Posts Tagged ‘competitiveness’

When it comes to news on economic trends and policies in the UAE, government and business leaders turn to the Abu Dhabi Council for Economic Development’s Economic Review. Tahseen Consulting is honored to have its work on building sustainable economies in the Arab World highlighted in the publication’s April issue. We have posted the full article below.

Tahseen Consulting’s Chief operating Officer, Wes Schwalje, spoke with representatives from the Abu Dhabi Council for Economic Development regarding his thoughts on the how the concepts of sustainability and knowledge-based economy are evolving into economic policies in the UAE. In a wide-ranging discussion, Schwalje discusses the UAE’s aspirations, its achievements thus far, and potential barriers to progress.

Abu Dhabi Council for Economic Development: What are the key factors to consider when creating a ‘sustainable economy’ that will support many generations to come?

Schwalje: The concept of sustainability as a policy goal is attractive to countries precisely because the concept lacks specificity and means different things to different stakeholders. As it applies to economic development, many countries have further equated the concept of sustainability with the equally imprecise concept of knowledge-based economy. The ambiguity of such terms have been used globally by governments to gain political consensus on large-scale economic reforms. In the Arab countries such concepts have become integrated into national visions and development strategies, such as the UAE’s Vision 2021, National Agenda, and Abu Dhabi Economic Vision 2030, to provide a shared overarching vision for economic development. Debates surrounding such policy objectives have highlighted and promoted policy dialogue on key development challenges that the Arab World faces and brought coherence to a variety of socioeconomic development discourses.

Because concepts such as sustainability and knowledge-based economy have become gradually contextualized to the case of the Arab World, the region has converged on several consistent themes that are closely associated with the term “sustainable economy.” While there is some country to country variation in the region, generally, sustainable economic development in the GCC countries concerns a variety of socio-economic factors: economic diversification to reduce dependence on commodities through entry into new and complementary industries; private sector development to improve the performance of small and medium sized businesses and encourage entrepreneurship; integration of nationals into the private sector workforce; strengthening the link between education systems and the labor market to reduce youth unemployment; increasing female labor market participation; strengthening innovation systems; attracting foreign direct investment; integration into the global economy; addressing national development imbalances and income disparities; environmental sustainability, protection of identity and language; and increasingly political participation and democratic reform.

Abu Dhabi Council for Economic Development: How far do you feel Abu Dhabi has come in this respect to date?

Schwalje: After a country has defined what they mean by sustainable economic development, the next challenge a country like the UAE faces in determining progress is devising appropriate indicators to measure progress. In advancing a set of National Key Performance Indicators associated with the National Agenda, the UAE has made an initial attempt at assessing progress towards sustainable economic development. National key performance indicators related to economic progress track measures such as non-oil GDP growth, GNI per capita, FDI inflows, global competiveness, national labor market participation and Emiratization rates, ease of doing business, SME contribution to GDP, entrepreneurship levels, innovation, R&D expenditure, and employment in knowledge-based industries. A key challenge remains whether a disparate range of objective measures can really provide a coherent overall picture of national well-being and progress. It will be essential for the UAE to increasingly complement outcome-based objective indicators of national progress with subjective well-being data that measure well-being across a variety of other dimensions such as education, health, income and wealth, and the environment. This will require the regular collection of nationwide data from large and representative samples to provide a coherent overall picture of well-being.

Abu Dhabi Council for Economic Development: What pitfalls must Abu Dhabi avoid when attempting to build a sustainable economy?

Schwalje: Many of the countries from which normative economic policy guidance has come from surrounding knowledge-based economic development now face unforeseen economic challenges. In many of the countries which the Abu Dhabi Economic Vision 2030 benchmarked, more education, more innovation, and policy and institutional reform have not necessarily led to higher levels of national well-being. For example, economic policy in Ireland has not ultimately produced high skills, high wage jobs for youth or adequately addressed socioeconomic development challenges. In fact, Ireland’s economic policies have led to record high youth unemployment and numerous social challenges for the country’s youth. Cases like Ireland suggest that a regional discussion on whether the economic prescription of the transition to knowledge-based economies remains the right course.

