism in decisions of government officials ........12 .....�1.06 Government spending ...............................................14 .....�1.07 Burden of government regulation .............................37 .....�1.08 Business costs of terrorism ......................................14 .....�1.09 Reliability of police services ........................................3 .....�1.10 Business costs of crime and violence.........................3 .....�1.11 Organized crime ..........................................................3 .....�1.12 Ethical behavior of firms............................................22 .....�1.13 Efficacy of corporate boards......................................27 .....�1.14 Protection of minority shareholders’ interests ..........23 .....�1.15 Strength of auditing and accounting standards.........32 .....�


2.01 Overall infrastructure quality......................................22 .....�2.02 Railroad infrastructure .............................................108 .....�2.03 Quality of port infrastructure .....................................28 .....�2.04 Air transport infrastructure quality .............................41 .....�2.05 Quality of electricity supply .......................................28 .....�2.06 Telephone lines*........................................................83 .....�


3.01 Government balance* .................................................7 .....�3.02 National savings rate* ...............................................36 .....�3.03 Inflation* ....................................................................19 .....�3.04 Interest rate spread* .................................................36 .....�3.05 Government debt* ....................................................10 .....�3.06 Real effective exchange rate*...................................16 .....�


4.01 Business impact of malaria .......................................48 .....�4.02 Business impact of tuberculosis ...............................44 .....�4.03 Business impact of HIV/AIDS....................................14 .....�4.04 Infant mortality* ........................................................43 .....�4.05 Life expectancy* .......................................................45 .....�4.06 Tuberculosis prevalence* ..........................................28 .....�4.07 Malaria prevalence*...................................................61 .....�4.08 HIV prevalence* ........................................................28 .....�4.09 Primary enrollment* ................................................107 .....�



INDICATOR RANK/1282A]6th pillar: Market efficiency6.01 Agricultural policy costs.............................................17 .....�6.02 Efficiency of legal framework....................................19 .....�6.03 Extent and effect of taxation .......................................3 .....�6.04 No. of procedures required to start a business*.......50 .....�6.05 Time required to start a business* ............................64 .....�6.06 Intensity of local competition ....................................88 .....�6.07 Effectiveness of antitrust policy ................................40 .....�6.08 Imports* ....................................................................76 .....�6.09 Prevalence of trade barriers ......................................12 .....�6.10 Prevalence of foreign ownership...............................37 .....�6.11 Exports*.....................................................................25 .....�6.12 Hiring and firing practices..........................................89 .....�6.13 Flexibility of wage determination ..............................52 .....�6.14 Cooperation in labor-employer relations ....................13 .....�6.15 Reliance on professional management .....................32 .....�6.16 Pay and productivity ..................................................48 .....�6.17 Brain drain....................................................................4 .....�6.18 Private-sector employment of women........................6 .....�6.19 Financial market sophistication..................................40 .....�6.20 Ease of access to loans.............................................31 .....�6.21 Venture capital availability..........................................63 .....�6.22 Soundness of banks ..................................................66 .....�6.23 Local equity market access .......................................48 .....�






9.01 Quality of scientific research institutions ................103 .....�9.02 Company spending on R&D ......................................86 .....�9.03 University-industry research collaboration.................86 .....�9.04 Gov’t. procurement of advanced tech products........35 .....�9.05 Availability of scientists and engineers......................76 .....�9.06 Utility patents* ..........................................................55 .....�9.07 Intellectual property protection..................................23 .....�9.08 Capacity for innovation ............................................110 .....�

Oman

* Hard data


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es OmanAdvancing Integration with the Global Economy SALEM BEN NASSER AL-ISMAILY, Omani Center for Investment Promotion and Export Development

The outlook for Oman for thecoming years remains posi-tive, buoyed by the continued

strength of international oil prices,which are set to keep export rev-enue and fiscal earnings high, morethan offsetting the impact of weakoil production.

With an increasing degree ofopenness in investment, trade andcommerce policies, the rapid paceof modernization and infrastructuredevelopment, and an enlarged pri-vate-sector role, Oman’s economictransformation is creating a competi-tive platform for all economic play-ers. On the social front, all impor-tant indicators—such as the health-care system, literacy rate, andwomen’s participation in corporategovernance—indicate steadyimprovement. The result is a signifi-cant transformation of the societyand the economy.

Progress with a range of gas-based industrial projects (including anew liquefied natural gas facility)also supports the Sultanate’sprospects, marking the advance-ment of the country’s diversificationprogram and creating some of thejobs urgently required by Oman’srapidly growing labor force.

The new industrial venturesseen in Sohar, Sur, and other regions

of the country contain a large por-tion of local and foreign privateinvestments. More ventures areanticipated in the tourism sector in2007. These ventures also will befunded by mostly foreign invest-ments, a good indication of foreigninvestors’ confidence in the invest-ment regime of the Sultanate ofOman.

Local and foreign private-sectorinvestment was robust during 2006.Most of the anticipated new invest-ments would be in downstream ofthe gas-based industrial projects, orin infrastructure supporting theexpanding tourism sector.

The economic growth wit-nessed in Oman has been fuelednot only by new infrastructure proj-ects but also by consumption andrelatively low interest rates.Consumer demand has increasedlocal production capacity, resulting inadditional investment in manufactur-ing and service sectors.

Trade volume within the Arabworld and Oman in 2007 is expect-ed to rise as the a result of the freetrade agreement among some ofthe Arab countries—includingOman—that has been in effect since2005. Net exports will be substan-tially strengthened because new liq-uefied natural gas (LNG) capacitiescame onstream and Oman-IndiaFertilizer will continue full-capacityproduction.

Conscious effort to promoteinvestment within the region isneeded. To strengthen the privatesector’s role in economic develop-ment through deeper economic inte-gration, the following are necessary:higher intra-Arab trade and legal andfinancial cooperation. Banks andinvestment houses must cometogether to fight financial crimes,

channel investments across theregion prudently, syndicate towarddevelopment financing, and inte-grate trade and commerce closely.

It is essential for the Sultanateof Oman to continue its efforts todiversify its economy and integratemore closely with the global economy.The government should persist inenhancing the rule of law and soundfiscal and monetary policy, adoptingprocedures and systems thatincrease ease of doing business andreduce the size of the government.

The Omani economy is transform-

ing rapidly, and progress is being

made with respect to diversifica-

tion and job creation. The govern-

ment should continue these

reforms and enhance efforts to

attract investment and an opening

of the economy at the regional and

global level.

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2001..................................................................................2.02005..................................................................................2.0


TariffsPercent

OmanGDP (PPP US$) per capita, 1980–2005




Trade


0

100

200

300

400

500

600

700

800

0102500200020.0

0.5

1.0

1.5

2.0

2.5

(n/a)

0

5,000

10,000

15,000

20,000

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004

0

2

4

6

8



Others: 86%

United ArabEmirates: 7%

Korea: 5%

Spain: 2%


Petroleum,petroleumproducts:66%

Others: 9%

OmanMENA



US$

mill

ions

Perc

ent o

f GD

P




Special transactionsand commodities: 5%

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es QatarKey indicators

Total population (millions), 2006......................................................................0.84GDP (US$ billions), 2006 ......................................................................................45GDP (PPP US$) per capita, 2006 .................................................................32,596






Basic requirements ...................................................22 ...........22 .......5.51st pillar: Institutions..................................................20 ...........22 .......5.12nd pillar: Infrastructure ...........................................36 ...........41 .......4.33rd pillar: Macroeconomy...........................................2 .............4 .......6.04th pillar: Health and primary education................30 ...........37 .......6.6











Inflation .............................................................................8.4




Corruption.........................................................................2.1


Crime and theft ................................................................1.3

Tax rates ...........................................................................1.0

Tax regulations ................................................................0.8


2–3

Factordriven

Efficiencydriven

Innovationdriven

3


0 5 10 15 20 25 30



Institutions

Infrastructure

Macro-economy

Health andprimary

education


Market efficiency



Innovation

2

1

3

4

5

6

7

Qatar Innovation-driven economies

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INDICATOR RANK/128


1.01 Property rights ...........................................................39 .....�1.02 Diversion of public funds...........................................19 .....�1.03 Public trust of politicians ...........................................11 .....�1.04 Judicial independence ...............................................20 .....�1.05 Favoritism in decisions of government officials ........13 .....�1.06 Government spending .................................................4 .....�1.07 Burden of government regulation .............................16 .....�1.08 Business costs of terrorism ......................................49 .....�1.09 Reliability of police services ......................................22 .....�1.10 Business costs of crime and violence.......................14 .....�1.11 Organized crime ........................................................19 .....�1.12 Ethical behavior of firms............................................32 .....�1.13 Efficacy of corporate boards......................................32 .....�1.14 Protection of minority shareholders’ interests ..........27 .....�1.15 Strength of auditing and accounting standards.........41 .....�









INDICATOR RANK/128


6.01 Agricultural policy costs.............................................38 .....�6.02 Efficiency of legal framework....................................27 .....�6.03 Extent and effect of taxation .......................................6 .....�6.04 No. of procedures required to start a business*......n/a6.05 Time required to start a business* ...........................n/a6.06 Intensity of local competition ....................................67 .....�6.07 Effectiveness of antitrust policy ................................49 .....�6.08 Imports* ..................................................................110 .....�6.09 Prevalence of trade barriers ........................................9 .....�6.10 Prevalence of foreign ownership...............................92 .....�6.11 Exports*.....................................................................21 .....�6.12 Hiring and firing practices..........................................31 .....�6.13 Flexibility of wage determination ................................8 .....�6.14 Cooperation in labor-employer relations ....................55 .....�6.15 Reliance on professional management .....................54 .....�6.16 Pay and productivity ..................................................25 .....�6.17 Brain drain....................................................................2 .....�6.18 Private-sector employment of women......................40 .....�6.19 Financial market sophistication..................................48 .....�6.20 Ease of access to loans.............................................12 .....�6.21 Venture capital availability..........................................37 .....�6.22 Soundness of banks ..................................................46 .....�6.23 Local equity market access .......................................45 .....�







Qatar

* Hard data


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es QatarSuccessful Policies Bode Well for the FutureTHIERRY GEIGER, World Economic Forum

With a rank of 38, Qatar’sperformance on theGlobal Competitiveness

Index (GCI) is remarkable in manyaspects—particularly the high qualityof public and private institutions(22nd among the 128 economiescovered by the GCI): the country isrelatively free from corruption andundue influence (14th), the govern-ment spends efficiently (4th), and itsregulation is seen as rather easy tocomply with (16th). Another ofQatar’s strong advantages resides in the efficiency of its labor market(13th), explained mainly by the flexi-bility of wage determination (8th)and of hiring and firing practices(31st). Brain drain (2nd) does notseem to be a problem, consistentwith Qatar’s open immigration policyand its reputation as a destinationfor qualified labor. However, for the country to climb further up theladder of competitiveness, a numberof issues need to be addressedespecially with respect to infrastruc-ture, education, and goods marketefficiency.

The most problematic factor forconducting business in Qatar citedby the business community is theinadequate supply of infrastructure.Qatar’s performance—41st on the

infrastructure pillar—is poor whenmeasured against its peers. HongKong ranks 3rd, Singapore 6th,Taiwan 16th, Korea 21st, and theUnited Arab Emirates 25th. The government is addressing the issuewith massive projects. The firstphase of the US$7.5 billion NewDoha International Airport will bringthe capacity of passengers from acurrent 7.5 million to 12.5 million by 2007, with plans to raise thisnumber to 50 million by 2020. Thisincreased capacity will be accompa-nied by a substantial increase in thefleet of the national carrier QatarAirways and the number of routes itoffers. Ports are also being modern-ized and expanded. In addition, theUS$5 billion, 40-kilometer-longQatar–Bahrain Bridge should becompleted by 2010, linking Qatarwith the rest of the region and contributing to furthering regionaleconomic integration and mobility.

Although literacy and enrollmentrates in primary and secondary edu-cation are high, attention needs tobe turned to higher education. Withan enrollment rate of less than 20%(77th), tertiary education in Qatar isinsufficiently developed. To tacklethis issue, in 2004 the governmentlaunched the project Education City,a 2,500-acre campus on the outskirtsof Doha. Scheduled for completionin 2008, Education City aims at pro-viding world-class education fromkindergarten to the post-graduatelevel, notably through partnershipswith Western universities. The project should also contribute toenhancing capacity for innovation(61st), fostering collaborationbetween university and the privatesector (60th), and reducing theshortage of scientists and engineers

(83rd), three areas in which Qatardoes relatively poorly.

Another area for improvementis the efficiency of goods markets.Here Qatar ranks 90th, a mediocreperformance partly attributable toinsufficient domestic competition(67th), a small base of local suppliers(90th), and low incidence of foreignownership (92nd). Albeit still low,Qatar’s rank on this later indicatorhas actually improved from 109th in2005, a sign that the reforms initiatedin 2000 intended to relax the rulesand restrictions for foreign invest-ment and ownership are beginningto bear fruit.

Finally, the looming danger represented by the high reliance and therefore vulnerability of Qatar’sfinances to energy price fluctuationsis worth mentioning. The governmentbudget, which in 2005 yielded a surplus equivalent to 20% of GDP(4th highest), was in the redthroughout the 1990s as a result offalling oil prices. The government isseeking to diversify its sources ofincome by developing the naturalgas industry, which already repre-sents one-third of its exports. It isalso planning to establish a freeinvestment zone, where it will offerforeign companies tax incentives ofup to 100% to invest in small- andmedium-sized enterprises outsidethe oil and gas sector.

Qatar is one of the most competi-

tive economies in the region, with

a number of notable strengths

mainly related to institutions and

labor markets. Going forward,

improvements with respect to

infrastructure, education, and

goods market efficiency will

be necessary to enhance the

country’s competitiveness.

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2001..................................................................................2.02005..................................................................................2.5


TariffsPercent

QatarGDP (PPP US$) per capita, 1980–2005




Trade


Proj

ecte

d

0

500

1,000

1,500

2,000

2,500

3,000

0102500200020.00.51.01.52.02.53.03.54.04.55.0

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004

0

2

4

6

8

10



Others: 28%

Japan: 40% Korea: 16%

Singapore: 8%

United Arab Emirates: 5%

India: 3%

Gas, naturaland manufac-tured: 34%

Petroleum, petroleumproducts: 50%

Others: 2%Plastics in primary forms: 2%

QatarMENA



US$

mill

ions

Perc

ent o

f GD

P




Special transactionsand commodities: 9%

Fertilizers (except group 272): 3%

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es SyriaKey indicators


as share of world total (percent).................................................................0.12Current account balance (percent of GDP), 2006 .......................................–1.8Human Development Indicator rank (out of 177 economies), 2004...........107




Global Competitiveness Index 2007...............12..........84 ......3.8GCR 2005–06 (out of 117 economies) ....................................n/a.......n/a

Basic requirements .....................................................5 ...........69 .......4.51st pillar: Institutions..................................................12 ...........73 .......3.82nd pillar: Infrastructure ...........................................10 ...........78 .......3.13rd pillar: Macroeconomy...........................................9 ...........61 .......4.54th pillar: Health and primary education..................2 ...........45 .......6.6

Efficiency enhancers.................................................25 .........104 .......3.15th pillar: Higher education and training................19 ...........96 .......3.26th pillar: Market efficiency......................................37 .........114 .......3.57th pillar: Technological readiness .........................31 .........109 .......2.6







Corruption.......................................................................13.7





Tax regulations ................................................................6.1


Tax rates ...........................................................................4.0


Inflation .............................................................................3.0

Crime and theft ................................................................1.8



2–3

Factordriven

Efficiencydriven

Innovationdriven

3


0 5 10 15 20 25 30



Institutions

Infrastructure

Macro-economy

Health andprimary

education


Market efficiency



Innovation

2

1

3

4

5

6

7

Syria Factor-driven economies

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INDICATOR RANK/128


1.01 Property rights ...........................................................88 .....�1.02 Diversion of public funds...........................................43 .....�1.03 Public trust of politicians ...........................................63 .....�1.04 Judicial independence ...............................................88 .....�1.05 Favoritism in decisions of government officials ........72 .....�1.06 Government spending ...............................................78 .....�1.07 Burden of government regulation .............................86 .....�1.08 Business costs of terrorism ......................................29 .....�1.09 Reliability of police services ......................................46 .....�1.10 Business costs of crime and violence.......................20 .....�1.11 Organized crime ........................................................20 .....�1.12 Ethical behavior of firms............................................58 .....�1.13 Efficacy of corporate boards....................................118 .....�1.14 Protection of minority shareholders’ interests ..........92 .....�1.15 Strength of auditing and accounting standards.......124 .....�




3.01 Government balance* ...............................................92 .....�3.02 National savings rate* ...............................................61 .....�3.03 Inflation* ....................................................................90 .....�3.04 Interest rate spread* .................................................24 .....�3.05 Government debt* ....................................................73 .....�3.06 Real effective exchange rate*...................................21 .....�


4.01 Business impact of malaria .......................................43 .....�4.02 Business impact of tuberculosis ...............................32 .....�4.03 Business impact of HIV/AIDS....................................24 .....�4.04 Infant mortality* ........................................................58 .....�4.05 Life expectancy* .......................................................54 .....�4.06 Tuberculosis prevalence* ..........................................55 .....�4.07 Malaria prevalence*...................................................56 .....�4.08 HIV prevalence* ..........................................................1 .....�4.09 Primary enrollment* ..................................................49 .....�


5.01 Secondary enrollment*..............................................95 .....�5.02 Tertiary enrollment*...................................................90 .....�5.03 Quality of the educational system.............................99 .....�5.04 Quality of math and science education .....................78 .....�5.05 Quality of management schools..............................106 .....�5.06 Local availability of research and training services..100 .....�5.07 Extent of staff training...............................................86 .....�

INDICATOR RANK/128


6.01 Agricultural policy costs.............................................64 .....�6.02 Efficiency of legal framework....................................84 .....�6.03 Extent and effect of taxation .....................................78 .....�6.04 No. of procedures required to start a business*.......92 .....�6.05 Time required to start a business* ............................81 .....�6.06 Intensity of local competition ....................................84 .....�6.07 Effectiveness of antitrust policy ................................76 .....�6.08 Imports* ....................................................................88 .....�6.09 Prevalence of trade barriers ....................................115 .....�6.10 Prevalence of foreign ownership.............................127 .....�6.11 Exports*.....................................................................77 .....�6.12 Hiring and firing practices..........................................93 .....�6.13 Flexibility of wage determination ..............................70 .....�6.14 Cooperation in labor-employer relations ....................69 .....�6.15 Reliance on professional management ...................115 .....�6.16 Pay and productivity ..................................................68 .....�6.17 Brain drain..................................................................86 .....�6.18 Private-sector employment of women......................39 .....�6.19 Financial market sophistication................................124 .....�6.20 Ease of access to loans...........................................106 .....�6.21 Venture capital availability..........................................99 .....�6.22 Soundness of banks ................................................120 .....�6.23 Local equity market access .....................................123 .....�


7.01 Technological readiness.............................................87 .....�7.02 Firm-level technology absorption...............................85 .....�7.03 Laws relating to ICT ................................................121 .....�7.04 FDI and technology transfer ....................................122 .....�7.05 Mobile telephone subscribers* .................................98 .....�7.06 Internet users* ..........................................................89 .....�7.07 Personal computers*.................................................81 .....�


8.01 Local supplier quantity...............................................52 .....�8.02 Local supplier quality .................................................76 .....�8.03 Production process sophistication.............................93 .....�8.04 Extent of marketing .................................................104 .....�8.05 Control of international distribution ...........................21 .....�8.06 Willingness to delegate authority ............................109 .....�8.07 Nature of competitive advantage ............................102 .....�8.08 Value chain presence.................................................73 .....�


9.01 Quality of scientific research institutions ................109 .....�9.02 Company spending on R&D ....................................108 .....�9.03 University-industry research collaboration...............117 .....�9.04 Gov’t. procurement of advanced tech products......113 .....�9.05 Availability of scientists and engineers......................43 .....�9.06 Utility patents* ..........................................................80 .....�9.07 Intellectual property protection..................................91 .....�9.08 Capacity for innovation ............................................108 .....�

Syria

* Hard data


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es SyriaIncreasing the Role of the Private SectorNUHAD DIMASHKIYYAH, UNDP Business Development Programme, Damascus

The Syrian economy is a multi-resourced, factor-driven(according to the World

Economic Forum classification)developing economy, where GDPper capita is US$ 1,580 for 2005(market prices).

From the 1950s through the1980s Syria had planned economicpolicies that framed its businessenvironment and economic activities,where the state retained a largedegree of control over the economyand the public sector was the majoractor. The basic economic modelwitnessed a huge change with theintroduction of Investment Law No.10 of 1991, which passed a numberof investment privileges to increasethe share of the private sector in theeconomy.

This step was followed by anumber of bilateral and multilateralregional free trade agreements, whichplaced Syria between a planned and an open market economy untilrecently. In June 2005, Syria definedits new economic identity as a“social market economy” and adopted the “Tenth Five Year Plan2006–2010.” This plan highlights thegreater expected role of the Syrianprivate sector in both economic

activity and decision making. It dif-fers from the previous nine plans inopening up economic activities tothe private sector, and ensures pri-vate-sector participation in decisionmaking and the execution of devel-opment plans.

