EMNES Policy Conference “Job Creation in the Southern Mediterranean – Perspectives and Challenges”

Message from EMNES Scientific Director

I would like to thank the imminent keynote speakers, the panellists and the discussants who have contributed successfully to the first EMNES policy conference that took place on the 09 May in Amman. The conference provided us valuable inputs to guide our on-going research and effort to build the EMNES policy roadmap for the years to come. EMNES collaboration between academics, economic policy analysts and policy makers is a cornerstone of our ambition to contribute to the region’s current and future inclusive and sustainable economic model and policies centred on employment creation.

Prof. Dr. Rym Ayadi

EMNES Scientific Director and EMEA Founding President

Opening session and welcome speeches

Prof. Dr. Rym Ayadi, Scientific Director of EMNES introduced the first EMNES Policy Conference on Job Creation

Dr. Ayadi welcomed the speakers and guests in attendance, and thanked Yarmouk University for organising the event in their capacity as an EMNES partner organisation.

She questioned whether a paradigm shift in economic thinking was needed and also what constituted an inclusive and sustainable socio-economic model in the Mediterranean. Ten years had passed since the great financial crisis that shook the fundamentals of modern finance and the neo-liberal thinking of the eighties and the nineties; and 8 years since the Arab uprisings that led to increased tensions, mounting stress, conflicts and uncertainties. Whilst these events may have been economically detrimental, they also brought hope to the young, that they could aspire to political systems that granted them dignity, freedom and rule of law.

She shared some economic evidence collected in EMNES research:

1. The Mediterranean countries (South, North and East) were battling with chronic and persistent unemployment in double digits;
2. The phenomenon primarily affected the region’s youth, faced with unemployment rates two or three times higher than those for adults. In 2016, these rates averaged more than 30% in Southern, Eastern and Northern Mediterranean countries – with the largest impact amongst women.
3. Of more concern, the not in employment, education or training (NEET) rates were worryingly high, such as in Tunisia, where up to a quarter of the youth population, 24%, are affected by the phenomenon, whilst all other countries in the region exhibited double digit NEET numbers.
4. Further EMNES evidence showed:
   1. Dysfunctional labour markets in the South Mediterranean countries – with skill mismatch a major issue that must be tackled, as it was hurting the return on education;
   2. Labour demand was insufficient to absorb the available labour force, particularly amongst the young;
   3. Automation and robotisation trends might increase productivity but they could be detrimental to employment;
   4. The private sector, in particular micro small and medium sized enterprises, were incapable of growth and were held back by rampant informality, corruption and red tape, lack of access to finance and financial education.  Nevertheless,  there was also  large potential for MSMEs to create jobs if they could integrate innovation and increase productivity;
   5. Unequal terms of trade that in most cases resulted in persistent trade deficits and potential aggravation of the unemployment crisis for non exporting oil and gas south Mediterranean countries …
5. Adding to this was the political instability and insecurity in countries such as Libya, Syria, Palestine and Lebanon, and beyond in the Gulf area, as well as the global tensions surrounding Iran and their growing political and economic role in the region;
6. This situation of chronic and persistent unemployment, coupled with political instability and insecurity, were arguably the main determinants of increasing migration flows across the Mediterranean and related pressure on Southern and Northern European countries to integrate the migrants in their own labour markets. The number of migrants residing in the latter countries sharply increased from 3.5 million in 2005 to 5.5 million in 2015.
7. In the absence of legal channels for labour migration, managed between the south and the north with reliable information, migration had become the target for political battles in the north, in particular those countries suffering from high rates of unemployment.

H.E. Prof. Dr. Zeidan Kafafi, President of Yarmouk University (YU)

Dr. Kafafi began by stating that ‘separate growth has proven unlikely’, elaborating that inclusiveness and sustainability were now the consensus concerning the way forward. International organisations also converged on this opinion.  According to the International Labour Organisation, in 2017 the global unemployment rate was around 6%, whereas in the Middle East and North Africa it was almost the double that. Youth unemployment was even more dramatic;  in the Arab States it remained the highest globally at  around 30%, with persistently large gender gaps and high working poverty rates.

