Southern and Eastern Mediterranean Countries (SEMCs) have been experiencing sustained economic growth in twenty-five years of economic policy agenda under the so-called Washington Consensus, built on economic liberalisation and privatisation and little state intervention. Economic growth averaged 4.4% in the period comprised between 1991 and 2014, with a tangible break in the trend resulting from the Arab uprisings and the subsequent tensions in the region, but failed to translate into meaningful employment creation and social equality. SEMCs experienced high unemployment – 31.3% in average – and inequality rates over the same period, without any relevant change in the figures brought by years of economic growth.
This, combined with the rapid increase of working-age populations de facto outpacing the already insufficient creation of economic opportunities, ultimately led to widespread instability across polities and economies in the Mediterranean. It is now widely recognised that youth unemployment, combined with a difficult economic conjuncture in the wake of the great financial and economic crisis, resulted in social unrests and a series of outbursts in the SEMCs. These outbursts unravelled the underlying unsustainability of economic and political stability ensured by long lasting authoritarian regimes.
Today, deteriorating economic conditions and persistently high unemployment rates brought even more uncertainty among the people and especially the youth concerning the effective translation of their aspirations into regime changes and policy reforms. In some cases, widespread instability turned into conflicts further ultimately leading to consistent refugee flows heading towards the European Union (EU). These refugee flows put under further stress an already tense situation characterised by intensifying South-North migrations of Arab youngsters searching for those economic opportunities dramatically lacking in their home countries, leading to rising concerns and inward looking political decisions in the EU.
This situation is particularly problematic considering that many EU countries are also facing substantial problems of unemployment and social disruption. In such context, policy makers started putting into question a policy agenda seemingly leading to jobless economic growth and therefore inadequate to address the core challenges facing the Euro-Mediterranean region.
The new vision brought by the Euro-Mediterranean Network of Economic Studies (EMNES) stems from the quest for policy solutions aiming at more inclusive, sustainable and employment driven socio-economic development in the region.
In the first EMNES Annual Conference, the participants discussed the preliminary outputs of research conducted during the first year of project implementation in three main areas of investigation. These areas cover the role and current and future development of institutions, private sector development with a particular focus on micro-, small- and medium-sized enterprises (MSMES) and finance in achieving an inclusive and sustainable model of socio-economic development, centred on employment creation and employability of the youth.
Rym Ayadi, HEC Montreal and EMUNI
Hon. Slim Khalbous, Tunisian Minister of Higher Education and Scientific Research, opened the conference with an overview of the current state of affairs concerning research in Tunisia. He highlighted the importance of encouraging young scientists and praised the focus put on the youth under EMNES.
Lassaad El Asmi, Rector of the University of Carthage, discussed the importance of EMNES to improve the capacity and the visibility of participating institutions in the country and in the region.
Rym Ayadi, EMNES Scientific Coordinator, Professor at HEC Montreal and the Euro-Mediterranean University (EMUNI), welcomed the participants to the conference and started by introducing the policy relevance of EMNES in light of the latest developments in the region and world economies. In the years leading to the great financial and economic crisis, economists and policy makers narrowly focused on output growth and this contributed to widening socio-economic gaps in our societies. EMNES overarching focus on an inclusive and sustainable model of socio-economic development for the region stems from acknowledging the urgency of devising an innovative growth model addressing such gaps.
EMNES main aim is to foster collaboration between economists and policy makers on issues inherent to social inclusion and economic development and on such basis provide new avenues for cooperation under the Euro-Mediterranean partnership. The ambition is to put in place a network with the capacity to develop innovative socio-economic research in and for the region, both in the short run within the frame of the current project implementation and in the longer run after its completion.
EMNES structure comprises six distinct yet interconnected research areas and three subsequent stages of project implementation: analysis of the status quo in the region, development of innovative research on selected issues and preparation of policy road maps. The six areas covered are institutions, private sector development with a particular focus on MSMEs, human capital including migrations, macroeconomic policies, finance and trade.
