Advancing Development and Opportunities in the Arab World Concepts and Frameworks for Development

1. Advancing Development and Opportunities in the Arab World Concepts and Frameworks for Development Khaled F. Sherif

2. Background:General Demographics of The Arab League

3. Background:GDP per Capita in The Arab League Source: UNDP

4. Background:Adult Literacy in The Arab League Source: UNDP

5. Background:Technology in The Arab League Computers per 1000 People Internet Users per 1000 People Source: UNDP

6. Potential Opportunities CONDITIONAL CASH TRANSFERS (CCTs) LOCAL ECONOMIC DEVELOPMENT ONE COMPANY TOWN REHABILITATION KNOWLEDGE ECONOMY

7. Background: CCTs • Conditional Cash Transfers (CCTs) focus on poverty reduction through the implementation of welfare programs that are conditional upon the recipients' actions. • These programs provide money directly to poor families via a “social contract” with the beneficiaries – for example, sending children to school regularly or bringing them to health centers. • For extremely poor families, cash provides emergency assistance, while the conditionalities promote longer-term investments in human capital • The funding is only transferred to those individuals or households that meet the behavioral criteria stipulated for the cash transfer to take place.

8. Components of a CCT Program • Qualification: • Chronic poverty; • Vulnerability to shocks; or - Transitory poverty Examples of Conditions Investments in youth human capital (education, health, nutrition) or other aspects of behavior CCT Program Empowerment - Gender neutrality - Allowing greater accountability of providers to beneficiaries.

9. CCT Program Example: South Africa • South Africa have implemented a highly successful CCT program that targets individuals in the following population segments: • War Veterans • Foster Children • Disabled Individuals • Retirees • Families in need of child support • Each of these target segments must also meet requirements related to age, income levels, asset ownership, etc.

10. CCT Program Example: South Africa • Between 2000 and 2004, the South African CCT program has benefited over 8 million individuals and disbursed nearly $3.25 billion • The CCT program is responsible for two-thirds of the income from the poorest twenty percent of the population • The program is still evolving and currently does not maintain incentives with conditionalities tied to investments in human capital, however, these may be added in the future • The success of the program, however, underlines the value and importance of targeted CCT activities in the developing world

11. Benefits of CCT Programs

12. Implications • CCT programs have the potential for becoming a high visibility niche that highlights the developing impact that the Bank is having on the ground • With the immediate and repeatable effects of these programs, this can be an extremely successful development area within the Bank’s portfolio that highlights our commitment to our mission and to leading the way in emerging development areas • Although these require significant investments, it is imperative that Arab countries begin to look towards a CCT approach to supplant existing subsidies that exist across the region • In doing so, targeted CCT programs ensure that subsidies (e.g. bread, fuel) are not paradoxically also benefiting those who are in no way in need of government support

13. Local Economic Development • For the Arab world to effectively confront the challenges of the 21st century, a radical strategy must be pursued to significantly overhaul the economic, institutional, educational, scientific and technological conditions within its economies. • The focus of the local economic development strategy is on increasing the competitiveness of these local economies, in order to stimulate intrinsic growth and create a modern functioning economy that leverages the region’s multitude of resources at the local-level.

14. Local Economic Development The initiative would create a cornerstone of a viable business sector to grow within target cities by taking an individual who has very little/nothing and helping him/her by: EDUCATION Providing them with SEED capital Setting up a system of educational support Creating an ESOP structure for the newly-established businesses Trickle-down Trickle-down Accelerating the development of the business sector through the diversification of ownership to promote wealth creation BUSINESS SUPPORT

15. Local Economic DevelopmentMicrofinance Short-Term Micro-Loans • The micro-loans program would involve providing SEED capital for small business loans through an existing microfinance agency (social fund, a local state bank, or other) that would assist in the creation of businesses in the pilot regions selected • These loans would fund small-scale projects that have substantial room for growth, and would be jointly managed by an enterprise development team • All of these SMEs would be Employee Stock Ownership Plans (ESOPs) at inception, and be owned by the labor force employed • The SMEs created would originate from ideas provided by the local populace. A business creation lottery would commence the process with the Government initially soliciting ideas. • A business creation team would review these ideas and decide which should go forward. • A business creation team would be tasked with legally establishing the business, buying the requisite machinery or equipment needed and in managing the assets for a period of no less than three years to ensure profitability. • The business owners will essentially be its workforce, and the locals that had pushed for its inception.