“We must analyse the social and economic roots of unemployment and develop a roadmap for policy makers to develop perspectives and challenges and possible ways forward,” said  Dr. Kafafi.  He linked EMNES’ work to the above call for action and described the network as “timely.” He concluded his talk by stating that,  “we are all putting efforts and resources in EMNES because we truly believe in the importance of joint policy-oriented research, in order to define strategies for job creation and inclusive sustainable economic growth.”

H.E. Prof. Dr. Adel Al Tweissi, Jordanian Minister of Higher Education

Dr. Al Tweissi began by focusing on the Jordanian National Human Resource Development Strategy, which aimed to deliver fair, relevant, qualitative, and affordable higher education in Jordan by the year 2025. A number of projects were launched to that end. He explained that “relevant” was the most important element of the strategy and its goals, because it emphasised skill matching, adding that for years,  Jordan had been trying to match the demand and supply of skills in the labour market. This included: reducing university admissions in unemployable specialisations and creating employable specialisations; encouraging enrolment in degrees linked to higher employability; setting up incubators and accelerators to enable students to transform ideas into innovative start-ups.

Dr. Al Tweissi explained that the Ministry’s goal was to see the higher education system encourage graduate entrepreneurs who would become job creators themselves. He argued that initially this would require growing the culture of innovation. “We always talk about supporting innovation, when we should be talking about growing it at home,” he said.  As an example, he underlined the importance of encouraging critical thinking skills at home, from elementary and even pre-school educational level. According to him, this would help tackle illegal migration, radicalism, extremism, violence and crime.

First Panel: On job creation in the Southern Mediterranean countries: perspectives and challenges

Moderator: H.E. Prof. Dr. Munther Al Shar’e, former Minister of Water and Irrigation

Dr. Al Shar’e highlighted the persistently high unemployment rate for males and higher still for females, which was typical in the northern and southern Mediterranean.  The problem was compounded by the fact that an estimated 5 million jobs needed to be created each year in order to integrate new entrants into the labour market.

He also underlined the fact that SMEs account for 90% of total employment in the region, yet they hadn’t contributed their full potential, due to informality. He concluded by stating that while the challenges were formidable, the outlook was promising.

H.E. Prof. Dr. Wajih Oweis, Senator and Former Minister of Higher Education on “Human capital development and the labour market”

Dr. Oweis explained that Jordan needed this and other conferences and joint ventures relating to job markets and employment, highlighting the timeliness and potential benefits of collaboration.

He stated that he had spent recent decades in education, reaching the same conclusion as many academics: that education was a foundation of the human being, in both personal and professional development. He elaborated by arguing that 4 elements built human resource:

• Knowledge (upbringing and education)
• Abilities (applying the knowledge)
• Skills
• Elementary basis for learning and ethics (critical thinking, respect, tolerance, etc)

He stated that education was the basis of these pillars, and they were the foundation of human resource excellence. He asked how could we then enable education to properly put the above pillars in practice, and offered two activities by way of an answer: to create a sovereign and prioritised educational system, i.e. job oriented; and offering  a complete educational path – from pre-school to college.

He explained that these elements were neglected in Jordan, with over 1 million children under 6 years not enrolled in pre-school, as there was no capacity to teach them. He offered a number of solutions to bring some synergy between the education system and the job market in Jordan, focusing greatly on the proposition to cancel el bernameg el mwazi (ability to buy enrolment legally through paying more), as it had decreased the calibre of the education system. Dr. Oweis concluded by briefly mentioning the other dimensions that were relevant to job creation, explaining that he explored educational quality as it was the most important factor.

H.E. Dr. Ziad Fariz, Governor of the Central Bank of Jordan on “Financial development and inclusion as instruments for job creation and poverty reduction”

“Our education system desperately needs to be critically analysed,” exclaimed Dr Fariz. He elaborated by describing the process of evolution that was happening worldwide, Jordan included, wherein old jobs were disappearing to be replaced by new ones, and that the education systems of many Mediterranean countries had not remained in line with these developments. He continued by stating that the problem was grave and, hence, the Central Bank had taken on an economic development and job creation role, which was not the Bank’s traditional task.  In Jordan, the Central Bank had developed a first strategy for financial inclusion.

What is finance inclusion and what is its relationship with job creation?

In 2015, 25% of adults had access to financial services.

