Covid-19 accelerates need for a new social contract

Jihad Azour, Director of the International Monetary Fund’s Middle East and Central Asia Department, Washington, D.C.

The 2021 ASDA’A BCW Arab Youth Survey provides a unique opportunity to gauge the impact of the pandemic on Arab youth, on their perceptions about current economic and social conditions and their expectations about the future.  The main question this year is how the severe economic recession that ensued the Covid-19 outbreak could threaten the economic opportunities and aspirations of young Arabs for the coming years.

The 2021 survey represents a real call for action for Arab policymakers. The good, somewhat unexpected, finding of the survey is that the pandemic has not shattered young Arabs’ confidence about a better future.  This greater optimism and positive forward-looking sentiment provide a unique window of opportunity to shape a transformational recovery by pushing ahead the long-awaited reforms needed to provide better opportunities to young people in the region.  This is why I call on policymakers, not only to mitigate the immediate impact of the COVID-19 crisis but also to rethink the way growth should be engineered in the Arab region.

The survey found that the majority of the youth (60%) foresee brighter days ahead and are optimistic despite the pandemic, a greater share than last year (50%). In spite of the hardship experienced over the last year, Arab youth still believe in the prospect of an improvement of their lives: about half of respondents think they will have a better life than their parents, the highest in three years.  Many are anticipating a fast recovery and quick normalization from last year’s crisis, and a greater share wants to take risks and develop new ventures and startups within the next five years. Noticeably, a smaller share of respondents (33%) is considering emigrating to another country compared to the last Survey (42%). While it is too early to be definitive, the decisive policy responses by policymakers in the region to protect the populations, such as in the UAE, Morocco and Saudi, may have played a role in the improved optimism evident in the survey.

Indeed, not all countries share the same optimism, and the 2021 survey continues to reveal large disparities between respondents in GCC, North Africa, and the Levant. In particular, even if there is an improvement relative to last year, respondents in the Levant continue to hold relatively less positive views about the future, reflecting the serious ongoing economic and social challenges faced by many countries in that region.

The positive news of resilient optimism in the face of the health and economic crises does not mean that some of the longstanding issues affecting Arab youth have become less relevant. Lack of jobs continues to be a key concern, and still, 20% of the young who lost their occupation (or had someone in their family who lost his/her job) due to the COVID-19 crisis say they are still unemployed. Anxiety about the high cost of living remains widespread, especially in the Levant region, boosted by concerns about a pick-up of inflation and further increases in the debt burden and cost of education. A worrying finding from the survey is that the already large regional gender gap appears to have worsened with the crisis: 40% of respondents say men have more rights than women (compared to 25% last year) and 44% says that men have more job opportunities than women (compared to 35% last year).

I believe a new model of development and indeed a new social contract are needed. To succeed, they should place the youth issue at the core of the structural reform agenda required to build more resilient, sustainable, and inclusive economies.

This reform agenda would need to prioritise progress in a number of key areas:

1. Preserve macro-economic stability. Many economies in the region are still grappling with the impact of the pandemic and face a legacy of weaker fiscal positions and greater inflationary risks (mainly from the emergence of supply side bottlenecks, both at home and globally). Adopting the right fiscal and monetary policy-mix to deal with these short-term vulnerabilities is a pre-condition for ensuring both a sustainable economic recovery and a successful continuation of structural reforms.

2. Invest in talent and improve the business environment. A significant share of Arab youth finds it difficult to enter (formal) labour markets, both because the education and training systems are not well geared to provide for the skills demanded, but also on account of the numerous obstacles to entrepreneurship (including from limited access to finance, burdensome regulatory frameworks, and inefficient labour markets). Increasing the number of job opportunities in the private sector will require reforms that improve the quality of education and reduce labour mismatches and lower the barriers that stop new firms from entering markets and prevent existing small businesses and startups from growing in scale.

3. Revamp social protection systems. The decision from many Arab governments to expand the reach of their social safety nets last year helped mitigate the impact of the pandemic on the most venerable (including many young people who lost their jobs). Going forward, the social compact in the region will need to be redesigned so as to respond to the legitimate aspiration of Arab youth for more efficient and equal access to basic services (like health care, education, and targeted forms of support as they look for jobs or set up a family).

4. Strengthen the trust in institutions. The survey confirms that many young Arabs continue to see nepotism and corruption as a fundamental obstacle to social mobility and inclusive labour markets. Renewed efforts to fight corruption and to ensure a more transparent and efficient provision of public goods and services would reassure them that the “game is not rigged”, and that opportunities are open to all who seek them.

5. Promote digitalisation. Urgently stepping up digitalisation and investing in new technologies will foster change and inclusion, with young Arabs (and in particular young women) who stand the most to benefit from the new opportunities associated with remote working, online learning, digital finance, and E-commerce.

This is undoubtedly a very ambitious agenda, one that if implemented without delay would most likely yield tangible results only in a few years’ time. But this should not deter policymakers from beginning a new season of reforms. The positive sentiment and optimism of many young Arabs should not be disappointed. Policymakers should act now and respond with concrete measures and reforms to consolidate their hope for a brighter and more prosperous future.

Dr. Jihad Azour is the Director of the International Monetary Fund’s Middle East and Central Asia Department (MCD). Dr. Azour served as Lebanon’s Finance Minister from 2005 to 2008, during which time he coordinated the implementation of important reforms at the national level and within the Finance Ministry. He has held a wide range of posts in the private sector, including with McKinsey and Booz & Co. where he served as Vice President and Senior Executive Advisor from 2009 to 2013. Prior to joining the Fund, he was a Managing Partner at advisory and investment firm Inventis Partners. Dr. Azour holds a PhD in International Finance and a post-graduate degree in International Economics and Finance, both from the Institut d’Etudes Politiques de Paris.