Download Economic Growth, Inequality and Poverty in the Arab Region

2015
Regional Coordination Mechanism (RCM)
Issues Brief for the
Arab Sustainable Development Report
Economic Growth,
Inequality and Poverty in the
Arab Region
Authors: Niranjan Sarangi ([email protected])
First Economic Affairs Officer, Economic Development and Poverty Section, Economic Development and
Integration Division, Economic and Social Commission for Western Asia (ESCWA)
Khalid Abu-Ismail ([email protected])
Chief, Economic Development and Poverty Section, Economic Development and Integration Division, Economic
and Social Commission for Western Asia (ESCWA).
Reviewed by: UNDP United Nations Development Programme
ILO International Labour Organization
UNEP United Nations Environment Programme
UNHABITAT United Nations Human Settlements Programme
ESCWA Economic and Social Commission for Western Asia
Acknowledgements: The authors are thankful to Fouad Ghorra, Economic Development and Poverty Section,
for his useful inputs and research support. The authors are also thankful to Nathalie Milbach-Bouche (UNDP
Regional Centre in Cairo) and Melanie Hutchinson (UNEP/ROWA) for their useful feedback in earlier version of
the draft.
Disclaimer: This issues brief was prepared as a background document for the forthcoming Arab Sustainable
Development Report. The views expressed are those of the authors and do not necessarily reflect the views of
the United Nations. Document issued as received, without formal editing.
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Economic growth, Inequality and Poverty:
Analysis of proposed SDGs and targets from an Arab perspective
1. Introduction
Economic literature on explaining linkages between economic growth, income distribution, and poverty
reduction provide various perspectives.1 Some argue that economic growth is the prime driver of poverty
reduction2 while others argue that growth alone doesn’t necessarily translate to reduce poverty; the role of
income distribution is also crucial.3 The relative importance of growth and distribution policies for poverty
reduction has been studied by several country specific as well as cross-country experiences.4 Further, Son and
Kakwani (2004) demonstrated that initial level economic development and income inequality can significantly
influence the extent to which economic growth reduces poverty.5 While each study has its own logic, and they
tend to vary in their approach as well as finding in terms of growth and inequality elasticity of poverty, there is
sort of an increasing recognition that a combination of both economic growth and redistribution policies are
important strategies for poverty alleviation. Therefore, not only the quantity of growth but pattern of growth,
particularly the one which takes into consideration equity concerns, is crucial for making a significant impact on
reducing poverty.
In case of Arab countries, the pattern of growth is an important entry point for discussion. The region has done
fairly well in average quantity of growth over last four decades but economic growth has been led by oil
revenues appropriated to a few and has not significantly improved incomes of the poor nor it generated
enough jobs to a rapidly rising educated labour force. The chronic high unemployment rates and perceptions
regarding divergence between growth and individual wellbeing are associated with demand for social justice by
the people in many countries, known as the Arab uprisings.6 In this context, the importance of eradicating
poverty in all forms and in everywhere (Goal 1), promoting sustained, inclusive and sustainable economic
growth, full and productive employment and decent work for all (Goal 8) and reducing inequality (Goal 10), as
outlined in the outcome document of the Open Working Group (OWG), rightly capture the heart of the socioeconomic challenges that the region is facing today.
The importance of job-centred or labour-intensive growth has been advocated by a number of studies as an
effective poverty reduction strategy.7 For example, Squire (1993) recognizes that “economic growth that
fosters the productive use of labour, the main asset owned by the poor, can generate rapid reductions in
poverty”. Extending this argument, Islam (2004) suggested that conceptually the linkage between output
growth, employment and poverty can be analysed at macro as well as micro level through the average
productivity of the employed work force and the nature of economic activities. He argued that high rates of
economic growth results in higher per capita income and reduction in poverty in a situation where growth
process leads to “improved productivity of various sectors and occupations, a shift in the structure of
employment towards occupations with higher levels of productivity, and increases in real wages, earnings from
self-employment, and earnings from wage employment”.8
This process is presented as an illustration (figure 1), which shows the flow in an economy. The flow chart
shows that economic growth can enhance productive capacity that leads to generation of jobs with rising
productivity. The workers can benefit by increase in their real wages achieved through higher productivity,
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which enhances their social expenditure as well as skill development that in turn further increases productive
capacity and contributes to economic growth.
FIGURE 1 LINKAGES BETWEEN ECONOMIC GROWTH, EMPLOYMENT AND INCOME
Source: Adopted from Islam 2004.
The strong focus on employment intensity of economic growth makes the framework unique and it fits well
into the discussion of the issues and challenges that are relevant for the Arab region in the present situation. It
can also be understood that the interlinkages provide implicitly the sustainability of economic growth and leads
ways to higher levels of equilibrium of the economic system. Taking into consideration this interlinked
relationship, the issue brief paper:
•
•
Assesses economic growth, poverty reduction, income inequality and employment in the Arab region
at the macro level;
Analyses the proposed sustainable development goals (SDGs) and targets from an Arab regional
perspective and charts ways forward briefly.
Noteworthy to mention that the framework doesn’t analyse environmental sustainability explicitly, but it can
be easily factored in by adoption of a growth pattern that relied upon cleaner and efficient energy. Therefore,
the framework is applicable to include environmental sustainability as well although the latter issue is beyond
the scope of this discussion brief paper.
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2. Economic growth and structural transformation
Economic growth has remained relatively high but vol
volatile
In the 1970s, the Arab region witnessed an impressive economic growth of 8 per cent a year. In the following
decades, growth was much lower, ranging from 1.4 per cent in the 1980s to 4.0 per cent in the 1990s,
increasing to 5.1 per cent in the 2000ss (figure 2).
). Although economic growth has been relatively high over the
decades, the region has thus been unable to effectively translate economic growth into greater income of the
overall population. Income or gross domestic product ((GDP) per capita has not increased at the same pace as
overall GDP growth in the Arab region; income per capita has increased only by an average of 1.4 per cent
during the period over 30 years (figure 3).
Does that imply that high population growth offset the growth of GDP in the Arab region which resulted in low
per capita income? Evidence does indicate a relatively high population growth rate in the Arab region, being
above 2 per cent even in the 2000s,9 but the rate is not so high that can explain such a large gap between
growth
owth in overall GDP and growth in per capita income. In addition, another reason is that growth in Arab
countries is volatile and mainly driven by natural resources, such as oil and gas, hampering a structural
transformation of the economy that could reduc
reduce
e poverty and inequality and create jobs. Instead, oil revenue
has encouraged the import of manufactured goods at the expense of the productive capacities of local
manufacturers and domestic industrial protection.