Cinzia Alcidi, EMNES Administrative Coordinator, Senior Research Fellow at Centre for European Policy Studies (CEPS) welcomed the participants and stressed two important characteristics of EMNES. First, EMNES is an arena for joint research between participating institutions but also an avenue for exchange of experience between these institutions. Second, considering the common challenges facing countries in the region, it is more urgent than ever to provide Euro-Mediterranean policy makers with a truly shared vision.
Salma Dammak, Director at the Institut des Hautes Etudes Commerciales (IHEC), thanked Prof. Ayadi for the organisation of the conference and referred to Prof. El Asmi arguing that participating in EMNES is a great opportunity for participating institutions to step up their research to the regional level, besides increasing their capacity.
Habib Zitouna, Director, Institut Tunisien de la Compétitivité et des Etudes Quantitatives (ITCEQ) also thanked Prof. Ayadi for the organisation of the conference and stressed the eagerness to share knowledge at the national and the regional level underlining the participation of ITCEQ in EMNES.
The objective of this panel is to discuss the opportunities and challenges towards inclusive, sustainable and employment driven socio economic models in the Mediterranean region.
Since the Arab uprisings ignited in 2010, the overall political, economic and social situation of the region is from bad to worse and unfortunately as was rightly described in Ayadi and Sessa paper, the region is embarking slowly and surely in the “Mediterranean under threat scenario” – a process call “red transition”.
The question is how to revert this scenario? Should there be individual or coordinated actions? How to achieve more sustainable and inclusive outcomes in an environment of proliferation of tension and below expectations economic performance? Where millions of migrants have been displaced around the region because of wars and social unrest, where several geopolitical actors are competing via proxy wars? What role for the European Union, which itself battling in its own survival?
Rym Ayadi, EMNES Scientific Coordinator, EMUNI and HEC Montreal, introduced the panel pointing out the lack of coordinated responses towards the challenges facing the region and the role EMNES could have in such respect. EMNES aims at bringing together senior and junior researchers from both shores of the Mediterranean in jointly developing innovative thinking about the issues and related policy solutions.
In order to adopt a coordinated attitude towards common challenges it is important for policy makers across the region to reach a better understanding of the issues at stake and perhaps more importantly to increase mutual understanding between policy makers about potential policy solutions to these issues.
Ahmet Evin, Istanbul Policy Center (IPC)
It is important to develop a shared vision and a coordinated attitude towards the region considering that until now the EU misled policy developments in the region. The EU, as a historical actor in the region, overlooked many important factors in its approach to Mediterranean countries before and after the so-called Arab Spring, with negative consequences for the region as a whole. Democracy is much more about institutional reforms than it is about elections.
In relation with democratic transitions, the key issue is to understand how the civil society takes shape in different countries and more broadly the region as a whole. EU is playing a role of support in this through targeted projects but it would be more effective to share good examples and success stories across the region.
Roger Albinyana, European Institute of the Mediterranean (IEMED)
Problems concerning the EU role and policies in the region are more and more acknowledged and discussed within the EU and among stakeholders. However, it is worth to mention a series of positive changes that took place in the strategies of the EU under Euro-Mediterranean cooperation.
More incentives for the development of South-South cooperation and integration under the European Neighbourhood Policy. More dialogue and concrete initiatives for the region under the Union for the Mediterranean, e.g. MED4JOBS in support of youth employment in the region and many other regional projects linked to infrastructure and business development.
Unemployment is the core problem in the region regardless the shore and in such context, countries must look inward and not outward to find policy solutions, e.g. reforming vocational training. EMNES can play a major role in supporting this by looking into the different countries and devising solutions for the region.
Fawzi Dib, Union for the Mediterranean (UfM)
The latest developments and the current situation in the region are an opportunity to enhance cooperation between countries, to the extent that the need to find coordinated responses to common challenges is widely acknowledged.
It is important to capitalise on complementarities and to create synergies between countries to find appropriate responses to these common challenges. The UfM can play a key role in creating such synergies as per the intergovernmental nature of its governance structure. EMNES and other networks, bringing together different actors in the region around common issues, could and should be key partners of the UfM in this.
Elyes Fakhfakh, Group Serfem, Former Tunisian Minister of Finance
The Tunisian revolution involved all social classes but since then most development projects in the country mainly focused on the richer segments of the population, resulting in a wide disappointment that is urgent to address.