In 2018, as a result of active financial inclusion efforts, 40% have financial access. Women remain more deprived than men. In summary, the financial inclusion strategy has 4 pillars:

• Beginning in 2014, financial literacy to be taught from early on in school
• Customer protection stressed as a primary tenet of all financial institutions
• Immediate funding for innovative ideas
• Financial technology (the means of transferring or otherwise managing money to be more technological, such as through cellphone usage)

Dr. Fariz concluded by stating that financial inclusion was but one aspect and stressed the importance of micro finance as another key tenant of job creation.

H.E. Prof. Dr. Maha Ali, Former Minister of Industry, Trade and Supply on “Investment and job creation in Jordan”

Dr. Ali presented a number of key statistics: unemployment in Jordan was at 15.8%, making it one of the highest; growth was 2-3% for the past 5 years, which was not enough to combat unemployment; an influx of migrants was further crowding the labour market. According to Dr. Ali, this meant that three actors must work very well together to combat this problem, namely: government, academia and the private sector.

• Concerning the government’s role, Dr. Ali elaborated that while the legislation was relatively good in Jordan, the problem lay with enforcement. Maybe the kind of change needed, explained Dr. Ali, was not legislative but in removing the roadblocks to the enforcement of policy. For example, if 10-year policies changed every 2 years, no one would want to work in their field, for a rightful fear of a lack of continuity. So, instead of legislating for changes in individual laws, the legal system needed to be made more stable.
• Concerning the role of academia, Dr. Ali mainly highlighted the potential for academic work to inform and, thus, improve curricula based on evidence, thereby maintaining synergy between skills and jobs.
• Concerning the role of the private sector, Dr. Ali highlighted the importance of innovation in business to remain globally competitive. She stressed the importance of R&D and the need for changes, in line with Dr. Oweis’ call for critically evaluating the education system.

Dr. Ali changed the topic slightly to explain that surveys conducted in Jordan had  revealed that the main obstacles potential investors faced were policy instability; the tax rate; inadequate infrastructure; government bureaucracy; and access to finance. In the rest of Arab world, the list was similar (with the exception of the Gulf countries). Dr. Ali concluded by echoing a number of ideas:

– To critically review the education system without a culture of ‘embarrassment’

– To generate electronic equivalents to bureaucratic activities (electronic government)

– To instill, from a young age, entrepreneurial ideas and culture

H.E. Prof. Dr. Munther Al Shar’e provided four drivers of job creation:

• Stock of human capital: (determined by education, training, and work experience)
• Infrastructure endowment (obsolete infrastructures translate to no jobs)
• Quality of public institutions
• Research and innovation

With this set of drivers in mind, argued Dr. Al Shar’e, SMEs were more productive and efficient than large enterprises. They fuelled economic growth and created a demand for skilled labour. Policy makers, thus, should adopt policy reforms and intervention approaches to assist these enterprises in realising their full potential in enhancing productivity. Other “policy areas” to be tackled, according to him, included:

• Enhancing growth in the South Mediterranean without sacrificing jobs (with EU support)
• Better organising migration inflows in a win-win way
• Work migration in addition to labour migration — i.e. FDI

Prof. Dr. Rym Ayadi, Scientific Director of EMNES elaborated on “Inclusive and sustainable development centered on employment”

Dr. Ayadi argued that the goal of EMNES research was to determine the pillars for inclusive growth and job creation, with a special focus on the gender question, and on assessing the quality of and access to education in the southern Mediterranean countries. She underlined some of the most important obstacles to private sector development in the region – mainly informality and job precariousness. She explained that ‘an inclusive socio-economic model for growth’ meant all segments of society were lifted together. Hence, by definition, including informal sector members was demanded by the model.

Dr. Ayadi also stressed the role of technology, highlighting the expected and constantly ongoing effects of the “4^th tech revolution,” which was expected to radically change the basis of economic activity in the years to come – hence, the need to remain in line with these advancements in technology. Therefore, the government and other official agencies needed to be informed of new challenges and technologies, so that they could anticipate how trends would affect economic activity in the formulation of policies. She explained that this was what was currently happening in education, where it had lagged behind the job market for some time, creating the problem of skill matching.

