Document(s) 6 of 16

Max Rodenbeck

Introduction: Scope and methodology

This paper aims to identify the key issues and debates facing development efforts in the Middle East and North Africa, with a focus on areas where gaps in research-based knowledge represent the most serious constraints.

It is divided into two sections. In the first, a broad overview of the regional context is given, suggesting current and future challenges and opportunities for development.

The second section is divided into six sub-headings exploring specific topics:

1. Water, land and environment;

2. Social issues: poverty, unemployment, and small- and micro-enterprises;

3. Production and sharing of knowledge;

4. Macroeconomic issues;

5. Governance; and

6. The special case of Palestine.

Within each of these subheadings, a "development problematic" is first outlined, followed by an analysis of major specific research issues which are currently being debated.

This work is based on extensive background research, followed up by dozens of interviews with academics, independent researchers, government officials, development experts and representatives of NGOs in Egypt, the West Bank and Gaza Strip, Jordan, Morocco, and Lebanon during the summer and fall of 1998.

Section 1: The Middle East and North Africa in the global context

Being in the middle

MENA holds a strategic position at the interface between Europe, Asia and Africa. It is a vital conduit for world trade, particularly between East and West. It also forms a physical barrier between the wealthy North and the poor South. MENA is extremely rich in some key natural resources, notably oil, but suffers dangerous scarcities in water and arable land. The region has had a turbulent modern history, and continues to endure protracted conflicts and political instability. This has given rise to social currents — such as Islamic fundamentalism — that feel alienated from and are often hostile to the current international order. These interlinked factors all serve to make MENA’s future development a matter of crucial importance to the rest of the world.

By most development indicators, MENA falls very much where geography suggests that it should: in the center. The region’s median GNP per capita in 1996 was just over $2 000, placing it slightly above the world average (World Bank 1998). Similarly, life expectancy, at 63 years, falls just below the world average (UNDP 1997).

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By some standards, MENA outperforms other developing regions. Its transport and communications infrastructure is generally good. With few exceptions, its central governments are strong. It has important and long-standing trade ties with the rest of the world, particularly Europe and the Mediterranean region. Notably, MENA’s exports of oil constitute half of world trade in this essential commodity, while its oil reserves account for two thirds of the world total.

These positive factors suggest that MENA should be poised to follow the example of other countries at a similar level of development, and make the leap into a cycle of sustained economic growth and improving living standards. However, MENA’s economic and political development has lagged far behind its potential.

Falling behind

Despite pockets of wealth — notably in Israel and the Persian Gulf States — MENA falls short of average developing country standards. UNDP assesses the percentage of MENA’s people who live below an income poverty line of $1 a day at a modest 4%, compared to 32% for developing countries as a whole. However, on a scale measuring human poverty (taking into account such factors as education, personal security, and longevity), some 34% of MENA’s people are considered poor. This is only slightly better than India, which has only a quarter of the income per person (UNDP 1997).

Furthermore, real per capita GNP actually fell by 25% between 1980 and 1996, making MENA the worst-performing region of the world apart from sub-Saharan Africa(World Bank 1998). Although much of this decline was due to falling oil prices, it was greatly assisted by the strikingly high population growth rates MENA has generated in the past three decades. In turn, this demographic pressure has created a complex matrix of problems. Overburdened education systems have achieved a universally low standard in improving literacy — particularly female literacy. Because of large numbers of children and a relatively small proportion of working women, dependency ratios in Arab countries are the highest of any region: 30% of the population work to support the rest, compared to a global average of 48%. MENA’s unemployment rates — at an average of 15% — are double those of any other region (ERF 1998).

Surging populations have also placed tremendous stress on often meager natural resources. Across the region, fresh water resources per capita have fallen by half in the past 30 years. Pressure to grow more food has led to very poor land-use patterns. Even so, MENA is more dependent on food imports than any other region. Urbanization has been rapid and haphazard, creating serious problems of sanitation and solid waste.

Intractable conflicts

There are other reasons for the region’s underperformance. During the past three decades only one MENA country — Tunisia — has experienced neither war with a neighboring state, nor sustained internal unrest, nor a serious and unresolved border dispute. Not only have all 21 others experienced violence, but in many cases, their years of conflict have still not achieved a firm "closure" of root problems. The Western Sahara problem, for instance, has festered since 1975. Sudan has endured civil war for over 30 of its 42 years of independence. Even today, many Lebanese believe their 1975–1989 civil war is not concluded, but rather has gone into remission.

The Israeli-Palestinian struggle is the most obvious regional example of such an intractable conflict. It is also the most poisonous in its far-reaching effects. Even during "cold" phases, such as in the recent period since the signing of the 1993 Oslo Accords, the tensions generated by the conflict directly affect citizens of Israel, Palestine and four surrounding countries (Egypt, Lebanon, Jordan, and Syria) — including 2 million Palestinian refugees whose plight is increasingly ignored by the international community. Many more Middle Easterners are touched indirectly by way of lost development potential. Not only have scarce resources been systematically diverted to defense for half a century. The unsettled conflict has seriously dampened foreign investment. In the calm period from 1992–96, for instance, foreign direct investment in the MENA region as a proportion of GDP ran at only 1/3 the level of developing countries as a whole (ERF 1998). A major reason for the shortfall is jitteriness about regional stability.

In addition, the people of the region have also paid a heavy toll in more direct ways. In Lebanon, Algeria, Iraq and Palestine, entire generations are scarred by both the physical and psychic trauma of war. The 20 million people of Iraq have been reduced to a hand-to-mouth existence since the Gulf War. This country’s enormous development potential has been wrecked for decades to come. When Iraq returns to the community of nations, it will be in need of massive assistance at every level.