5.0
4.3
3.0
3.9
4.1
5.6
5.5
1970-79
1980-89
1990-99
2000-09
1.7
1.8
1.4
2.0
2.0
2.8
3.0
3.4
4.3
4.0
4.0
4.5
4.4
5.1
6.2
6.0
6.5
6.4
7.7
7.9
8.0
8.1
8.0
8.8
8.1
10.0
2010-13
-0.8
0.0
-2.0
Arab World
East Asia & Pacific
Europe & Central
Asia
Latin America &
Caribbean
South Asia
Sub-Saharan
Saharan Africa
FIGURE 2 DECADAL AVERAGE OF GDP GROWTH (%), 1970S - 2013
SOURCE: AUTHORS’ CALCULATIONS BASED ON WORLD BANK (2014B).
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10.0
7.9
8.0
7.4
6.6
6.0
5.0
4.7
4.9 5.0
4.1
4.0
3.7
3.7
1980-89
3.4
2.8
2.7
2.1
2.0
1970-79
1.5
1.0
1990-99
2.3
1.7
1.5
1.4
0.6
2000-09
2010-13
0.0
-2.0
Arab World
East Asia & Pacific
-1.2
Europe & Central
Asia
-0.9
Latin America &
Caribbean
South Asia
Sub-Saharan Africa
FIGURE 3 DECADAL AVERAGE OF GDP PER CAPITA GROWTH (%), 1970S - 2013
Source: Authors’ calculations based on World Bank (2014b).
Growth remained volatile in most Arab countries
Arab growth processes are characterized by relatively high volatility, especially those of low income and oil-rich
countries. According to the analysis by Von Arnim et al (2011), among the Arab countries, only Egypt, Jordan,
Libya, Morocco, Oman and Tunisia are characterized by low volatility and sustained growth over the period
1970-2012: Egypt (with an average annual real GDP per capita growth rate of about 3.2 per cent and a
coefficient of variation of 0.86), Jordan (2.5 per cent and 2.6), Libya (2.7 per cent and 1.8), Morocco (2.4 per
cent and 1.7), Oman (2.6 per cent and 2.6), Tunisia (3.0 per cent and 1.1). However, four of these six countries
– Egypt, Jordan, Tunisia, and Libya -- are facing negative consequences of conflicts and political instability
directly or indirectly, which has severely affected their achievements on economic and social development
indicators.
Structural transformation remained a challenge
Arab countries can be divided on the basis of their resource endowments – those oil-rich or net exporters of oil
and gas; b) those non oil-rich or net importers of oil and gas. The figures 4a and 4b show the economic
structure of Arab oil-rich and non oil-rich countries respectively since the1990s. Quite clearly, oil, gas and
mining dominated among all sectors and contributed more than half of the GDP of the oil-rich countries in
1990. The share of oil and gas has reduced slightly by 2012, but it is still the dominant sector. The share of
manufacturing in GDP was only 6.63 per cent in 1990, which slightly improved to 8.82 in 2012. The share of
service sector has seen an increase during the period, whereas agriculture’s share remained negligible
throughout. However, within service sector ‘other services’, which tend to be low value-added informal jobs,
continue to have larger share than high value added services.
The economic structure of non oil-rich countries remained more diversified than the oil rich countries (figure
4b), but there as well the share of manufacturing in GDP remained low. Of the six countries characterized by
low volatility and sustained growth (as mentioned above), only Jordan, Oman and Tunisia implemented
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noticeable structural transformations. In the period from 1970 to 2012, the manufacturing sector in Jordan
grew from 10 per cent of GDP to 18 per cent, in Oman from 0.4 per cent to almost 10 per cent, and in Tunisia
from 9 per cent to almost 17 per cent. Egypt suffered from an incomplete manufacturing transformation;
although the share of the manufacturing subsector was about 22 per cent of GDP in 1970, which could have
classified it as an industrialized country, it declined to about 16 per cent of GDP in 2012.
Von Arnim et al (2010) argued that these results indicate an almost no regional structural transformation over
time which contrasts sharply with that of other developing regions. In summary, the economic structure of the
Arab region can be explained as the following: stagnating shares of GDP of agriculture and manufacturing
sectors,10 a rapidly expanding service sector but mainly concentrated in low value-added activities, and a still
dominant oil sector. Therefore, owing to the lack of structural transformation, productivity gains have been the
slowest in the world.
A. Arab oil-rich countries
B. Arab non oil-rich countries
100%
90%
80%
70%
60%
Other services
21.60
90%
24.25
Transport Services
4.05
6.45
4.62
6.63
7.47
9.33
7.16
50%
8.82
100%
40.58
15.65
4.89
12.42
3.26
2.38
1990
2012
Wholesale, retail
trade, restaurants
and hotels
Construction
Services
Manufacturing
12.51
9.96
Oil, Gas and Mining
17.80
14.75
Agriculture
1990
2012
20%
10%
Agriculture
Transport Services
6.01
13.32
Oil, Gas and Mining
10%
0%
12.38
15.75
30%
53.39
20%
8.70
50%
Manufacturing
30%
28.73
60%
40%
40%
27.11
80%
70%
Wholesale, retail
trade, restaurants
and hotels
Construction
Services
Other services
0%
FIGURE 4 ECONOMIC STRUCTURE (SECTORAL SHARES IN GDP) OF ARAB COUNTRIES
Source: Authors’ calculations based on World Bank (2014b).
3. Productivity and employment
Low productivity growth
Productivity, measured by the ratio of GDP to labour or output per worker, growth rate in the Arab countries
registered the lowest as compared with various other regions of the world, including Sub Saharan Africa, during
1991-2010 (figure 5). The growth rate did not exceed the threshold of 1 per cent between 1991 and 2010.
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7.0
5.7
6.0
5.0
4.4
4
4.5
4.2
4.0
2.9
3.0
1.0
2.2
1.7
1.5
2000-2010
1991-2010
1.3
1.1
0.9
1991-1999
2.6
2.1
1.8
2.0
2.7
0.0
-0.2
-0.7
-1.0
-2.0
Arab region
South Asia
European Union
East Asia and Pacific Sub Saharan Africa
World
FIGURE 5 PRODUCTIVITY GROWTH RATE (%)
Source: ESCWA (2013).