Hence forward, Syria has passeda transitional stage. Decision makersare aware of the new requirementsof open market economy and theneed for competitive business envi-ronment at both micro and macrolevels as well as investment-friendlylegislative and administrative frame-works. As a result, more than half ofthe 80 laws and 80 legislativedecrees issued in 2005 and 2006have been targeted toward modern-izing and promoting the businessenvironment. These steps coveredwide segments of the business sec-tor—mainly licensing private banks(including Islamic banks) and privateinsurance companies; reviving theMonetary Council; establishing theSyrian stock market; and moderniz-ing intellectual property rights, taxes,and customs duties laws. New busi-ness support institutions have alsobeen established, and drafts forcompetition law, new companiesand corporations law, and invest-ment law are being reviewed, to beissued in the near future. Other bigsteps were taken with respect tomodernizing the physical and techni-cal infrastructure (ports, the increas-ing number of customs clearances,and modern industrial cities), and an increase in budget allocated forhigher education and health sector.

Moreover, for the last 15 years,Syria has enjoyed solid macroeco-nomic conditions as a result of oilrevenues. This is reflected in a surplus in the foreign trade balance,low budget deficits, negligible

inflation rates, stable exchangerates, low foreign debt, and accept-able liquidity in national banks.However, these solid indicators havebeen accompanied with rather lowGDP growth rates, an increase inunemployment rates, and a decreas-ing share the industrial sector in GDP.With Syrian oil reserves approachingdepletion, more efforts have beentargeted toward better functioningof public and private institutions,maximizing the comparative advan-tage of Syria’s geographical location,and free trade agreements. The aimis to position Syria as a promisinginvestment country. This is seen inthe cumulative increase in FDI toUS$16.7 billion during the period2003–06.

Over the past two years, Syria has

undertaken a number of reforms

with the goal of improving the busi-

ness environment and opening up

the country. Current efforts aim at

increasing the share of the private

sector in the economy. In the recent

past measures have been taken to

strengthen insurance and banking

regulation, customs procedures,

and intellectual property rights.

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2001..................................................................................2.42005..................................................................................2.4


TariffsPercent

SyriaGDP (PPP US$) per capita, 1980–2005




Trade


0

100

200

300

400

500

600

0102500200020

1

2

3

4

5

6

(n/a)

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004

0

5

10

15

20



Others: 19%Italy: 27%

Germany: 27%France: 13%

United States: 8%

United Kingdom: 6%

Live animals: 4%

Others: 13%

SyriaMENA



US$

mill

ions

Perc

ent o

f GD

P




Textile yarn, fabrics,made-up articles: 3%




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es TunisiaKey indicators


as share of world total (percent).................................................................0.14Current account balance (percent of GDP), 2006 .......................................–1.6Human Development Indicator rank (out of 177 economies), 2004.............87





Basic requirements .....................................................4 ...........33 .......5.31st pillar: Institutions....................................................4 ...........26 .......5.12nd pillar: Infrastructure .............................................3 ...........37 .......4.43rd pillar: Macroeconomy.........................................14 ...........39 .......4.94th pillar: Health and primary education..................5 ...........33 .......6.7

Efficiency enhancers...................................................6 ...........40 .......4.35th pillar: Higher education and training..................5 ...........36 .......4.76th pillar: Market efficiency........................................7 ...........36 .......4.67th pillar: Technological readiness ...........................9 ...........47 .......3.7

Innovation factors ........................................................2 ...........28 .......4.48th pillar: Business sophistication.............................3 ...........31 .......4.89th pillar: Innovation ....................................................2 ...........27 .......4.0





Tax rates .........................................................................12.2

Tax regulations ..............................................................11.8






Inflation .............................................................................5.5


Corruption.........................................................................4.2



Crime and theft ................................................................2.2


2–3

Factordriven

Efficiencydriven

Innovationdriven

3


0 5 10 15 20 25 30



Institutions

Infrastructure

Macro-economy

Health andprimary

education


Market efficiency



Innovation

2

1

3

4

5

6

7

Tunisia Economies in transition from 1 to 2

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INDICATOR RANK/128


1.01 Property rights ...........................................................36 .....�1.02 Diversion of public funds...........................................24 .....�1.03 Public trust of politicians ...........................................13 .....�1.04 Judicial independence ...............................................34 .....�1.05 Favoritism in decisions of government officials ........10 .....�1.06 Government spending .................................................3 .....�1.07 Burden of government regulation .............................11 .....�1.08 Business costs of terrorism ......................................16 .....�1.09 Reliability of police services ......................................25 .....�1.10 Business costs of crime and violence.......................23 .....�1.11 Organized crime ........................................................42 .....�1.12 Ethical behavior of firms............................................29 .....�1.13 Efficacy of corporate boards......................................58 .....�1.14 Protection of minority shareholders’ interests ..........19 .....�1.15 Strength of auditing and accounting standards.........50 .....�




3.01 Government balance* ...............................................78 .....�3.02 National savings rate* ...............................................50 .....�3.03 Inflation* ....................................................................22 .....�3.04 Interest rate spread* .................................................22 .....�3.05 Government debt* ....................................................70 .....�3.06 Real effective exchange rate*...................................20 .....�




5.01 Secondary enrollment*..............................................74 .....�5.02 Tertiary enrollment*...................................................61 .....�5.03 Quality of the educational system.............................11 .....�5.04 Quality of math and science education .......................9 .....�5.05 Quality of management schools................................20 .....�5.06 Local availability of research and training services....33 .....�5.07 Extent of staff training...............................................37 .....�

INDICATOR RANK/128


6.01 Agricultural policy costs...............................................5 .....�6.02 Efficiency of legal framework....................................31 .....�6.03 Extent and effect of taxation .....................................19 .....�6.04 No. of procedures required to start a business*.......63 .....�6.05 Time required to start a business* ............................12 .....�6.06 Intensity of local competition ....................................43 .....�6.07 Effectiveness of antitrust policy ................................26 .....�6.08 Imports* ....................................................................53 .....�6.09 Prevalence of trade barriers ......................................44 .....�6.10 Prevalence of foreign ownership...............................52 .....�6.11 Exports*.....................................................................56 .....�6.12 Hiring and firing practices..........................................32 .....�6.13 Flexibility of wage determination ..............................96 .....�6.14 Cooperation in labor-employer relations ....................29 .....�6.15 Reliance on professional management .....................57 .....�6.16 Pay and productivity ..................................................29 .....�6.17 Brain drain..................................................................43 .....�6.18 Private-sector employment of women........................5 .....�6.19 Financial market sophistication..................................60 .....�6.20 Ease of access to loans.............................................38 .....�6.21 Venture capital availability..........................................31 .....�6.22 Soundness of banks ..................................................66 .....�6.23 Local equity market access .......................................70 .....�






9.01 Quality of scientific research institutions ..................33 .....�9.02 Company spending on R&D ......................................36 .....�9.03 University-industry research collaboration.................32 .....�9.04 Gov’t. procurement of advanced tech products..........4 .....�9.05 Availability of scientists and engineers......................10 .....�9.06 Utility patents* ..........................................................70 .....�9.07 Intellectual property protection..................................31 .....�9.08 Capacity for innovation ..............................................31 .....�

Tunisia

* Hard data


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es TunisiaSteady Reforms Lead to Sustainable Growth NADIA BOULIFA, World Economic Forum

Despite a fairly difficult exter-nal environment, Tunisiapresents one of the most

stable and reliable economies in theregion. For more than 20 years ithas been enjoying a progressive andprudent economic growth thatencourages and eases local invest-ments and strengthens the pillars ofthe Tunisian society. According tointernational institutions such as theWorld Bank and the InternationalMonetary Fund, Tunisia is exemplaryin its ability to make long-termreform plans that benefit all levels ofsociety. By defining a clear visionand giving the priority to fields likepoverty, education, and health (anexcellent score for its stage ofdevelopment, 6.7 out of 7), the government has paved the way for successful and balanced socialand economic development. Andalthough Tunisia shows higher litera-cy rates and performs better onhealth indicators than its neighbors,continued efforts are needed tocatch up with international standards.

A general climate of securityand confidence and an economicreform program relying on privatiza-tion and liberalization implementedsince the 1990s have contributed tohigh-level sustainable growth (GDPgrowth is estimated at 4.6 a year onaverage in 2001–05). So far, thecountry has deployed many of itsefforts in traditional economic

sectors such as manufacturing, con-struction, agriculture, or services(essentially tourism), somewhatneglecting its innovative and cre-ative potential. Data from the GCIshows that Tunisia has a goodpotential for attracting innovation-driven industries. Well-qualified stafffor research activities are widelyavailable, intellectual property rightsare well protected, and the quality ofresearch institutes is assessed asgood. Yet so far the country has nottaken advantage of its technologicalcapacity, as incoming FDI does nottend to induce transfer of technology.

Tunisia’s competitivenessremains hampered by a number ofcompetitive disadvantages. Theseinvolve gaps in infrastructure, includ-ing telecommunications and the useof new technologies (it ranks 37thinfrastructure, and 47th in techno-logical readiness). Even though con-siderable improvements have beenmade to the road network, substan-tial efforts are needed in publictransportation, air transport, and rail-ways as well as extensive modern-ization and diversification of theTravel & Tourism sector. Tourism is akey element of the Tunisian economy,and its development is fundamentalto maintaining high growth rates andlowering unemployment (14% in2005). But as the country develops,it will need to move up the valuechain and increase efficiency levels.The government is investing a lot oftime and energy in democratizingthe access to technology in all itsfacets. But the low use of technolo-gy still remains a clear disadvantagefor business and social and culturaldevelopment.

A significant improvement ofthe efficiency enhancers (highereducation and training, market

efficiency, and technological readi-ness) would greatly contribute to thedevelopment of the business sector.In particular, financial services revealimportant limitations with respect tothe levels of sophistication andsoundness of the banking sector,and business lacks appropriateaccess to local equity markets. Thecountry does not fully benefit fromICT because penetration rates forthe Internet (ranks 71st), personalcomputers (ranks 73rd), and mobiletelephones remain low. At the sametime, the lack of know-how, sophisti-cation, and effective managementseriously compromises Tunisia’schances to become more competi-tive in creating interesting businessopportunities.

Reforms have borne fruit in Tunisia

and the country is experiencing

high growth rates. Yet opportunities

in technology-driven industries

remain untapped, as access to

technology is constrained.

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2001................................................................................16.12005................................................................................17.7


TariffsPercent

TunisiaGDP (PPP US$) per capita, 1980–2005




Trade


Proj

ecte

d

0

200

400

600

800

1,000

1,200

0102500200020.00.51.01.52.02.53.03.54.04.5

2,000

4,000

6,000

8,000

10,000

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004

0

5

10

15

20

25

30



Others: 25%France: 33%

Italy: 24% Germany: 8%

Spain: 5%

Libya: 5%

Electrical machinery,apparatus, and parts: 14%


Others: 35%

TunisiaMENA



US$

mill

ions

Perc

ent o

f GD

P




Petroleum, petroleumproducts: 13%

Fixed vegetable fatsand oils: 4%

Footwear: 4%

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es United Arab EmiratesKey indicators

Total population (millions), 2006........................................................................4.7GDP (US$ billions), 2006 ....................................................................................177GDP (PPP US$) per capita, 2006 .................................................................27,610

as share of world total (percent).................................................................0.21Current account balance (percent of GDP), 2006...........................................21Human Development Indicator rank (out of 177 economies), 2004.............49





Basic requirements ...................................................26 ...........28 .......5.41st pillar: Institutions..................................................24 ...........28 .......5.02nd pillar: Infrastructure ...........................................24 ...........25 .......5.03rd pillar: Macroeconomy...........................................3 .............5 .......5.94th pillar: Health and primary education................40 .........102 .......5.7









Inflation ...........................................................................13.6





Corruption.........................................................................2.9



Crime and theft ................................................................0.7

Tax regulations ................................................................0.5

Tax rates ...........................................................................0.2


2–3

Factordriven

Efficiencydriven

Innovationdriven

3


0 5 10 15 20 25 30



Institutions

Infrastructure

Macro-economy

Health andprimary

education


Market efficiency



Innovation

2

1

3

4

5

6

7

United Arab Emirates Innovation-driven economies

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INDICATOR RANK/128


1.01 Property rights ...........................................................43 .....�1.02 Diversion of public funds...........................................17 .....�1.03 Public trust of politicians .............................................9 .....�1.04 Judicial independence ...............................................41 .....�1.05 Favoritism in decisions of government officials ........27 .....�1.06 Government spending .................................................8 .....�1.07 Burden of government regulation ...............................8 .....�1.08 Business costs of terrorism ......................................45 .....�1.09 Reliability of police services ......................................12 .....�1.10 Business costs of crime and violence.......................12 .....�1.11 Organized crime ........................................................18 .....�1.12 Ethical behavior of firms............................................26 .....�1.13 Efficacy of corporate boards......................................61 .....�1.14 Protection of minority shareholders’ interests ..........54 .....�1.15 Strength of auditing and accounting standards.........37 .....�


2.01 Overall infrastructure quality......................................14 .....�2.02 Railroad infrastructure ...............................................74 .....�2.03 Quality of port infrastructure .......................................9 .....�2.04 Air transport infrastructure quality ...............................7 .....�2.05 Quality of electricity supply .......................................13 .....�2.06 Telephone lines*........................................................45 .....�


3.01 Government balance* .................................................3 .....�3.02 National savings rate* .................................................8 .....�3.03 Inflation* ....................................................................80 .....�3.04 Interest rate spread* .................................................44 .....�3.05 Government debt* ......................................................8 .....�3.06 Real effective exchange rate*...................................41 .....�


4.01 Business impact of malaria .......................................41 .....�4.02 Business impact of tuberculosis ...............................42 .....�4.03 Business impact of HIV/AIDS....................................46 .....�4.04 Infant mortality* ........................................................46 .....�4.05 Life expectancy* .......................................................29 .....�4.06 Tuberculosis prevalence* ..........................................37 .....�4.07 Malaria prevalence*.....................................................1 .....�4.08 HIV prevalence* ........................................................51 .....�4.09 Primary enrollment* ................................................112 .....�



INDICATOR RANK/128


6.01 Agricultural policy costs...............................................7 .....�6.02 Efficiency of legal framework....................................35 .....�6.03 Extent and effect of taxation .......................................4 .....�6.04 No. of procedures required to start a business*.......92 .....�6.05 Time required to start a business*..........................101 .....�6.06 Intensity of local competition ....................................28 .....�6.07 Effectiveness of antitrust policy ................................50 .....�6.08 Imports* ......................................................................9 .....�6.09 Prevalence of trade barriers ......................................15 .....�6.10 Prevalence of foreign ownership...............................94 .....�6.11 Exports*.......................................................................6 .....�6.12 Hiring and firing practices..........................................23 .....�6.13 Flexibility of wage determination ................................5 .....�6.14 Cooperation in labor-employer relations ....................31 .....�6.15 Reliance on professional management .....................56 .....�6.16 Pay and productivity ..................................................35 .....�6.17 Brain drain....................................................................6 .....�6.18 Private-sector employment of women......................57 .....�6.19 Financial market sophistication..................................46 .....�6.20 Ease of access to loans...............................................9 .....�6.21 Venture capital availability..........................................17 .....�6.22 Soundness of banks ..................................................36 .....�6.23 Local equity market access .......................................20 .....�








* Hard data


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es United Arab EmiratesReforms Need to Continue to Sustain Growth Momentum KENNETH WILSON, Economic & Policy Research Unit, Zayed University

The United Arab Emirates con-tinues to make great strides indiversifying its economy to

become less dependent on hydro-carbons. However, its performanceis uneven and it still has major chal-lenges and constraints to confront.These include its modest perform-ance in all areas of education andinnovation, its lack of entrepreneur-ship, and its high inflation rate. Bycontrast it has very good public insti-tutions, infrastructure, and techno-logical readiness.

Considerable improvementshave been made in the rule of lawand corporate governance by theMinistry of Economy in the past twoyears. However, there remain someobstacles to transparency and effi-ciency because of the federal natureof the country (ranking on institu-tions: 28). Businesses often dealwith three levels of government: thefederal government, the emirategovernment, and the municipality.Currently, under the sponsorship ofthe Ministry of Economy and withthe assistance of the Organisationfor Economic Co-operation andDevelopment (OECD), a new lawand policy is being developed tofacilitate greater foreign investmentin the United Arab Emirates.

In terms of infrastructure(where it ranks 25th), the United

Arab Emirates has excellent roadnetworks, though there are trafficproblems in Dubai and, increasingly,in Abu Dhabi. Massive airport expan-sions are currently underway inDubai and Jebel Ali. Electricity gen-eration is being expanded with inter-national joint venture partners withthe Dubai and Abu Dhabi localmonopolies, and there are plans tocreate a national electricity grid.

On macroeconomic perform-ance (ranked 6th) the record isuneven. Although the United ArabEmirates does extremely well ongovernment surplus, governmentdebt, and national savings, it isexperiencing excessive inflation—unofficially as high as 15% inDubai—which is negatively affectingits real effective exchange rate. Thehousing shortage in Dubai and AbuDhabi, the major source of inflation,is expected to be eliminated in thefirst quarter of 2008.

The educational system is inad-equate and in need of modernizationat all levels. The federal governmentis responsible for primary education(which ranks 112th) and secondaryeducation, but new reforms willdevolve more responsibility toschool districts. A rapidly expandingprivate education system caters forthe children of non-nationals, butalso a growing number of nationalsseeking an alternative. Very littlevocational training is offered andthere are low participation rates atthe tertiary level (the country ranks60th for higher education and training). Very little research anddevelopment is undertaken in theUnited Arab Emirates, and no majorresearch centers are linked to universities, resulting in a ranking of 42 on innovation.

The United Arab Emirates is atax-free economy, but business reg-ulations vary among emirates andare bureaucratic and tedious. Toaddress this, various emirates haveestablished free zones—36 arealready operating or planned.Although the labor market is flexible,there is strong reliance on non-national labor and very little private-sector employment of femalenationals. There is considerablegrowth in the financial sector, withthe established Abu Dhabi SecuritiesMarket and Dubai Financial Marketleading the way, and the newer mar-kets such as the Dubai InternationalFinancial Centre and the DubaiInternational Financial Exchange arestarting to gain traction, resulting ina ranking on market efficiency of 23.

In terms of technological readi-ness (ranks 27th), the United ArabEmirates enjoys excellent IT infra-structure and bandwidth, but pricesfor telecommunications services areamong the highest in the world.Also there are restrictions onInternet use, and Voice over InternetProtocol (VoIP) is currently bannedto protect the profits of the localmonopoly telecommunications firmEtisilat. The arrival of a secondtelecommunications firm, Du, sched-uled to commence operations inMarch 2007, may change thingssomewhat.

The United Arab Emirates is rapidly

diversifying its economy, building

on very good public institutions,

infrastructure, and technological

readiness. Going forward, major

challenges will lie in upgrading

education and incentivizing busi-

ness to increase R&D activity.

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2001..................................................................................3.22005..................................................................................4.5


TariffsPercent

United Arab EmiratesGDP (PPP US$) per capita, 1980–2005




Trade


Proj

ecte

d

–2,000

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

010250020002 –2

0

2

4

6

8

10

0

5,000

10,000

15,000

20,000

25,000

30,000

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004

0

2

4

6

8

10



Others: 31%

Japan: 38%

Korea: 15%

Thailand: 8%

Singapore: 4%

Pakistan: 4%

Gas, natural and manufactured: 8%Petroleum,petroleumproducts: 57%

Others: 24%

United Arab EmiratesMENA



US$

mill

ions

Perc

ent o

f GD

P




Non-metallic mineralmanufactures: 5%

Telecom and soundequipment: 3%

Gold, non-monetaryexcluding ores: 3%

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Part 5 Data Tables

part5.fin 3/22/07 12:09 PM Page 203


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205

How

to R

ead

the

Data

Tab

les

The following pages present the ranks and scores of the 13 Arab World countries included in this Reporton all the variables composing the updated GlobalCompetitiveness Index 2007 (GCI 2007). In addition,for the sake of comparison, 10 additional countries are listed. Numbers to the left of the country namescorrespond to the ranks among the 128 economies covered by the GCI 2007.

The data are organized into nine sections,corresponding to the nine pillars of the GCI 2007:

I. InstitutionsII. Infrastructure

III. MacroeconomyIV. Health and primary educationV. Higher education and training

VI. Market efficiencyVII. Technological readiness

VIII. Business sophisticationIX. Innovation

Two types of data are used in the GCI 2007: Surveydata and hard data.

• Survey data: average responses in each country toquestions included in the World Economic Forum’sExecutive Opinion Survey, conducted in the earlymonths of 2006.

• Hard data: indicators obtained from a variety ofsources.

Survey data

Data yielded from the World Economic Forum’sExecutive Opinion Survey are presented in blue-coloredbar graphs. Questions asked for responses on a scale of 1 to 7, where an answer of 1 corresponds to the lowestpossible score and an answer of 7 corresponds to thehighest possible score. For each Survey variable, theoriginal question and the two extreme answers areshown.The average score for each country—that is, thearithmetic mean of responses from each country—isreported with a precision of one decimal point,although we use exact figures to determine rankings.For example, in the case of variable 6.16 on pay andproductivity, Oman’s average score is 4.36956 andKuwait’s average score is 4.36190.These countries areranked 48th and 49th respectively, although they areboth listed with the same rounded score of 4.4.

A dotted line on the graph indicates the meanscore across the sample of the 128 economies coveredby the GCI 2007—not only across the countries shownin the tables.

Standard deviations are shown next to the bars representing each country’s mean score.The standarddeviation indicates how closely or widely the individualresponses are spread around the mean country score.In other words, it provides information on the extent of agreement on the question within the given country.The smaller the standard deviation, the greater the consensus among respondents.