Largely because of the experience or threat of turmoil, most MENA states support forms of government that reflect demands of mobilization and war preparation.  This has had negative consequences for advancing ideals of representative, accountable government. Indeed, a salient feature of the MENA region today, given the democratic transition that has gripped much of the world in the past decade, is the nearly total absence of meaningful democracy. Not surprisingly, the region is currently one of the darkest zones of the world in terms of human rights and freedom of expression.

Another effect of security-obsessed states has been to keep private investment below world norms, since investors tend to be as wary of governments that exert pervasive controls as they are of potential unrest. In most MENA countries, state control has extended to major sources of rental income, such as oil, or Suez Canal revenues in the case of Egypt, or phosphate mines in Jordan and Morocco. This has encouraged the maintenance of policies (such as monopolies, or discrimination in favor of state-owned enterprises) that weigh against the kind of private sector, export-led growth which has been the engine for advancement in more liberal economies. Access to rents has made governments complacent about the need for reforms, which meant that in many cases MENA countries entered into periods of debt crisis before being persuaded into structural adjustment programs. This has weakened their ability to negotiate favorable terms of trade and multilateral aid, and has required a diversion of resources that punishes the neediest segments of society. Heavy indebtedness still plagues Algeria, Morocco, Jordan, Lebanon, and Sudan.

Transition ahead

It is not difficult to construct a rather negative catalogue of problems for MENA. Yet the region has great potential. Moreover, there are many signs that it is on the verge of a very important transition — politically, economically, and socially. The coming decade is likely to prove a crucial period in determining the region’s long-term future. This presents both increasing challenges and opportunities for development interventions.

Without exception, MENA countries have now begun to implement economic reforms to stimulate private investment. The measures adopted so far include privatization, the passage of business-friendly commercial legislation, and the offering of incentives to foreign investors. These moves have already brought results in the form of increased growth rates, particularly in Egypt, Tunisia and Morocco. However, MENA’s unrepresentative governments have tended to pander to wealthy industrialists and foreign investors rather than to try and encourage the small-scale enterprises that actually employ most people. Liberalization moves have often appeared hesitant and grudging. In a world where it is easy for transnational corporations to be based in any country for their operations, MENA’s delay in introducing economic liberalization may have long-term consequences in lost competitiveness.

With population growth rates at last falling significantly in most countries, MENA is on the verge of a demographic transitionwith far-reaching consequences. In the biggest-population countries (Egypt, Algeria, Morocco, Iran), fewer children are being born now than five years ago. This means that a bulge is beginning to work its way through their population pyramid. Renewed pressure will be put on schooling and employment over the next 15 years. Thereafter, dependency ratios will fall as the proportion of workers to dependents rises. Indeed, by 2030 the working-age population of Arab countries will nearly triple in size, from 138 million at present to 332 million (ERF 1998). The active labor force will grow even faster, since female participation is growing from a very low base.

The increase in national productivity entailed by demographic transition proved to be a key determinant in the success of East Asian economies (Williamson and Yousef 1998). But in the context of MENA’s already high jobless rates and overburdened education systems, turning demographic transition to advantage will require immense effort. There is a danger that instead of raising productivity, the bulge in 20 to 40 year-olds will dangerously intensify competition for jobs, housing, and resources. Ominously, several of the region’s countries have not yet begun to tackle the population question. Some, such as Israel and the Arab Gulf states, are actually pursuing pro-natalist policies.

The region is also on the verge of an important political transition. As noted above, MENA has so far bucked the global trend towards democratization. This is likely to change somewhat, not only because the region is increasingly a political anomaly, but also because internal factors are beginning to encourage better and more accountable government. For one thing, the leaderships in nearly every Arab country are aging. A new generation of leaders will inevitably take power, and indications are that many may be, if not exactly ideologically committed to democracy, then at least aware of the advantages of more transparent, responsive forms of government.

At the same time as MENA governments have largely stagnated, civil society in many countries has grown far more active. In the absence of representative democracy, NGOs and trade associations have increasingly assumed the role of advocacy groups. Except in the economic sphere where business associations have succeeded in pressuring for liberalization, these groups have yet to register a significant impact on policy. However, they have affected the public agenda. Questions such as the importance of good governance, the right of NGOs to operate, human rights, women’s and minority rights, as well as a host of other issues, are being debated more actively than ever. This change in the nature of public discourse presages future changes in policy. MENA’s legislative agendas in the coming decade are likely to reflect trends towards greater pluralism, renewed attention to social justice, and administrative reform.

Section 2: Emerging issues in development research

Water, land and environment

Problematics

1. Water. Water remains a crucial development issue for MENA countries. This is not surprising, considering that although the region contains 5% of the world’s population, it holds only 0.5% of the planet’s fresh water resources (Larsen 1998).

   Depletion and degradation of these meager resources are proceeding with frightening speed. MENA’s fast-rising annual utilization rate of renewable water supplies currently approaches 60%, compared to an 8% average for the rest of the world’s regions. It is predicted that within the span of one lifetime — from 1960 to 2025 — the region’s per capita renewable water supply will fall from 3 430 cubic meters per year to 667 cubic meters (Berkoff 1994). Already, all of North Africa is under water stress (World Resources Institute 1992), and according to the World Bank, a further ten MENA countries consume more fresh water than can be renewed.