An analysis of productivity gains at the level of the Arab states shows the role of oil revenues in reducing the
economic productivity, where all the Arab Petroleum Exporting Countries (UAE, Saudi Arabia, Qatar, Libya and
Algeria) except for the State of Kuwait recorded negative rates of overall productivity. In addition to these
countries, Iraq’s concentration on oil revenues and its lack of political stability and security contributed in
facing a negative growth of productivity factors. While some Arab countries were able to make relative
development in their economies through industrialization recorded levels of growth in total factor productivity
such as Egypt , Tunisia and Oman, in addition to Lebanon, which came out of a civil war that destroyed its
infrastructure.
High unemployment rates
High unemployment rates, lack of decent employment opportunities and low real wages are some of the key
labour market characteristics of the Arab region. In general, the majority of investment in Arab economies is
directed towards the capital-intensive oil sector, low value-added services and construction and real estate
sectors, which generate demand for low skilled employment. The result is a mismatch between labour supply
and labour demand, where there is an over-supply of skilled labour relative to the demand.
A high unemployment rate has always been the norm in the Arab region (figure 6). Among the causes of high
unemployment in the region, increasing population growth and weak labour demand from the formal private
sector are important drivers. Several parts of the region being affected by crises, unemployment rate has gone
up during 2012 and 2013, particularly in the North Africa region. Further, when adult unemployment is high,
youth unemployment is much higher. While the world average stood at 13 per cent in 2013, the youth
unemployment rate in the Middle East and North Africa region was at 28.3 per cent and 30.2 respectively (ILO
2014). Youth female unemployment stood at 46.1 per cent in the Middle East and North Africa region as
against youth male unemployment at 23.6 per cent and 23.8 per cent respectively (figure 7). Importantly,
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youth unemployment rate has increased in 2013 as compared to 2012. In general, high youth employment
rates reflect high birth rates, a youth bulge and excessively rigid labour markets in some countries.
14
8.1
8.4
7.5
7.4
6.6
6.2
7.1
1992
2002
2012
2013
3.3
4.4
4.3
4.3
4.4
4.4
4.5
4
6.1
5.9
6.4
5.9
6.0
8
12.3
10.3
11.2
11.9
11.1
11.1
9.1
10
6
11.8
12.6
12
2
0
World
East Asia
South-East Asia & Latin America &
the Pacific
the Caribbean
Middle East
North Africa
Sub-Saharan
Africa
FIGURE 6 UNEMPLOYMENT RATE (%) ACROSS REGIONS, 1992-2013
Source: ILO ( 2014).
10
46.1
37
23.8
23.5
24.3
23.9
23.6
18.5
12.6
14
12.6
13.8
11.4
12.4
10.6
[VALUE]
15
11.1
20
11.3
10.7
13
13.1
12.4
12.8
12.7
13.4
9.5
6.5
10.9
7.5
25
11.3
7.7
11.6
8.2
7.6
8
15.9
16.9
12.4
13.7
13.3
13.6
30
16.5
14.1
21.3
11.3
16.7
10.8
16.5
21.8
35
20.9
29.9
40
29.2
36.5
45
38.5
50
46.1
Female
42.3
Male
5
0
1992200220122013199220022012201319922002201220131992200220122013199220022012201319922002201220131992200220122013
World
East Asia
South-East Asia &
Pacific
Latin America &
Caribbean
Middle East
North Africa
Sub-Saharan Africa
FIGURE 7 FEMALE AND MALE UNEMPLOYMENT RATE (%) ACROSS REGIONS, 1992-2013
Source: ILO (2014).
Note: Data for 2013 are ILO estimates; Prior to 2013 are national data.
In many Arab countries, the better educated youth are more likely to be unemployed than their less skilled
counterparts.11 In recent years, over 30 per cent of qualified young people were unemployed in the Arab
region, representing over 40 per cent of the total unemployment rate.12 In Tunisia, 33.6 per cent of those with
university degrees were unemployed. Unemployment in the Arab region is persistent in both low and high
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income households.13 This correlates with the high unemployment rates of more educated workers who
predominantly come from better off families, lending further support to the idea that Arab economies fail to
generate decent jobs for the population as a whole.
The gender component to youth unemployment warrants more concern. From 1992 to 2013, the female youth
unemployment rate increased from 36.5 per cent to 46.1 per cent in the Middle East and from 30 per cent to
46.1 per cent in North Africa. The female youth unemployment rate is considerably higher than the Arab youth
unemployment rate, although in many Arab countries women represent the majority of skilled university
graduates. It may be noted that female labour force participation has seen an increasing trend during the last
two decades although the rate is still very low as compared to the World average. But high unemployment rate
of the female youth shows that the labour market has been unresponsive to higher participation of females
seeking jobs.
Lack of decent employment opportunities
During the decade or so preceding the uprisings, the Arab region achieved fairly high rates of economic growth
and relatively fast employment creation.14 But the impact on people’s quality of life was less evident:
“employment generation was not accompanied by the creation of decent jobs, that is, jobs that met the
expectations of the increasingly educated job seekers and the aspirations of the middle classes”.15 Therefore,
although the region’s employment growth was the highest in the world at 3.3 per cent a year on average
between 1998 and 2009, compared to an annual growth of 1 per cent in East Asia and developed countries and
just over 2 per cent in Latin America and South Asia, the jobs that were created were largely in the low valueadded sectors that are typically associated with informal sector activities.16
Analysis of youth employment in economic sectors does indicate such a trend in selected countries in the
region. Particularly among the middle class households, the non-agricultural sector is the main source of
occupation for the majority of employed youth, but a significant number of them are absorbed in “other
services” (figure 8). For example, 35.5 per cent of youth occupations in Egypt in 2011 were in “other services”,
22.6 per cent in Syria in 2007, 58.2 per cent in Jordan in 2010 and 30.7 per cent in Tunisia in 2010. The
structure of economies across countries explains the diversity of youth occupation sectoral profiles, which
implies that countries with higher diversity in economic structure have a higher share of non-agricultural jobs,
compared to those with relatively greater reliance on agriculture.