8

4: D

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RANK COUNTRY SCORE 1 MEAN: 4/6 7 SD

11 Singapore......................6.3 0.8

13 Norway .........................6.3 0.7

15 Japan ............................6.2 1.0

19 Oman............................5.9 1.1

22 United States................5.8 1.3

26 India ..............................5.7 1.3

36 Tunisia...........................5.4 1.3

39 Qatar .............................5.3 1.5

43 United Arab Emirates ...5.1 1.7

47 Jordan...........................5.0 1.5

48 Bahrain..........................5.0 1.7

54 Turkey ...........................4.8 1.5

55 Kuwait...........................4.8 1.8

57 Morocco .......................4.8 1.9

58 Egypt ............................4.7 1.8

61 Mexico..........................4.6 1.5

63 Brazil .............................4.6 1.5

67 Algeria...........................4.5 2.0

83 China.............................4.0 1.5

88 Syria ..............................3.8 1.9

95 Mauritania .....................3.7 1.5

96 Libya .............................3.7 2.1

117 Russian Federation .......3.2 1.5

SOURCE: World Economic Forum, Executive Opinion Survey 2006

1.01Property rights

Property rights, including over financial assets (1 = are poorly definedand not protected by law, 7 = are clearly defined and well protectedby law)

RANK COUNTRY SCORE 1 MEAN: 3.9 7 SD

5 Norway .........................6.3 0.6

6 Singapore......................6.3 0.7

9 Oman............................6.2 1.4


19 Qatar .............................5.6 1.8

24 Tunisia...........................5.2 1.3

27 Japan ............................5.0 1.5

28 Kuwait...........................5.0 1.5

29 United States................5.0 1.5

32 Jordan...........................4.9 1.7

37 Libya .............................4.7 2.1

43 Syria ..............................4.4 2.0

44 Egypt ............................4.3 1.7

47 Bahrain..........................4.0 1.8

51 Turkey ...........................3.9 1.5

55 India ..............................3.9 1.6

74 China.............................3.3 1.4

77 Morocco .......................3.3 1.7

80 Algeria...........................3.2 1.7

82 Mexico..........................3.2 1.4

85 Mauritania .....................3.2 1.6


124 Brazil .............................2.1 1.3


1.02Diversion of public funds

In your country, diversion of public funds to companies, individuals,or groups due to corruption (1 = is common, 7 = never occurs)

How to Read the Data TablesTHIERRY GEIGER, World Economic Forum

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206

How

to R

ead

the

Data

Tab

les

Hard data

While Survey data provide qualitative information,hard data are an objective measure of a quantity (forexample, gross domestic product, malaria incidence,number of personal computers, number of proceduresrequired to start a business, and so on).We use the latestdata available from international organizations (such asthe International Monetary Fund, the World Bank,various United Nations agencies, and the InternationalTelecommunication Union).These data are completed,if necessary, by national sources. In the following pages,hard data variables are presented in black-shaded bargraphs.A detailed description and full source for eachvariable can be found in the Technical Notes andSources section at the end of this Report.

When data are not available or are too old,“n/a”is used in lieu of the rank and the value.

In the case of hard data, true ties between two ormore countries are possible. In such cases, shared rankingsare indicated accordingly. For example, the number ofprocedures required to start a business—12—is the samein Syria and the United Arab Emirates.As a result, thetwo are listed with the same rank in Table 6.04.

22

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RANK COUNTRY HARD DATA

1 Kuwait ...............................36.8

2 Libya ..................................32.2

3 United Arab Emirates ........24.9

4 Qatar..................................19.7

5 Norway ..............................15.8

6 Algeria ...............................14.2

7 Oman.................................10.6

9 Russian Federation..............7.5

10 Bahrain ................................6.2

12 Singapore ............................6.0

57 China..................................–1.3

64 Mexico...............................–1.6

78 Tunisia................................–2.8

88 Brazil ..................................–3.3

92 Syria...................................–3.4

104 United States.....................–4.1

112 Jordan................................–5.2

116 Morocco ............................–5.7

117 Japan .................................–5.8

118 Turkey ................................–5.9

122 Mauritania..........................–6.8

125 India ...................................–7.5

127 Egypt ...............................–10.5

SOURCE: IMF, World Economic Outlook Database (April 2006)

3.01Government balance

Government fiscal surplus/deficit as a percentage of GDP, 2005 ormost recent year available


1 Kuwait ...............................59.0

2 Qatar..................................58.4

3 Libya ..................................57.3

4 Algeria ...............................51.2

5 China .................................47.6

6 Singapore ..........................47.1


10 Norway ..............................37.1

18 Russian Federation............32.1

21 India...................................29.1

25 Bahrain ..............................27.9

27 Japan .................................26.8

29 Morocco ............................25.7

36 Oman.................................24.8

50 Tunisia................................22.1

53 Brazil ..................................21.8

58 Mexico...............................21.0

61 Syria...................................20.9

69 Egypt .................................19.5

77 Turkey ................................18.0

102 United States.....................13.6

119 Mauritania..........................10.0

124 Jordan..................................5.6

SOURCE: IMF, World Economic Outlook April 2006, published version

3.02National savings rate

National savings rate as a percentage of GDP, 2005 or most recentyear available

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Section I: Institutions1.01 Property rights...............................................................2101.02 Diversion of public funds ..............................................2101.03 Public trust of politicians...............................................2111.04 Judicial independence...................................................2111.05 Favoritism in decisions of government officials............2121.06 Government spending ..................................................2121.07 Burden of government regulation.................................2131.08 Business costs of terrorism..........................................2131.09 Reliability of police services..........................................2141.10 Business costs of crime and violence ..........................2141.11 Organized crime............................................................2151.12 Ethical behavior of firms ...............................................2151.13 Efficacy of corporate boards .........................................2161.14 Protection of minority shareholders’ interests..............2161.15 Strength of auditing and accounting standards ............217

Section II: Infrastructure2.01 Overall infrastructure quality .........................................2202.02 Railroad infrastructure...................................................2202.03 Quality of port infrastructure.........................................2212.04 Air transport infrastructure quality ................................2212.05 Quality of electricity supply...........................................2222.06 Telephone lines (hard data) ...........................................222

Section III: Macroeconomy3.01 Government balance (hard data) ...................................2243.02 National savings rate (hard data)...................................2243.03 Inflation (hard data) .......................................................2253.04 Interest rate spread (hard data).....................................2253.05 Government debt (hard data) ........................................2263.06 Real effective exchange rate (hard data) ......................226

Section IV: Health and primary education4.01 Business impact of malaria ...........................................2284.02 Business impact of tuberculosis ...................................2284.03 Business impact of HIV/AIDS .......................................2294.04 Infant mortality (hard data) ............................................2294.05 Life expectancy (hard data) ...........................................2304.06 Tuberculosis prevalence (hard data)..............................2304.07 Malaria prevalence (hard data) ......................................2314.08 HIV prevalence (hard data) ............................................2314.09 Primary enrollment (hard data)......................................232

Section V: Higher education and training5.01 Secondary enrollment (hard data) .................................2345.02 Tertiary enrollment (hard data) ......................................2345.03 Quality of the educational system ................................2355.04 Quality of math and science education ........................2355.05 Quality of management schools ...................................2365.06 Local availability of specialized research

and training services .....................................................2365.07 Extent of staff training .................................................237

Section VI: Market efficiency6.01 Agricultural policy costs ................................................2406.02 Efficiency of legal framework .......................................2406.03 Extent and effect of taxation ........................................2416.04 Number of procedures required to start a

business (hard data) ......................................................2416.05 Time required to start a business (hard data) ...............2426.06 Intensity of local competition........................................2426.07 Effectiveness of antitrust policy....................................2436.08 Imports (hard data)........................................................2436.09 Prevalence of trade barriers ..........................................2446.10 Prevalence of foreign ownership ..................................2446.11 Exports (hard data) ........................................................2456.12 Hiring and firing practices .............................................2456.13 Flexibility of wage determination..................................2466.14 Cooperation in labor-employer relations ......................2466.15 Reliance on professional management.........................2476.16 Pay and productivity......................................................2476.17 Brain drain .....................................................................2486.18 Private-sector employment of women .........................2486.19 Financial market sophistication .....................................2496.20 Ease of access to loans ................................................2496.21 Venture capital availability .............................................2506.22 Soundness of banks......................................................2506.23 Local equity market access ..........................................251

Section VII: Technological readiness7.01 Technological readiness ................................................2547.02 Firm-level technology absorption ..................................2547.03 Laws relating to ICT......................................................2557.04 FDI and technology transfer .........................................2557.05 Mobile telephone subscribers (hard data).....................2567.06 Internet users (hard data)..............................................2567.07 Personal computers (hard data) ....................................257

Section VIII: Business sophistication8.01 Local supplier quantity ..................................................2608.02 Local supplier quality.....................................................2608.03 Production process sophistication ................................2618.04 Extent of marketing ......................................................2618.05 Control of international distribution...............................2628.06 Willingness to delegate authority .................................2628.07 Nature of competitive advantage..................................2638.08 Value chain presence ....................................................263

Section IX: Innovation9.01 Quality of scientific research institutions......................2669.02 Company spending on research and development ......2669.03 University-industry research collaboration ....................2679.04 Government procurement of advanced

technology products .....................................................2679.05 Availability of scientists and engineers .........................2689.06 Utility patents (hard data) ..............................................2689.07 Intellectual property protection .....................................2699.08 Capacity for innovation..................................................269

List of Data Tables

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209

Section IInstitutions

Data Tables

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11 Singapore......................6.3 0.8

13 Norway .........................6.3 0.7

15 Japan ............................6.2 1.0

19 Oman............................5.9 1.1

22 United States................5.8 1.3

26 India ..............................5.7 1.3

36 Tunisia...........................5.4 1.3

39 Qatar .............................5.3 1.5


47 Jordan...........................5.0 1.5

48 Bahrain..........................5.0 1.7

54 Turkey ...........................4.8 1.5

55 Kuwait...........................4.8 1.8

57 Morocco .......................4.8 1.9

58 Egypt ............................4.7 1.8

61 Mexico..........................4.6 1.5

63 Brazil .............................4.6 1.5

67 Algeria...........................4.5 2.0

83 China.............................4.0 1.5

88 Syria ..............................3.8 1.9

95 Mauritania .....................3.7 1.5

96 Libya .............................3.7 2.1



1.01Property rights

Property rights, including over financial assets (1 = are poorly definedand not protected by law, 7 = are clearly defined and well protectedby law)


5 Norway .........................6.3 0.6

6 Singapore......................6.3 0.7

9 Oman............................6.2 1.4


19 Qatar .............................5.6 1.8

24 Tunisia...........................5.2 1.3

27 Japan ............................5.0 1.5

28 Kuwait...........................5.0 1.5

29 United States................5.0 1.5

32 Jordan...........................4.9 1.7

37 Libya .............................4.7 2.1

43 Syria ..............................4.4 2.0

44 Egypt ............................4.3 1.7

47 Bahrain..........................4.0 1.8

51 Turkey ...........................3.9 1.5

55 India ..............................3.9 1.6

74 China.............................3.3 1.4

77 Morocco .......................3.3 1.7

80 Algeria...........................3.2 1.7

82 Mexico..........................3.2 1.4

85 Mauritania .....................3.2 1.6


124 Brazil .............................2.1 1.3


1.02Diversion of public funds

In your country, diversion of public funds to companies, individuals,or groups due to corruption (1 = is common, 7 = never occurs)

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211

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Inst

itutio

ns


1 Singapore......................6.3 0.8

7 Norway .........................5.3 1.2


11 Qatar .............................5.0 1.3

13 Tunisia...........................4.6 1.4

18 Oman............................4.2 1.7

25 United States................3.5 1.6

26 Japan ............................3.5 1.5

32 Jordan...........................3.2 1.4

44 Kuwait...........................2.9 1.6

46 China.............................2.8 1.5

47 Algeria...........................2.8 1.3

48 Bahrain..........................2.7 1.4

51 Egypt ............................2.7 1.6

52 Turkey ...........................2.7 1.3

53 Morocco .......................2.7 1.4

58 Mauritania .....................2.5 1.6

60 India ..............................2.4 1.1

63 Syria ..............................2.4 1.4

80 Libya .............................2.1 1.5

88 Mexico..........................2.0 1.0


122 Brazil .............................1.4 0.8


1.03Public trust of politicians

Public trust in the financial honesty of politicians is (1 = very low, 7 = very high)


5 Norway .........................6.3 1.0

14 India ..............................5.9 1.3

20 Qatar .............................5.6 1.4

22 Japan ............................5.6 1.5

29 Singapore......................5.2 1.6

31 Kuwait...........................5.2 1.8

34 Tunisia...........................5.1 1.4

36 United States................5.0 1.6

38 Jordan...........................4.9 1.7

39 Oman............................4.8 1.4

40 Egypt ............................4.8 1.9


50 Libya .............................4.2 2.3

52 Turkey ...........................4.2 1.6

60 Mauritania .....................3.8 1.7

65 Algeria...........................3.7 1.7

69 Mexico..........................3.6 1.6

76 Bahrain..........................3.4 2.0

77 Morocco .......................3.4 1.9

80 China.............................3.4 1.8

88 Syria ..............................3.0 1.8

95 Brazil .............................2.8 1.5



1.04Judicial independence

Is the judiciary in your country independent from political influencesof members of government, citizens, or firms? (1 = no, heavily influenced, 7 = yes, entirely independent)

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Inst

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5 Singapore......................5.1 1.4

7 Norway .........................5.0 1.1

10 Tunisia...........................4.7 1.2

12 Oman............................4.6 1.6

13 Qatar .............................4.5 1.8

18 Japan ............................4.3 1.6

25 Algeria...........................3.9 1.9


36 Mauritania .....................3.6 2.1

38 India ..............................3.6 1.3

40 United States................3.5 1.5

46 Jordan...........................3.3 1.7

48 Egypt ............................3.2 1.5

51 Libya .............................3.2 1.7

52 Turkey ...........................3.2 1.3

53 Morocco .......................3.2 1.6

56 Bahrain..........................3.1 1.5

62 China.............................3.0 1.6

72 Syria ..............................2.9 1.3

78 Kuwait...........................2.8 1.5

88 Mexico..........................2.7 1.1

90 Brazil .............................2.7 1.4



1.05Favoritism in decisions of government officials

When deciding upon policies and contracts, government officials (1 = usually favor well-connected firms and individuals, 7 = are neutral)


1 Singapore......................5.9 0.7

3 Tunisia...........................5.3 1.0

4 Qatar .............................5.2 1.4


12 Norway .........................4.7 1.1

14 Oman............................4.7 1.4

28 United States................3.9 1.5

31 Bahrain..........................3.7 1.4

36 Algeria...........................3.7 1.8

37 Jordan...........................3.7 1.3

42 India ..............................3.6 1.2

47 Mexico..........................3.4 1.2

52 Morocco .......................3.4 1.5

54 China.............................3.3 1.6

55 Kuwait...........................3.3 1.5

59 Turkey ...........................3.3 1.3

64 Egypt ............................3.2 1.6

72 Libya .............................3.0 1.6

76 Japan ............................3.0 1.5

78 Syria ..............................3.0 1.5


108 Mauritania .....................2.5 1.5

122 Brazil .............................1.9 1.1


1.06Government spending

Public spending in your country (1 = is wasteful, 7 = provides necessary goods and services not provided by the market)

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Inst

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2 Singapore......................5.1 1.3

6 Mauritania .....................4.6 2.2


11 Tunisia...........................4.2 1.4

16 Qatar .............................3.9 1.4

20 Norway .........................3.8 1.4

24 Jordan...........................3.6 1.4

25 Japan ............................3.6 1.3

27 United States................3.6 1.5

32 Bahrain..........................3.4 1.7

35 China.............................3.4 1.4

37 Oman............................3.4 2.2

48 Morocco .......................3.1 1.6

63 Algeria...........................3.0 1.5

65 Turkey ...........................3.0 1.1

68 India ..............................2.9 1.4

73 Kuwait...........................2.9 1.6

74 Egypt ............................2.9 1.6

86 Syria ..............................2.7 1.4

96 Mexico..........................2.6 1.2

99 Libya .............................2.6 1.6


127 Brazil .............................1.9 1.1


1.07Burden of government regulation

Complying with administrative requirements (permits, regulations,reporting) issued by the government in your country is (1 = burdensome, 7 = not burdensome)


3 Brazil .............................6.2 1.5

14 Oman............................5.9 1.7

16 Tunisia...........................5.9 1.4

19 Libya .............................5.8 2.0

29 Syria ..............................5.7 1.8

40 Mauritania .....................5.4 2.1


49 Norway .........................5.3 1.8

49 Qatar .............................5.3 1.5

54 Mexico..........................5.3 1.7

74 Kuwait...........................5.1 1.7

80 Singapore......................5.0 1.5

87 India ..............................4.8 1.6

91 Morocco .......................4.7 1.8

93 Turkey ...........................4.6 1.7

99 Jordan...........................4.4 1.8

100 Japan ............................4.4 1.7

102 Bahrain..........................4.3 1.9

105 Egypt ............................4.3 2.2


107 China.............................4.2 1.7

114 United States................3.8 1.7

118 Algeria...........................3.7 2.2


1.08Business costs of terrorism

The threat of terrorism in your country (1 = imposes significant costson business, 7 = does not impose significant costs on business)

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Inst

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3 Oman............................6.5 1.0

4 Singapore......................6.5 0.6

8 Norway .........................6.2 0.9

11 Jordan...........................6.0 1.2


17 United States................5.7 1.4

18 Japan ............................5.7 1.2

22 Qatar .............................5.5 1.6

25 Tunisia...........................5.5 1.3

27 Kuwait...........................5.4 1.4

34 Algeria...........................5.1 1.5

36 Morocco .......................5.0 1.7

46 Syria ..............................4.5 2.0

47 Egypt ............................4.5 1.8

49 Turkey ...........................4.5 1.4

50 India ..............................4.5 1.5

56 Bahrain..........................4.4 2.0

63 Mauritania .....................4.2 1.7

66 Libya .............................4.1 2.1

67 China.............................4.0 1.5

108 Mexico..........................3.0 1.4


111 Brazil .............................2.9 1.5


1.09Reliability of police services

Police services (1 = cannot be relied upon to protect businesses from criminals, 7 = can be relied upon to protect businesses fromcriminals)


3 Oman............................6.7 0.7

5 Singapore......................6.6 0.7

10 Norway .........................6.4 0.8

11 Jordan...........................6.2 0.8


13 Japan ............................6.1 1.2

14 Qatar .............................6.0 1.4

20 Syria ..............................5.8 1.5

22 Kuwait...........................5.6 1.6

23 Tunisia...........................5.6 1.4

25 Libya .............................5.6 1.7

27 India ..............................5.6 1.5

45 United States................5.0 1.6

47 Morocco .......................5.0 1.8

50 Bahrain..........................4.9 1.7

51 Egypt ............................4.8 1.8

54 Turkey ...........................4.7 1.6

61 Mauritania .....................4.5 1.6

73 China.............................4.0 1.7

83 Algeria...........................3.8 2.0


115 Brazil .............................2.7 1.6

120 Mexico..........................2.4 1.2


1.10Business costs of crime and violence

The incidence of common crime and violence (e.g., street muggings,firms being looted) (1 = imposes significant costs on businesses, 7 = does not impose significant costs on businesses)

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Inst

itutio

ns


3 Oman............................6.7 0.7

5 Singapore......................6.6 0.8

6 Jordan...........................6.5 0.9

9 Norway .........................6.5 0.7

10 Libya .............................6.5 1.0

14 Kuwait...........................6.3 1.1


19 Qatar .............................6.2 1.3

20 Syria ..............................6.2 1.5

21 Bahrain..........................6.1 1.4

30 Egypt ............................5.8 1.7

42 Tunisia...........................5.5 1.6

46 Japan ............................5.4 1.5

47 India ..............................5.4 1.4

49 Morocco .......................5.3 1.7

58 United States................5.0 1.5

63 Mauritania .....................4.9 1.6

70 Algeria...........................4.7 1.8

73 Turkey ...........................4.6 1.5


95 China.............................3.8 1.7

113 Brazil .............................3.3 1.7

117 Mexico..........................3.1 1.6


1.11Organized crime

Organized crime (mafia-oriented racketeering, extortion) in yourcountry (1 = imposes significant costs on businesses, 7 = does notimpose significant costs on businesses)


6 Singapore......................6.2 0.8

8 Norway .........................6.1 0.8

19 Japan ............................5.6 1.1

21 United States................5.5 1.3

22 Oman............................5.5 1.3


29 Tunisia...........................5.0 1.0

32 Qatar .............................4.8 1.3

34 Kuwait...........................4.8 1.1

42 Bahrain..........................4.6 1.2

43 Mexico..........................4.6 1.3

44 Jordan...........................4.5 1.2

46 India ..............................4.5 1.1

48 Turkey ...........................4.4 1.2

50 Egypt ............................4.4 1.2

58 Syria ..............................4.2 1.4

69 Libya .............................4.1 1.5

70 Algeria...........................4.1 1.3

73 Mauritania .....................4.0 1.5

75 Brazil .............................4.0 1.3

96 Morocco .......................3.7 1.4

107 China.............................3.5 1.3



1.12Ethical behavior of firms

The corporate ethics (ethical behavior in interactions with public officials, politicians, and other enterprises) of firms in your countryare (1 = among the world’s worst, 7 = among the best in the world)

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Inst

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13 Norway .........................5.5 0.7