   Some areas are actually mining irreplaceable aquifers. Ground­water pumping in Saudi Arabia exceeds recharge by five times. The Gaza Strip and parts of Jordan can be said to have entered water crisis since their minimal resources are so overexploited that they may represent health risks to consumers. Gaza’s water situation has been described as "desperate from both quantity and quality perspectives" (Lonergan and Brooks 1994). Jordan disposes of only 300 cubic meters of renewable annual supplies per person, and Yemen only 200 cubic meters, compared to 120 000 cubic meters per person in Canada (Berkoff 1994). The critical nature of Jordan’s water supply was starkly underlined in August 1998, when the government of Prime Minister Majali was forced to resign after many residents of the capital city, Amman, fell ill from drinking tainted water. Most Jordanians believed this water was supplied by Israel in accordance with its peace treaty with Jordan — which again highlights the political sensitivity of the issue.

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   It also underlines the importance of water quality, which is seriously declining in many parts of the region. Inadequate treatment, uncontrolled industrial effluents and misuse of agricultural chemicals all contribute to this problem.

   The aspect of equity in water distribution is a critical issue, too. Lopsided consumption patterns punish Palestinian farmers and householders. During the summer of 1998, water supplies to the Palestinian city of Hebron were cut repeatedly, while adjacent Jewish settlements continued to irrigate their lawns by spraying. In many countries, high water-demand farming techniques are often used inappropriately. For example, one water expert describes the continued cultivation of thirsty oranges in Gaza as "ludicrous — a romantic anachronism."

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   The inexorable rise in demand made by growing populations is likely to bring more and more of the region into serious water stress. In the Maghreb countries, the dependence of agriculture on very erratic winter rains has led to severe fluctuations in farm output and rural income. In turn, this has caused waves of immigration from the countryside into urban slums. In addition, 35% of MENA’s renewable water resources are derived from outside the region. The Tigris-Euphrates basin, where water is shared by Turkey, Syria, and Iraq, is a zone of particularly dangerous contention.

2. Land. Land use is another serious environmental problem. Population growth has produced both pressures of urban expansion and pressure to expand cultivated areas in order to meet increased food consumption. Arab countries currently import some $25 billion of food a year. They import 30% of their cereal consumption, with this proportion expected to rise to 36% by 2020, despite a projected doubling of local production (de Haen and Lindland 1996). But the proportion of Arab land that is arable — 4% — is less than half of what is available in other regions. The per capita share of arable land in MENA is only 0.224 hectares, and much of this is marginal and not fully cultivable (UNDP 1997).

   Many countries are already suffering strains on land use brought about by the need to increase agricultural output. Morocco is losing an estimated 40 000–50 000 hectares of forest a year to expansion of pasture and cropland. The result has been a soaring rate of soil erosion.

   [4] Syria suffers similar problems.

   Land reclamation projects in Egypt are bringing similar acreage into use every year, but of far less fertile desert land. Meanwhile, seepage of irrigation water from the higher-altitude reclaimed lands is causing increased salinity on the fringes of the lower-lying Nile Valley. Although Egypt’s pinched water resources present a severe constraint on further reclamation, the government is pursuing a long-term policy to reclaim as much as a quarter of the 97% of the country that is desert.

3. Environment. Inadequate urban planning and zoning has inflicted severe damage, both environmental and aesthetic, in many MENA countries. A side-effect of Lebanon’s 16-year civil war has been the uncontrolled building which has ravaged mountains near Beirut and rimmed 60–70% of the coastline with a "wall of concrete."

   [5] Much of the rural West Bank is rapidly losing its traditional character, not only due to construction of Jewish colonies but also to the sprawling growth of Palestinian villages and towns.

   [6] The 40-kilometer strip from Ramallah through Jerusalem to Bethlehem is an unbroken line of unplanned building developments. Considering that tourism is a mainstay of the local economy, and also a key area of potential growth, this aesthetic blight has serious practical consequences.

   In many MENA countries, laws and traditions exacerbate land degradation. Islamic inheritance rules lead to fragmentation of landholdings into unsustainable units. Unrestricted grazing on commonly-held lands affects pastoral zones of Maghreb countries, Jordan, and Syria. This results not only in depletion of soil resources, but also to loss of biodiversity.

   [7] Property registration systems are severely deficient in Egypt, Lebanon, and the Occupied Territories, leading to disputes, marginalizing whole communities from public services, and excluding the poor from leveraged sources of finance.

   Urban air pollution affects 60 million people in the region. According to the World Bank, this number could increase to 160 million, or half of the population, within ten years. Cairo is currently the most dangerously polluted of MENA cities, but has recognized its problem and begun to take serious countermeasures such as de-leading all gasoline. Beirut, however, has some 1 million cars, most of which are over 10 years old. Use of leaded gasoline exacerbates the problem.

   Lastly, solid waste disposal remains a serious challenge. The problem is particularly severe in the overgrown villages of Egypt and the Levant region. An issue of pressing concern is that few MENA countries have taken adequate measures for disposal of toxic and hospital wastes.

Research issues

1. Water. Considering the MENA region’s unique scarcity of fresh water, water supply and management will remain crucial research issues.

   Development professionals interviewed in a range of MENA countries (Jordan, Palestine, Morocco) concur that broadly speaking, the question of water supply is widely recognized and is currently receiving adequate funding from governments and donor agencies. For example, USAID has just increased its budget for Jordan by 50%, to $235 million a year, half of which is intended for water projects.

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   Yet this does not mean that further research into water supply would be superfluous. Much promising preliminary research in a number of areas could use substantiation. For example, the IDRC-funded study of undersea freshwater springs on the Lebanese coast has established that one of these springs probably generates as much fresh water as the Litani, Lebanon’s largest river system.

   [9] Similar springs occur at two other sites in Lebanon, and also off the coast of water-starved Gaza. Methods of measuring and capturing this water have yet to be developed.

