x Abu Dhabi, UAESaturday 22 July 2017

Egypt's turmoil may boost economic change

Analysts say protests in Arab world are an urgent wake-up call for economic reform around the region.

Political turmoil in the Arab world could speed up long-pondered economic reforms across the region.

Hundreds of thousands of protesters poured on to Egypt's streets yesterday, with some reports claiming almost two million people were protesting across the country. Analysts described the unrest as an urgent wake-up call for economic change throughout the Middle East.

Creating jobs for millions of young unemployed Arabs has been described as the first priority officials need to tackle.

Closing income gaps between the rich and poor has also been highlighted as another pressing requirement.

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"The events in Egypt act as a wake-up call," said John Sfakianakis, the chief economist at Banque Saudi Fransi. "While the Gulf is less vulnerable to fiscal challenges, if they don't address the same issues today they will have the same problems down the line."

Job creation has emerged as one of the most pressing challenges in the region as governments take on the task of creating jobs for rapidly increasing populations. Public dissatisfaction with the lack of progress on the jobs front has been one of the root causes of recent protests in countries including Egypt, Tunisia and Yemen.

Some governments have said in recent days they were planning a raft of reforms to ease youth unemployment, reduce poverty and participate more freely in the global economy.

In Jordan, also the site of recent protests, King Abdullah yesterday dismissed his government after talking about the need to "overcome economic challenges, and assure Jordan and Jordanians of the decent future they deserve".

A similar rhetoric of conciliation and reform has come to the fore in Egypt and Tunisia — even as public unrest continues. Barack Obama, the US president, said in a recent interview that he had repeatedly told his Egyptian counterpart, Hosni Mubarak, he needed to be "moving forward on reform - political reform, economic reform".

Bill O'Neill, the chief investment officer of Merrill Lynch Wealth Management, said freer economic policies and more heavy spending to create jobs and provide education could put a strain on countries' already weak public finances.

"Liberalisation brings with it a lot of opportunities and a lot of threats… fiscal positions in certain countries in the region are very challenged, certainly for Egypt," he said.

Education has been flagged up as an area for improvement among oil importers and exporters.

In Tunisia, a large number of the unemployed are graduates with skills not considered suitable for the private sector. In the Gulf, as many as 70 per cent of youths under 29 look for jobs in the public sector, said Soraya Salti, the regional senior vice president of INJAZ Al-Arab, a business mentoring initiative based in Jordan.

In contrast, the private sector is dominated by expatriates.

"There's a clear mismatch," said Ms Salti. "Now is the time to use resources to invest in education to develop human capital and make sure vocational and non-vocational systems are aligned to meet the needs of the private sector."

Governments in the region also use subsidies on commodities and utilities such as bread, petrol and electricity to help safeguard citizens against rising inflation. .

Yet anger about rising food price inflation was a catalyst of demonstrations in north Africa and Yemen. Economists say the unrest proves subsidies are an inexact science, and do not help the poorest people.

The IMF has called for reform to the subsidy system to ensure they're more targeted to proving financial assistance to the very poor.

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