15 United States................5.5 1.3

16 Singapore......................5.4 1.0

27 Oman............................5.2 0.9

28 India ..............................5.1 1.1

31 Japan ............................5.1 1.1

32 Qatar .............................5.1 1.4


51 Mexico..........................4.7 1.2

58 Tunisia...........................4.6 1.6


66 Brazil .............................4.5 1.3

72 Jordan...........................4.4 1.4

74 Bahrain..........................4.4 1.4

80 Egypt ............................4.3 1.7

84 Turkey ...........................4.3 1.2

92 Mauritania .....................4.2 1.6

94 Kuwait...........................4.1 1.6

102 Morocco .......................4.0 1.7

107 Algeria...........................3.9 1.6

118 Syria ..............................3.8 1.7

121 China.............................3.7 1.5

127 Libya .............................3.0 1.8


1.13Efficacy of corporate boards

Corporate governance by investors and boards of directors in yourcountry is characterized by (1 = management has little accountability,7 = investors and boards exert strong supervision of managementdecisions)


12 Norway .........................5.7 1.2

13 India ..............................5.6 1.1

16 United States................5.6 1.3

19 Tunisia...........................5.5 1.5

22 Singapore......................5.4 1.1

23 Oman............................5.3 1.0

27 Qatar .............................5.2 1.4

32 Japan ............................5.0 1.3

38 Algeria...........................4.9 1.7

40 Bahrain..........................4.8 1.8

44 Jordan...........................4.8 1.6

45 Brazil .............................4.7 1.5


55 Mexico..........................4.6 1.4

59 Turkey ...........................4.5 1.6

61 Egypt ............................4.4 1.8

64 Morocco .......................4.4 1.9

66 Kuwait...........................4.4 1.8

68 Mauritania .....................4.2 1.4

76 Libya .............................4.1 2.0

92 Syria ..............................3.9 1.8

116 China.............................3.3 1.5



1.14Protection of minority shareholders’ interests

Interests of minority shareholders in your country are (1 = not protected by law and seldom recognized by majority shareholders, 7 = protected by law and actively enforced)

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Inst

itutio

ns


18 Norway .........................6.0 0.6

19 Singapore......................6.0 0.6

21 India ..............................6.0 0.9

22 United States................5.9 1.1

28 Bahrain..........................5.6 0.8

31 Japan ............................5.5 1.0

32 Oman............................5.5 1.0

36 Kuwait...........................5.4 1.2


41 Qatar .............................5.3 1.3

48 Jordan...........................5.1 1.1

50 Tunisia...........................5.1 0.9

61 Turkey ...........................4.8 1.1

62 Brazil .............................4.8 1.4

64 Mexico..........................4.7 1.1

72 Egypt ............................4.5 1.6

88 Morocco .......................4.0 1.5


102 Algeria...........................3.7 1.5

109 China.............................3.6 1.4

116 Libya .............................3.4 1.8

119 Mauritania .....................3.3 1.5

124 Syria ..............................3.2 1.6


1.15Strength of auditing and accounting standards

Financial auditing and reporting standards regarding company financial performance in your country are (1 = extremely weak, 7 = extremely strong—the best in the world)

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219

Section IIInfrastructure

Data Tables

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2 Singapore......................6.6 0.5

8 Japan ............................6.3 1.1

11 United States................6.1 1.2


20 Norway .........................5.5 1.0

22 Oman............................5.4 0.8

32 Bahrain..........................4.9 1.3

33 Kuwait...........................4.9 1.4

37 Tunisia...........................4.7 1.2

40 Jordan...........................4.6 1.1

45 Qatar .............................4.4 1.5

57 Egypt ............................3.8 1.5

60 Morocco .......................3.7 1.6

61 Mexico..........................3.6 1.1

65 Turkey ...........................3.5 1.1

66 China.............................3.4 1.4

70 India ..............................3.3 1.3

72 Algeria...........................3.1 1.2

74 Syria ..............................3.1 1.3

81 Brazil .............................2.9 1.3


109 Libya .............................2.2 1.4

126 Mauritania .....................1.7 1.0


2.01Overall infrastructure quality

General infrastructure in your country is (1 = underdeveloped, 7 = as extensive and efficient as the world’s best)


2 Japan ............................6.6 0.9

9 Singapore......................5.7 1.3

15 United States................5.1 1.5

21 India ..............................4.7 1.3

24 Norway .........................4.4 1.2

25 Tunisia...........................4.4 1.3


33 China.............................3.8 1.4

47 Egypt ............................3.3 1.6

50 Morocco .......................3.1 1.6

60 Qatar .............................2.6 2.2

61 Syria ..............................2.5 1.4

66 Mexico..........................2.4 1.1

68 Turkey ...........................2.3 1.1

73 Algeria...........................2.0 0.9


76 Jordan...........................2.0 1.2

80 Kuwait...........................1.9 1.5

81 Mauritania .....................1.8 1.2

82 Brazil .............................1.8 1.1

93 Bahrain..........................1.6 1.2

108 Oman............................1.4 1.3

120 Libya .............................1.2 0.7


2.02Railroad infrastructure

Railroads in your country are (1 = underdeveloped, 7 = as extensiveand efficient as the world’s best)

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1 Singapore......................6.9 0.4

8 Japan ............................6.0 0.8


15 United States................5.7 1.3

17 Norway .........................5.6 0.9

26 Bahrain..........................5.3 1.1

28 Oman............................5.1 1.2

35 Tunisia...........................4.8 1.1

43 Qatar .............................4.5 1.5

48 Kuwait...........................4.2 1.5

50 Jordan...........................4.0 1.3

54 Morocco .......................3.8 1.6

56 China.............................3.7 1.3

62 Egypt ............................3.5 1.6

62 India ..............................3.5 1.4

65 Mexico..........................3.4 1.2


77 Turkey ...........................3.1 1.3

79 Algeria...........................3.1 1.3

84 Syria ..............................2.9 1.4

90 Brazil .............................2.7 1.4

101 Mauritania .....................2.4 1.4

105 Libya .............................2.3 1.4


2.03Quality of port infrastructure

Port facilities and inland waterways in your country are (1 = underdeveloped, 7 = as developed as the world’s best)


1 Singapore......................6.9 0.4


8 Japan ............................6.4 0.8

11 United States................6.2 1.3

19 Norway .........................5.9 0.9

35 Qatar .............................5.4 1.5

37 Bahrain..........................5.4 1.1

41 Oman............................5.2 1.0

47 India ..............................5.1 1.4

48 Kuwait...........................5.0 1.5

49 Jordan...........................5.0 1.3

50 Tunisia...........................5.0 1.1

55 Turkey ...........................4.7 1.3

56 Mexico..........................4.7 1.2

57 Egypt ............................4.7 1.6

58 Brazil .............................4.6 1.4

66 Morocco .......................4.5 1.6


89 Syria ..............................3.7 1.5

91 China.............................3.7 1.3

93 Algeria...........................3.5 1.3

113 Libya .............................2.9 1.7

121 Mauritania .....................2.5 1.4


2.04Air transport infrastructure quality

Passenger air transport in your country is (1 = infrequent, limited, andinefficient, 7 = as frequent, extensive, and efficient as the world’s best)

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222

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frast

ruct

ure


3 Japan ............................6.9 0.7

11 Singapore......................6.6 0.6


15 Norway .........................6.6 0.6

19 Kuwait...........................6.3 0.9

20 United States................6.3 1.1

28 Oman............................6.1 0.8

35 Jordan...........................5.6 1.0

39 Tunisia...........................5.5 1.1

42 Bahrain..........................5.4 1.2

44 Qatar .............................5.4 1.7

53 Morocco .......................5.0 1.5

54 Egypt ............................5.0 1.3

57 Brazil .............................5.0 1.4

70 Algeria...........................4.2 1.6

72 Turkey ...........................4.1 1.3

74 Mexico..........................4.1 1.5

78 Libya .............................4.0 1.6

80 Syria ..............................4.0 1.5

82 China.............................3.9 1.4


100 India ..............................3.1 1.4

106 Mauritania .....................3.0 1.5


2.05Quality of electricity supply

The quality of electricity supply in your country (lack of interruptionsand lack of voltage fluctuations) is (1 = worse than in most othercountries, 7 = meets the highest standards in the world)


6 United States.....................60.6

21 Norway ..............................46.1

23 Japan .................................45.9

25 Singapore ..........................43.5



46 Bahrain ..............................27.0

47 China .................................26.6

48 Qatar..................................26.4

50 Turkey ................................25.9

55 Brazil ..................................23.0

62 Kuwait ...............................19.0

64 Mexico...............................18.2

69 Syria...................................15.2

73 Egypt .................................14.0

75 Libya ..................................13.6

80 Tunisia................................12.5

81 Jordan................................11.4

83 Oman.................................10.3

90 Algeria .................................7.8

99 India.....................................4.5

100 Morocco ..............................4.4

109 Mauritania............................1.3

SOURCE: International Telecommunication Union, WorldTelecommunication Indicators 2006

2.06Telephone lines

Main telephone lines per 100 inhabitants, 2005

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Section IIIMacroeconomy

Data Tables

223

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1 Kuwait ...............................36.8

2 Libya ..................................32.2


4 Qatar..................................19.7

5 Norway ..............................15.8

6 Algeria ...............................14.2

7 Oman.................................10.6


10 Bahrain ................................6.2

12 Singapore ............................6.0

57 China..................................–1.3

64 Mexico...............................–1.6

78 Tunisia................................–2.8

88 Brazil ..................................–3.3

92 Syria...................................–3.4

104 United States.....................–4.1

112 Jordan................................–5.2

116 Morocco ............................–5.7

117 Japan .................................–5.8

118 Turkey ................................–5.9

122 Mauritania..........................–6.8

125 India ...................................–7.5

127 Egypt ...............................–10.5


3.01Government balance

Government fiscal surplus/deficit as a percentage of GDP, 2005 ormost recent year available


1 Kuwait ...............................59.0

2 Qatar..................................58.4

3 Libya ..................................57.3

4 Algeria ...............................51.2

5 China .................................47.6

6 Singapore ..........................47.1


10 Norway ..............................37.1


21 India...................................29.1

25 Bahrain ..............................27.9

27 Japan .................................26.8

29 Morocco ............................25.7

36 Oman.................................24.8

50 Tunisia................................22.1

53 Brazil ..................................21.8

58 Mexico...............................21.0

61 Syria...................................20.9

69 Egypt .................................19.5

77 Turkey ................................18.0

102 United States.....................13.6

119 Mauritania..........................10.0

124 Jordan..................................5.6

SOURCE: IMF, World Economic Outlook April 2006, published version

3.02National savings rate

National savings rate as a percentage of GDP, 2005 or most recentyear available

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1 Japan .................................–0.3

2 Singapore ............................0.5

8 Morocco ..............................1.0

13 Algeria .................................1.6

13 Norway ................................1.6

16 China ...................................1.8

19 Oman...................................1.9

22 Tunisia..................................2.0

34 Libya ....................................2.5

39 Bahrain ................................2.6

47 Qatar....................................3.0

53 United States.......................3.4

56 Jordan..................................3.5

60 Kuwait .................................3.9

61 Mexico.................................4.0

65 India.....................................4.2

80 United Arab Emirates ..........6.0

85 Brazil ....................................6.9

90 Syria.....................................7.2

97 Turkey ..................................8.2

112 Egypt .................................11.4

114 Mauritania..........................12.1



3.03Inflation

Annual percent change in consumer price index, average for 2005


2 Japan ...................................1.4

9 Norway ................................2.2

13 Libya ....................................2.5

16 United States.......................2.7

22 Tunisia..................................3.0

24 Syria.....................................3.1

27 China ...................................3.3

36 Oman...................................3.7

40 Qatar....................................4.0

42 Kuwait .................................4.0


53 Jordan..................................4.7

54 India.....................................4.8

57 Singapore ............................4.9

63 Turkey ..................................5.6

67 Egypt ...................................5.9

73 Algeria .................................6.3

74 Mexico.................................6.4


80 Bahrain ................................7.1

87 Morocco ..............................8.0

121 Brazil ..................................37.8

n/a Mauritania............................n/a

SOURCE: IMF, International Financial Statistics; Economist IntelligenceUnit, CountryData Database (June 2006)

3.04Interest rate spread

Average interest rate spread, 2005

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2 Libya ....................................1.2


10 Oman.................................11.0

12 Kuwait ...............................13.0


23 China .................................22.3

25 Qatar..................................24.5

28 Algeria ...............................28.5

47 Mexico...............................43.8

53 Norway ..............................46.4

70 Tunisia................................56.9

73 Syria...................................59.9

76 United States.....................62.9

85 Morocco ............................70.0

86 Brazil ..................................71.4

89 Turkey ................................72.8

91 India...................................83.8

93 Jordan................................86.2

100 Singapore ..........................99.6

104 Egypt ...............................108.2

106 Mauritania........................109.3

111 Japan ...............................175.5

n/a Bahrain.................................n/a

SOURCE: IMF

3.05Government debt

Net domestic and external debt contracted by the government in percent of GDP, 2005


1 Libya ................................–68.2

5 Egypt ...............................–29.0

13 Algeria..............................–16.5

16 Oman...............................–14.9

20 Tunisia..............................–12.4

21 Syria.................................–12.4

24 Japan ...............................–10.0

25 Bahrain...............................–9.8

29 Singapore...........................–8.4

32 China..................................–7.5

38 United States.....................–6.1

40 Jordan................................–5.8

41 United Arab Emirates ........–5.6

43 Kuwait................................–4.9

45 Morocco ............................–4.7

46 Mauritania..........................–4.6

61 Mexico.................................0.1

62 Brazil ....................................0.2

73 Qatar....................................2.1

81 India.....................................4.5

85 Norway ................................5.2


120 Turkey ................................22.1

SOURCE: IMF, Information Notice Systems Database (June 2006)

3.06Real effective exchange rate

Real effective exchange rate 2005 relative to the 1997–2004 average

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Section IVHealth and primary education

Data Tables

227

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ion


3 Norway .........................6.9 0.5

7 Bahrain..........................6.8 0.5

28 Turkey ...........................6.6 0.8

32 Jordan...........................6.6 0.8

34 Kuwait...........................6.6 1.1

35 Tunisia...........................6.6 0.6


43 Syria ..............................6.4 1.4

46 Japan ............................6.4 1.1

47 Mexico..........................6.4 1.1

48 Oman............................6.4 1.3


55 Brazil .............................6.2 1.2

56 Qatar .............................6.2 1.2

59 Egypt ............................6.2 1.6

64 United States................6.1 1.4

65 Algeria...........................6.1 1.8

66 Morocco .......................6.0 1.7

67 Singapore......................6.0 1.2

74 Libya .............................5.9 2.0

87 India ..............................5.5 1.5

89 China.............................5.5 1.6

110 Mauritania .....................4.1 1.6


4.01Business impact of malaria

How serious do you consider the future impact of malaria on yourcompany in the next 5 years? (1 = extremely serious, 7 = not a problem)


5 Norway .........................6.8 0.7

18 Kuwait...........................6.5 1.2

24 Turkey ...........................6.5 0.9

27 Tunisia...........................6.4 0.8

31 Jordan...........................6.4 1.0

32 Syria ..............................6.4 1.4

33 Bahrain..........................6.4 1.1

40 Mexico..........................6.3 1.1

41 Brazil .............................6.2 1.3


44 Oman............................6.2 1.1

45 Qatar .............................6.2 1.1

46 Japan ............................6.2 1.3

48 Singapore......................6.2 1.2

49 United States................6.1 1.3

58 Egypt ............................5.9 1.8

64 Algeria...........................5.8 1.8

68 Morocco .......................5.7 1.9


78 China.............................5.5 1.6

83 Libya .............................5.5 2.2

85 India ..............................5.4 1.6

104 Mauritania .....................4.4 1.6


4.02Business impact of tuberculosis

How serious do you consider the future impact of tuberculosis on your company in the next 5 years? (1 = extremely serious, 7 = not a problem)

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ion


1 Norway .........................6.6 0.7

9 Turkey ...........................6.3 1.1

12 Tunisia...........................6.3 0.9

14 Oman............................6.3 1.1

20 Kuwait...........................6.1 1.5

23 Jordan...........................6.1 1.2

24 Syria ..............................6.0 1.7

26 Qatar .............................6.0 1.2

29 Bahrain..........................5.9 1.3

38 Singapore......................5.7 1.2

41 Japan ............................5.7 1.5



50 Brazil .............................5.6 1.5

53 Egypt ............................5.6 2.0

58 Algeria...........................5.3 2.1

60 Mexico..........................5.3 1.4

65 China.............................5.2 1.8

73 United States................5.1 1.7

81 Morocco .......................4.6 2.2

82 Libya .............................4.6 2.3

98 India ..............................4.0 1.9

106 Mauritania .....................3.4 2.1


4.03Business impact of HIV/AIDS

How serious do you consider the future impact of HIV/AIDS on yourcompany in the next 5 years? (1 = extremely serious, 7 = not a problem)


1 Singapore ............................2.0

3 Japan ...................................3.0

3 Norway ................................3.0

32 United States.......................6.0


41 Bahrain ................................9.0

43 Kuwait ...............................10.0

43 Oman.................................10.0

43 Qatar..................................10.0


58 Libya ..................................15.0

58 Syria...................................15.0

70 Tunisia................................21.0

72 Jordan................................23.0

72 Mexico...............................23.0

78 China .................................26.0

78 Egypt .................................26.0

82 Turkey ................................28.0

88 Brazil ..................................32.0

90 Algeria ...............................35.0

91 Morocco ............................38.0

102 India...................................62.0

108 Mauritania..........................78.0

SOURCE: World Health Organization, World Health Statistics 2006

4.04Infant mortality

Infant (children aged 0–12 months) mortality per 1,000 live births, 2004

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1 Japan .................................82.0

8 Norway ..............................80.0

8 Singapore ..........................80.0

24 United States.....................78.0

29 Kuwait ...............................77.0


36 Qatar..................................76.0

45 Bahrain ..............................74.0

45 Mexico...............................74.0

45 Oman.................................74.0

54 China .................................72.0

54 Libya ..................................72.0

54 Syria...................................72.0

54 Tunisia................................72.0

69 Algeria ...............................71.0

69 Jordan................................71.0

69 Morocco ............................71.0

69 Turkey ................................71.0

78 Brazil ..................................70.0

82 Egypt .................................68.0


100 India...................................62.0

105 Mauritania..........................58.0

SOURCE: World Health Organization, The World Health Report 2006

4.05Life expectancy

Life expectancy at birth (years), 2004


3 United States.......................3.6

4 Norway ................................4.1

8 Jordan..................................5.0

28 Oman.................................12.4

34 Libya ..................................20.0

36 Tunisia................................24.0


39 Kuwait ...............................29.8

45 Egypt .................................34.9

47 Japan .................................39.4

48 Singapore ..........................40.8

49 Mexico...............................43.2

51 Turkey ................................44.8

53 Bahrain ..............................49.8

55 Syria...................................50.8

59 Algeria ...............................53.9

66 Qatar..................................76.6

67 Brazil ..................................76.7

76 Morocco ..........................105.2

87 Russian Federation..........160.3

95 China ...............................221.1

103 India.................................312.2

112 Mauritania........................502.4

SOURCE: World Health Organization, World Health Statistics 2006, The World Health Report 2006 Edition

4.06Tuberculosis prevalence

Estimated number of tuberculosis cases per 100,000 inhabitants, 2004

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ion


1 Bahrain ................................0.0

1 Egypt ...................................0.0

1 Japan ...................................0.0

1 Jordan..................................0.0

1 Kuwait .................................0.0

1 Norway ................................0.0

1 Qatar....................................0.0


1 Singapore ............................0.0

1 Tunisia..................................0.0


1 United States.......................0.0

56 Syria.....................................0.0

61 Oman...................................0.2

62 Libya ....................................0.2

63 Morocco ..............................0.2

66 Algeria .................................1.0

73 China ...................................3.1

74 Mexico.................................3.2

79 Turkey ................................12.9

97 India.................................167.2

101 Brazil ................................254.2

114 Mauritania.....................5,979.4

SOURCE: World Health Organization and UNICEF, World Malaria Report2005; World Health Organization Regional Offices; UNFPA,State of World Population 2005

4.07Malaria prevalence

Estimated number of malaria cases per 100,000 inhabitants, 2004 or most recent year available


1 Egypt ...................................0.0

1 Japan ...................................0.0

1 Jordan..................................0.0

1 Kuwait .................................0.0

1 Qatar....................................0.0

1 Syria.....................................0.0

1 Tunisia..................................0.0

1 Turkey ..................................0.0

27 Libya ....................................0.0

28 Algeria .................................0.1

28 China ...................................0.1

28 Morocco ..............................0.1

28 Norway ................................0.1

28 Oman...................................0.1


52 Bahrain ................................0.2

52 Singapore ............................0.2

66 Mexico.................................0.3

82 Mauritania............................0.6

82 United States.......................0.6

86 Brazil ....................................0.7

92 India.....................................0.9


SOURCE: World Health Organization, World Health Statistics 2006, TheWorld Health Report 2006 Edition; national sources

4.08HIV prevalence

HIV prevalence as a percentage of adults aged 15–49 years, 2003 or most recent year available

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1 Japan .................................99.9

11 Norway ..............................98.9

21 Mexico...............................97.8

26 Tunisia................................97.6

33 Bahrain ..............................96.8

35 Algeria ...............................96.7

36 Brazil ..................................96.5

37 Singapore ..........................96.4

41 Egypt .................................95.4

47 Qatar..................................94.8

48 China .................................94.6

49 Syria...................................94.5

62 United States.....................92.4


70 Jordan................................91.1

77 India...................................89.7

81 Turkey ................................89.3

89 Libya ..................................87.0

94 Morocco ............................86.1

96 Kuwait ...............................86.0

107 Oman.................................77.9

111 Mauritania..........................74.3


SOURCE: UNESCO Institute for Statistics (June 2006); United NationsStatistics Division