It is important to rethink the development economic model towards a model more connected to the reality on the ground, addressing the priority issue that is unemployment particularly of the youth while encompassing concrete problems such as water scarcity or food shortages. Yet, there has been no significant change of economic policy concerning employment since the revolution.
Well-designed economic and social policies can bring positive change in the country, e.g. tax policy to tackle inequalities and fiscal evasion or investment policy to improve and expand infrastructures.
Abdelwahab Ben Ayad, Group Poulina
From the perspective of the private sector, the main issue in relation with unemployment is the mismatch between the skills offered and demanded in the labour market. Group Poulina has a long experience in addressing such mismatches providing the country’s youth with the skills they need to integrate successfully the labour market.
There are economic reasons behind unemployment but also other reasons. For example, nowadays youngsters refuse to do tiring jobs and it is crucial to take this into consideration when addressing the question of youth employability.
The panellists have confirmed that to respond to the challenges faced by the Mediterranean namely the persistent unemployment, the lack of economic opportunities, the disconnect between policy objectives and the reality on the ground, adding to this, the tension, insecurity and uncertainties brought about by the mounting terrorism, it is important to devise economic policies that are inward looking to solve the persistent economic and social difficulties faced by each country. Moreover, the private sector can play a major role to overcome the challenges. For example, on youth unemployment, the private sector can play a role to improve youth employability. Finally, the EU as an economic actor in the region should continue to give incentive to promote south-south integration and to coordinate with the countries and with the other organisations such as the UfM to develop regional projects that may alleviate the domestic problems in the long run.
Mustapha Kamel Nabli, North African Bureau of Economic Studies (NABES – Tunisia)
Institutions are crucial for economic development: good institutional change is what drives good economic results, but our knowledge about what good institutional change means is still too limited. What are the core institutions in a given country? What is their role in the development of that given country? How to undertake institutional reforms considering the interdependence between institutions?
In this post-revolutionary period, Tunisia is undergoing important institutional changes towards democratic institutions while experiencing deteriorating economic conditions, with economic issues such as unemployment and inequalities and others are persisting if not worsening. Everybody agrees on the importance of inclusive development, but nobody knows what does it mean and how to achieve it.
What are the policy priorities? There is a wide arrange of possibilities: private sector development, public goods management, labour dialogue, social protection, inequalities, judicial system reform, etc. What to prioritise for good institutional change? The functioning of one institution depends on the system of institutions as a whole, meaning that the sequencing of reforms is crucial. Institutional reforms after the revolution did not bring positive results so far on the economic issues mentioned above.
Nooh Alshayab, Yarmouk University (YU), introduced the panel with a brief presentation of research conducted so far under the first EMNES research area, focused at understanding the institutional determinants of the missing link between economic growth and employment creation in the region.
Ahmed Badawi, Free University of Berlin (FU Berlin), EMNES
It is rather complicated to understand the link between institutions and the problem under study, that is, economic growth in the region not translating into satisfactory employment levels among the youth and more particularly among the highly educated youth.
The EMNES team identified several institutional factors underpinning the unemployment situation, including but not limited to very low levels of minimal wage, corruption in the public sector or the unwillingness to do certain jobs. However, which of these factors have the greater impact on the situation and must be given priority in the sequencing of institutional reforms?
Institutional reforms can have positive effects on the employment situation mainly through reforms of labour market policies, which should be aimed on the one hand at enhancing business through liberalisation of labour, on the other hand enhancing living conditions of workers through labour protection.
Important to reckon that institutions are context-specific, meaning that international agendas for institutional reforms must be taken with the due precautions. For example, the good governance agenda promoted under the so-called Washington Consensus is biased towards integration into the global economy while overlooking the issue of unequal terms of exchange and is focused on downsizing the role of the state. As regards to the state, intended as both an arena of power struggle and a set of institutions, it has a crucial role in the sequencing of institutional reforms but after decades of downsizing, it has lost the capacity to enforce anything which is an overarching problem to address.
Hamza Medebb, European University Institute (EUI)
Important to pay greater attention to the interactions between the political system and the organisation of society, to the extent that top-down institutional reforms are not proving successful in the region. In particular, it would be beneficial to shed light on the dividing lines and related fractures likely to feed instability in a given country.