16. Local Economic DevelopmentMicrofinance • A major component of the Microfinance strategy is having the business creation team, who are also charged with providing management support, advisory services, technical assistance and helping entrepreneurs achieve a threshold of success: The Microfinance Process Government advertises the availability of SEED capital Assistance with creating the business (e.g. incorporating, etc.) Providing funding support to the business Local entrepreneur comes in to propose an idea for a business Business selection process Assistance with business start-up (e.g. selecting/ buying machinery, etc.) Business Creation Team helps him/her to develop a feasibility study PROFIT Support for business management (e.g. accounting, marketing, etc.)

17. Local Economic DevelopmentMicrofinance • Companies that are established under the microfinance program will be developed under a unique ownership structure– designed specifically to promote wealth creation • Specifically, the ownership structure will facilitate wealth transfers to both the companies owners and its employees, with a portion of the ROI the company generates going directly back into the microfinance program (to support the funding needs of new companies under the microfinance program) • The Business Creation Team would authorize the salaries of the owners and employees, to ensure that a fair and un-inflated salary is designated to those working for the company • Moreover, the Business Creation Team would be required to approve any and all profit sharing initiatives that would take money directly out of the company

18. Local Economic DevelopmentMicrofinance Company Ownership Structure Owner(s) 55 percent Employees 15 percent Microfinance Funding Vehicle 30 percent Owners who are responsible for developing the business concept and day to day management of the enterprise 15 percent of the company’s shares will be held to be distributed to employees that work for the company to ensure that they benefit from the company’s success 30 percent of the shares will be owned by the funding vehicle, and proceeds from the sale of the company and/or any distributions of its profit would be channeled back to fund new entities

19. One Company Towns • A ‘One Company Town’ is a town (or region) whose economic and social well-being is dependent on a single industry and/or dominant enterprise • Their emergence often stems from governments making major investments in one region for the purposes of transforming it into the center (or ‘hub’) for a particular industry; with a single dominant state-owned enterprise at the focus of the town’s development • The Arab world is satiated with these monoindustrial structures, a function of the centrally planned economies of the early 20th century • Over time, these industries have tended to overwhelmingly experience competitive declines, as a result of external forces and/or declines in natural resources

20. The Development Challenge • Left behind is a heavily dependent region riddled in a cycle of systemic inefficiencies, often with limited-to-no potential for commercial viability of the focal enterprise • Privatization efforts are often either politically unfeasible or economically unsustainable, resulting in the evolution of a heavily subsidized region which exhibits high levels of: Poverty Political Instability Social Discontent Urban / Environmental Decay

21. Strategic Objective • The objective of the One Company Town Rehabilitation effort is to assist: Mono-industrial regions which have historically relied on a single source as the primary engine of economic activity through diversification of the local private sector • The selection of these regions hinges upon four key dimensions: • What proportion of a town/region’s economic activity is dependent on a single industry • The state of current and future level of competitiveness of the industry • What potential and prospects the focal town has for growth and rehabilitation • How much of a burden (if any) is the focal industry placing on the state budget

22. Models of One Company TownsCase #1: Severe Economic and Physical Dislocation Strategy • Focal industry no longer sustainable or viable • Heavily subsidized in the past • No current employment and no potential for employment • Harsh ecological conditions • Focus: Supporting spatial relocation of resources and transition to towns and regions with greater economic opportunities and potential • Proposed Activities: • Lump-sum unemployment benefits payment • Education and skills development of local populace (workforce transition) • Provision of incentives for out-migration • Assistance in out-migration to regions with greater opportunities for employment Characteristics

23. Models of One Company TownsCase #2: Declining Local Industry; Opportunities for Growth Prevalent • Focal industry experiencing severe loss of competitiveness / decline • High levels of unemployment • Substantial opportunities for growth in other industries • Strong local infrastructure Strategy • Focus: Decrease dependence on focal industry and stimulate MSME development in the region • Proposed Activities: • Privatization / restructuring / closure of focal industry • Building a business enabling environment, supporting spin-offs and promoting investment to the region (building upon opportunities for growth and existing infrastructure) • MSME development through micro-financing / matching grants • Workforce transition • Strengthening of local institutions and capacity building activities Characteristics