   In another example, knowledge acquired by IDRC from projects that are examining how to trap and store domestic rainwater in Gaza could have applications in many other MENA countries. Also, many of the region’s large aquifers have been inadequately studied. The effects of exploiting international aquifers, and the potential for using brackish underground water supplies (in the Sinai Peninsula, for example) need further research. Another area of knowledge deficit is waste-water reuse and disposal — particularly in small towns and villages where cost recovery is difficult. In densely populated Gaza, for instance, only a quarter of households are linked to sewage networks.

   Lastly, there is a serious shortfall in comparative cost-benefit analysis of the above-mentioned water supply options, as well as others. Although large-scale desalination of seawater is at present prohibitively costly, for example, advances in technology must be continuously monitored. The practicality of importing fresh water from outside the region, whether by pipeline or by more innovative methods such as Medusa bags

   [10], should be systematically weighed as a potentially cheaper alternative to local resources.

   Despite this proliferation of fields for research in water supply, it is the demand side of MENA’s water equation that currently offers the most productive potential for research. To date, questions such as management of demand, water quality versus quantity, and the issue of equity in water distribution have attracted relatively little attention.

   Therefore, countries must become aware of the whole range of approaches to demand management that may be considered, from education and awareness programs to adoption of appropriate conservation technology, to metering and pricing, and to quantitative restrictions. Some MENA countries — such as Jordan and Tunisia — have already begun shifting emphasis from raising water supply (through construction of dams and conveyance systems, tapping unused sources, or reuse of water) to rationalizing water demand (Beltagy 1997). Their experience must be properly appraised to see if it can be duplicated elsewhere.

   Solutions to water management problems vary enormously from one country to the next. For example, stressing appropriate pricing structures for water may not be acceptable in some countries. In the Nile Valley, historically farmers have always received irrigation water free of charge. In Egypt, this represents a $5 billion annual hidden subsidy and encourages misuse (Berkoff 1994). But the advantages of this system must also be weighed: 15 million poor peasants benefit, as well as millions of poor urban Egyptians for whom the cost of agricultural produce is lowered. In addition, while individual water use in the Nile Valley is wasteful, the overall system achieves an efficiency rate of 80% (Rosegrant 1997).

   The need for varied approaches to water demand management underlines the necessity for a much wider intra-regional sharing of information. The IDRC’s Water Demand Management Network represents an important and timely initiative in this direction. Areas of urgent concern should include the Euphrates Valley, where political tensions are partly generated by the lack of pooling of knowledge between the countries that share this system (Naff 1997). In the context of Jordan, Palestine and Israel — countries that compete for extremely meager resources — the question of water equity should also be a fruitful area for further investigation. Decision-makers should be made aware that per capita water modeling could provide a more appropriate method of distribution than the division of gross resources. For instance, because Israeli per capita consumption of water is far higher than Palestinian, it is conceivable that Palestinians should sell water rights to their neighbors.

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2. Land. Given the region’s need to greatly increase agricultural output to meet its growing food deficit, improving farm production will continue to be a prime focus for research. An area of regional weakness with particular promise for research is the application of biotechnology.

   [12] Yet, although the region’s research institutes are poor (see below, section on Production and Sharing of Knowledge), most countries are already devoting considerable efforts to raising production and increasing yields. Indeed, there may be a degree of over-emphasis on improving commodity outputs.

   [13]

   What is lacking is a more balanced approach to resource management. For instance, methods of integrated management of livestock for the kind of small-scale producers that are typical of the region have been inadequately studied. More careful consideration is needed of the environmental impact of production inputs such as fertilizers and pesticides. There is considerable evidence that chemicals are dangerously overused in Lebanon and Egypt.

   [14] As well, the region’s farmers also need advice on methods of storage, packaging, transport and marketing. These are especially pressing needs in countries which are entering into free trade agreements with Europe, such as Morocco, Tunisia, Egypt, Lebanon, Jordan, and Palestine. Great improvements must be made if they are to comply with stringent European standards.

   The question of credit for small-scale farmers is also inadequately addressed. In Lebanon, for example, the agricultural sector is allocated less than 0.5% of banking assets, even though it represents 10–12% of GDP. Farmers frequently have to resort to informal sources of credit, where interest rates range up to 100%.

   [15]

   Within this broad context, agricultural policymaking requires support in many countries, particularly Lebanon, Palestine, and Yemen, which have weak outreach programs. MENA governments often overlook the needs of small-scale producers in favor of agribusiness. To improve farmers’ participation in decision-making, advocacy organizations need strengthening, as do agricultural information networks. Aside from traditional extension services, broadcast media are currently very much under-utilized in bringing timely and useful information to farmers.

   Also, in many MENA countries women are important — and often dominant — agricultural producers, especially in the rearing of farm animals. Yet rural women are also the poorest and least-educated segment of MENA societies. Few outreach services cater specifically to their needs.

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3. Environment. Lack of adequate knowledge continues to be a severe handicap in addressing the region’s many pressing environmental problems. Some of these require the straightforward approach of classical research. For instance, air pollution in Beirut has never been properly studied, even though anecdotal evidence suggests it is a major health hazard. Seacoast pollution in Gaza and in Lebanon has not been analyzed, despite its evident seriousness. Nor has effluent from villages in the West Bank, which generally flows untreated directly into adjacent wadis.

   In the field of solid-waste management, improved sharing of knowledge across the region is vital, since there are numerous examples of small-scale successes that could easily be duplicated. Examples include waste disposal projects in Nabatiye in Lebanon and among the Zabbaleen communities of Cairo.