First Panel Discussion

Participants raised the following issues regarding the challenges to job creation in the region:

• Concerning the causes and consequences of informal economic activity, one participant suggested that informality was not a barrier, but rather the product of a barrier to private sector entry;
• Concerning the Mwazi program, one participant commented that the mwazi program (which made it possible to ‘buy’ university enrolment) was created to fix a severe financing problem, and asked what would replace this source of university income were it to be removed?
• Concerning the importance of the political dimension, it was suggested that economic policy could not absolved from its context, and asked what was the exact role of the government? How could the sovereignty of the curriculum be enforced?
• Concerning policy enforcement, a delegate highlighted  the difficulty of enforcing policy in a context where the line between private sector and the government was blurred, suggesting more transparency and accountability measures;
• Concerning vocational training, it was suggested that  the educational system should be inverted, so that vocational training was prioritised over other more general forms of education;
• Concerning the government’s prioritisation of security concerns above all else, a participant suggested that it was detrimental for the investment climate and that a more balanced approach between economic and security concerns was needed;

The panellists emphasised the following issues in response to the audience’s queries:

• Maha Ali explained that informality was  not a good phenomenon in any country and, whilst  the problem was  partially the product of poor policies, it did  not detract from the harmful consequences of informality itself, as regards, for example, the impairments incurred by informal companies in transitioning from small to medium-sized enterprises;
• Rym Ayadi agreed that informality represented an instrumental failure on the part of the private sector, but added that its levels of productivity were very low, requiring immediate policy attention;
• Wajih Oweis responded that the mwazi programme was, indeed, part of a framework in which it played an important role. The whole system needed replacing, not just a partial adjustment;
• The panel members agreed that strategic developmental roles were better placed within the private sector due to its natural competitive advantage over the government. The latter’s job should be seen as assisting the development  of the private sector, not taking over the role;
• To that end, Dr. Ziad Fariz suggested laws related to transparency and accountability were necessary, to ensure the private sector had authority over the government;
• Oweis addressed concerns regarding vocational training quality and prioritisation, agreeing in part with the suggestion to invert the priorities of the education system in Jordan in order to reflect a more prominent role for vocational trading, adding that it could help skill matching and generate growth by aligning education with jobs;
• Ali also addressed concerns regarding vocational training quality and prioritisation, explaining that the short and long terms were at odds. She offered the example of manufacturing, arguing that the short term benefits of investing in manufacturing vocational training were obvious, but that one should not forget that manufacturing was not the future  current advances and trends were pointing to, hence the suggested ‘inversion’ of focus was  problematic, as it could weaken the economic position of the region in the long term;
• Fariz addressed the questions in general, positing that the importance was how to upgrade the quality of education to the extent that inclusive growth reached 7%/GDP. This was an aspiration that extended beyond any one element being discussed at the Conference.

The moderator, Dr. Munther Al Shar’e concluded the first EMNES policy panel of the day, aptly stating that the region didn’t just need successful farmers, traders, or industrialists, but also the best regulator!

Second Panel: The socio-economic roots of unemployment in the Southern Mediterranean countries: factors influencing job creation in the region

Moderator: Prof. Dr. Qassem Al Hammouri, Yarmouk University

Dr. Al Hammouri underlined the importance of investment for the demand of labour, describing all other instruments for boosting labour demand as treating a part instead of the whole problem.

He echoed calls from the first EMNES policy panel, arguing that all dimensions of the unemployment problem should  be taken into account with the cultures of phobia or stigma that were arresting critical evaluation. He suggested raising teachers’ wages as a practical first step to investing more in education. He added, however, that unfortunately the lack of political will had meant that even such a basic step had not been taken seriously in many of the southern Mediterranean countries.

Prof. Dr. Abdul Razaq Bani Hani, President of Jerash University on “Socio-Economic Roots of Unemployment in the Southern Mediterranean Countries”

Dr. Bani Hani focused his talk on the historic roots of unemployment in the MENA region, explaining that one could not separate the socio-economic factor from the politico-historical factor, and that unemployment derived partly from the latter. He stated that unemployment had some roots in the way the Ottoman state was set up, for example, citing the fact that the dominant labour force was familial (contributions of agriculture to GDP reached as high as 80%) to argue the effect of that period on shaping the economy. He also cited the example of the 1916 Sykes Picot agreement.