24. Models of One Company TownsCase #3: Privatized Local Industry; Industry Remains Uncompetitive Strategy • Focal SOE privatized / restructured, yet investor cannot produce a profit • Risk of re-nationalization • Deteriorating economic and physical conditions • High levels of social discontent • Opportunities for growth remain evident • Focus: Support closure / restructuring of local industry and facilitate growth of other industries within the region • Proposed Activities: • Establishing Business Development and Support Agency • Enhancing local business environment • MSME Development • Workforce transition • Job placement (e.g. private provision of certain municipal services / Provision of unemployment / reemployment and job placement services) • Area conversion strategy (e.g. transformation into “Baltimore Harbor”) Characteristics

25. Models of One Company TownsCase #4: Abandoned Towns • Focal industry no longer existent • Small number of local inhabitants • Strong infrastructure from past industries provides backbone for growth potential • Environmental deterioration Strategy • Focus: Shift attention from former active regions to market-oriented private sector • Proposed Activities: • Building a business enabling environment; supporting investment into the region • Housing finance • MSME Development • Provision of incentives for in-migration from declining one company towns • Job Placement • Environmental clean-up Characteristics

26. Models of One Company TownsCase #5: Marginally Competitive Micro-Industrial Towns • Although a number of local industries exist, small size lack of technology and levels result in low levels of competitiveness • Good access into, and out of, the region • Substantial opportunities for growth Strategy • Focus: Improving competitiveness of local industries and stimulating SME development • Proposed Activities: • Industrial Competitiveness (Bringing in international management teams to improve the competitiveness of local industries) • Developing S&T / KE clusters • MSME Development / Technological Incubators • Business Advisory Services • Reeducation Characteristics

27. Models of One Company TownsCase #6: Economically Charged Monoindustrial Towns • Focal industry performing strong economically, yet this is not translating into overall economic prosperity for the local populace • Resource rich • Potential for spin-offs Strategy • Focus: Stimulating job growth and diversification from focal industries • Proposed Activities: • Financing of MSME activities • Facilitation of non-core activity spin-offs • Business advisory services and business plan development • Developing S&T / KE clusters • Reeducation / Training • Job Placement Characteristics

28. Knowledge Economy:The Ireland Case Study • Ireland came to rely on Information and Communications Technologies (ICT) as the primary driver for its economic growth • The key to their success has lied in their ability to develop a highly-knowledgeable and skilled workforce which has driven the process of using information and knowledge for capital generation • Currently, Ireland’s share of employment in ICT is 3-4 times higher than the EU average • This was fueled by a 36% growth in the sector between 1985-1996

29. Knowledge Economy:The Ireland Case Study • In 1956, Ireland opened up its markets by eliminating all barriers to FDI, and strongly supporting initiatives to bring FDI into the country • This led to a shift towards automation in the industrial sector, and a substantial growth in employment • Increased automation resulted in the training of employees for more skilled jobs, and provided for a more knowledgeable workforce • The shift towards an information economy began with the implementation of a stringent program for higher education which produced a highly skilled set of professionals, and emphasized innovation through research • This combined with the increased economic incentive which arose from opening up the local market

30. Knowledge Economy:The Ireland Case Study • Keys to the transition towards an information economy: • The exporting of knowledge • Improvement of their international competitive position • Undertaking of opportunity for forward integration FDI Trade, Technology and Learning Increased Productivity

31. Underlying Principles • Red Tape: Idleness and corruption cannot feature in the evolution of the Arab world in order to encourage investment and provide opportunities for success • Labor Laws: Create the economic conditions necessary for foreign investment • Infrastructure: Physical infrastructure is a major priority and may need to supported by heavy investment from the Government or to PPPs

32. Underlying Principles • Investment: Access to funding should be simplified and resources must be made available to support investment • Government Support: The Government must lead initiatives that underly the economic progress to be realized (e.g. allowing foreigners to own property) • Expert Support: Bringing in experts and consultants across all sectors and to support all major projects ensures that the foundation for success is rooted in international best-practice experience