   [17] Hospital and toxic wastes are issues of immediate concern.

   In a broad sense, the MENA region has failed to give sufficient attention to the question of land use. Systems for allocation, registration, and zoning of both urban and rural lands are seriously inadequate in Palestine, Egypt, and Lebanon. Strictly speaking, such tasks are within the purview of governments alone, But there is ample room for research interventions to investigate how inappropriate land use has led to both environmental and aesthetic degradation. In Gaza — the most crowded territory on earth — research is needed into how the government can make land use more equitable. In the West Bank and Lebanon, little research has been done into how to preserve what remains of a rich traditional rural architectural heritage that is rapidly vanishing. Research in Egypt has shown that impossible land registration requirements both ghettoize the poor and exclude them from public services, including credit facilities (de Soto 1997). This study has wide-ranging implications. It should be duplicated in many other settings where a significant proportion of property is held informally and cannot be fully mobilized for both the benefit of its owners and the wider economy.

Social issues: poverty, unemployment and small- and micro-sized enterprises

Problematics

Despite considerable improvements in quality of life indicators for MENA over the past three decades, the region still faces serious social problems. Indeed, social pressures have increased during the past decade as a result of continued rapid population growth and urbanization, compounded by declining oil prices and the impact of structural adjustment programs.

Real per capita GNP actually dropped by 25% between 1980 and 1996, making MENA the worst-performing of the world’s regions.

[18] (World Bank 1997). In constant terms, oil prices have declined by over two thirds since their 1980 peak, affecting not just oil producers but also other countries that rely on worker remittances from oil-rich neighbors. Long-overdue structural adjustments have caused shocks, especially to the poorest segments of MENA societies. Their impact includes the lifting of subsidies on food and housing, rising costs for public services, and rationalization of market prices such as agricultural rents. And while Arab fertility rates have fallen by a third in the past 20 years, from 6.5 to 4.5 births per child-bearer, population growth rates remain above norms in the developing world (Courbage 1998). This growth maintains the stresses on the provision of public services. For instance, public school systems in many MENA countries can barely keep pace with rising demand.

1. Poverty. The proportion of people living in poverty appears to be rising in most of the region’s middle and lower income countries. However, because of a lack of standardization in methods of measuring poverty, it is difficult to quantify this shift accurately. National statistical agencies suffer a shortage of trained staff, rely on outdated or inappropriate models and techniques, and frequently lack adequate political backing. Moreover, within these countries, internal governments often interfere with independent social surveys citing reasons of national security. In Jordan, for example, poverty statistics are considered highly sensitive. And that country’s government forbid a Norwegian-sponsored, in-depth household survey conducted in 1997 to publish its results.

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   Nevertheless, evidence gathered in Lebanon, Egypt, Jordan, and Morocco — through interviews with poverty experts and after researching available documentation — points to an incontestable diminution of social equity since 1990 (Fergany 1998a, 1998b). An as-yet Dr Saad Nagi’s unpublished 1997 household survey of poverty in Egypt (sponsored by the Ford Foundation) is one of the more rigorous studies to have been conducted in the region. Using both subjective and objective measures of poverty, Dr Nagi’s team concluded that over a third of Egyptians live in poverty. Over 7% endure "ultra poverty," where their expenditure is less than a third of the national average and where they experience "severe difficulty" in affording food and clothing. Moreover, Dr Nagi finds that while the share of the poorest quintile of Egyptians in national income fell drastically, from 3.9% to 1.7% between 1991 and 1995, the share of the richest 20% rose from 41.1% to 46%.

   A range of studies in Lebanon, Jordan and Morocco have shown a similar sharp deterioration in the equity of income distribution and a steep rise in the number of poor. For instance, according to Lebanon’s Central Bank — which is privy to unreleased reports from the UNDP — the proportion of Lebanese below the poverty line increased from 28% in 1992 to 34% in 1997. In 1992, 3% of bank depositors held 40% of bank deposits, whereas in 1998 the same proportion of national savings was held by only 1% of the population.

   [20]

   Among all MENA countries, only Tunisia has achieved improvements in equity — and this through a sustained and costly effort by a government that has made poverty eradication a national priority (World Bank 1996). Other countries have instituted programs to soften the impact of structural adjustment. Yet programs such as the $600 million Social Fund created in Egypt have been criticized for using a scattered approach that looks good on paper but is unlikely to achieve long-term improvements.

   [21]

   Meanwhile, Jordan and Lebanon have been slow to recognize the severity of the poverty problem. According to the UNDP’s Jordan Country Director, the drop-out rate from rural schools has soared because many families cannot afford fees of $5 a year. "The political elite in Amman are not taking poverty seriously," he added, affirming that this issue should be the country’s top priority, if only for the sake of political stability.

   [22] Drop-out rates in Lebanon have also climbed.

   [23]

   MENA governments have also largely overlooked the needs of particularly disadvantaged groups. Isolated communities and regions — such as more remote parts of Morocco, some provinces of Upper Egypt, and Palestinian refugees in Lebanon, Gaza, and the West Bank — endure particular hardship. Regional disparities in the standard of living can be startling: in Morocco, only 1% of rural households have a telephone, compared to 28% in cities (UNDAF 1998). In Lebanon, some 350 000 Palestinian refugees are denied basic rights including citizenship, the right to own property, and the right to work in white-collar professions.

   [24] In Gaza and the West Bank, Palestinian GNP per capita is barely a tenth of GNP per capita in Jewish settlements that are merely a stone’s throw away.