A key question is whether Arab economic development strategies based on the transition to knowledge economies have sufficiently taken into account the changing economic environment where knowledge is becoming cheaper and commoditized by emerging economies. Decreasing pressure on wages due the globalization of knowledge industries and growth in high skill, low cost talent in emerging countries challenges the assumption that more education, higher levels of skills, and national labor markets can provide prosperity to nations. Because competition for dominance in knowledge-based industries is now global and emerging countries are moving up the value chain to perform increasingly more sophisticated activities, plans to enter knowledge-based industries are susceptible to the globalization of low cost, high skill competition from beyond the region’s borders. What may look like a sector that can generate high skill, high wage jobs today may tomorrow be an industry that can be outsourced and performed by high skill, low cost knowledge workers elsewhere.

Abu Dhabi Council for Economic Development: How can Abu Dhabi encourage more entrepreneurship?

Schwalje: Many countries have geared their entrepreneurship policy interventions around international studies such as the Global Entrepreneurship Monitor, Ease of Doing Business Index, and Global Entrepreneurship and Development Index. However, while these frameworks are useful, they may not adequately capture the difficulties faced in the UAE. Much more qualitative research of existing entrepreneurs is required to advance this dialogue further. This dialogue must not be confined to emirate-level challenges but be broadened to involve country level policy interventions. The focus must be on UAE-wide policy interventions that are consistent across all emirates rather than emirate-level interventions that create a different playing field across the country.

Abu Dhabi Council for Economic Development: Which sectors do you feel offer the most potential for economic diversification in Abu Dhabi? And how can Abu Dhabi fast-track these?

Schwalje: The Abu Dhabi Economic Vision 2030’s focus on horizontal and vertical diversification into capital-intensive, export-oriented sectors sufficiently balances risk with the uncertainty created by globalization of knowledge industries. Recent declines in global commodity prices further support this relatively cautious approach to diversification and industrial development.

Abu Dhabi Council for Economic Development: Which countries might Abu Dhabi try to emulate when pursuing its ambitious economic sustainability program?

Schwalje: Abu Dhabi would be wise to broaden its current benchmarking strategy to define its economic sustainability program to include two types of countries: countries which generate a significant portion of their GDP from oil exports and countries which have economies that are reliant upon workforces imported from abroad. Normative economic policy should not just be drawn from rich, developed countries which have purportedly transitioned to knowledge-based economies but also incorporate developing country peer benchmarks in South America, Asia, and Africa. Non OECD peer benchmark countries may provide successful practices of economic development strategies that have focused on the export of low-cost, high-end knowledge-based services or the more traditional low-cost export-oriented manufacturing strategies while making incremental, evolutionary advances up the value chain. The experiences of countries such as Brunei, Equatorial Guinea, Trinidad and Tobago, Russia, Venezuela, Gabon, Kazakhstan, and Mexico could provide a more well-rounded rounded set of benchmarks of oil exporting countries from which to derive learnings. Looking at practices from labor importing countries such as Hong Kong, Switzerland, and Australia could also expand upon the analysis in the Economic Vision 2030.

Abu Dhabi Council for Economic Development: Is two decades enough time to build a fully diversified economy? If yes, why?.. and if no, why not?

Schwalje: It is difficult to establish what the end goal should be. In the GCC, economic diversification means reducing heavy dependence on the oil sector by developing a non-oil economy, non-oil exports, and non-oil revenue sources. It will also require reducing the role of the public sector by promoting private sector development. Based on rather sparse evidence, it seems likely that GCC economies will have significant difficulties in their diversification efforts. In the Arab World the gross value added of knowledge-based industries is the lowest in the world making up 39% of regional gross domestic product as compared to 74% in OECD countries. The contribution of value added to regional gross domestic product from knowledge-based industries has remained virtually constant over the last decade. From 2000 to 2009, the percentage share of employees in knowledge-based industries in the Arab World has increased by a compound annual growth rate of .8% in OECD countries with knowledge-based industries employing 77% of workers. Based on sparse data from 2000 to 2009 from 14 countries in the Arab World representing 70% of the region’s population, 61% of the population is employed in knowledge-based industries. Employment in knowledge-based industries has increased only negligibly over the last decade. These few crude measures provide evidence that economic diversification efforts have not necessarily produced meaningful sectoral shifts in gross domestic product attributed to knowledge-based industries or led to employment in knowledge-based sectors.