Between 2000 and 2011, there was a major shift from agricultural to non-agricultural occupations among
young people, a trend that is distinctly noticeable across Egypt, Jordan, the Syrian Arab Republic and Tunisia
(figure 8). The share of industrial jobs increased in some countries, such as in Egypt and Tunisia, although they
are at low levels, while trade and transport sector occupations increased in the Syrian Arab Republic but not in
Jordan. Importantly, construction jobs and “other services” that are mostly low value-added in nature,
increased in all the four countries. This shift from agricultural to non-agricultural occupations could be the
result of education expansion in the region, especially higher education. The greater diversification of
occupations in Tunisia can be attributed to its successful shift from an agricultural to a non-agricultural
economy in the post-reform era that began in the 1990s. However, a lack of industrial development and
modern high value-added service sector development in most Arab countries has increased service sector jobs,
mostly in the “other services” category that tend to be informal in nature.
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100%
17.2%
19.5%
90%
22.6%
19.4%
28.3%
80%
35.5%
41.5%
30.7%
4.0%
0.5%
4.6%
5.3%
14.5%
70%
15.7%
17.4%
3.1%
60%
3.9%
50%
40%
9.0%
Transport
58.2%
1.9%
15.2%
18.3%
7.0%
18.3%
Trade
6.9%
5.5%
19.6%
7.7%
9.6%
10.2%
0.1%
10.4%
Other Services
42.7%
41.2%
11.5%
2.2%
Construction
19.3%
14.4%
24.4%
4.2%
17.5%
16.6%
20.5%
21.8%
5.4%
Industry
30.4%
30%
15.0%
16.1%
9.0%
5.2%
Agriculture
9.0%
20%
6.7%
17.3%
18.3%
10%
12.8%
33.1%
36.8%
25.4%
16.1%
25.6%
19.2%
53.4%
16.5%
3.0%
1.1%
3.6%
2009
2000
2011
2007
1997
2007
2005
2010
2002
2010
2005
0%
Sudan
Egypt
LDC
Iraq
MIC
Syria
Tunisia
Jordan
Lebanon
UMIC
FIGURE 8 DISTRIBUTION OF MIDDLEE CLASS YOUTH EMPLOY
EMPLOYMENT ACROSS ECONOMIC SECTORS
Source: ESCWA (2014a).
Stagnant or declining real wages
Given that productivity is among the lowest in the region, wages are also low and real wage is declining or
constant in most Arab countries.17 Wages as a percentage of GDP (derived from national accounts) in the Arab
region have been declining, from 31 per cent in 2000 to 27 per cent in 2009 (figure 9). Egypt witnessed the
most dramatic decline, where the wage share dropped from 29 per cent to 25 per cent of GDP between 2000
and 2009. Economic growth has thus benefitted employers and capital holders instead of workers, given that
real wages have not increased significantly since the 1970s (figure 10). In fact, the Arab region is the only
region where real wages have declined, dropping by 2.7 per cent between 2006 and 2011.18
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2000
50
45
40
35
40
39
34
2009
36
36
35
32
29
29
30
28
30
29
31
28
25
24
25
27
24
21
20
15
15
10
5
0
Bahrain
Egypt
Jordan
Kuwait
Morocco
Oman
Qatar
Tunisia
United Arab
Emirates
Average
FIGURE 9 WAGES AS A PERCENTAGE OF GDP, 2000 AND 2009
Note: Regional average is population weighted.
Source: ILO (2012b).
Real wage growth
GDP growth
16
14.6
14
12
10
8
6
6.6
5.7
5.6
4.2
4
2
0.1
2.8
1.1
4.5
3.2
1.4
4.6
1.8
3.8
4.9
4.8
3.3
1.5
0.5
0.3
4.3
4.1
2.6
1.9
0.3
0
TUN
SYR
SAU
QAT
OMN
MAR
KWT
JOR
EGY
DZA
BHR
-2.3
-1.4
Average
-3.1
ARE
-4
WBG
-2
FIGURE 10 GROWTH RATES OF WAGE SHARE AND GDP, 1990S-2000S
Note: Regional average is population weighted.
Source: Authors’ calculations based on ILO (2012b) and the World Bank (2014b).
4. Poverty and inequality
Rising poverty since 2010
Poverty is one of the major challenges faced by Arab countries during the past three decades and that will
continue being one of the major impediments to development in the Arab region. Since poverty is the cause of
a major social vulnerability, it creates a threat to the overall stability and creates a situation of anxiety to the
needy families in order to secure daily subsistence and secure the future in light of the widening gap between
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the rich and the poor. Especially due to declining performance of social safety nets on one hand and the
scarcity of available job opportunities on the other hand.
In this respect, the regional Arab Millennium Development Goals Report, issued in 2013, questioned the notion
of low poverty that is obtained for the Arab region by applying the extreme poverty line of $PPP 1.25 per day.
It argued that a large share of population is concentrated just above the poverty line which $1.25 a day is not
able to capture. Indeed, by shifting the poverty line from $1.25 to $2 and $2.75, the poverty rates for the
region increases from 4 per cent to 19 per cent and 40 per cent respectively (Figure 11).19 Such a spectacular
increase in poverty rate is a distinct feature of the Arab region compared to other regions of the world. The
rate of undernourishment, which can be seen as a manifestation of poverty, in the Arab region is high and
increasing, albeit the only region in the world to witness increasing undernourishment.20 Clearly, there is a
disconnect between income poverty rate (measured by a fixed line using $1.25) and undernourishment rate,
which may be partly due to measurement of income poverty although undernourishment rate is influenced by
several other factors in addition to income poverty.
Poverty rate
% Change in poverty
100
87
90
80
84
74
400%
74
70
60
57
60
50
50
40
46
40
40
200%
40
30
19
20
10
24
20
17
4
2
6
100%
12
12
300%
5
0
0%
AC
$1.25
EAP
$2
ECA
$2.75
LAC
SAS
% Change from $1.25 to $2.00
SSA
DR
% Change from $2.25 to $2.75
FIGURE 11 POVERTY RATES BASED ON PPP$ POVERTY LINES ACROSS DIFFERENT REGIONS
Note: AC- Arab countries, EAP-East Asia and the Pacific, ECA-Europe and Central Asia, LAC-Latin America and Caribbean,
SAS-South Asia, SSA-Sub-Saharan Africa, DR-Developing Region
Source: Authors’ calculations based on World Bank (2014a).
