Commentary Type

The Arab Economies at a Tipping Point

Marcus Noland (PIIE) and Howard Pack (Wharton School)

Forthcoming article in Middle East Policy

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The Arab world is experiencing an economic boom of historic proportions. The tiny Persian Gulf emirate of Dubai is emblematic. Boasting the world’s only 7-star hotel, its massive land reclamation project, allegedly the only manmade structure visible from the moon, is whimsically creating parcels shaped like continents and palm trees. With oil hovering around $90 a barrel and the Egyptian stock market up 1,800 percent in the last five years, one might ask what problems does World Bank President Robert Zoellick perceive that would justify making the economic revitalization of the Arab world one of the cornerstones of his new administration. Look beneath the surface, however, and Zoellick’s judgment might not seem so misplaced.

The boom is being felt unevenly across the region. Two-thirds of Arabs do not live in major oil producing countries. Looking forward, the key issue over the next decade is the ability of these economies to generate jobs and rising living standards for the millions of young people joining the economy. Today the region has the world’s lowest employment rate—less than half of adults are formally employed. Yet throughout the region, labor forces are growing at a rate of 3.5–4.0 percent annually, posing a significant challenge for job creation. The World Bank estimates that the Arab world will have to create something on the order of 55–70 million jobs over between now and 2020 to keep pace and bring the rate of unemployment down to the global norm.

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