4.09Primary enrollment

Net primary education enrollment rate, 2004 or most recent yearavailable

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Section VHigher education and training

Data Tables

233

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tion

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ing


5 Norway ............................115.6

17 Libya ................................104.0

20 Brazil ................................102.0

21 Japan ...............................101.6

27 Bahrain ..............................98.8

32 Singapore ..........................98.0

34 Qatar..................................96.8

42 United States.....................94.8


52 Kuwait ...............................89.9

60 Jordan................................87.4

61 Egypt .................................87.1

62 Oman.................................86.4

74 Tunisia................................81.3

75 Algeria ...............................80.7

76 Mexico...............................79.7

77 Turkey ................................79.2

85 China .................................72.5


95 Syria...................................63.2

99 India...................................53.5

103 Morocco ............................47.6

119 Mauritania..........................20.2

SOURCE: UNESCO Institute for Statistics (June 2006); national sources

5.01Secondary enrollment

Gross secondary enrollment rate, 2004 or most recent year available


4 United States.....................82.0

5 Norway ..............................80.0


29 Libya ..................................56.0

32 Japan .................................54.0

36 Singapore ..........................47.0

47 Jordan................................39.0

56 Bahrain ..............................34.0

57 Egypt .................................33.0

61 Tunisia................................29.0

61 Turkey ................................29.0

72 Mexico...............................23.0

73 Kuwait ...............................22.0


75 Algeria ...............................20.0

75 Brazil ..................................20.0

77 China .................................19.0

77 Qatar..................................19.0

90 Syria...................................13.6

91 Oman.................................13.0

94 India...................................11.0

94 Morocco ............................11.0

107 Mauritania............................3.0

SOURCE: UNESCO Institute for Statistics (June 2006); World Bank,World Development Indicators 2006

5.02Tertiary enrollment

Gross tertiary enrollment rate, 2004 or most recent year available

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and

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2 Singapore......................6.0 0.8

11 Tunisia...........................5.1 1.1

15 United States................5.0 1.4

17 Norway .........................5.0 1.2

19 Japan ............................4.9 1.3

20 Qatar .............................4.9 1.4

25 India ..............................4.7 1.5


38 Oman............................4.2 1.8

45 Jordan...........................4.0 1.6


63 Kuwait...........................3.5 1.5

74 Turkey ...........................3.2 1.5

80 Bahrain..........................3.2 1.7

83 Mexico..........................3.1 1.4

88 China.............................3.0 1.5

92 Morocco .......................2.9 1.5

93 Algeria...........................2.9 1.4

99 Syria ..............................2.9 1.6

106 Egypt ............................2.7 1.5

112 Mauritania .....................2.6 1.2

116 Brazil .............................2.5 1.4

123 Libya .............................2.2 1.5


5.03Quality of the educational system

The educational system in your country (1 = does not meet the needsof a competitive economy, 7 = meets the needs of a competitiveeconomy)


1 Singapore......................6.3 0.8

7 India ..............................5.7 1.1

9 Tunisia...........................5.6 1.0

14 Japan ............................5.4 1.3

38 Qatar .............................4.7 1.2


42 United States................4.5 1.4


49 Morocco .......................4.4 1.5

54 Norway .........................4.4 1.2

56 Jordan...........................4.3 1.5

57 Turkey ...........................4.3 1.3

59 Oman............................4.3 1.6

62 Kuwait...........................4.1 1.7

63 China.............................4.1 1.5

74 Algeria...........................3.7 1.4

78 Syria ..............................3.7 1.6

87 Libya .............................3.5 1.7

89 Bahrain..........................3.4 1.6

96 Egypt ............................3.2 1.5

97 Mauritania .....................3.1 1.8

101 Brazil .............................2.9 1.5

104 Mexico..........................2.9 1.2


5.04Quality of math and science education

Math and science education in your country’s schools (1 = lag farbehind most other countries, 7 = are among the best in the world)

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3 India ..............................6.0 0.9

6 United States................5.8 1.3

8 Singapore......................5.7 0.8

20 Tunisia...........................5.3 1.1

23 Norway .........................5.3 0.9

26 Morocco .......................5.1 1.2

40 Qatar .............................4.6 1.3

43 Mexico..........................4.5 1.2


59 Japan ............................4.2 1.3

60 Kuwait...........................4.2 1.4

61 Turkey ...........................4.2 1.3

63 Oman............................4.2 1.5

65 Brazil .............................4.1 1.4

77 Jordan...........................3.7 1.5

78 Bahrain..........................3.7 1.7


89 Egypt ............................3.5 1.4

91 Algeria...........................3.5 1.3

93 China.............................3.4 1.3

106 Syria ..............................3.2 1.4

118 Libya .............................2.9 1.5

126 Mauritania .....................2.4 1.4


5.05Quality of management schools

Management or business schools in your country are (1 = limited or of poor quality, 7 = among the best in the world)


1 Japan ............................6.1 0.8

5 United States................6.0 1.1

15 Norway .........................5.2 0.9

17 Singapore......................5.1 1.1

28 India ..............................4.7 1.4

32 Brazil .............................4.6 1.4

33 Tunisia...........................4.6 1.4

41 Turkey ...........................4.3 1.1


43 Oman............................4.3 2.2

47 China.............................4.2 1.3

48 Mexico..........................4.2 1.4

54 Kuwait...........................4.0 1.5

58 Qatar .............................3.9 1.9

59 Morocco .......................3.9 1.7

63 Jordan...........................3.9 1.5


80 Egypt ............................3.5 1.5

97 Bahrain..........................3.1 1.7

98 Libya .............................3.1 1.6

100 Syria ..............................3.1 1.5

103 Algeria...........................3.0 1.4

124 Mauritania .....................2.2 1.8


5.06Local availability of specialized research and training services

In your country, specialized research and training services are (1 = not available, 7 = available from world-class local institutions)

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3 Japan ............................5.9 0.9

9 United States................5.6 1.2

10 Norway .........................5.5 0.9

12 Singapore......................5.4 1.0

28 India ..............................4.8 1.3

32 Oman............................4.5 1.5

37 Tunisia...........................4.3 1.5


39 Brazil .............................4.2 1.3

40 Turkey ...........................4.2 1.1

47 Kuwait...........................3.9 1.6

48 Mexico..........................3.9 1.3

58 Qatar .............................3.7 1.7

60 Bahrain..........................3.7 1.8

61 Jordan...........................3.6 1.5

77 China.............................3.4 1.3

78 Mauritania .....................3.3 1.8

84 Egypt ............................3.3 1.7

86 Syria ..............................3.2 1.4

87 Morocco .......................3.2 1.5

100 Algeria...........................3.0 1.4


109 Libya .............................2.7 1.8


5.07Extent of staff training

The general approach of companies in your country to humanresources is (1 = to invest little in training and employee development,7 = to invest heavily to attract, train and retain employees)

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Data Tables

239

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5 Tunisia...........................4.7 1.3

6 Singapore......................4.7 1.2


8 China.............................4.7 1.4

15 Algeria...........................4.4 1.5

17 Oman............................4.4 1.1

21 Bahrain..........................4.3 1.6

25 United States................4.1 1.3

38 Qatar .............................4.0 1.4

40 Brazil .............................4.0 1.5

55 Kuwait...........................3.7 1.4

57 India ..............................3.7 1.4

60 Jordan...........................3.7 1.1

64 Syria ..............................3.6 1.6

92 Egypt ............................3.4 1.5

98 Morocco .......................3.3 1.7

104 Mexico..........................3.3 1.1

106 Libya .............................3.2 1.5

115 Turkey ...........................2.9 1.0


118 Japan ............................2.9 1.4

119 Mauritania .....................2.9 1.8

122 Norway .........................2.9 1.2


6.01Agricultural policy costs

Agricultural policy in your country (1 = is excessively burdensome forthe economy, 7 = balances the interests of taxpayers, consumers,and producers)


5 Norway .........................6.3 0.7

14 Singapore......................5.8 1.2

19 Oman............................5.4 1.4

20 Japan ............................5.4 1.4

24 India ..............................5.1 1.3

26 United States................5.1 1.5

27 Qatar .............................5.1 1.2

30 Kuwait...........................5.1 1.7

31 Tunisia...........................5.0 1.3


37 Jordan...........................4.8 1.6

50 Libya .............................4.1 2.1

53 Mauritania .....................4.1 1.6

54 Algeria...........................4.1 1.7

55 Egypt ............................4.1 1.9

56 Morocco .......................4.0 1.8

58 Turkey ...........................3.8 1.5

73 Bahrain..........................3.5 1.8

78 China.............................3.4 1.6

81 Mexico..........................3.3 1.5

84 Syria ..............................3.2 1.6

92 Brazil .............................3.1 1.6



6.02Efficiency of legal framework

The legal framework in your country for private businesses to settledisputes and challenge the legality of government actions and/or regulations (1 = is inefficient and subject to manipulation, 7 = is efficient and follows a clear, neutral process)

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1 Bahrain..........................6.1 1.4

3 Oman............................6.0 0.9


5 Kuwait...........................5.9 1.5

6 Qatar .............................5.8 1.6

8 Singapore......................5.6 1.0

14 Mauritania .....................5.0 1.7

19 Tunisia...........................4.6 1.3

22 India ..............................4.4 1.3

32 United States................3.9 1.4

33 Algeria...........................3.9 1.8

37 Egypt ............................3.8 1.8

47 China.............................3.6 1.4

50 Japan ............................3.5 1.1

51 Jordan...........................3.5 1.6

53 Norway .........................3.5 1.1

64 Morocco .......................3.2 1.6

70 Libya .............................3.1 1.9

76 Mexico..........................3.1 1.3

78 Syria ..............................3.1 1.5

86 Turkey ...........................2.9 1.2


128 Brazil .............................1.5 0.9


6.03Extent and effect of taxation

The level of taxes in your country (1 = significantly limits the incentives to work or invest, 7 = has little impact on the incentives to work or invest)


7 Norway ................................4.0

10 United States.......................5.0

16 Morocco ..............................6.0

16 Singapore ............................6.0


36 Japan ...................................8.0

36 Mexico.................................8.0

36 Turkey ..................................8.0

50 Oman...................................9.0

63 Egypt .................................10.0

63 Tunisia................................10.0

82 India...................................11.0

82 Jordan................................11.0

82 Mauritania..........................11.0

92 Syria...................................12.0


99 China .................................13.0

99 Kuwait ...............................13.0

110 Algeria ...............................14.0

118 Brazil ..................................17.0

n/a Bahrain.................................n/a

n/a Libya ....................................n/a

n/a Qatar....................................n/a

SOURCE: World Bank, Doing Business 2007: How to Reform (2006)

6.04Number of procedures required to start a business

Number of administrative procedures required to start a business,2006

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3 United States.......................5.0

6 Singapore ............................6.0

10 Turkey ..................................9.0

12 Tunisia................................11.0

15 Morocco ............................12.0

17 Norway ..............................13.0

24 Jordan................................18.0

27 Egypt .................................19.0

37 Japan .................................23.0

38 Algeria ...............................24.0

46 Mexico...............................27.0


64 Oman.................................34.0

67 China .................................35.0

67 India...................................35.0

67 Kuwait ...............................35.0

81 Syria...................................43.0


110 Mauritania..........................82.0

120 Brazil ................................152.0

n/a Bahrain.................................n/a

n/a Libya ....................................n/a

n/a Qatar....................................n/a

SOURCE: World Bank, Doing Business 2007: How to Reform (2006)

6.05Time required to start a business

Number of days required to start a business, 2006


3 Japan ............................6.0 0.9

4 India ..............................6.0 1.0

5 United States................5.9 1.1

19 Norway .........................5.6 1.0

26 Singapore......................5.5 1.1

27 Turkey ...........................5.4 1.0


34 China.............................5.3 1.2

40 Brazil .............................5.2 1.2

41 Jordan...........................5.2 1.2

43 Tunisia...........................5.2 0.9

54 Bahrain..........................5.0 1.4

57 Mexico..........................4.9 1.2

63 Kuwait...........................4.9 1.5


67 Qatar .............................4.7 1.5

68 Egypt ............................4.7 1.7

71 Morocco .......................4.6 1.6

84 Syria ..............................4.4 1.6

88 Oman............................4.3 1.3

98 Algeria...........................4.2 1.6

118 Libya .............................3.7 1.7

123 Mauritania .....................3.4 1.6


6.06Intensity of local competition

Competition in the local market is (1 = limited in most industries and price-cutting is rare, 7 = intense in most industries as marketleadership changes over time)

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8 Norway .........................5.8 0.8

10 Japan ............................5.7 0.9

14 United States................5.6 1.3

26 Tunisia...........................5.1 1.0

27 India ..............................5.1 1.3

32 Singapore......................4.9 1.2

34 Turkey ...........................4.7 1.2

40 Oman............................4.4 1.6

41 Jordan...........................4.3 1.6

47 Brazil .............................4.2 1.4

49 Qatar .............................4.1 1.6


55 Morocco .......................3.9 1.7

58 Mexico..........................3.9 1.5

59 Algeria...........................3.9 1.4

62 Kuwait...........................3.8 1.8

70 Bahrain..........................3.6 1.7

74 Egypt ............................3.5 1.6

75 China.............................3.5 1.5

76 Syria ..............................3.5 1.5

77 Libya .............................3.5 1.9

88 Mauritania .....................3.2 2.0



6.07Effectiveness of antitrust policy

Anti-monopoly policy in your country is (1 = lax and not effective atpromoting competition, 7 = effective and promotes competition)


1 Singapore ........................213.1


20 Jordan................................70.2

21 Mauritania..........................70.0

26 Bahrain ..............................66.0

53 Tunisia................................47.4

76 Oman.................................35.4

77 Turkey ................................35.3

81 Libya ..................................34.4

82 Morocco ............................34.1

85 China .................................33.4

87 Egypt .................................32.6

88 Syria...................................32.6

92 Mexico...............................31.5

94 Algeria ...............................30.4

97 Kuwait ...............................30.1

106 Norway ..............................27.8

110 Qatar..................................26.7

114 India...................................24.0


125 United States.....................16.2

126 Japan .................................12.9

127 Brazil ..................................12.4

SOURCE: Economist Intelligence Unit, CountryData Database (June2006); IMF Country Reports; World Bank, World DevelopmentIndicators 2006

6.08Imports

Imports of goods and services as a percentage of GDP, 2005 or mostrecent year available

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3 Singapore......................6.2 1.1

9 Qatar .............................5.7 1.3

12 Oman............................5.6 1.2


16 Bahrain..........................5.6 1.5

25 Kuwait...........................5.4 1.6

35 India ..............................5.1 1.5

37 United States................5.0 1.4

44 Tunisia...........................4.8 1.3

45 Turkey ...........................4.8 1.7

47 Jordan...........................4.8 1.6

51 Mexico..........................4.7 1.8

54 Japan ............................4.6 1.5

75 Libya .............................4.2 2.3

83 Algeria...........................4.1 2.0

85 China.............................4.1 1.6

86 Brazil .............................4.1 1.6

93 Morocco .......................4.0 1.8

96 Norway .........................3.9 1.7


107 Egypt ............................3.7 2.1

115 Syria ..............................3.6 1.9

128 Mauritania .....................3.0 1.9


6.09Prevalence of trade barriers

In your country, tariff and nontariff barriers significantly reduce the ability of imported goods to compete in the domestic market (1 = strongly agree, 7 = strongly disagree)


3 Singapore......................6.3 0.8

20 Jordan...........................5.8 1.2

31 Mexico..........................5.6 1.2

32 Norway .........................5.5 0.9

37 Oman............................5.4 1.1

40 India ..............................5.4 1.4

44 United States................5.3 1.2

48 Morocco .......................5.3 1.5

52 Tunisia...........................5.3 1.5

69 Bahrain..........................5.1 1.8

78 Japan ............................4.8 1.3

83 Turkey ...........................4.8 1.2

85 Algeria...........................4.7 1.7

86 Egypt ............................4.7 1.7

88 China.............................4.7 1.5

90 Brazil .............................4.6 1.3

92 Qatar .............................4.6 1.6


97 Mauritania .....................4.4 1.6


126 Libya .............................3.2 1.9

127 Syria ..............................3.2 1.7

128 Kuwait...........................2.9 1.7


6.10Prevalence of foreign ownership

Foreign ownership of companies in your country is (1 = rare, limitedto minority stakes and often prohibited in key sectors , 7 = prevalentand encouraged)

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1 Singapore ........................243.0


7 Bahrain ..............................89.3

21 Qatar..................................68.4

24 Kuwait ...............................67.2

25 Oman.................................65.5

34 Algeria ...............................54.2

38 Jordan................................52.4

47 Libya ..................................47.4

55 Norway ..............................45.2

56 Tunisia................................44.8


75 China .................................36.8

77 Syria...................................35.7

84 Egypt .................................31.0

85 Mexico...............................29.9

88 Mauritania..........................29.0

91 Turkey ................................28.3

96 Morocco ............................26.5

111 India...................................21.2

119 Brazil ..................................16.8

122 Japan .................................14.3

126 United States.....................10.4

SOURCE: Economist Intelligence Unit, CountryData Database (June2006)

6.11Exports

Exports of goods and services as a percentage of GDP, 2005 or mostrecent year available


2 Singapore......................5.9 1.0

3 Mauritania .....................5.7 1.5

11 United States................5.2 1.5



31 Qatar .............................4.5 1.8

32 Tunisia...........................4.5 1.4

41 Kuwait...........................4.3 2.1

49 Morocco .......................4.2 1.8

50 China.............................4.2 1.5

67 Mexico..........................3.8 1.8

70 Japan ............................3.8 1.8

81 Algeria...........................3.6 1.9

89 Oman............................3.4 1.8

90 Turkey ...........................3.4 1.6

92 Jordan...........................3.3 1.7

93 Syria ..............................3.3 2.0

100 Egypt ............................3.1 1.7

103 India ..............................3.0 1.7

107 Bahrain..........................2.9 1.7

114 Brazil .............................2.7 1.7

115 Norway .........................2.7 1.7

126 Libya .............................2.4 1.8


6.12Hiring and firing practices

The hiring and firing of workers is (1 = impeded by regulations, 7 = flexibly determined by employers)

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7 Egypt ............................6.1 1.6

8 Qatar .............................6.0 1.4

9 Kuwait...........................6.0 1.3

10 Japan ............................6.0 0.7

18 Singapore......................5.9 0.7


25 Jordan...........................5.8 1.3

29 Bahrain..........................5.7 1.8

30 United States................5.7 1.3

44 Morocco .......................5.5 1.6

51 India ..............................5.5 1.2

52 Oman............................5.5 1.2

53 China.............................5.5 1.3

68 Mexico..........................5.1 1.0

70 Syria ..............................5.1 1.7

83 Turkey ...........................4.8 1.3

94 Libya .............................4.6 2.4

96 Tunisia...........................4.6 1.1

99 Mauritania .....................4.5 1.2

104 Algeria...........................4.4 1.6

109 Brazil .............................4.2 1.3

112 Norway .........................3.8 1.0


6.13Flexibility of wage determination

Wages in your country are (1 = set by a centralized bargainingprocess, 7 = up to each individual company)


2 Singapore......................6.2 0.7

6 Japan ............................5.9 0.7

11 Mauritania .....................5.7 1.2

12 Norway .........................5.7 1.0

13 Oman............................5.6 1.2

27 Kuwait...........................5.1 1.3

28 Mexico..........................5.1 1.0

29 Tunisia...........................5.1 1.1


35 United States................5.0 1.3

47 Libya .............................4.9 1.6

51 India ..............................4.8 1.2

55 Qatar .............................4.7 1.4

57 Jordan...........................4.7 1.3

65 Algeria...........................4.6 1.6

69 Syria ..............................4.6 1.5


78 Egypt ............................4.5 1.6

84 Morocco .......................4.4 1.6

87 Turkey ...........................4.3 1.3

89 Bahrain..........................4.3 1.8

96 Brazil .............................4.2 1.3

102 China.............................4.1 1.3


6.14Cooperation in labor-employer relations

Labor-employer relations in your country are (1 = generally con-frontational, 7 = generally cooperative)

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4 Norway .........................6.2 0.6

12 United States................5.9 1.2

15 Singapore......................5.8 1.0

16 Japan ............................5.7 1.0

24 India ..............................5.4 1.1

32 Oman............................5.1 1.4

39 Brazil .............................4.9 1.2

53 Mexico..........................4.7 1.2

54 Qatar .............................4.6 1.6


57 Tunisia...........................4.6 1.6

63 Bahrain..........................4.5 1.5

64 Turkey ...........................4.4 1.1

66 Algeria...........................4.4 1.6


80 China.............................4.1 1.5

84 Mauritania .....................4.0 2.2

89 Egypt ............................3.9 1.6

92 Jordan...........................3.8 1.4

103 Kuwait...........................3.7 1.7

108 Morocco .......................3.6 1.6

115 Syria ..............................3.4 1.6

122 Libya .............................3.2 1.9


6.15Reliance on professional management

Senior management positions in your country are (1 = usually held by relatives, 7 = held by professional managers chosen based onsuperior qualification)


6 Singapore......................5.5 1.0

9 United States................5.2 1.3

11 Japan ............................5.1 1.1


25 Qatar .............................4.6 1.4

27 China.............................4.6 1.4

29 Tunisia...........................4.6 1.5

31 Egypt ............................4.6 1.8


41 India ..............................4.4 1.4

48 Oman............................4.4 1.8

49 Kuwait...........................4.4 1.7

52 Morocco .......................4.3 1.8

57 Norway .........................4.2 1.2

59 Mexico..........................4.2 1.4

60 Turkey ...........................4.1 1.4

64 Jordan...........................4.0 1.5

68 Syria ..............................3.9 1.9

75 Bahrain..........................3.8 1.8

80 Algeria...........................3.8 1.9

81 Brazil .............................3.8 1.5

85 Mauritania .....................3.7 2.2

122 Libya .............................2.8 2.2


6.16Pay and productivity

Pay in your country is (1 = not related to worker productivity, 7 = strongly related to worker productivity)