The incidence of poverty, measured by national poverty lines such as the lower and upper poverty lines,21
show a quite different but more realistic picture of the size of poor and the vulnerable in the Arab countries.
Using data prior to the crises since 2011, the poor and the vulnerable groups each constituted 21.3 per cent
and 19.5 per cent, respectively, of population in the Arab region.22 This regional average is calculated by taking
into account population of nine countries for which detail household full sample survey is available with the
authors, and the population of these nine countries account for 60 per cent of the total Arab population in
2011.23
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The figure 12A shows incidence of poverty according to latest household surveys that are available from
national sources.
es. However, these data reflect pre
pre-crises
crises situation in several countries including Syria and
Yemen that are affected by crises. Estimated latest poverty rates, by taking into account impact of crises, are
significantly high in countries that are affected by crises. For example, in Syria, armed conflict is estimated to
have increased poverty from 12.3 per cent in 2007 to 43 per cent in 2013, and in Yemen, the prolonged
recession has resulted in increasing poverty from 34.8 per cent in 2006 to 54.4 per cent in 2011 (Figure 12B). 24
Both countries also witnessed a rise in vulnerable population size. Poverty in Egypt has increased in the last
decade, in particular rural residents suffered. After a reduction in poverty between 1995 and 2000, Egypt has
experienced a continuous increase in the poverty incidence according to national poverty lines since year 2000.
Poverty stood at 16.7 per cent in 2000, but in 2005 it had increased to 19.6 per cent, and 25.2 per cent in 2011,
despite Egypt experienced high growth rat
rates
es in both GDP and GDP per capita. It may be explained by the fact
that economic growth has not been shared among larger sections of population, rather it was concentrated in
a few sectors with very little participation of the poor (Abu
(Abu-Ismail and Sarangi 2013; 2015).
).
A. Incidence of poverty
B.. Trends in poverty and vulnerability rates
100%
100%
90%
90%
80%
80%
70%
70%
60%
60%
50%
42.0
30%
25.2
0%
5.5 2.3
12.3
8.8
1.4
25.9
40%
21.3
30%
21.9
20%
10%
34.8
34.5
25.0
23.7
4.6
20%
10%
10.6 10.9 11.3 12.1
16.7 25.2 6.7
4.6
3.2
2.3 12.3 43.0 34.8 54.4
Jordan 2010
40%
26.0
Jordan 2002
50%
30.0
poor
Note: The rates are based on latest household survey
years for respective countries.
Yemen 2011
Yemen 2006
Syria 2013
Syria 2007
Tunisia 2010
Tunisia 2005
Egypt 2011
Egypt 2000
0%
vulnerable
Note: Rates are estimated in recent years for Syria and
Yemen as compared to latest household survey years.
FIGURE 12 POVERTY RATES IN THE ARAB COUNTRIES, ACCORDING TO THE NATIONAL POVERTY LINES (%)
Source: Authors’ calculations based on data
ata from Household Budget Surveys of respective countries.
Poverty in Egypt has increased in the last decade, in particular rural residents suffered. After a reduction in
poverty between 1995 and 2000, Egypt has experienced a continuous increase in the poverty incidence
according to national poverty lines since year 2000. Poverty stood at 16.7 per cent in 2000, but in 2005 it had
increased to 19.6 per cent,, and 25.2 per cent in 2011
2011. At the sub-national
national level, rural residents were the net
13 | P a g e
losers as poverty incidence increased most rapidly. Between 2005 and 2009, urban poverty increased by 0.9
percentage points, while rural poverty increased by 2.1 percentage points to reach 28.9 per cent in 2009.
The increase in poverty in the last decade is puzzling as Egypt experienced high growth rates in both GDP and
GDP per capita. Between 2000 and 2005, annual average growth rate was 4.1 per cent and average growth in
GDP per capita was 2 per cent. Despite this relatively strong growth in GDP and GDP per capita, poverty
increased dramatically in this period. The increase in poverty between 2005 and 2009 is perhaps even more
perplexing as Egypt achieved even faster growth in this time period. Annual GDP growth averaged 6.2 per cent
and GDP per capita growth averages 4 per cent per year. However, the wealth that was created in this period
produced gains for some groups, and losses for others and the opportunities that were created were not
shared equally. Growth was coupled with high inflation, especially for goods and services consumed by the
poor, which reduced the living standard of the poor. In addition, the economic growth in Egypt was also
concentrated in a few sectors with very little participation of the poor such as manufacturing, transport and
communications. These factors contributed to the strong increases in poverty despite increases in GDP per
capita.25
Worsening income inequalities
Income inequality suffers from several measurement challenges in the region, but mainly due to household
expenditure surveys being not an effective instrument in capturing the expenditure of the wealthy people.26
Based on survey data, a general notion is that income inequality, Gini index, is relatively moderate (varies
between 0.3-0.4) in the Arab region and has changed little over the last two decades. A recent study of
Egyptian household survey data by Hlasney and Verme (2013)27 suggested low and stagnant inequality in Egypt.
Therefore, they related the reasons behind the Egyptian revolution to perceptions of inequality rather than
actual experienced inequality. Alvaredo and Picketty (2014) cited severe data limitations28 in availability of
income tax records and challenges in survey data in order for computing a reliable inequality index that reflect
the nature of growth and perceptions of wellbeing among people across countries in the region. They,
however, suggested that increased inequality across countries in this region is a serious concern.
A recent report on wealth, produced by Credit Suisse (2014), indicates that wealth gini is 0.80 in Egypt and the
latter is among the countries in the world that witnessed fastest rise in wealth inequality in recent years along
with China and Hong Kong, China (SAR). This finding suggests that the household expenditure surveys are not
able to capture the expenditure of the top wealthy in Egypt and therefore a moderate income gini may be
expected. Another indicative of the “missing wealthy” in the household expenditure surveys can be
substantiated by the fact that the difference between the private final consumption expenditure per capita
from national accounts data and the one actually experienced by households from the surveys has been
increasing over time. Had there not been cases of rising wealthy, the difference between the two measures
would have been similar over time.