   The specific problems of women and youth also suffer widespread neglect and in many cases this constitutes outright discrimination. Although women represent over 50% of college students in Lebanon and enjoy the highest female literacy rate in the Arab world, the country has never had a female cabinet minister.

   [25] And in parts of rural Morocco and Upper Egypt, female literacy is barely 10% — less than one third that of men in the same regions (UNDAF 1998, UNDP 1996)

2. Unemployment. Severe unemployment is a salient characteristic of the MENA poverty profile. The region’s average jobless rate is 15%, double that of any other region (ERF 1998). In Gaza and urban Algeria, youth unemployment rates approach 50%, while in Morocco and Egypt, joblessness among university graduates is a source of social unrest. In the summer of 1998, for example, Rabat riot police crushed a month-long sit-in by unemployed graduates in front of the parliament building, injuring 100 people.

   [26]

   Moreover, in spite of the global fall in birth rates, the high population growth rates of the past are continuing to push new entrants into the job market more quickly than the ability to generate jobs. Between now and 2025, MENA countries will have to absorb a further 160 million adults of working age (Williamson and Yousef 1998). Egypt alone faces the daunting task of finding 500 000 jobs a year. Such pressures come at a time when labor markets in oil-rich Arab states — long an outlet for the surplus labor of poorer neighbors — are saturated. Indeed, the current combination of very high birth-rates in the Persian Gulf states and a sustained low oil price will almost certainly lead to cutbacks in their reliance on immigrant labor. The potential impact of such cuts was dramatically demonstrated during the 1990–91 Gulf Crisis, when Kuwait deported 350 000 Palestinians and perhaps half a million Egyptians fled Iraq.

   At the same time, governments have been slow to understand and respond to the implications of a changing demographic picture. The ratio of workers to dependents in the region has long been the highest in the world, where 30% of the population worked to support the rest in 1990, compared to a world average of 48% (ERF 1998). This situation is changing fast, since declining fertility rates mean that more people will enter the economically active population every year than will be born. Recent research indicates that this demographic transition over the next 25 years will open a significant window of economic opportunity for MENA countries. As happened in East Asia during the past two decades, a proportionately bigger and growing work force could potentially add 2% a year to economic growth rates, while improving rates of savings and investment (Williamson and Yousef 1998).

   However, unless societies recognize and meet this challenge, declining dependency ratios could simply translate into soaring unemployment. In this context, MENA governments do not seem to have grasped the urgency of their need to radically upgrade their educational capacity, so as to improve the extremely low productivity of their work forces, (see section on Production and Sharing of Knowledge). Nor have they worked hard enough to create an institutional atmosphere geared to fully releasing the employment-generating capacity of the private sector, especially of small- and micro-sized enterprises.

3. Small- and micro-sized enterprises. Small- and micro-sized enterprises are a vital — even dominant — component of most MENA economies. In Egypt, for example, small- and micro-sized enterprises provide an estimated 80% of private-sector value-added, employ two-thirds of the entire labor force, and constitute 99.7% of the total number of non-agricultural private enterprises (Ministry of Economy [Egypt] 1998). Statistics on the small- and micro-sized enterprises sector in other countries are less reliable, but in Jordan the "informal" sector is believed to employ 35% of the work force, and in Yemen 45% of it (ERF 1998). Similar ratios are likely to hold true in Morocco and Lebanon, with slightly lower levels for Algeria, Syria, and Tunisia.

   In spite of this obvious importance, small- and micro-sized enterprises confront a range of obstacles to growth, as well as numerous handicaps to improving competitiveness in the rapidly globalizing world marketplace. Access to credit is one problem. In Egypt, 94% of industrial credit is directed to the 2% of enterprises with over 50 employees. And despite the existence of some 40 micro-credit programs in the country, 95% of potential beneficiaries have not been reached.

   [27] Micro-credit experts in Morocco believe there are as many as 1.5 million potential clients for their services, which currently reach less than 20 000 customers.

   [28]

   Small- and micro-sized enterprises throughout the region are also burdened by structural deficiencies, such as lack of access to technology; lack of marketing, accounting and managerial expertise; and lack of access to information. Most such enterprises operate in relative isolation from the broader economy. Their relations with suppliers and markets are often personal, with work carried out on an order basis rather than through continuous production and sales efforts. For this reason, potential efficiencies through cluster linkages between these companies are often poorly exploited, while large-scale national industries rarely subcontract to local small- and micro-sized enterprises.

   On top of this, such small firms suffer from a legacy of government negligence. MENA officials have long been fixated with the idea that small enterprises are outmoded, whereas states have wished to promote "modern" smokestack industries.

   [29] Tax breaks and other incentive programs have often targeted big businesses, to the point of discriminating against small firms. For instance, until recently under Egypt’s investment laws, companies needed to have a minimum capital of LE100 000 to benefit from 5- or 10-year tax holidays in special industrial zones. In Palestine, where a body of commercial legislation is being created from the ground up, the entire process has been aimed at large foreign investors, not local businesses.

   [30] Micro-enterprises have also been denied equal access to subsidized infrastructure and to development aid for training and technical upgrading. In addition, such enterprises are ill-equipped to compete for government contracts, and moreover, they are not encouraged to compete.

   With so little to gain, small- and micro-sized enterprises in many MENA countries have felt it safer to remain outside formal licensing so as to avoid regulations and taxes. In Egypt, entrepreneurs must prove compliance with at least 11 laws before they can legally operate. Just how time-consuming and expensive this procedure is can be shown by the fact that it costs 30% more to rent licensed industrial premises than it does to rent unlicensed ones. Imposition of taxes, as well as health and other work place regulations, is arbitrary and erratic. For all these reasons, 46% of Egyptian firms with less than 10 employees are not fully formalized in legal terms. Some 95% of small enterprises do not even maintain a bank account (Ministry of Economy [Egypt] 1998).