Regional integration is a mutual challenge and to prove successful institutional reforms should be tailored to the organisation of societies across the region and their complementarities in such light, not imposed from the top.
Jacques Charmes, Institute of Research for Development (IRD)
Dr. Badawi opened the black box of the state, important to open the black box of informal economy to reach an in-depth understanding of institutions and most particularly the interplay between formal and informal institutions.
How to define the informal economy? It is possible to look into its different components: companies that are not registered, cross-border smugglers, street labourers. What are the reasons motivating their choice to stay informal? What kind of incentives can be found to encourage formalisation?
One of the main determinants of informality often singled out in the literature is tax avoidance, that is, companies or labourers preferring to pay for corruption rather than taxes, suggesting that bureaucracy prevents the formal sector from being effective.
Jaloul Ayad, Former Minister of Finance, Tunisia
It is important to develop a critical assessment of existing policies and related failures in light of the employment situation, but it is more important to actually formulate and implement policies conducive to more and better jobs. Most countries in the region did not formulate and implement policies in key areas such as support to MSMEs or finance.
Financial systems in the region are not attractive for foreign investors because of exchange rate volatility limiting the profitability of their investments, resulting into serious difficulties to leverage equity for private companies. Example of problem with negative repercussions in terms of private sector development and therefore employment that it is possible to address formulating and implementing a sound exchange rate policy.
There is room for countries in the region to emulate each other in formulating and implementing policies conducive to more and better jobs. For example, Tunisia could implement a strategy in support of MSMEs based on what has been done in Morocco, benefitting from the lessons learnt after years of implementation. EMNES can play an important role in this sense acting as a platform for exchange of best practices and lessons learnt in the making of policies.
Rim Ben Ayed Mouelhi, Institut de Hautes Etudes Commerciales (IHEC), introduced the panel with a brief presentation of research conducted so far under the second EMNES research area. The research carried-out consisted in analysing the region’s current status quo as regards to private sector development and most particularly the MSME sector and identifying core issues for further research under EMNES. These issues include entrepreneurship with a focus on behavioural aspects, informality and social business.
Hala El Said, Cairo University – Faculty of Economic Policy Studies (FEPS), EMNES
There are several issues specific to the region that are particularly relevant to address under EMNES. SEMCs are battling with persistently high youth unemployment and the threat this represents in terms of instability within and between countries in the region. Entrepreneurship is often seen as a solution to youth unemployment but several obstacles hamper youngsters from becoming entrepreneurs or expand their business once they become so. MSMEs in all countries under study experience serious difficulties in accessing finance, which is one of the main obstacles to private sector development and therefore employment creation in the region.
In all countries across the region, measures to address such issues were formulated and dedicated institutions put into place, but efforts have been limited so far. In particular, there are problems concerning the actual implementation of the policies formulated or related to the lack of political will to take action on important issues in which the state is directly involved. For example, MSMEs struggle to access finance at least partly because of crowding-out effects in loan markets saturated by high levels of public debt, financed by banks at the expense of the private sector.
Roderick Egal, Innovation et Economie Sociale en Méditerranée (IESMED)
Economic growth failed to translate into meaningful employment creation and social equality in the region because of a narrow focus on profit making of dominant corporate businesses. However, in the region there is a thriving social economy, intended as businesses pursuing aims other than profit making while remaining economically viable.
It is important to appreciate the contribution of businesses and other actors of the social economy to economic growth, employment creation and other variables of interest in the region to devise a new inclusive and sustainable model of socio-economic development. For example, social businesses do not necessarily sacrifice employment on the altar of profits, because of the inherent social mission of these businesses.
IESMED is dedicated to the development of the social economy in the region through the provision of intermediation services between actors of the social economy and institutions supporting it.
Giovanni Ferri, Libera Università Maria Santissima Assunta (LUMSA)
Revelatory to group private businesses by ownership and not only by size when analysing the contribution of the private sector to the economy. Family businesses are widespread in the region and have a number of specificities in their contribution to the economy.