We examine this from the two sources of data. First, we noted that high level of disparity exists between
household final expenditure per capita from national accounts and household consumption expenditure per
capita from survey. For example, in Egypt (2011), the per capita household final expenditure was 2.6 times
higher than that reported by the survey based per capita consumption expenditure (figure 13). Similarly high
levels of divergence were noted in Jordan, Oman and Tunisia. It may be noted that the gap between the two
measures may not be a surprise but a high level of gap certainly raises alarm regarding significant missing items
14 | P a g e
in the expenditure surveys. Importantly, the gap between the two measures increased over time for all
countries in the sample. Empirical exercises from several countries, as well as conceptual analysis, provides a
basis to argue that the widening divergence between the two measures indicates increased inequality over
time,29 even when taking into account that household expenditure surveys might miss some consumption
items and that national household final expenditure includes some components that household consumption
surveys do not cover.
3.00
2.62
2.50
2.22
1.96
2.00
1.82
1.39
1.50
1.14
1.00
1.14
1.16
2007
2002
1.42
1.45
2005
2010
1.00
0.50
0.74
0.00
1998
2006
Yemen
2000
2011
Egypt
1997
Syria
2010
Jordan
2000
2010
Oman
Tunisia
FIGURE 13 TRENDS IN THE RATIO BETWEEN HOUSEHOLD FINAL EXPENDITURE PER CAPITA (FROM NATIONAL ACCOUNTS) AND
HOUSEHOLD CONSUMPTION EXPENDITURE PER CAPITA (FROM SURVEY)
Source: ESCWA (2014a).
Extending this exercise, we estimated the disparity between the average expenditure of the ‘rich’ on the basis
of household final expenditure per capita from national accounts and the average consumption expenditure of
population classes from surveys. The exercise essentially combines the information on expenditure from both
sources to estimate the mean consumption of the “rich” who are at the top end of the hypothetical
distribution of national accounts, and they are often not captured by the household surveys. To calculate the
average expenditure of the “rich”, the underlying assumption was that the distribution of mean household final
expenditure per capita across economic classes in the national accounts was the same as that of household
survey-based consumption expenditure per capita. Conceptually, the survey based consumption mean
observes a lower variation across the distribution than that of the distribution of private expenditure in the
national accounts. Therefore, assuming the same variation of mean in both distributions, the average
expenditure of the ‘rich’ will tend to be at the lower side of estimation than otherwise.
The ratio between per capita expenditure of the ‘rich’ to the per capita expenditure of different population
classes from the survey based consumption data is presented in figure 14. The results are sharp and striking, as
would be expected from the countries in the region. For example, the ‘rich’ in Egypt have 16 times higher per
capita expenditure than the poor, 11 times more than that of the vulnerable class, 7 times more than that of
the middle class and 2.5 times than that of the affluent consumption class. Similar high level of divergence is
15 | P a g e
noted in Tunisia as well. The ratio between average expenditure of the ‘rich’ and middle class ranges between
3 in Jordan, Syria and Yemen to 7 in Egypt. The ratio earns a progressively higher value for the vulnerable and
the poor, and a lower value for the affluent class across the countries.
Over the decade, the ratio between average expenditure of the ‘rich’ and other consumption based population
classes have increased significantly in all countries except for Tunisia. For example, in Yemen, the ratio
between average expenditure of the ‘rich’ to average expenditure of middle class has doubled during 1998 and
2006; in Egypt that increased from 5.7 to 7.4 during 2000-2011; in Jordan that increased from 2.9 to 3.4 during
2000-2010 and so on. In Tunisia, that ratio shows relatively stable gap around 4, during 2005-2010.
Rich pfce/ Poor pce
Rich pfce/ vulnerable pce
Rich pfce/ Middle class pce
Rich pfce /Affluent pce
16.2
17.0
14.9
15.0
13.0
11.3
11.0
7.4
3.4
2.1
1.5
7.1
1.1
2.0
1.0
1.1
6.1
6.1
5.8
3.1
2.6
8.0
7.3
5.0
4.6
2.6
9.0
7.7
5.7
4.5
3.0
10.1
9.6
8.9
7.4
7.0
3.0
11.0
9.2
9.0
5.0
14.3
13.7
2.9
1.2
3.4
1.4
4.7
4.3
1.8
2.2
4.3
3.8
1.4
1.4
1.0
-1.0
0.7
1998
2006
Yemen
2000
2011
Egypt
1997
2007
Syria
2002
2010
Jordan
2000
2010
Oman
2005
2010
Tunisia
FIGURE 14 THE RATIO BETWEEN AVERAGE EXPENDITURE OF “RICH” AND AVERAGE EXPENDITURE OF OTHER ECONOMIC CLASSES
Note: Pfce stands for per capita final consumption expenditure from national accounts, and Pce for per capita expenditure
Source: ESCWA (2014a).
This disparity analysis helps strengthen the argument that inequality in Arab countries widened in the 2000s. In
other words, the share of national income commanded by the middle class, the poor and the vulnerable
declined over time.30
Summing up
In summary, the lack of structural transformation of Arab economies and low productivity is an expected
outcome of decades of rentier patterns of economic growth that relied mainly on oil and gas. Oil revenues have
supported a service-led pattern of economic development at the expense of the productive sectors, rendering
the region the least industrialized among developing regions. Many of the region’s economies are turning into
increasingly import-oriented, service-based economies. Since the services fall at the low end of the valueadded chain, however, they contribute little to the expansion of local knowledge and skills, and lock countries
into inferior positions on global markets. Consequently, insufficient decent jobs have been created owing to
poor demand, especially from the formal private sector. Inevitably, this caused an increase in informal sector
jobs generally associated with low paid, low quality and low productivity jobs.
16 | P a g e
Formal sector workers in the region represent only 19 per cent of the working age population (compared to 27
per cent in Latin American and 40 per cent in Eastern Europe); the informal sector is an enormous part of the
region’s economy and comprises the majority of working heads of middle class families.31 That led to a large
section of people having deprived of access to social protection insurance, such as health care and pensions.
Their real wages are lower than those of formal sector employeeas and their working conditions are far worse.
Without contracts, they have no job security and are hired and fired at the sole discretion of their employers.