   Efforts to reverse the discrimination against these small enterprises have been launched by NGOs in most MENA countries. Approaches have included provision of micro-finance, training schemes and technical advice, and attempts to form advocacy groups. Many of these efforts — particularly micro-finance initiatives in Egypt, Morocco and Lebanon, and technical outreach programs in Palestine — have proved extremely successful. However, according to the head of Economic Research, Dr Heba Handousa, there exists a lack of coordination and cross-dissemination between various agencies. Moreover, the effectiveness of virtually all programs targeting this sector has been hampered by a lack of in-depth knowledge about small- and micro-sized enterprises and the informal sector.

   [31]

Research issues

1. Poverty. Any approach to the poverty question must begin by addressing gaps in knowledge and awareness of the scope of the problem. To begin with, there is an urgent need for coordinated efforts to improve, standardize and deepen statistics-gathering capacity. National statistical agencies can be helped with expertise and technology. At the same time, independent social studies should be encouraged to be more policy-oriented. Research should be aimed at raising the efficiency of development efforts by steering poverty interventions toward the neediest sectors. In this context, there may be room for the elaboration of new social research techniques. For example, traditional analyses of poverty based solely on expenditure patterns are often distorting — they attempt to quantify what is in effect a quality.

   There is a pressing need for research into the effectiveness and sustainability of existing poverty programs. The work of Egypt’s Social Development Fund, for instance, is often touted as a success story, but its work has never been thoroughly analyzed by independent research. In addition, governments and development agencies in the region need to be made aware of successful experiments in poverty eradication, such as regional initiatives in Tunisia.

   There is also a surprising lack of knowledge about the impact of macroeconomic policies on the poorest sectors. Structural adjustment — and accompanying inflation in the cost of public services — may have unforeseen negative consequences. For example, rising drop-out rates in Jordanian and Lebanese schools suggest that increased financial strain on the poor may result in a less-skilled and less-productive future work force. And, lowered tariff barriers within the context of liberalizing world trade may have extreme negative consequences for small-scale industries. (See section on Macroeconomic Policy.)

   Helping the poor to better express their needs could be an effective means of combating poverty. In all MENA countries, the poor are politically disenfranchised. (See section on Governance). In many cases, they are not sufficiently aware of their existing rights and entitlements, let alone of the opportunities for taking action to secure a fairer share. This is particularly true in the case of rural women. Strengthening advocacy activity by local NGOs would help to expose the consequences of government policies, and also to identify the most disadvantaged groups.

2. Unemployment and small- and micro-sized enterprises. MENA countries also need to improve coordination between research and policy with respect to unemployment. Because unemployment statistics are extremely unreliable in most MENA countries, statistics-gathering capacity is an area that needs strengthening. Studies in Jordan, for example, have produced national jobless rates varying from 15% up to as high as 29%.

   [32] In Egypt and Morocco, there is evidence that unemployment is actually higher among university graduates than others. But research is needed into which disciplines are generating surplus graduates, so that education policy can be better geared to the marketplace.

   The efficacy of job creation and training schemes is also poorly understood. In general, government approaches to the unemployment question have tended to overemphasize short-term public works projects and vocational training in fields that are not always attuned to the market’s needs. Egypt’s Social Development Fund claims to have created hundreds of thousands of jobs, but it is not clear how many of these are sustainable. Smaller, local projects have usually proven far more successful than national schemes. NGOs providing vocational training in Palestinian camps in Lebanon, for example, have found that flexibility is a key to producing useful skills. Being able to transfer resources away from classic industrial training into nurse-training and computer training allowed one of these groups to maintain high employment rates for its graduates.

   [33]

   Over reliance on top-down approaches has also tended to obscure the existence of untapped potentials among the poor and disadvantaged. In many cases, the poor are unable to mobilize their own resources because of simple legal and administrative obstacles.

   This is particularly true for the securing of credit. "Contrary to widespread belief," an Egyptian government report on small- and micro-sized enterprises notes that "several facts suggest that the problem does not lie in the physical absence of collateral. Rather, the problem lies in its official invisibility; i.e. its legal absence." (Ministry of Economy [Egypt], 1998.) Citing a study by Peruvian economist Hernando de Soto which estimated that Egyptians hold an estimated $240 billion in unregistered property, this report suggests that by simply easing the process of formalizing their property holdings, the government could help millions of poor Egyptians gain access to consumer and investment credit (de Soto 1997). Although Egypt’s problem in this regard is particularly striking, it is a matter of urgency that studies like de Soto’s should be duplicated in other MENA countries.

   Micro-finance schemes have become an increasingly popular vehicle for supporting the poor and as well as small- and micro-sized enterprises. However, most MENA countries have yet to begin institutionalizing the exchange of information between micro-finance programs. World Bank regional workshops on micro-finance, and the creation of umbrella organizations such as the Egyptian Small and Micro-Enterprise Association, have improved cross-fertilization. Yet even in countries where the sharing of information between micro-credit agencies is beginning to be institutionalized, there is room for improvement. For instance, the pooling of credit information in central databases would greatly improve efficiency. Customers also need to be made aware of the range of available credit schemes. At the same time, research is needed into the market demand for micro credit in order to make sure that appropriate credit schemes are offered, and to define standard criteria for loan assistance. For instance, in relatively well-off Lebanon, it is likely that many potential clients require longer-term credit lines rather than small loans.