Family businesses have the responsibility to transfer the business to the next generations meaning that long-term thinking is inherent to their business model. This contrasts with dominant shareholder value approaches often aiming at maximising profits in the short term, with negative repercussions in terms of sustainability.
Furthermore, family businesses tend to offer more stable jobs based on relations of trust between employer and employee, meaning also more resistant to shocks.
Family businesses are a fundamental segment in the Mediterranean countries but poorly studied because of the lack of data.
Nizar Yaiche, PricewaterhouseCoopers (PWC)
MSMEs are facing difficult times in Tunisia to the extent that they are in the frontline of deteriorating economic conditions. Their potential to absorb the unemployed youth population is shrinking and it is urgent to find solutions to the problem.
Entrepreneurship is regarded as a solution but nowadays youngsters lack attitude and personal skills required to become successful entrepreneurs. In this light, education reforms aimed at increasing on-the-job training and other measures to better prepare the youth to integrate the labour market are crucial.
Important to develop concrete and practical research, close to the reality of the private sector on the ground, building on what has been previously done yet challenging theoretical ideas that proved flawy when put into practice.
Mondher Kanfir, Wikistartup
In conclusion of the panel, two important trends stemming from digitalisation are particularly relevant for the research work carried-out under EMNES and therefore worthy to put on the table. First, that in the near future there will be no money anymore. Second, that there will be no employment anymore.
These are two provocatory statements yet revelatory of actual trends that are driving a rethinking of the socio-economic development model from the bottom. If they are not considered in the rethinking of policies towards more inclusive development models, new forms of concentration and pauperisation might hamper their effectiveness in fostering inclusiveness.
Mohammed Lahouel, Chief Economist, Government of Dubai
Lacking equal opportunities and the related popular discontent is the leading cause of the Tunisian revolution, but since then the country is experiencing deteriorating economic conditions. These include but are not limited to current account and budget deficits, decline in investment, deterioration of the trade balance and shrinking public and private savings. EMNES can play an important role in providing thinking about how to address unequal opportunities while bearing in mind deteriorating economic conditions.
Labour productivity in the region represents one third of the average level in richer OECD countries and two-thirds of the average level in poorer OECD countries. EMNES could carry out research aimed at shedding light about these differentials. Macroeconomic stability is a precondition for equality because in absence of it there will be less investments and therefore less opportunities for all. Deficits are not sustainable over time and it is important to bear in mind that the first elements of public spending to be sacrificed in case of problems is social spending. In this light, it is important to consider the existence of a trade-off between public investment and public consumption.
In the literature, there is no evidence corroborating the hypothesis of a positive correlation between democracy and growth, albeit quality institutions and good governance are widely considered to play an important role in spurring economic growth. Democracy can bring strategic investments in education and health and initiatives against vested interests conducive to more equal opportunities in society.
Political transitions should be assessed in terms of change from bad to better conditions for socio-economic development, more than in terms of conformity to certain preconceived norms. Stakeholder consultation is important yet often complicated to strike a balance between deliberation and participation in decisions. In particular, stakeholder consultation is crucial when it comes to the sequencing of reforms having winners and losers, such as labour market policies affecting the bargain between employers and employees.
Olfa Ben Ouda, Institut des Hautes Etudes Commerciales (IHEC), introduced the panel with a brief presentation of research conducted so far under the fifth EMNES research area, focused on how financial integration and regulation can better serve the real economy in the region. Dr. Ben Ouda concluded pointing out at the role of the state in finance and the missing link between the state and MSMEs.
Rym Ayadi, EMNES Scientific Coordinator, EMUNI and HEC Montreal
Finance is crucial for the development of the real economy and most particularly the development of MSMEs intended as the backbone of the real economy. However, the financial crisis showed that finance can become a disturbance for the real economy if not well regulated. EMNES research aims at identifying financial reforms, institutions and mechanisms conducive to adequate financing of the real economy.
Ideally, financial regulations should aim at creating and sustaining the conditions for a positive relationship between financial development and growth to hold, while financial institutions and mechanisms should aim at enhancing security and therefore trust of domestic and international investors in the financial system.