This shows that a large section of population, including high skilled educated youth, are caught in a trap who
are operating in the informal sector are having difficult times.32 Despite that the region has achieved relatively
high growth rate, the latter has not been able to translate into improving human wellbeing to a larger section
of population. Crises and political instability have further affected many countries in the region, especially the
poor and the vulnerable sections, the result being increasing inequality and high impoverishment in terms of
income as well as other aspects of human wellbeing.33
5. Analysis of proposed SDGs and targets from an Arab perspective
The issues related with poverty, economic growth and inequality are reflected as goals and targets in the
outcome document of Open Working Group (OWG).34 These goals and targets are broadly in conformity with
the proposed goals and targets of the Arab regional priorities for the formulation of the SDGs.35 As discussed in
the beginning of the issue brief, the goals related to poverty, economic growth and inequality are: eradicating
poverty in all forms and in everywhere (Goal 1), promoting sustained, inclusive and sustainable economic
growth, full and productive employment and decent work for all (Goal 8) and reducing inequality (Goal 10).36
The focus of analysis in this issue brief is interlinked economic issues with regard to Goal 1, those components
of Goal 8 that aim to promote sustained, inclusive economic growth, and Goal 10.37
In line with the targets of Goal 1, ending extreme poverty by 2030, measured by $1.25, is a key priority for the
Arab region. Instead of a fixed international poverty line, assigning different poverty lines to different country
groupings on the basis of their standard of living, such as level of expenditure per capita can provide better
information about the poverty situation.38 Keeping in view the discrepancies in poverty rate according to the
$1.25 definition, poverty reduction by national definitions is therefore a high priority. While using national
definitions, emphasis must be put on harmonized poverty measurement methodologies as well as data
generation for poverty measurement in a pan-Arab regional framework, so that the poverty rates are
comparable across countries.39
In line with the target components on Goal 8, greater emphasis must be put on making the economic growth
processes more inclusive, which must promote participation and benefit sharing of growth equitably across all
sections of society. The focus of economic policy need to be centered around generation of decent jobs so that
benefits of growth can be shared among all. Redistributive policies include a variety of measures, such as
reforming tax system, social transfers and social expenditure, and national laws and regulations.40 Provision of
social protection is an important strategy for augmenting household/individual income. It is important for
supporting mobility of the poor to higher income bracket as well as to help sustain the middle class of today.
Social protection systems exist by varying degrees in the Arab region. But the primary limitation is its limited
coverage. For instance, contributing social insurance schemes reaches less than 40 per cent of the working
population. Others include social assistance in the form of cash transfers/ subsidies for energy and food, zakat
funds. However, these are neither having universal coverage not they are comprehensive in their scope to help
against different shocks. In light of this, a comprehensive social protection system41 is much needed, which can
17 | P a g e
protect the poor and the vulnerable, including the persons with disabilities, against natural and human-induced
shocks, disaster risks and economic insecurities. Importantly, social protection reforms should be fully
integrated with labour market policies to ensure efficiency and impact. For example, public works programmes
with wages lower than unemployment benefits are not likely to be effective.42
The region needs an integrated economic policy model taking into consideration economic growth with
environmental sustainability principles. Economic growth in the region is primarily driven by the extraction of
fossils such as oil and natural gas, and has been highly energy intensive. The vulnerability of food, water and
energy resources threatens long-term development in the region and further exacerbates poverty. In this
respect, Arab countries require a new model for development based on sustainable production and
consumption patterns. The nexus between food security and environmental sustainability is becoming clearer
than ever. For example, intensive fishing and marine pollution exert a mounting pressure on countries in the
Arab region, which should maintain their fish stocks and keep them within safe biological limit. Overfishing
threatens the income source of coastal communities as well as national economies that are mainly dependent
on fishing; it also renders the communities that depend on fish as their main source of protein vulnerable.43
A more diversified economic structure need to be considered to generate higher productive capacity with a
focus on generating decent jobs and promoting inclusive and quality development. Policy considerations to
expand manufacturing and exports of non-oil commodities are key priorities for structural transformation,
generating higher productive capacities and jobs. Complementary policy reforms in areas such as trade;
investment; science and technology; enterprises (micro-, small- and medium-sized); human-resource training
and upgrading; and regional development are critical considerations for achieving inclusive economic
development and boosting economic growth.
A more disaggregated assessment of development achievements by taking into account subnational and other
forms of inequalities. Inequalities in various forms, related to income or in other respects, continue to
undermine development achievements and growth, and threaten stability. Many gaps cannot be quickly
addressed, since they are deeply rooted in countries’ histories, politics and governance systems. They are
visible through the lack of access to services, resources, power, voice and agency, and they include inequalities
in wealth and income, assets, opportunities and access to natural resources, among others. For instance, when
data are broken down, such as by rich and poor, urban and rural areas, age, disability, ethnic group, female and
male, etc., MDG indicators often reveal that some groups are lagging far behind others although national
aggregates present a different story.44
In order for doing the above, fiscal space for development expenditure needs to be harnessed, which include the
amount and distribution of internal sources of finance (taxes, natural resources), as well as deficit financing and
external sources of financing such as ODA. The current macroeconomic and fiscal situation of the Arab
countries, especially those in political transition is daunting. After three years of political transitions undergoing
in the Arab region, economic growth has plummeted, fiscal accounts have deteriorated, and debt levels have
increased. The political transition had significant impact on the economic activity in the region. All the
countries of the region were affected in varying degrees, either directly or indirectly. The countries that took
the strongest brunt were those directly affected by the political crisis such as Tunisia, Libya, Morocco, Yemen,
and Syria.
18 | P a g e
The fiscal outlook for the Arab countries is bleak especially for the countries facing political upheavals. Some
countries increased their spending during the Arab uprisings in order to satisfy the demands of the protestors
in terms of wage increases, subsidies, and increased social assistance. Once these additional spending are put
in place, these are difficult to reverse because of political considerations, and so adds an extra burden to the
government budget. During the political upheavals, government revenue had fallen. For example, in Egypt,
government revenue fell from 25.1 per cent of GDP to 22 per cent, while it fell from 26 per cent to 24.6 per
cent in Yemen. Apart from the oil-rich countries in the region, government expenditure is higher than
government revenue by some 3 percentage point. This led to a deteriorating government fiscal balance and
rising public debt, particularly high in the countries suffering from direct or indirect impact of political
instability. This led to rising public debt, largely financed domestically. For example, gross public debt in
Lebanon and Egypt reached at 140 per cent and 90 per cent of GDP respectively in 2013.45 In sum, there is
significant variation between fiscal space for the non oil-rich countries which is very low against that for the oilrich countries who are better off. However, the recent oil price plunge is expected to affect the fiscal situation
of the oil-rich countries as well, the impacts are yet to be assessed.