He posited that a number of historical incidents had created the backdrop of structural problems that had resulted in sustained unemployment in the region:

1. Land fragmentation
2. Economic dependence
3. Rulers, but no institutions
4. Creation of distorted subcultures
5. Creation of socio-political and legislative entropy
6. Fostering of undesirable rent economy
7. Keeping the verdant state under stress
8. Interest of lay people in public affairs
9. Statism
10. The parasitic city

According to Dr Bani Hani, the last element was of particular importance. He described the phenomenon occurring when the peripheral areas of a country were neglected in favour of the main capital city, to the extent that the latter syphoned all resources from the former. This process, however, eventually had a negative effect on the city itself, so that the productive forces of the economy ended up leaving the country as a whole for a more productive environment, thereby depleting the country of its resources for growth and jobs. Dr. Bani Hani offered the example of Jordan, where 1500 companies recently left Amman for Dubai, for Europe, or for Turkey, but none of them thought of going to the periphery.

Mr. Laith Al Qasem, Chairman, Arabian Business Consultants for Development on “Regional entrepreneurial environment and job creation”

Mr. Al Qasem began by stating that too much state employment crippled the economy by creating a burden on the state as economic provider. He shared perspectives voiced in the first EMNES policy panel that the role of the government in the economy should be that of facilitator. According to Mr. Al Qasem, governments should create an attractive and efficient environment for all its agents to spur economic activity. He, thus, called for the upgrading of the social contract in the MENA region.

He explained that this would also have a social benefit; less government involvement meant less dissatisfaction, more trust, and less populism. He didn’t propose legislative changes but, instead, a change in the attitude of policy makers towards policy to reflect the pivotal role of the private sector.

Mr. Ghassan Nuqul, Vice CEO Nuqul Group on “Matching skills and qualifications with labor market needs”

Mr. Nuqul discussed the effect of over frequent changes in unemployment policy, arguing that there had been no continuity and follow-through of policy, owing to the trend of frequent government changes in the southern Mediterranean countries. He called for more serious policy implementation, beginning with (1) the setting of KPIs, (2) a firm budget and (3) schedule, (4) a responsible entity with a clear hierarchy, and (5) constant communication between all stakeholders and implementing agencies.

In doing so, he elaborated, there would be more alignment between economic vision, strategy, and objectives, and between individual policies. He argued this was particularly important considering the need to increase global competitiveness and integration of the region. He echoed earlier calls to take overhaul of the education system seriously, beginning by providing educators with more training and better pay (short term), and ultimately changing curriculums (long term).

Dr. Maher Al Marouq, CEO of Jordan Enterprise Development Corporation (JEDCO) on “Business environment, entrepreneurship, and job creation”

Dr. Al Marouq focussed on three ways to spur job creation in Jordan and the rest of the MENA:

• Invest in technology (including R&I)
• Overhaul higher education
• Base policies and curriculum on labour demand

He explained that technologies such as artificial intelligence, the internet of things, and 3D printing could be responsible for many jobs created in the near future, and so should receive attention from educational institutes and policy makers. He expected that about 60% of labour market demand, in terms of the skills required by the next generation of workers, would be unheard of today. This was due to the speed of technological spread in the globalised world.

Dr. Al Marouq particularly supported increasing the quantity and quality of entrepreneurial education in Jordan, citing its potential to increase the international competitiveness of SMEs.

H.E. Dr. Sudqi Al Omoush, Former Deputy Secretary General of the Union for Mediterranean on “Med4Jobs: Mediterranean Initiative for Jobs and youth employability”

Dr. Al Omoush discussed the Med4Jobs initiative, partially attributing the success of the initiative to the representation of all economic economics, the focus on both the demand and supply of labour in implementing employment and apprenticeship programmes, internships, and entrepreneurial education at all levels. He echoed earlier calls for instilling in youngsters the soft skills needed for entrepreneurship.

He argued that often we exaggerated the role of the curriculum in business attitudes and, thus, in the unemployment problem. Some curricula, according to Dr. Al Omoush, were just fine, but the business environment was not conducive to investment, and so, jobs were sparse.