Financial development is lagging behind in the region. Financial markets are shallow, dominated by banks with satisfactory levels of capital ratios and liquidity but little capacity to provide loans, largely destined to finance public debt in the absence of sufficient guarantees for private creditors. In addition to that, the lack of guarantees is generally compensated with excessively high collaterals, further crowding out private actors from loan markets, which are nonetheless suffering from high levels of non-performing loans.
In light of the above, it is not surprising that MSMEs across the region suffer from a dramatic lack of access to finance, resulting in lagging private sector development and insufficient levels of employment. There are a number of solutions to the issue already being discussed, such as the upscaling of credit guarantee schemes in the region, but it is important to think about possible solutions in the bigger picture of reforming finance in line with the principles of sustainable development.
Khaled Zribi, Tunisian Stock Exchange
Current state of affairs in the Tunisian Stock Exchange reflects the delicate economic situation in Tunisia: 10% decrease in investments, limited number of sectors represented and dominance of individual rather than institutional actors in the market. In overall, the financial market in the country does not contribute much to the real economy, also because of unadapt regulation and governance.
MSMEs do not search for financing in the Tunisian Stock Exchange, this notwithstanding a series of instruments have been put in place in their support (market access kit, follow-up procedures). EMNES could shed light on the reasons behind this.
Three priorities retained in the formulation of a strategic plan for the development of the Tunisian Stock Exchange in the next five years: financial market management, financial market development, new financing mechanisms. These priorities are complementary with the research aims of EMNES.
Sami Ben Naceur, International Monetary Fund (IMF)
In the literature on financial development and growth, three main periods can be singled out: before 2000, between 2000 and 2010 and after 2010. In the first period, characterised by a context of total factor productivity higher than capital accumulation, evidence of a positive relationship between financial development and growth was gathered. In the second period, a number of conditions of economic development and institutional quality necessary for the relationship to be positive were identified. Recently, some findings suggested that over a certain level, financial development has negative effects on growth.
In line with these findings, other researchers highlighted that finance reduces inequality, through facilitating the redistribution of growth, but financial liberalisation increases inequalities. The causes of these negative effects include but are not limited to the multiplication of financial bubbles and the excessive focus on consumption.
In the region, underdeveloped financial infrastructures and limited competition in financial markets result in an inexistent relationship between finance and growth. Knowledge concerning the drivers of financial depth, financial stability, financial liberalisation and financial inclusion is still limited, this notwithstanding the great relevance of such issues for the region. EMNES is an opportunity to delve into this and more broadly fill the gap in the literature concerning the relation between finance and employment.
Habib Zitouna, Institut Tunisien de la Compétitivité et des Etudes Quantitatives (ITCEQ), introduced the panel stating that countries in the region face interconnected challenges that require coordinated responses. EMNES as a network is bringing together researchers from both shores of the Mediterranean and is therefore in the position to play a leading role in feeding recommendations for such coordinated responses in the Euro-Mediterranean agenda.
Cinzia Alcidi (CEPS) on jobless growth in the EU and migration challenges
Persistently high levels of unemployment among the youth, rise of inequalities and other dividing lines, emergence of new forms of precariat, all these are issues facing countries in both shores of the Mediterranean. It is crucial to build on complementarities between countries in the region to find successful responses to such issues and the related challenges.
Refugee flows and more broadly migrations are perceived as a bigger problem than the financial crisis in the EU. This is a serious challenge for the Euro-Mediterranean partnership but also an opportunity to move to a different model of socio-economic development after years of mismanaged crises and missed opportunities.
Carlo Sessa (ISINNOVA) on global trends and employment scenarios
Nowadays, it is more relevant to look at connections rather than territories to understand the economic geography of a given region and devise the most appropriate development model. Looking into cartographies of economic exchanges across the Euro-Mediterranean region, two areas stand out for their connectivity potential. These areas are most likely play a leading role in the socio-economic development of the region.
In line with the argument for connectivity, a frame for the integration of the research conducted in the six research retained under EMNES is being developed building on two dimensions having important repercussion on the dynamics of employment in the region: market and technology.
The interplay between these two dimensions will constitute the backbone of alternative scenarios of jobless or job friendly growth in the region, in which the policy recommendations formulated in the different research areas will be integrate to constitute policy road maps for Euro-Mediterranean cooperation.