The King Abdulaziz Center for World Culture, an initiative of Saudi Aramco, invited Tahseen Consulting’s Wes Schwalje to Saudi Arabia to host a panel on global best practices in the transition to knowledge societies. The panel, which was held at the Global Knowledge Society Forum, featured:

Dr. Hun Joo Park
Executive Director, Korea Development Institute

Dr. Indrajit Banerjee
Director, Knowledge Societies Division, UNESCO

H.E. Professor Dr. Nasser David Khalili
UNESCO Goodwill Ambassador

In many Arab countries, economic integration, the need for economic diversification, occupational preferences for public sector employment, and high youth unemployment rates have prompted the adoption of economic reforms to improve the enabling environment for entrepreneurship. However, understanding the determinants of self-employment and how they might differ across the region is critical if entrepreneurship is to be a solution for the region’s youth unemployment challenge and can ultimately lead to desired economic outcomes. Differing determinants of entrepreneurship across the region have significant implications for national policies and support programs that might be offered to regional entrepreneurs. The distinction between necessity and opportunity entrepreneurship is becoming increasingly relevant as countries in the region are largely pursuing undifferentiated entrepreneurship policies that are primarily aimed at opportunity entrepreneurs.

Necessity and Opportunity Entrepreneurship in the Arab World

Since 2001, the Global Entrepreneurship Monitor (GEM), which is an annual assessment of entrepreneurial activity in 100 countries, has distinguished between two types of entrepreneurs: opportunity entrepreneurs who pursue business opportunities voluntarily for personal interest, greater independence, or higher income often at the same time they hold a regular job and necessity entrepreneurs who are engaged in self-employment because they are unable to find better work and self-employment is the best alternative, but not necessarily preferred, employment option (Reynolds, Camp, Bygrave, Autio, & Hay, 2001; Xavier, Kelley, Kew, Herrington, & Vorderwülbecke, 2012)[1]. Analysis of GEM data indicates that innovation-driven countries with higher GDP per capita have higher rates of opportunity entrepreneurship while lower income countries have higher concentrations of necessity entrepreneurs. GEM data also suggests that a higher percentage of opportunity entrepreneurship occurs in high skill, knowledge-based business services with a greater concentration of necessity entrepreneurs in low and semi-skilled consumer-oriented economic sectors. Growth aspirations also vary substantially based on entrepreneurship types with the majority of necessity-driven entrepreneurs expecting their firms to remain under 5 employees (Reynolds et al., 2001; Xavier et al., 2012).

GEM data on 11 countries in the Arab region enables the classification of countries according to their ability to provide a sufficient enabling environment for opportunity-driven entrepreneurship. Arab countries can be classified into three maturity stages which relate economic development, labor market conditions, and industrial structure to the potential for opportunity-driven entrepreneurship. A brief description of each equilibrium phase is discussed below and applied to 11 Arab countries for which GEM data is available in Figure 1.

Low Opportunity Entrepreneurship Equilibrium: A low opportunity entrepreneurship equilibrium occurs when an economy adopts a lower value added production orientation when faced with a low supply of workforce skills. In economies facing low opportunity entrepreneurship equilibria, the industrial structure is typically made up of a large number of micro and informal enterprises which are highly susceptible to economic shocks. Small firms are more susceptible to economic fluctuations that can cause changes in unemployment rates or fail to provide sufficient employment opportunities which lead to comparatively high levels of necessity entrepreneurship. Egypt, Palestine, and Yemen, which have high concentrations of necessity entrepreneurs, exhibit low levels of ecosystem maturity in terms of presenting opportunities for opportunity-based entrepreneurship.