Second Panel Discussion

Participants raised the following issues regarding the factors that influenced job creation in the region:

• Concerning the efficacy of the government’s developmental role, one delegate highlighted the difficult social and political context and challenges facing the MENA governments since independence, arguing that the public sector’s developmental efforts should be given a second chance;
• Concerning policy instability, participants commented on the sunken costs attributed to frequent policy changes, urging sustainability and continuity in government policy;
• Concerning the ‘parasitic’ city problem, a participant recounted recent Jordanian efforts to install discretionary figures in towns and villages around Jordan, asking if that would be enough to fix the ‘parasitic city’ problem;
• Concerning the difference between government led development efforts and their private sector counterparts, participants asked the panellists to reflect on their experience to describe the difference in greater detail.

The panelists emphasised the following issues in response to the audience’s queries:

• Panel members agreed with the consensus forming about the advantages of the private sector in development, due to competition and relatively fewer conflicts of interest;
• Abdul Razaq Bani Hani responded by saying that the appointment of discretionary figures in towns and villages would only work if those local figures were enabled to strengthen economic activity and attract domestic and international investors. He was sceptical, however;
• Maher Al Marouq underlined the difference between government and private actors (based on his experience in both roles), highlighting the natural advantage of the latter to argue the need for accountability and transparency mechanisms which would allow the private sector an overview of  policy design and implementation.

Selected studies by EMNES

Three EMNES Working Papers were presented and discussed, as part of the EMNES Policy Conference in Amman

Paper 1: On the impact of institutional uncertainty on employment generation perspectives of firms in Jordan, co-authored by Serena Sandri & Nooh Alshyab, and examined by Prof. Dr. Riad Al Momani (Yarmouk University)

Drawing on different traditions of institutional analysis, the present study aims at eliciting the perception of institutional uncertainty among private sector decision makers and to assess its effect on job creation perspectives. This is done developing an original subjective indicator to measure the uncertainty induced by institutions and analysing the results of a survey administered among a representative sample of 319 entrepreneurs, business owners, and top managers in Jordan. The estimation of binary logit models signals that our measure of institutional uncertainty is a good predictor for the perspectives of job creation and firm growth and that, in particular, uncertainty related to the judiciary, political instability, and waste all have a significant effect on discouraging job creation expectations.

Paper 2: On the determinants of total factor productivity in the MENA region, co-authored by Nesreen Seleem & Chahir Zaki, and examined by Prof. Dr. Hasan Al Nader (Yarmouk University)

Using enterprise surveys for MENA countries, this paper estimates total factor productivity (TFP) and examines its determinants. Our contribution is twofold. First, we provide TFP estimates by country and sector for the MENA region and examine how TFP changes by export status, age, firm size, formal status and ownership. Second, we combine both micro (firm level) and macro (nation level) determinants of TFP. Our findings show that among the micro determinants, government ownership, foreign capital, female managers, owning a foreign certification, and formal registrations of firms are all positively associated with TFP, with competition also exerting a positive impact on firms’ productivity. All the macro determinants on the other hand, with the exception of trade openness, display the expected impact on TFP, as suggested by the literature. Longer time to enforce contracts, high tax burden and high lending rates tend to have a significantly negative impact on TFP. Higher tariffs, however, have  a surprisingly positive impact on TFP, which may emphasise the adverse impact trade openness can have on TFP, as a result of the economy’s increased dependence on imported products and its limited ability to absorb the positive spillovers of trade.

Paper 3: On skills mismatch and the return to education in Jordan, co-authored by Nooh Alshyab, Serena Sandri & Ziad Abu-Lila, and examined by Dr. Mahmoud Heilat (Yarmouk University)

Education is an investment and its returns, in terms of increased wages, can be used as an indicator of productivity in an economy. Also, skills utilisation is important for productivity and, whenever there is a misalignment between the skills demanded and those available, it is spoken of as skills mismatch. This paper provides an overview on skills mismatch and estimates gender differences in the returns to education in Jordan. The econometric analysis is, hereby, based on the estimation of fixed effects’ models on a set of pseudo panel data, covering the period between 2000 and 2015. The findings reveal that returns to education for male employees are higher than for female employees (the wage premium from one additional year of schooling is 6.8% for males and 5.4% for females) and that, on average, females are paid 74% of what males earn. We explain this result based on some peculiarities of female participation in Jordan’s labour market. Concerning skills mismatch, the analysis points to the existence of over-education and under-skilling.