   [34]

   Greater information pooling would not only help to standardize best practice, but also to increase the lobbying power of credit associations. This is very important since governments often do not realize that laws need changing to allow micro-credit operations to proliferate. For instance, an outdated Egyptian rule requiring the personal signature of the Chairman of an NGO on every loan check makes it physically impossible for NGOs to sponsor large-scale credit schemes directly (Ministry of Economy [Egypt] 1998). Also, lobbying has, in some cases, produced favorable responses from the private sector. In Morocco, for instance, five commercial banks are supporting microcredit schemes with interest-free loans to the credit agencies.

   Regarding the promotion of small- and micro-sized enterprises, a major obstacle is scarcity of knowledge about the sector. This holds true for all MENA countries, but there is a particular research gap in comparative regional overviews to sort successful interventions from failed ones. For instance, the work of Palestine’s Development Research Center — which operates as a full-range service center supplying training, marketing, technical and financial know-how to small enterprises — is unknown outside that country.

   [35] The DRC’s work in trying to promote industrial cluster linkages also deserves study and possible emulation.

Production and sharing of knowledge

Problematics

The production and sharing of knowledge represent a field where MENA countries unquestionably lag behind, particularly in the field of applied research.

The problems begin with levels of literacy that are generally low compared to other developing regions. The overall adult literacy rate in MENA is 55%, compared to a world average of 77% (UNDP 1997). Despite a steady advance in scholarization, this shortfall is still compounded by very poor standards in basic education. For example, Jordan and Kuwait are considered to have among the best public school systems in the region. Yet in the only comparative tests to have been conducted between Arab high-school students and students from other countries, both scored at the bottom of the chart in mathematics and science. Furthermore, it is often the case that while gross enrollment ratios in primary education may be high (around 90% in Egypt and Morocco), this does not necessarily translate into the acquisition of useful skills. By the measure of functional literacy, for example, only 15% of Egyptians may be adequately educated, compared to a nominal adult literacy rate of 51% (Fergany 1998a, 1998b).

These failings are largely a result of education policies that have emphasized quantity over quality — which is understandable in a situation where schools have had to cope with soaring numbers of students. In Gaza and in Egypt, for example, many primary schools must operate several shifts a day to cope with a volume of students that often exceeds 60 per class. At the same time, most Arab curricula have also emphasized fact-acquisition rather than the development of cognitive skills. Learning has been seen as mastery of an existing body of knowledge, rather than promoting the ability to seek out, analyze or generate new knowledge.

These problems persist at higher levels of education, where the advancement of research has also been a casualty of demographics. For example Said Belcadi, Moroccan Undersecretary for Scientific Research, notes that his country had only one university in 1975. Today it has 14. Until now, he says, the obvious priority has been to train lecturers to teach, not to produce research.

[36] By one calculation, spending per student in Egyptian universities dropped from $100 in 1980 to $25 in 1993

[37]. Not surprisingly, the creation and maintenance of libraries, databases and university research facilities has also lagged behind. The gross enrollment ratio (GER) at university age in Arab countries rose from 9% in 1980 to 13% in 1995. Yet the university GER in industrialized countries grew faster during the same period, from 36% to 60% (Fergany 1998a, 1998b). Furthermore, only 6% of Arab university students are in graduate studies, a figure representing the lowest proportion in the world (UNESCO 1998).

In Arab countries as a whole, spending on research and development represents just 0.14% of GNP, compared with 3% in developed countries (UNESCO 1998). Despite the existence of numerous research institutes, meager state funding (and the almost complete absence of private funding) has kept scientific output to a minimum. Egypt’s National Research Center, for instance, is the largest in the Arab world. It employs 2 200 researchers spanning 65 disciplines. However, salaries absorb 75% of its budget. Only 10% of the budget is devoted to equipment and research

[38]. Similarly, Egypt’s National Agricultural Research Institute employs 3 000 PhD holders, but produces relatively little useful research.

[39]

Throughout MENA, the number of research institutes has recently begun to grow rapidly. Nevertheless, the lack of well-defined national research strategies limits their effectiveness. Links between policy-making and research projects are extremely weak. Much university research tends to be abstract rather than applied. In the social sciences, research is usually designed to promote the researcher’s own academic career rather than to produce policy options. Much of this effort "simply gets left in drawers."

[40] In addition, many independent organizations that produce social research are regarded as adversaries to governments rather than collaborators. Government interference often limits their ability to produce critical information. As a consequence, government decision-making tends to operate in isolation from research results, leading to inefficiencies in policy.

Agricultural research represents the sole area of scientific research with a relatively well-developed infrastructure in most countries of the region. Yet, as noted above in relation to Egypt, the mere existence of institutions does not translate into high productivity. Rigid command structures that resist innovations in methodology, poor standards of equipment and training, and the rarity of interdisciplinary approaches inhibit the production of useful knowledge. Moreover, because of the paucity of local funding, research priorities are increasingly set by external funding agencies whose agenda is not always in-tune with local development needs. Such funding tends to be short-term and project-oriented, which damages the continuity and sustainability of research efforts.

[41] Research funding by the private sector, meanwhile, is extremely limited.

The weakness of national research outputs is exacerbated by a generally low level of regional information-sharing. Despite the existence of a common language in the region — Arabic — links between its research institutes are poor. For example, very few national scientific journals enjoy regional circulation. Computerization offers possibilities for rapid progress in regional networking, but computer literacy and Internet access are not widespread. At the same time, minimal knowledge of foreign languages limits access to international research advances. This is compounded by a split between the Francophone Maghreb countries and the more Anglophone Mashreq. This legacy of colonial history means that those who do speak foreign language often find that they have separate channels to the wider world.

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