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1 United States................6.1 1.1

2 Qatar .............................5.7 1.3

3 Japan ............................5.7 1.2

4 Oman............................5.6 1.2

5 Norway .........................5.6 0.9


9 Kuwait...........................5.4 1.5

16 Singapore......................4.9 0.8

24 Bahrain..........................4.6 1.6

40 Brazil .............................3.9 1.6

43 Tunisia...........................3.8 1.3

44 China.............................3.8 1.5

48 India ..............................3.7 1.2


56 Mexico..........................3.4 1.2

59 Turkey ...........................3.3 1.2

79 Morocco .......................2.8 1.6

86 Syria ..............................2.7 1.6

90 Jordan...........................2.6 1.5

91 Libya .............................2.6 1.7

93 Mauritania .....................2.6 1.7

105 Algeria...........................2.4 1.2

113 Egypt ............................2.3 1.3


6.17Brain drain

Your country’s talented people (1 = normally leave to pursue opportunities in other countries, 7 = almost always remain in thecountry)


3 Singapore......................5.9 1.1

5 Tunisia...........................5.8 1.4

6 Oman............................5.7 1.5

22 Norway .........................5.2 1.0

30 United States................5.2 1.3

34 India ..............................5.1 1.5

38 Egypt ............................5.0 1.9

39 Syria ..............................5.0 1.7

40 Qatar .............................5.0 1.5

42 Mauritania .....................4.9 1.7

52 Kuwait...........................4.8 1.6

56 Libya .............................4.7 1.8


72 Turkey ...........................4.6 1.3

74 Algeria...........................4.6 1.8

76 China.............................4.6 1.5


84 Morocco .......................4.5 2.0

96 Jordan...........................4.3 1.7

99 Japan ............................4.2 1.3

100 Bahrain..........................4.2 1.8

109 Brazil .............................4.1 1.3

125 Mexico..........................3.6 1.2


6.18Private-sector employment of women

In your country, do businesses provide women the same opportuni-ties as men to rise to positions of leadership? (1 = no, women areunable to rise to positions of leadership , 7 = yes, women are often inmanagement positions)

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5 United States................6.3 1.1

13 Singapore......................6.0 0.8

18 Japan ............................5.7 0.9

20 Norway .........................5.6 0.9

28 Brazil .............................5.3 1.4

30 Bahrain..........................5.2 1.3

32 India ..............................5.1 1.2

36 Turkey ...........................4.6 1.2

38 Mexico..........................4.6 1.1

40 Oman............................4.5 1.1

41 Kuwait...........................4.5 1.4


48 Qatar .............................4.3 1.5

60 Tunisia...........................4.1 1.1

63 Jordan...........................4.0 1.3

77 Egypt ............................3.6 1.5

83 Morocco .......................3.2 1.4


94 China.............................2.8 1.2

106 Mauritania .....................2.5 1.3

124 Syria ..............................2.0 1.1

125 Algeria...........................2.0 1.0

126 Libya .............................1.9 1.2


6.19Financial market sophistication

The level of sophistication of financial markets in your country is (1 =lower than international norms, 7 = higher than international norms)


5 Norway .........................5.4 1.2


11 United States................5.1 1.4

12 Qatar .............................5.1 1.6

15 Kuwait...........................4.9 1.7

16 Singapore......................4.8 1.4

21 India ..............................4.6 1.4

31 Oman............................4.3 1.9

38 Tunisia...........................4.0 1.7

39 Japan ............................4.0 1.7

47 Bahrain..........................3.8 1.9

62 Jordan...........................3.3 1.7

74 Turkey ...........................3.0 1.4

77 Brazil .............................2.9 1.7

78 Mexico..........................2.9 1.5

82 Egypt ............................2.8 1.8

87 Morocco .......................2.7 1.9


92 Libya .............................2.6 1.8

101 China.............................2.5 1.4

106 Syria ..............................2.4 1.4

114 Algeria...........................2.2 1.3

115 Mauritania .....................2.2 1.4


6.20Ease of access to loans

How easy is it to obtain a bank loan in your country with only a goodbusiness plan and no collateral? (1 = impossible, 7 = easy)

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1 United States................5.6 1.3

6 Norway .........................5.2 1.3

13 Singapore......................4.9 1.1


20 India ..............................4.6 1.3

23 Japan ............................4.5 1.4

27 Kuwait...........................4.2 1.6

31 Tunisia...........................4.1 1.3

37 Qatar .............................3.8 1.9

56 Bahrain..........................3.3 1.5

63 Oman............................3.2 1.8


69 Mexico..........................3.1 1.5

71 Jordan...........................3.1 1.6

78 Turkey ...........................3.0 1.5

82 Libya .............................2.9 1.7

89 Egypt ............................2.8 1.7

93 China.............................2.7 1.3

94 Morocco .......................2.7 1.7

99 Syria ..............................2.6 1.4

100 Brazil .............................2.6 1.4

116 Mauritania .....................2.3 1.6

117 Algeria...........................2.2 1.4


6.21Venture capital availability

Entrepreneurs with innovative but risky projects can generally findventure capital in your country (1 = not true, 7 = true)


17 Norway .........................6.6 0.5

21 Singapore......................6.5 0.6

27 United States................6.3 1.0

28 Bahrain..........................6.3 0.9

32 Kuwait...........................6.2 1.0

34 Brazil .............................6.1 1.2


37 India ..............................6.0 0.8

46 Qatar .............................5.8 1.2

61 Mexico..........................5.5 1.0

64 Jordan...........................5.5 1.2

66 Oman............................5.5 1.3

66 Tunisia...........................5.5 1.2

70 Morocco .......................5.4 1.3

77 Japan ............................5.2 1.1

95 Egypt ............................4.8 1.5

100 Turkey ...........................4.8 1.3

102 Mauritania .....................4.8 1.5


120 Syria ..............................4.2 1.8

122 Libya .............................4.2 1.9

124 Algeria...........................4.1 1.8

126 China.............................3.8 1.4


6.22Soundness of banks

Banks in your country are (1 = insolvent and may require a governmentbailout, 7 = generally healthy with sound balance sheets)

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1 India ..............................6.5 0.7

4 Japan ............................6.4 0.8

6 Norway .........................6.3 0.8

15 Singapore......................6.1 0.8

18 Kuwait...........................6.1 1.0


22 United States................6.0 1.2

25 Bahrain..........................5.9 1.3

34 Turkey ...........................5.8 1.3

35 Jordan...........................5.7 1.2

45 Qatar .............................5.4 1.8

46 Brazil .............................5.4 1.7

48 Oman............................5.4 1.3

55 Egypt ............................5.2 1.6

67 Mexico..........................4.9 1.5

70 Tunisia...........................4.8 1.1


76 Morocco .......................4.3 1.7

78 China.............................4.3 1.7

112 Algeria...........................2.7 1.9

118 Mauritania .....................2.5 1.9

123 Syria ..............................2.2 1.6

124 Libya .............................2.2 2.0


6.23Local equity market access

Raising money by issuing shares on the local stock market is (1 = nearly impossible, 7 = quite possible for a good company)

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Data Tables

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2 Japan ............................6.5 0.8

7 United States................6.1 1.1

9 Norway .........................6.1 0.8

11 Singapore......................5.9 0.9


23 India ..............................5.3 0.9

27 Qatar .............................4.9 1.3

30 Tunisia...........................4.8 1.2

39 Bahrain..........................4.6 1.5

41 Oman............................4.5 1.3

44 Kuwait...........................4.3 1.4

45 Jordan...........................4.3 1.2

56 Turkey ...........................4.1 1.1

58 Mexico..........................4.0 1.1

59 Brazil .............................4.0 1.4

67 Egypt ............................3.7 1.5

70 China.............................3.6 1.2

72 Morocco .......................3.6 1.6


87 Syria ..............................3.1 1.2

89 Libya .............................3.0 1.4

106 Algeria...........................2.5 1.2

121 Mauritania .....................2.2 1.4


7.01Technological readiness

Your country’s level of technological readiness (1 = generally lagsbehind most other countries, 7 = is among the world leaders)


2 Japan ............................6.3 0.8

7 Singapore......................6.0 0.8

9 United States................6.0 1.1

12 Norway .........................5.9 0.7

13 India ..............................5.8 1.1

16 Mauritania .....................5.8 1.7


25 Turkey ...........................5.4 1.0

36 Tunisia...........................5.2 1.1

39 Kuwait...........................5.2 1.3

41 China.............................5.1 1.3

42 Morocco .......................5.0 1.5

43 Qatar .............................5.0 1.4

47 Brazil .............................4.9 1.1

50 Oman............................4.9 1.2

53 Bahrain..........................4.8 1.4

56 Jordan...........................4.8 1.3

60 Egypt ............................4.7 1.5

69 Algeria...........................4.6 1.8

71 Libya .............................4.6 1.7

77 Mexico..........................4.5 1.0


85 Syria ..............................4.4 1.5


7.02Firm-level technology absorption

Companies in your country are (1 = not able to absorb new technology, 7 = aggressive in absorbing new technology)

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2 Singapore......................5.7 0.8

4 Norway .........................5.6 1.0

20 United States................5.1 1.3

25 Japan ............................4.9 0.9

31 India ..............................4.6 1.2


39 Qatar .............................4.2 1.4

42 Mexico..........................4.2 1.3

48 Brazil .............................4.1 1.3

49 Tunisia...........................4.0 1.6

51 Bahrain..........................4.0 1.6

52 Turkey ...........................4.0 1.3

64 Jordan...........................3.7 1.4

67 China.............................3.5 1.4

74 Morocco .......................3.2 1.7

79 Oman............................3.1 1.8

81 Egypt ............................3.1 1.6


91 Kuwait...........................3.0 1.4

95 Algeria...........................2.9 1.7

116 Mauritania .....................2.3 1.7

121 Syria ..............................2.2 1.3

127 Libya .............................1.9 1.3


7.03Laws relating to ICT

Laws relating to the use of information communication technologies(electronic commerce, digital signatures, consumer protection) are (1 = nonexistent, 7 = well developed and enforced)


1 Singapore......................6.4 0.9

6 Mauritania .....................5.9 1.6

11 Qatar .............................5.7 1.2


20 Mexico..........................5.5 1.2

25 India ..............................5.4 1.0

34 Tunisia...........................5.3 1.4

38 Brazil .............................5.3 1.3

42 Oman............................5.2 1.4

44 Morocco .......................5.2 1.5

51 Egypt ............................5.1 1.7

53 United States................5.1 1.5

61 Turkey ...........................5.0 1.1

64 Jordan...........................4.9 1.5

68 Norway .........................4.9 1.1

69 Bahrain..........................4.9 1.9

77 Japan ............................4.8 1.5

105 China.............................4.4 1.5

108 Libya .............................4.3 2.1

112 Algeria...........................4.2 1.9


121 Kuwait...........................3.9 1.5

122 Syria ..............................3.9 1.8


7.04FDI and technology transfer

Foreign direct investment in your country (1 = brings little new technology, 7 = is an important source of new technology)

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10 Singapore ........................103.4

12 Bahrain ............................103.0

13 Norway ............................102.9

16 United Arab Emirates ......100.9

26 Qatar..................................92.2

32 Kuwait ...............................88.6


45 Japan .................................74.0

48 United States.....................67.6

54 Turkey ................................59.6

57 Tunisia................................56.3

58 Oman.................................51.9

65 Brazil ..................................46.2

66 Mexico...............................44.3

69 Algeria ...............................41.5

71 Morocco ............................40.9

83 China .................................29.9

84 Jordan................................28.9

90 Mauritania..........................24.3

94 Egypt .................................18.4

98 Syria...................................15.5

109 India.....................................8.2

120 Libya ....................................4.1


7.05Mobile telephone subscribers

Mobile telephone subscribers per 100 inhabitants, 2005


4 Norway ..............................73.6

9 Japan .................................66.6

10 United States.....................63.0

13 Singapore ..........................57.9


39 Qatar..................................28.2

43 Kuwait ...............................26.1

46 Turkey ................................21.9

47 Bahrain ..............................21.3

53 Brazil ..................................19.5

58 Mexico...............................17.4


62 Morocco ............................15.2

67 Jordan................................11.2

68 Oman.................................11.1

75 Tunisia..................................9.5

77 China ...................................8.4

85 Egypt ...................................6.8

88 Algeria .................................5.8

89 Syria.....................................5.8

91 India.....................................5.4

101 Libya ....................................3.6

117 Mauritania............................0.7


7.06Internet users

Internet users per 10,000 inhabitants, 2005 or most recent year available

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2 United States.....................76.2

10 Singapore ..........................62.2

15 Norway ..............................57.2

18 Japan .................................54.1

32 Kuwait ...............................22.3


40 Qatar..................................17.9

41 Bahrain ..............................16.9

50 Mexico...............................13.1


56 Brazil ..................................10.5

69 Tunisia..................................5.6

70 Jordan..................................5.3

71 Turkey ..................................5.1

74 Oman...................................4.7

81 Syria.....................................4.2

83 China ...................................4.1

87 Egypt ...................................3.8

91 Morocco ..............................2.4

92 Libya ....................................2.3

99 India.....................................1.5

100 Mauritania............................1.4

106 Algeria .................................1.1


7.07Personal computers

Personal computers per 100 inhabitants, 2005 or most recent yearavailable

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Data Tables

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1 Japan ............................6.4 0.7

6 United States................5.9 1.2

9 India ..............................5.8 1.0

15 Kuwait...........................5.7 1.2

27 Norway .........................5.4 1.1

29 Turkey ...........................5.4 1.0

30 Tunisia...........................5.4 0.8

32 Brazil .............................5.3 1.1

35 Egypt ............................5.1 1.3

38 China.............................5.0 1.2

39 Bahrain..........................5.0 1.3

43 Singapore......................5.0 1.2



52 Syria ..............................4.8 1.4

58 Libya .............................4.7 1.7

60 Jordan...........................4.7 1.5

64 Mexico..........................4.7 1.3

66 Morocco .......................4.6 1.6

90 Qatar .............................4.3 1.4

93 Oman............................4.2 1.2

95 Algeria...........................4.2 1.3

114 Mauritania .....................3.7 2.1


8.01Local supplier quantity

Local suppliers in your country are (1 = largely nonexistent, 7 = numerous and include the most important materials, components,equipment, and services)


2 Japan ............................6.4 0.7

10 United States................5.9 1.2

17 Norway .........................5.7 0.7

25 Singapore......................5.4 0.9

28 India ..............................5.3 1.2

33 Tunisia...........................5.0 0.9


37 Brazil .............................4.9 1.2

38 Kuwait...........................4.9 1.4

39 Turkey ...........................4.8 1.0

51 Mexico..........................4.5 1.2

56 Egypt ............................4.4 1.5

57 Bahrain..........................4.4 1.6

65 China.............................4.2 1.2

68 Jordan...........................4.2 1.4


76 Syria ..............................3.9 1.3

78 Oman............................3.9 1.3

80 Morocco .......................3.8 1.5

82 Qatar .............................3.8 1.3

99 Algeria...........................3.5 1.2

100 Libya .............................3.5 1.6

111 Mauritania .....................3.3 1.8


8.02Local supplier quality

The quality of local suppliers in your country is (1 = poor as they areinefficient and have little technological capability, 7 = very good asthey are internationally competitive and assist in new product andprocess development)

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2 Japan ............................6.4 0.9

13 United States................5.7 1.2

14 Singapore......................5.6 0.9

16 Norway .........................5.5 0.7

25 Qatar .............................4.8 1.6


32 Brazil .............................4.5 1.1

33 India ..............................4.4 1.2

37 Tunisia...........................4.4 1.0

43 Turkey ...........................4.1 1.1

44 Kuwait...........................4.1 1.5

48 Bahrain..........................3.9 1.7

49 Mexico..........................3.9 1.1

50 Oman............................3.9 1.3

66 Jordan...........................3.5 1.3


74 Egypt ............................3.3 1.4

80 Morocco .......................3.2 1.5

81 Mauritania .....................3.1 1.5

85 Algeria...........................3.1 1.4

90 China.............................3.0 1.2

93 Syria ..............................3.0 1.2

101 Libya .............................2.8 1.5


8.03Production process sophistication

Production processes use (1 = labor-intensive methods or previousgenerations of process technology, 7 = the world’s best and most effi-cient process technology)


2 United States................6.3 1.1

7 Japan ............................6.0 0.8

22 Singapore......................5.5 0.9

25 Norway .........................5.5 1.0

29 India ..............................5.4 1.3


32 Brazil .............................5.3 1.2

40 Mexico..........................5.0 1.0

42 Kuwait...........................4.9 1.4

53 Turkey ...........................4.7 1.1

55 Tunisia...........................4.6 1.2

65 Bahrain..........................4.3 1.3

71 Oman............................4.0 1.4

74 Morocco .......................4.0 1.5

77 Qatar .............................3.9 1.4

82 Jordan...........................3.8 1.3

83 China.............................3.7 1.3


90 Egypt ............................3.6 1.5

104 Syria ..............................3.2 1.3

110 Mauritania .....................3.1 1.7

118 Algeria...........................3.0 1.4

124 Libya .............................2.5 1.5


8.04Extent of marketing

The extent of marketing in your country is (1 = limited and primitive, 7= extensive and employs the world’s most sophisticated tools andtechniques)

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1 Japan ............................5.5 1.0

6 United States................5.3 1.3

17 Kuwait...........................4.9 1.5

19 Libya .............................4.8 1.6

21 Syria ..............................4.8 1.7

25 Norway .........................4.7 1.0

26 Oman............................4.6 1.5

28 India ..............................4.6 1.3

29 Tunisia...........................4.6 1.1

31 Egypt ............................4.5 1.6

32 Turkey ...........................4.5 1.2


42 Brazil .............................4.3 1.4

46 Jordan...........................4.3 1.5

47 Bahrain..........................4.3 1.8

50 Singapore......................4.2 1.2

55 Qatar .............................4.1 1.7

66 China.............................3.9 1.5

72 Mexico..........................3.9 1.3

77 Morocco .......................3.8 1.7


98 Mauritania .....................3.6 1.9

102 Algeria...........................3.4 1.6


8.05Control of international distribution

International distribution and marketing from your country (1 = takesplace through foreign companies, 7 = is owned and controlled bylocal companies)


6 Norway .........................5.6 1.0

8 United States................5.5 1.3

15 Japan ............................5.2 1.0

25 Singapore......................4.6 1.2

30 India ..............................4.3 1.3

32 Tunisia...........................4.1 1.1

35 Qatar .............................4.0 1.7

39 Brazil .............................4.0 1.4


45 Mexico..........................3.8 1.3

50 Turkey ...........................3.8 1.2

56 Oman............................3.6 1.5

63 Kuwait...........................3.5 1.5

68 Bahrain..........................3.4 1.8

72 China.............................3.4 1.5

78 Jordan...........................3.3 1.5


89 Egypt ............................3.1 1.6

96 Morocco .......................3.0 1.7

97 Mauritania .....................3.0 1.9

109 Syria ..............................2.7 1.5

115 Algeria...........................2.6 1.6

116 Libya .............................2.6 1.7


8.06Willingness to delegate authority

Willingness to delegate authority to subordinates is (1 = low—topmanagement controls all important decisions, 7 = high—authority ismostly delegated to business unit heads and other lower level managers)

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3 Japan ............................6.1 1.3

14 United States................5.4 1.3

18 Singapore......................5.2 1.0

21 Norway .........................5.1 1.7

26 Tunisia...........................4.2 1.3

37 Qatar .............................3.8 1.8


46 India ..............................3.6 1.4

47 Kuwait...........................3.6 1.7

48 Mauritania .....................3.6 1.6

62 Egypt ............................3.4 1.6

67 Mexico..........................3.4 1.3

69 Bahrain..........................3.3 1.7

70 Jordan...........................3.3 1.4

73 Turkey ...........................3.2 1.1

74 China.............................3.2 1.7

80 Oman............................3.1 1.8

83 Morocco .......................3.1 1.6

87 Brazil .............................3.0 1.3

94 Libya .............................2.9 1.6

99 Algeria...........................2.8 1.3

102 Syria ..............................2.8 1.4



8.07Nature of competitive advantage

Competitiveness of your country’s companies in international marketsis primarily due to (1 = low cost or local natural resources, 7 = uniqueproducts and processes)


3 Japan ............................6.4 0.9

15 United States................5.7 1.2

16 Singapore......................5.7 1.0

22 India ..............................5.1 1.2

29 Tunisia...........................4.7 1.0

37 Turkey ...........................4.1 1.2

38 Mexico..........................4.1 1.2

44 Egypt ............................4.0 1.7

45 Norway .........................4.0 1.7


53 Oman............................3.8 1.4

55 Jordan...........................3.7 1.5

56 Brazil .............................3.7 1.4

57 China.............................3.7 1.5

62 Qatar .............................3.6 1.9

66 Kuwait...........................3.4 1.8

71 Morocco .......................3.4 1.8

73 Syria ..............................3.4 1.6

77 Bahrain..........................3.2 1.7

88 Mauritania .....................3.0 1.9

113 Libya .............................2.5 1.6


118 Algeria...........................2.4 1.4


8.08Value chain presence

Exporting companies in your country (1 = are primarily involved inresource extraction or production, 7 = not only produce but also performproduct design, marketing sales, logistics, and after-sales services)