Another source of finance is Overseas Development Assistance (ODA) to developing countries under the
framework of the MDG 8. The DAC countries’ total ODA coming to the Arab countries declined significantly
during the 1990s, but showed a positive trend during the 2000s. Total DAC ODA to the non oil-rich countries of
the Arab region46 in 2012 was 6.4 US$ billion. Taking into account non-DAC ODA, the total amount of ODA flow
to the region’s non oil-rich countries was 8.9 US$ billion. In terms of per capita, the region’s non oil-rich
countries population receive only 37 US$ per capita in 2012.
Total ODA to the region has remained highly skewed to a few countries, especially Iraq, a country that received
over one third of the total ODA for the region between 2000 and 2012 (ESCWA 2014). Egypt, Palestine and the
Sudan also received significant amounts, while other countries had a relatively limited access to ODA. Further,
ODA in the Arab region is marked by high volatility in general. Sudden spikes are almost always conflict related
and/or due to donor political stances. Examples include Egypt in 1990, Iraq after 2002, and Lebanon and the
State of Palestine after 2007. In 2012, the increase of the aid to the Syrian Arab Republic, Jordan and Lebanon
could be related to the crises in Syrian Arab Republic and the increase of the number of refugees in its
neighboring countries.
In addition, around one-third of ODA to the Arab LDCs entails humanitarian assistance, in particular in Somalia
and Sudan, where the share is 63 per cent and 40 per cent, respectively. In general, the determinants of ODA
are the level of development challenges (for example, poverty or humanitarian crises), and other political
economy factors such as bilateral relations between partner countries. While in some countries ODA might
represent a sizeable share of the foreign capital flowing in, it is unlikely to compensate for the level of
challenges. Nevertheless, ODA has remained far short of commitment of 0.7 per cent of GNI.47
Overall, most countries in the Arab region had limited fiscally capacity even before the ‘Arab Spring’ and they
are in a worse off position now. While innovative ways are required to increase domestic fiscal space for
financing the priorities areas identified above, but they will not be enough. International cooperation is
essential for building up fiscal space through supporting policies that promote international aid, FDI, trade, role
of private sector and remittances. Further, economic transformation and equitable growth will hinge on
revising governance models. Reforms should be centered on moving away from old regime patronage models
19 | P a g e
towards institutions that are democratic, inclusive, effective, pro-business and productive. Specific choices will
depend on each country’s conditions.
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7. Endnotes
1
See Datt and Ravallion 1991, Kakwani 1993, Ravallion and Chen 1997, Bruno et al, 1998, Dagdeviran et al 2001, Dollar and Kraay 2002,
Bourguignon 2003, and Son and Kakwani 2004.
2
Dollar and Kraay 2002.
3
Kakwani 1993, Dagdeviran et al 2001.
4
Datt and Ravallion 1991, Ravallion and Chen 1997, Bourguignon 2003, Son and Kakwani 2004.
5
Son and Kakwani 2004.
6
ILO and UNDP 2013; ESCWA 2014a.
7
World Bank 1990, Squire 1993.
8
Islam 2004.
9
World Bank 2014. Also see ESCWA 2014a.
10
There are slight increases in the share of manufacturing in some countries, particularly petrochemical industries in Gulf Cooperation
Council (GCC) countries, but the overall share of manufacturing contribution to GDP is the lowest among all regions.
11
Institut Tunisien de la Compétitivité et des Études Quantitatives, 2013. Le Chômage des jeunes : déterminants et caractéristiques,
12
ILO, 2014.
13
Tzannatos, 2011.
14
ILO and UNDP, 2013.
15
Abu-Ismail and others, 2012.
16
ILO and UNDP, 2013.
17
Wage data for Arab countries was compiled using ILO databases.
18
ILO, 2012b.
19
See UN and LAS 2013, Sarangi et al 2015.
20
UN and LAS 2013.
21
Based on Ravallion 1998.
22
See Sarangi et al 2015, based on methodology of classifying population classes in Abu-ismail and Sarangi 2013.
23
The nine countries are: Sudan, Yemen, Egypt, Iraq, Syrian Arab Republic, Jordan, Lebanon, Tunisia, and Oman.
24
ESCWA, 2014a; and World Bank 2014a.
25
Abu-Ismail and Sarangi, 2013. The authors use both the quality and quantity of household expenditure in defining the population
groups – poor, vulnerable, middle, affluent. The national lower and upper poverty lines provide the estimates of poor and vulnerable
population groups respectively. The middle class begins above the upper poverty line (where people can meet all basic needs) and it ends
where spending on non-essential goods and services exceeds the equivalent of national poverty line. The affluent are those above the
middle class line.
26
Deaton 2003.
27
Hlasney and Verme, 2013.
28
Also see Bibi and Nabli, 2010.
29
Deaton. 2003.
30
In support of our finding, it may also noteworthy to mention that Ali (2009) argued that inequality trends have been increasing in the
Arab region since the 1990s as the gini coefficient increased at an annual rate of 1 per cent during 1990s and 2000s. He estimated the gini
by using the quintile observations for selected Arab countries. Another study by Diwan (2012) suggested that the rise in inequality and
the relatively low performance of Arab economies in terms of job creation could be related to the type of State-business relations that
have developed over time in the region.
31
World Bank, 2013.
32
ESCWA 2014a.
33
Sarangi et al 2015.
34
Outcome document of Open Working Group (LINK).
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35
See ESCWA 2014; Amman Declaration of League of Arab States.
The inequality brief (by Nathalie Milach-Bouche) and the employment brief (by ILO) have discussed the goals and targets in greater
detail from an Arab perspective.
37
The Goal 8 and Goal 10 are discussed in detail in separate issue briefs and hence this brief only focuses on the related issues with
economic growth rather than going into the details.
38
See Abu-Ismail et al 2014.
39
Sarangi et al 2015.
40
ESCWA 2014.
41
See the ILO Recommendation on national social protection floor (ILO 2012)
42
ESCWA 2012.
43
UN and LAS 2013.
44
UN and LAS 2013.
45
IMF 2014.
46
The oil-rich countries are themselves ODA donors to other Arab countries and they are better off in terms of their financing for
development.
47
UN and LAS 2013.
36
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