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Data Tables

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2 United States................6.0 1.2

5 Japan ............................5.8 0.7

10 Singapore......................5.5 0.8

14 India ..............................5.3 1.0

18 Norway .........................5.1 0.9


33 Tunisia...........................4.4 1.4

36 Brazil .............................4.3 1.2

49 Qatar .............................4.0 1.2

54 Mexico..........................3.9 1.2

55 Turkey ...........................3.9 1.1

57 Kuwait...........................3.9 1.3


63 China.............................3.7 1.1

74 Jordan...........................3.6 1.3

83 Morocco .......................3.4 1.5

85 Algeria...........................3.4 1.3

92 Libya .............................3.3 1.4

96 Egypt ............................3.2 1.5

103 Oman............................3.1 1.3

109 Syria ..............................2.9 1.3

120 Bahrain..........................2.6 1.2

128 Mauritania .....................1.7 1.3


9.01Quality of scientific research institutions

Scientific research institutions in your country (e.g., university laboratories, government laboratories) are (1 = nonexistent, 7 = the best in their fields internationally)


2 Japan ............................6.1 1.0

3 United States................5.8 1.2

11 Singapore......................4.9 1.1

19 Norway .........................4.6 1.1

25 India ..............................4.2 1.1

30 Brazil .............................3.8 1.3

36 Tunisia...........................3.7 1.6

39 China.............................3.6 1.2

42 Qatar .............................3.4 1.4



60 Mexico..........................3.2 1.0

62 Turkey ...........................3.2 1.1

75 Morocco .......................3.0 1.6

81 Kuwait...........................2.9 1.5

86 Oman............................2.9 1.6

92 Algeria...........................2.8 1.4

96 Jordan...........................2.7 1.2

99 Egypt ............................2.7 1.5

108 Syria ..............................2.6 1.2

118 Libya .............................2.3 1.5

119 Bahrain..........................2.3 1.2

128 Mauritania .....................1.7 1.1


9.02Company spending on research and development

Companies in your country (1 = do not spend money on research and development, 7 = spend heavily on research and developmentrelative to international peers)

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4 United States................5.5 1.4

8 Singapore......................5.2 1.0

9 Japan ............................5.2 1.1

18 Norway .........................4.6 1.3

27 China.............................3.9 1.3

32 Tunisia...........................3.7 1.5

34 India ..............................3.6 1.3

40 Mexico..........................3.5 1.3

42 Brazil .............................3.5 1.5

46 Turkey ...........................3.4 1.3



60 Qatar .............................3.1 1.6

66 Morocco .......................3.0 1.7

84 Jordan...........................2.8 1.4

85 Kuwait...........................2.8 1.4

86 Oman............................2.7 1.4

95 Egypt ............................2.6 1.5

97 Libya .............................2.5 1.7

104 Algeria...........................2.5 1.2

117 Syria ..............................2.2 1.3

124 Bahrain..........................1.8 1.1

127 Mauritania .....................1.6 1.3


9.03University-industry research collaboration

In its R&D activity, business collaboration with local universities is (1 = minimal or nonexistent, 7 = intensive and ongoing)


1 Singapore......................5.5 1.1

4 Tunisia...........................5.0 1.0

5 Japan ............................5.0 1.0

10 United States................4.8 1.4


19 Mauritania .....................4.5 2.3

21 China.............................4.4 1.3

24 Qatar .............................4.4 1.5

34 Norway .........................4.1 1.3

35 Oman............................4.1 1.9

36 Algeria...........................4.1 1.7

41 India ..............................4.0 1.4

59 Brazil .............................3.9 1.4

60 Bahrain..........................3.8 1.4

63 Turkey ...........................3.8 1.3

65 Morocco .......................3.8 1.6

78 Mexico..........................3.6 1.5


84 Egypt ............................3.5 1.5

86 Jordan...........................3.5 1.5

97 Libya .............................3.4 1.9

102 Kuwait...........................3.2 1.7

113 Syria ..............................3.0 1.7


9.04Government procurement of advanced technology products

Government purchase decisions for the procurement of advancedtechnology products are (1 = based solely on price, 7 = based ontechnical performance and innovativeness)

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2 Japan ............................6.3 0.7

4 India ..............................6.2 0.7

10 Tunisia...........................5.8 1.0

15 Singapore......................5.6 0.9

18 United States................5.5 1.2

20 Morocco .......................5.4 1.1

21 Algeria...........................5.4 1.3

25 Norway .........................5.3 0.9

26 Jordan...........................5.3 1.4

40 Egypt ............................4.9 1.5

43 Syria ..............................4.8 1.6

45 Turkey ...........................4.8 1.3


62 Brazil .............................4.5 1.4

64 Kuwait...........................4.5 1.4

72 Libya .............................4.3 1.6

76 Oman............................4.2 1.4

80 Mauritania .....................4.2 1.8

83 Qatar .............................4.1 1.3


88 Mexico..........................4.0 1.3

89 China.............................4.0 1.3

99 Bahrain..........................3.8 1.6


9.05Availability of scientists and engineers

Scientists and engineers in your country are (1 = nonexistent or rare,7 = widely available)


1 United States...................250.3

2 Japan ...............................236.9

12 Singapore ..........................80.5

19 Norway ..............................47.8

37 Kuwait .................................1.1


42 Mexico.................................0.7


50 Brazil ....................................0.4

54 India.....................................0.3

55 Oman...................................0.3

58 China ...................................0.3

70 Tunisia..................................0.1

71 Turkey ..................................0.1

72 Egypt ...................................0.1

77 Morocco ..............................0.0

80 Algeria .................................0.0

80 Bahrain ................................0.0

80 Jordan..................................0.0

80 Libya ....................................0.0

80 Mauritania............................0.0

80 Qatar....................................0.0

80 Syria.....................................0.0

SOURCE: US Patent and Trademark Office (March 2006)

9.06Utility patents

Number of utility patents (i.e., patents for invention) granted betweenJanuary 1 and December 31, 2005, per million population

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9 Singapore......................6.0 0.9

12 Japan ............................5.9 1.1

14 Norway .........................5.8 1.0

17 United States................5.7 1.5

23 Oman............................5.3 1.4

28 Qatar .............................4.8 1.4


31 Tunisia...........................4.6 1.4

35 India ..............................4.5 1.5

43 Jordan...........................4.2 1.5

47 Bahrain..........................4.1 1.6

54 Morocco .......................3.8 1.7

55 Mexico..........................3.8 1.5

59 Kuwait...........................3.6 1.7

63 Egypt ............................3.6 1.7

64 Brazil .............................3.5 1.5

72 Turkey ...........................3.3 1.4

73 Algeria...........................3.3 1.6

75 China.............................3.3 1.4

78 Mauritania .....................3.3 1.4

91 Syria ..............................2.9 1.4

95 Libya .............................2.8 1.9



9.07Intellectual property protection

Intellectual property protection in your country (1 = is weak or nonexistent, 7 = is equal to the world’s most stringent)


2 Japan ............................6.0 0.8

9 United States................5.5 1.2

15 Norway .........................5.0 1.1

24 Singapore......................4.6 1.3

28 India ..............................4.3 1.3

29 Brazil .............................4.1 1.2

31 Tunisia...........................4.1 1.3

43 China.............................3.6 1.3

47 Turkey ...........................3.5 1.2


56 Mexico..........................3.3 1.1

61 Qatar .............................3.2 1.7


75 Jordan...........................2.9 1.2

77 Mauritania .....................2.9 2.2

84 Egypt ............................2.9 1.4

93 Morocco .......................2.7 1.4

108 Syria ..............................2.5 1.3

110 Oman............................2.5 1.6

112 Kuwait...........................2.5 1.5

117 Libya .............................2.4 1.6

122 Bahrain..........................2.4 1.2

123 Algeria...........................2.3 1.2


9.08Capacity for innovation

Companies obtain technology (1 = exclusively from licensing or imitating foreign companies, 7 = by conducting formal research andpioneering their own new products and processes)

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The data used in this Report represent the best availableestimates from various national authorities, internationalagencies, and private sources at the time the Report wasprepared. It is possible that some data will have beenrevised or updated by national sources after publication.Throughout the statistical tables in this publication,“n/a” denotes that the value is not available, or thatavailable data are unreasonably outdated or do not comefrom a reliable source.

The following section provides additional informa-tion and definitions for the hard data indicators thatenter the composition of the updated GlobalCompetitiveness Index 2007 and are presented in theData Tables section of this Report.

Infrastructure

2.06 Telephone lines

Main telephone lines per 100 inhabitants, 2005A main telephone line is a telephone line connecting the sub-scriber’s terminal equipment to the public switched telephonenetwork and that has a dedicated port in the telephoneexchange equipment.

Source: International Telecommunication Union, WorldTelecommunication Indicators 2006

Macroeconomy

3.01 Government balance

Government fiscal surplus/deficit as a percentage of GDP,2005 or most recent year availableSource: International Monetary Fund, World Economic OutlookDatabase, April 2006

3.02 National savings rate

National savings rate as a percentage of GDP, 2005 or most recent year availableSource: International Monetary Fund, World Economic Outlook,April 2006 (Published Version)

3.03 Inflation

Annual percent change in consumer price index, average for 2005Source: International Monetary Fund, World Economic OutlookDatabase, April 2006

3.04 Interest rate spread

Average interest rate spread, 2005This measures the difference between the typical short-termlending and deposit rates over the 2005 period.

Source: International Monetary Fund, International FinancialStatistics

3.05 Government debt

Net domestic and external debt contracted by the government in percent of GDP, 2005Source: International Monetary Fund

3.06 Real effective exchange rate

Real effective exchange rate in 2005 relative to the1997–2004 averageSource: International Monetary Fund, INS Database, June 2006

Health and primary education

4.04 Infant mortality

Infant (children aged 0 to 11 months) mortality per 1,000live births, 2004Source: World Health Organization, World Health Statistics2006

4.05 Life expectancy

Life expectancy at birth (years), 2004Source: World Health Organization, World Health Report 2006

4.06 Tuberculosis prevalence

Estimated number of tuberculosis cases per 100,000 inhabitants, 2004Source: World Health Organization, World Health Statistics2006, World Health Report 2006

4.07 Malaria prevalence

Estimated number of malaria cases per 100,000 inhabitants,2004Source: UNICEF and World Health Organization, World MalariaReport 2005; World Health Organization Regional Offices;United Nations Population Fund, State of World Population 2005

4.08 HIV prevalence

HIV prevalence rate for population aged 15 to 49, 2003 ormost recent year availableSource: World Health Organization, World Health Statistics2006 and World Health Report 2006 Edition

4.09 Primary enrollment

Net primary education enrollment rate, 2004 or most recent year availableAccording to the World Bank’s World Development Indicators,this corresponds to the ratio of children of official school age(as defined by the national education system) who are enrolledin school to the population of the corresponding official schoolage. Primary education provides children with basic reading,writing, and mathematics skills along with an elementary under-standing of such subjects as history, geography, natural science,social science, art, and music.

Source: UNESCO Institute for Statistics; United NationsStatistics Division

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Higher education and training

5.01 Secondary enrollment

Gross secondary education enrollment rate, 2004 or mostrecent year availableAccording to the World Bank’s World Development Indicators,this corresponds to the ratio of total enrollment, regardless ofage, to the population of the age group that officially corre-sponds to the secondary education level. Secondary educationcompletes the provision of basic education that began at theprimary level, and aims at laying the foundations for lifelonglearning and human development by offering more subject- orskill-oriented instruction using more specialized teachers.

Source: UNESCO Institute for Statistics; national sources

5.02 Tertiary enrollment

Gross tertiary education enrollment rate, 2004 or mostrecent year availableAccording to the World Bank’s World Development Indicators,this corresponds to the ratio of total enrollment, regardless ofage, to the population of the age group that officially corre-sponds to the tertiary education level. Tertiary education,whether or not leading to an advanced research qualification,normally requires, as a minimum condition of admission, thesuccessful completion of education at the secondary level.

Source: UNESCO Institute for Statistics; The World Bank, WorldDevelopment Indicators 2006

Market efficiency

6.04 Number of procedures required to start a business

Number of administrative procedures required to start abusiness, 2006Source: The World Bank, Doing Business 2007: How to Reform(2006)

6.05 Time required to start a business

Number of days required to start a business, 2006Source: The World Bank, Doing Business 2007: How to Reform(2006)

6.08 Imports

Imports of goods and services as a percentage of GDP, 2005Source: Economist Intelligence Unit, CountryData Database(June 2006)

6.11 Exports

Exports of goods and services as a percentage of GDP, 2005Source: Economist Intelligence Unit, CountryData Database(June 2006)

Technological readiness

7.05 Mobile telephone subscribers

Mobile telephone subscribers per 100 inhabitants, 2005The term subscribers refers to users of mobile telephones sub-scribing to an automatic public mobile telephone service thatprovides access to the public switched telephone networkusing cellular technology. This can include analogue and digitalcellular systems but should not include noncellular systems.Subscribers to fixed wireless, public mobile data services, orradio paging services are not included.

Source: International Telecommunication Union, WorldTelecommunication Indicators 2006

7.06 Internet users

Internet users per 10,000 inhabitants, 2005 or most recentyear availableInternet users are people with access to the worldwide network.

Source: International Telecommunication Union, WorldTelecommunications Indicators 2006

7.07 Personal computers

Personal computers per 100 inhabitants, 2005 or mostrecent year availableAccording to the World Bank, personal computers are self-contained computers designed to be used by a single individual.

Source: International Telecommunication Union, WorldTelecommunications Indicators 2006

Innovation

9.06 Utility patents

Number of utility patents (i.e., patents for invention) grant-ed between January 1 and December 31, 2005, per millionpopulationUtility patents are recorded such that the origin of the patent isdetermined by the first-named inventor at the time of the grant.Patents per million population are calculated by dividing thenumber of patents granted to a country in 2005 by that coun-try’s population in the same year.

Source: The United States Patent and Trademark Office (March2006); United Nations Population Fund, State of WorldPopulation 2005

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Salem Ben Nasser Al-Ismaily

Salem Ben Nasser Al-Ismaily was educated in the UnitedKingdom and the United States, where he was awardeddegrees in telecommunications, liberal arts, industrialengineering, business administration, and philosophy. AlIsmaily was the Managing Director of Public Establishmentof Industrial Estates from 1986 to 1996. In 1996, he wastasked to establish The Omani Center for InvestmentPromotion and Export Development (OCIPED), where heserves as its Vice Chairman and CEO. In 2003 Al-Ismailyfounded the International Research Foundation, an eco-nomic think tank that is a nongovernmental, nonprofitorganization. He also serves in his personal capacity on anumber of boards and as a director in many oil and finan-cial services companies.

Amjad Attar

Amjad Attar is the Director of the Jordan’s NationalCompetitiveness Team and head of the EvaluationDivision at the Ministry of Planning & InternationalCooperation in Jordan. Mr Attar has extensive experiencein designing, managing, and evaluating different develop-ment programs and projects in Jordan and has broadknowledge in different performance managementapproaches and methodologies. He participated in theInternational Program for Development EvaluationTraining (IPDET) in Ottawa, Canada, in 2003 and 2004. Heis also a member in the International DevelopmentEvaluation Association (IDEAS). Currently Mr. Attar isleading a mission with an international consortium toestablish the Jordan Competitiveness Observatory underthe Jordan National Competitiveness Team. TheObservatory will be an institutionalized system that con-tinuously assesses and measures the Jordan’s competi-tiveness by evaluating the competitiveness of its sectorsand the environment in which they operate. Mr Attar hasa Master’s degree in Agricultural Economics &Agribusiness.

Jennifer Blanke

Jennifer Blanke is Associate Principal and SeniorEconomist with the Global Competitiveness Network atthe World Economic Forum. She has written and lecturedextensively on issues related to national competitiveness.Previously, from 1998 to 2001, she was SeniorProgramme Manager responsible for developing theBusiness, Management and Technology section of theWorld Economic Forum’s Annual Meeting in Davos.Before joining the Forum, Dr Blanke worked for a numberof years as a Management Consultant for Eurogroup,Mazars Group in Paris, France, where she specialized inbanking and financial market organization. Dr Blankeobtained a Master’s of International Affairs from ColumbiaUniversity and an MA and a PhD in InternationalEconomics from the Graduate Institute of InternationalStudies (Geneva).

Mario I. Blejer

Mario I. Blejer is currently the Director of the Centre forCentral Banking Studies at the Bank of England. He isalso a member of the Financial Stability Board andAdvisor to the Governor. During 2001–02 he was DeputyGovernor and then Governor of the Central Bank ofArgentina. Previously he served for 21 years at theInternational Monetary Fund, where he was SeniorAdvisor at the Monetary and Exchange Affairs and theAsian Departments, working also in the European, Fiscaland Research Departments. Dr Blejer held the WaltherRathenau Chair in Economics at the Hebrew University ofJerusalem (1996–1999) and has taught at BostonUniversity, New York University, Johns HopkinsUniversity, the University of Geneva, and GeorgeWashington University. He also held recurrent positionsas a professor at Universidad de San Andrés, BuenosAires, Argentina, and the Central European University,Budapest. He received his BA and MA from the HebrewUniversity of Jerusalem and his PhD from the Universityof Chicago. He has published numerous books and arti-cles in specialized journals.

Nadia Boulifa

Nadia Boulifa is Manager with the Middle East and NorthAfrica team and Country Programme Manager with theGlobal Education Initiative (GEI) at the World EconomicForum. She is in charge of developing the Forum’s rela-tionships with North African private and public sectors aswell as those in Egypt, Lebanon, and Syria. She also man-ages the public-private partnerships in education inJordan (JEI), Egypt (EEI), and the Palestinian Territories(PEI). Before joining the World Economic Forum, MsBoulifa worked as a consultant on several research proj-ects in the region with the Graduate Institute ofDevelopment Studies of Geneva, where she accom-plished her Master’s degree in Middle East Studies. Sheconducted her field research on food security in thePalestinian Territories where she spent one year.

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About the Authors

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Omran Bukhres

Omran Bukhres is the Executive Director of the ExecutiveCommittee of the National Economic Strategy (NES),Libya, and has been working with the NES since itsinception in early 2005. He is in charge of the oversight ofnumerous significant public policy and reform initiativesbeing carried out under the committee. In addition, DrBukhres is a Professor of Information Technology andComputer Science at Purdue University, Indiana, USA.Prior to joining Purdue he spent time teaching and con-ducting research at a number of other American universi-ties, including the universities of Minnesota and NorthDakota, where he obtained his PhD. He has worked as aconsultant for a number of governments, including thoseof Japan, Australia, and the United States, and is a mem-ber of various organizations and boards such as theInternational Revision Committee of the NationalAcademy of Science in Portugal and Austria. He hasauthored and co-authored 3 books, 70 articles, and 12book chapters, with a particular focus in distributed infor-mation systems.

Nicholas Davis

Nicholas Davis is a Manager and Global LeadershipFellow with the Scenario Planning Team at the WorldEconomic Forum and managed the production of TheGulf Cooperation Council (GCC) Countries and the World:Scenarios to 2025 project. Before joining the Forum,Nicholas was an Economic Consultant with OxfordInvestment Research where, as a Director, he advisedindustrialized and developing countries on FDI policy.Nicholas has a degree in Law from the University ofSydney and an MBA from the University of Oxford.

Nuhad Dimashkiyyah

Nuhad Dimashkiyyah is Senior Economist and Director of Competitiveness Project at the UNDP BusinessDevelopment Programme. She is responsible for enhanc-ing awareness of economic competitiveness and bringingit within the priorities of Syrian National DevelopmentAgenda. Before joining UNDP Programme she worked ona number of business development projects as SeniorEconomic & Business consultant for UNIDO and theEuropean Commission: Industrial Development Strategy,Small & Medium Enterprise Survey and DevelopmentPolicies, Economic Integration versus Free TradeCooperation, and Steps to Reform Business LegislativeFramework. Dr Dimashkiyyah received her BA inEconomics (Statistics) and her MA (Econometric Models)degrees from the American University of Beirut, andholds a PhD in Industrial Organization from DamascusUniversity in Syria.

Soumitra Dutta

Soumitra Dutta is the Roland Berger Chaired Professor ofBusiness and Technology, and Dean of External Relationsat INSEAD. Professor Dutta obtained his PhD inComputer Science and his MSc in BusinessAdministration from the University of California atBerkeley. His current research is on technology strategyand innovation at both corporate and national policy lev-els. His latest books are The Global InformationTechnology Report 2005–2006: Leveraging ICT forDevelopment (Palgrave Macmillan, March 2006) and TheInformation Society in an Enlarged Europe (Springer,February 2006). He has authored seven other booksincluding The Bright Stuff (Financial Times/Prentice Hall,2002) and Embracing the Net (Financial Times, 2001). Hehas won several awards for research and pedagogy,including awards for the European Case of the Year fromthe European Case Clearing House in 1995, 1997, 1998,2000, and 2002. His research has been showcased in theinternational media and he has taught in and consultedwith international corporations across the world. He is afellow of the World Economic Forum.

Paul Dyer

Paul D. Dyer is a Research Associate at the Dubai Schoolof Government. Before joining the school in 2006, MrDyer worked with the World Bank for four years as a con-sultant in the Office of the Chief Economist, Middle Eastand North Africa Region. He received a Master’s in ArabStudies with a concentration in economics and develop-ment from Georgetown University, where he was theSheikh Sultan bin Mohamed Al Qassemi Scholar. Hisresearch focuses on labor markets and youth issues inthe Middle East and North Africa. Mr Dyer is also aResearch Associate at the Belfer Center for Science andInternational Affairs at the Kennedy School ofGovernment, Harvard University.

Sherif El Diwany

Sherif El Diwany is currently Director, Middle East at theWorld Economic Forum. Before joining the Forum inJanuary 2005, he founded Public Interest Incorporated, anEgyptian public policy and business development consul-tancy with a focus on Middle Eastern countries; heworked in international business development in tradefacilitation and customs modernization, out of Geneva,since 2001. Sherif El Diwany has extensive experience inprivate-sector development, privatization, and businessplanning and is a former adviser to the World Bank, theUnited Nations, the European Union, and several interna-tional and Arab businesses. He is also a member of theAmerican Chamber of Commerce, the Egyptian-GermanChamber, and the Civil Forum. He received a BSc inArchitecture from Cairo University and a MSc in Planningfrom the University of Houston, Texas, USA.

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Mohammed El-Sakka

An Egyptian citizen and formerly a Professor in HelwanUniversity in Cairo, Mohammed El-Sakka is currently aProfessor of Economics at Kuwait University. He has awide range of publications in different areas of econom-ics. He has been a consultant in the Central Bank ofKuwait, the Ministry of Planning, and the Public Authorityfor Industry. He has been involved in several consultationprojects including participation in three economic develop-ment plans for Kuwait, the Kuwait CompetitivenessReport, numerous feasibility studies, and a wide range oftraining programs. He holds a PhD degree in Economicsfrom the University of Wales, UK.

Reyadh Faras

Reyadh Faras is an Assistant Professor of Economics inKuwait University. He has publications in a number ofeconomic fields, including public finance, internationaltrade, welfare economics, and monetary theory. His pro-fessional experience includes working with the Ministryof Finance and the Ministry of Commerce and Industry.He provided consultations on taxation, WTO, and public-private partnerships. He is the team leader of the KuwaitCompetitiveness Report, issued annually by KuwaitNational Competitiveness Committee. He received hisPhD degree in Economics from West Virginia University,USA.

Thierry Geiger

Thierry Geiger is an Economist with the GlobalCompetitiveness Network at the World Economic Forum.His responsibilities include the construction and computa-tion of a range of indexes as well as data analysis for vari-ous projects and studies. His main areas of expertise areeconometrics and international trade. Mr Geiger holds aBA in Economics from the University of Geneva with aspecialization in monetary and financial economics, andan MA in Economics from the University of BritishColumbia, in Vancouver. During his studies, he was aMember of the Board of Junior Entreprise Genève. He isalso Co-founder of Procab Studio S.A., an IT companybased in Geneva.

Simon Gray

Simon Gray has over 25 years of experience at the Bankof England. He joined the Bank’s Centre for CentralBanking Studies in September 2004, as a monetary oper-ations, securities and financial market development spe-cialist. He has previous experience in the Bank’s marketsdivision, and has provided technical assistance to a num-ber of central banks around the world. He also has experi-ence in issues relating to payment and settlement sys-tems. He has worked with a number of Arab centralbanks; and immediately prior to joining CCBS was SeniorAdvisor to the Central Bank of Iraq.

Maher Hammoud

Maher Hammoud is a Senior Associate with Booz AllenHamilton, based in the firm’s Beirut office. He has partici-pated in various strategy, business-planning, and organiza-tional development assignments, specializing in the finan-cial services industry. A dual Lebanese-Canadian citizen,Mr Hammoud is fluent in English and Arabic. He holds aBachelor of Science degree in Chemistry from SaintMary’s University in Canada, a Master’s in Finance fromLondon Business School, and an MBA from the LebaneseAmerican University.

Margareta Drzeniek Hanouz

Margareta Drzeniek Hanouz is Senior Economist with theGlobal Competitiveness Network at the World EconomicForum, where she researches and writes on issues ofnational competitiveness, in particular related to the Arabworld. Earlier on, she oversaw the economic modeling forsome of the Forum’s scenario projects and was chargedwith developing the economics section of the programfor the World Economic Forum’s Annual Meeting inDavos. Before joining the Global Competitiveness TeamDr Hanouz worked for several years with the InternationalTrade Centre in Geneva, where she was in charge of rela-tions with Central and Eastern European countries. In thiscapacity she advised governments and developed andimplemented programs to strengthen the internationalcompetitiveness of businesses in the region. Dr Hanouzreceived a diploma in Economics from the University ofMünster and holds a PhD in International Economics fromthe University of Bochum, both in Germany.

Chiemi Hayashi

Chiemi Hayashi is a Manager and Global LeadershipFellow with the Scenario Planning Team at the WorldEconomic Forum. Prior to the deep-dive scenarios on theGulf Cooperation Council (GCC) Countries and the World:Scenarios to 2025, she worked on an industry scenario,Technology and Innovation in Financial Services:Scenarios to 2020. Before joining the Forum, Ms Hayashiworked at Goldman Sachs (Japan) Ltd. where she man-aged cross-regional, cross-divisional projects ranging fromJapanese government bonds to derivatives. Chiemi holdsan MPhil in Development Studies at the University ofCambridge, a diploma in International Business atUniversity of California, Berkeley, and a BA inInternational Studies at International Christian Universityin Japan.

Viktor Hediger

Viktor Hediger is an Associate Principal with McKinsey’sMiddle East office. He has served health-care clients inthe Middle East, the GCC, the United States, and Europeover the past seven years. His main focus is health-caresystem design and reform, particularly with regard tohealth-care cost management, regulatory environment,and hospital service delivery and governance He holds anMD PhD and an MPH from the Harvard School of PublicHealth.

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Zeinab Karake-Shalhoub

Zeinab Karake-Shalhoub is a Professor of Managementand Information Systems in the School of Business andManagement at the American University in Sharjah,United Arab Emirates. She was the Associate Dean ofthe School of Business and Management (2000–2004).Zeinab served on the Faculty of Catholic University(1989–2001) and George Washington University (GWU)(1986–1989) both in Washington, DC. She has a PhD inInformation and Decision Systems from GWU (1987). DrKarake-Shalhoub is the author of more than 27 publishedarticles (many received international awards) and 5 books;the latest, The Diffusion of Electronic Commerce inDeveloping Economies, coauthored with Sheikha LubnaAl Qasimi, UAE Minister of Economy, was published inNovember 2006. She is also the regional editor ofManagement Decision Journal. In addition to her work asa college administrator, professor, writer, and editor, DrKarake-Shalhoub has developed and delivered a numberof seminars and training programs for mid- and high-levelAmerican and international managers, both in the UnitedStates and abroad. She delivered keynote speeches at anumber of international conferences and serves as a con-sultant and resource specialist for a number of nationaland international companies, institutions, and NGOs.

Sofiane Khatib

Sofiane Khatib is a Manager with the Middle East Teamat the World Economic Forum. Prior to joining the Forum,Mr Khatib was Economic Adviser at the Spanish Ministryof Foreign Affairs, where he was in charge of policy for-mulation in the field of finance for development, and wasa member of the OECD Working Group on DevelopmentAid Effectiveness. He also worked for the Analysis Unitof the Office of the President of the Government ofSpain, writing a policy paper on immigration integration.Previously Mr Khatib spent several years as aManagement Consultant at Booz Allen Hamilton workingon projects in Europe, North Africa, and the Middle East.He holds a Bachelor’s degree in Business Administrationfrom ICADE (Spain) and a Master’s in Political Economyfrom Stanford University in California.

Ulrich Koegler

Ulrich Koegler is a Principal with Booz Allen Hamilton,based in the firm’s Düsseldorf office. He has led and par-ticipated in a number of assignments covering strategydevelopment, organization design, process redesign,restructuring, and implementation for global and regionalpostal and logistics players, as well as for leading rail-ways. In sum, Mr Koegler has more than 10 years of con-sulting experience through various projects in the MiddleEast, Europe, and North America. Dr Koegler holds a PhDin Physics from the University of Düsseldorf, Germany,and a Diploma in Physics from the University ofGöttingen, Germany.

Simon Kuge

Simon Kuge is a Senior Associate with Booz AllenHamilton, based in the firm’s Munich office. Mr Kuge is amember of the Global Transportation practice within BoozAllen Hamilton, focusing on postal and logistics compa-nies and transportation providers, as well as railways.Overall, Mr Kuge has more than five years of consultingexperience through various projects—mainly in Europe,the Middle East, and North Africa. During the last fewyears, he has been managing several assignments in thearea of logistics and transportation across differentmodes in the MENA region. Mr Kuge holds a Master’sdegree in International Business Administration from theUniversity of Bamberg, Germany, and the University ofBarcelona, Spain.

Toby Lambert

Toby Lambert is an Engagement Manager withMcKinsey’s London office. Over the past four years hehas served health-care clients across the Middle East,Europe, and South America, with a focus on systemreform, system management, and extending the role ofthe private sector. He holds an MA and an MPhil from theUniversity of Oxford.

Robert Z. Lawrence

Robert Z. Lawrence is the Albert L. Williams Professor ofTrade and Investment at the John F. Kennedy School ofGovernment at Harvard University and a NonresidentSenior Fellow with the Peterson Institute for InternationalEconomics. He was appointed by President Clinton toserve as a member of his Council of Economic Advisersin 1999. He held the New Century Chair as a NonresidentSenior Fellow at the Brookings Institution and foundedand edited the Brookings Trade Forum. Lawrence hasbeen a Senior Fellow in the Economic Studies Program atBrookings (1983–91), a professorial lecturer at the JohnsHopkins School of Advanced International Studies(1978–81), and an instructor at Yale University (1975). Hehas served as a consultant to the Federal Reserve Bankof New York, the World Bank, the OECD, and UNCTAD.He is the author of more than 100 papers and articles ontopics in the field of international economics, particularlyon global integration, trade in the Middle East, and theimpact of trade on the labor market. He is also the authoror coauthor of several books, including US-Middle EastTrade Agreements: A Circle of Opportunity (2006), CaseStudies in US Trade Negotiation (2006), AnchoringReform with a US-Egypt Free Trade Agreement (2005),Has Globalization Gone Far Enough? The Costs ofFragmented Markets (2004), Crimes and Punishment?Retaliation under the WTO (2003), and Globaphobia:Confronting Fears about Open Trade (BrookingsInstitution Press; 1998).

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Fadi Majdalani

Fadi Majdalani is a Vice President with Booz AllenHamilton, based in the firm’s Beirut office. He has led andparticipated in a number of assignments covering large-scale transformation, including strategy development indifferent transportation-related industries such as postaland logistics. Mr Majdalani has more than 12 years ofconsulting experience through various projects in theMiddle East, Europe and the United States. Mr Majdalaniholds a Bachelor of Engineering degree with distinctionfrom the American University of Beirut, a Master ofScience degree from the Massachusetts Institute ofTechnology, and an MBA from the Harvard BusinessSchool.

Irene Mia

Irene Mia is a Senior Economist with the GlobalCompetitiveness Network at the World Economic Forum.Her responsibilities include researching competitivenessissues. She is also an editor of The Global InformationTechnology Report and is responsible for competitivenessresearch in Latin America and Hiberia at the WorldEconomic Forum. Before joining the Forum, she workedat the Headquarters of Sudameris Bank in Paris for anumber of years, holding various positions in theInternational Affairs and International Trade Divisions. Hermain research interests are in the field of development,international trade and economic integration (with specialreference to the Latin American region), and competitive-ness. She has written and spoken extensively on issuesrelated to national competitiveness. Dr Mia holds an MAin Latin American Studies from the Institute of LatinAmerican Studies, London University, and a PhD inInternational Economic and Trade Law from BocconiUniversity in Italy.

Fouzi Mourji

Fouzi Mourji is Professor of Applied Econometrics at theFaculty of Law, Economics and Social Sciences at theUniversité Hassan II in Casablanca and a guest professorat a number of other universities (Université d’Auvergne,Université Paris 12 in France, and Université de Monréalin Canada). Among other tasks, he has acted as coordina-tor of the network “Economic Analysis andDevelopment” of the Agence Universitaire de laFrancophonie (AUF) since Januray 2003 and is a memberof the Committee for Cooperation for University andScientific Research (CORUS, established by the FrenchMinistry of Foreign Affairs) in the capacity of economicexpert. He is also a member of the Board of the AlAmana Association for the promotion of micro-enterpris-es. Professor Mourji is the author of several studies oninformal production and micro-finance.

Mona Mourshed

Mona Mourshed is a Partner with McKinsey’s MiddleEast office. She has served health-care clients in theMiddle East, the GCC, and Europe over the past fiveyears. Her main focus is health-care system reform, par-ticularly with regard to regulatory environment, primarycare effectiveness, and hospital service delivery and gov-ernance. She has a BA from Stanford and a PhD fromMIT.

Stéphane Oertel

Stéphane Oertel is a Global Leadership Fellow with theAfrica Programme at the World Economic Forum. He isco-responsible for program development, building region-al communities and developing the agenda for the WorldEconomic Forum Regional Summit on Africa. Before join-ing the Global Leadership Fellows Programme, heworked for several years as a development managementofficer for the United Nations based in Ethiopia,Switzerland, and Pakistan. Stéphane obtained hisBachelor’s degree in Human Sciences from the Universityof Oxford and holds a Master’s degree (Econ) inDevelopment Studies from the London School ofEconomics.

Amal Refaat

Amal Refaat is an Economist at the Egyptian Center forEconomic Studies (ECES). Before joining ECES, sheworked as an Economist at the Information and DecisionSupport Center of the Egyptian Cabinet. She is the authorof several working papers in the areas of trade policy, theinformal sector, privatization, and tax policy. She is also ateam member of the ECES Business Barometer—whichprovides a biannual assessment of the state of economicactivity in Egypt. She earned her MA in Economics fromthe American University in Cairo, and is currently pursuingher PhD at Cairo University.

Geoffrey Samuels

Geoffrey Samuels is a Research Associate at INSEAD. Heis a graduate of Stanford University and the KennedySchool of Government, Harvard University.

Rajeev Singh-Molares

Rajeev Singh-Molares is a Senior Partner and Director ofMonitor Group, where he is responsible for developingand managing client relationships in Europe, the MiddleEast, and Africa. He has also led many economic compet-itiveness projects, including the projects of MonitorGroup in Libya over the last 18 months. During his 14years at Monitor, he has also held a variety of executivepositions in North and South America. He has manageddomestic and international projects and relationships in avariety of industries including information management,telecommunications, financial services, and consumergoods and transport. His focus has been to help clientsaddress complex strategic issues of many types—includ-ing competitiveness, organizational structure, marketing,and industry evolution—and translate these into effectivesolutions. He has also worked on a variety of projects inthe public sector relating to pressing social issues, mostrecently in Southern Africa on the development of pre-vention strategies to contain the spread of HIV/AIDS. Heserved on the worldwide Board of Monitor from 1997 to2002. Before joining Monitor, he was in the InternationalDivision of Chemical Bank in New York. He is a magnacum laude graduate of Georgetown University’s School ofForeign Service and completed a Master’s degree inInternational Affairs at Yale University. Mr Singh-Molaresis a director of a variety of foundation and not-for-profitboards.

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Peter Vayanos

Peter Vayanos is a Vice President with Booz AllenHamilton, based in the firm’s Beirut office. He has partici-pated in a number of assignments covering strategydevelopment, organization design, process redesign, andimplementation for retail banks, private banks, and insur-ance companies. Overall, Mr Vayanos has more than 10years of consulting experience through various projects inthe Middle East, Europe, and the United Kingdom. MrVayanos holds Bachelor of Commerce and Bachelor ofCommerce Honors degrees from the University of CapeTown, South Africa, and an MBA from the MassachusettsInstitute of Technology Sloan School of Management.

Kenneth Wilson

Kenneth Wilson is a Professor of Economics and Directorof the Economic & Policy Research Unit (EPRU), ZayedUniversity, UAE. The EPRU undertakes research on allaspects of the UAE economy and is helping to build eco-nomic research capacity in the United Arab Emirates. DrWilson has undertaken research in a wide range ofapplied economic areas and has published widely in inter-national peer-reviewed journals on topics such as contin-gent protection, dumping and anti-dumping, intra-industrytrade, international competitiveness, tourism economics,and labor market issues. He also has considerable experi-ence in research project management and research train-ing and capacity building. Dr Wilson received his under-graduate education in Economics from La TrobeUniversity in Australia and his PhD from the University ofWisconsin-Milwaukee, USA.

Tarik Yousef

Dr Tarik M. Yousef is Dean of the Dubai School ofGovernment. He joined the school from GeorgetownUniversity where he has been an Associate Professor ofEconomics in the School of Foreign Service and Sheikh AlSabah Chair in Arab Studies at the Center forContemporary Arab Studies. He received his PhD inEconomics from Harvard University and specializes indevelopment economics and economic history with a par-ticular focus on the Middle East. Dr Yousef’s research andpolicy experience includes working at the Middle EastDepartment of the International Monetary Fund; theOffice of the Chief Economist in the Middle East andNorth Africa Region of the World Bank; and theMillennium Project at the United Nations. At present, heis a Senior Fellow in the Wolfensohn Center forDevelopment at the Brookings Institution and the BelferCenter for Science and International Affairs at theKennedy School of Government.

Sulaf Zakharia

Sulaf Zakharia joined the Economic Development Board(EDB) in Bahrain right after its inception in 2001. She cur-rently heads the Research Services Unit. Ms Zakharia’sresearch work for the EDB focuses on the Bahraini andGulf Cooperation Council (GCC) economies, the impact ofoil wealth on the social and economic development of theGCC states, foreign direct investment, the developmentof small- and medium-sized enterprises, and the develop-ment of the manufacturing sector in Bahrain. Ms Zakhariaholds an MBA in Finance from St. Mary’s University inCanada.

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Algeria

Centre de Recherche en Economie Appliquée pour leDéveloppement (CREAD)

Professor Yassine Ferfera, DirectorYoucef Benabdallah, Assistant Professor

Bahrain

Bahrain Competitiveness CouncilSulaf Zakharia, Secretary-General

Egypt

The Egyptian Center for Economic StudiesDr Hanaa Kheir-El-Din, Executive Director and

Director of ResearchAmal Refaat, Economist

Jordan

Ministry of Planning & International CooperationJordan National Competitiveness TeamAmjad Attar, Director

Kuwait

Economics Department, Kuwait UniversityDr Reyadh Faras, Assistant ProfessorDr Mohammed El-Sakka, ProfessorDr Mohammad Ali Alomar, Assistant Professor

Libya

National Economic StrategyProfessor Omran Bukhres, Director

Monitor GroupMr Rajeev Singh-Molares, Director

Mauritania

Centre d’Information Mauritanien pour le DéveloppementEconomique et Technique (CIMDET/CCIAM)

Moustapha Sidibé, DirectorChekroud Ould BouhakeAminata Niang

Morocco

Université Hassan IIFouzi Mourji, Professor of Economics

Oman

The International Research FoundationDr Salem Ben Nasser Al-Ismaily, ChairmanAzzan Al Busaidi, Chief Executive Officer

Qatar

Qatari Businessmen Association (QBA)Issa Abdul Salam Abu Issa, Secretary-GeneralBassam Ramzi Massouh, General ManagerAhmed El-Shaffee, Economist

Syria

Ministry of Economy and TradeDr Amer Housni Louitfi, Minister of Economy and Trade

State Planning CommissionDr Talal Bakfaloni, Deputy Head of State Planning Commission

UNDP DamascusDr Nuhad Dimashkiyyah, National Project Director “Towards

Changing the Mindset for Competitiveness”

Tunisia

Institut Arabe des Chefs d’EntreprisesFaycal Lakhoua, Conseiller


Economic & Policy Research Unit, Zayed UniversityDr Kenneth Wilson, Director

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The Arab Business Council (ABC) was formed at the World Economic Forum’s ExtraordinaryAnnual Meeting in Jordan, in June 2003, in response to concerns about the growing develop-ment gap between MENA countries and the developed world, as well as many developing coun-tries. The ABC now comprises 80 Arab business leaders and entrepreneurs who are committedto the mission of “Enhancing the Competitiveness of the Arab World,” helping equip their soci-eties to compete effectively in the global economy, and contributing to the development of anequitable regional and global society.

Today, in its fourth year, the ABC has become firmly established as an effective representa-tive of the Arab business community, regionally and globally. It works closely with regional gov-ernments and with those from G8 countries, India, and China, as well as with business leaders,international organizations, and civil society, on policy reform priorities in investment, trade, edu-cation, and the media and on promoting cultural exchange.

For more information on ABC activities, please visit www.weforum.org/abc.

Qatar Airways is one of the world’s fastest-growing airlines, achieving unprecedented growthaveraging 35 percent year on year.

It relaunched in 1997 under the guidance and vision of His Highness Sheikh Hamad BinKhalifa Al Thani, Emir of Qatar, whose mandate was clear—to create a premium quality airlinethat would excel in service and set industry standards, which others could only admire withenvy. Qatar Airways excels in leadership and innovation—it was the first in the world to pass theInternational Air Transport Association (IATA) Operational Safety Audit with a maximum 100 per-cent compliance in 2003.

Ten years on, under the leadership of Chief Executive Officer Akbar Al Baker, Qatar Airwayshas developed into an award-winning business, achieving a Five Star ranking for superior levelsof service both in the air and on the ground.

Today, Qatar Airways operates more than 70 scheduled routes worldwide with a modernfleet of more than 50 all-Airbus aircraft.

The World Economic Forum would like to thank the following organizations for their invaluable support of this Report.

Arab Business Council

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Arab World Competitiveness Report 2007

Documents

schwab world economic

selfcontained economic

senior economist ciara

senior economist aviva

head of middle east

middle east transport

senior adviser jennifer

economist irene mia