Intermediate Opportunity Entrepreneurship Equilibrium: With an average annual GDP growth rate of nearly 3% in 2012 according to World Bank statistics, over two times the GDP growth rate in the OECD, the Arab countries which fall in the intermediate opportunity entrepreneurship equilibrium stage are experiencing comparatively moderate levels of economic growth which has been shown by GEM data to lead to significant levels of necessity entrepreneurship (World Bank, 2013). However, the structure of such economies, which cannot be classified as specializing in knowledge-based industries or goods and commodity industries which require low levels of workforce skills, have led to comparatively lower levels of unemployment than in countries in a low opportunity entrepreneurship equilibrium. For this reason, such economies also offer significant opportunities for opportunity-based entrepreneurship. Countries at the intermediate opportunity entrepreneurship equilibrium stage have implemented economic policies to enhance entrepreneurship and enacted reforms towards improving the quality of education and integrating entrepreneurship within education and technical and vocational education and training systems. Countries at the intermediate opportunity entrepreneurship equilibrium stage include Algeria, Jordan, Morocco, Syria, and Tunisia.

High Opportunity Entrepreneurship Equilibrium: Countries in a high opportunity entrepreneurship equilibrium are generally comparatively wealthy countries on a GDP per capita basis with a substantial number of knowledge-based industries which provide high skill, high wage employment to a majority of the population. These countries may also have large rates of concessionary public sector employment which provided funding and availability for opportunity-based entrepreneurship. The industrial structure of such countries is characterized by a strong small and medium sized enterprise sector as well as large, sophisticated firms which may be state owned. Countries in a high opportunity entrepreneurship equilibrium have implemented economic policies specifically to support entrepreneurship and have achieved significant success in improving the quality of education and integrating entrepreneurship training into education and technical and vocation education and training. The level of economic development, labor market conditions, and industrial structure of such economies is conducive to high levels of opportunity-based entrepreneurship particularly in higher value added service industries. Countries at the high opportunity entrepreneurship equilibrium stage include Lebanon, UAE, and Saudi Arabia[2].

Based on the maturity model for opportunity-driven entrepreneurship proposed, the Arab countries exhibit a large degree of diversity in their ability to provide an ecosystem conducive to opportunity-based entrepreneurship. However, the diversity of entrepreneurial opportunities available in countries across the region has not led to targeted economic policy interventions regarding entrepreneurship at the national level. In several Arab countries, economic policy does not differ significantly based on the higher concentration of either necessity or opportunity entrepreneurs. Most Arab countries are pursuing identical entrepreneurship policies, which include career guidance, funding, business skills training, reducing bureaucracy, and establishing business incubators, without regard to the types of entrepreneurs in their countries and vastly different support needs required by necessity versus opportunity-based entrepreneurship.

Arab countries can be classified into three maturity stages which relate economic development, labor market conditions, and industrial structure to the potential for opportunity-driven entrepreneurship.

Figure 1. Opportunity-based entrepreneurship ecosystem maturity 

The Need to Distinguish Between Types of Entrepreneurs in the Arab World

An emerging body of international empirical literature suggests that necessity and opportunity entrepreneurs differ significantly in socio-economic characteristics; motivation and the types of opportunities pursued; and the potential for their entrepreneurial endeavors to create jobs and motivate private investment. Figure 2 summarizes the key differentiating characteristics between necessity and opportunity-driven entrepreneurs according to international empirical studies.

Category of Comparison Opportunity EntrepreneursNecessity Entrepreneurs
AgeOn average approximately 5 years younger according to empirical studies based on international dataUp to 5 years older than opportunity entrepreneurs in empirical studies based on international data
EducationTend to be more highly educated with education and general labor market experience having a positive impact on earnings and reducing exit ratesTend to be less educated and benefit more from specific vocationally oriented education found to be related positively to earnings
Industry ExperienceMore likely to have working experience from regular employment in the same industry they are enteringLess likely to have experience from regular employment in their focus industry
Motivation Voluntarily attracted into self-employment by the identification of opportunities; They often leave wage employment or pursue opportunities alongside full time employmentOften driven into self-employment after involuntary job loss or scarcity of employment opportunities
CyclicalityMore likely to create ventures when economic conditions are good and unemployment is low; They also choose to create businesses regardless of their employment statusNegative economic shocks that are more likely to affect small firms or increase unemployment push individuals to create businesses
Quality of Opportunities PursuedCreate larger businesses in knowledge-based industries which require significant amounts of invested capital and employees generate higher earningsLess likely to have business ideas with significant growth prospects and more likely to exploit entrepreneurial opportunities in low-income, low knowledge-content sectors
Potential for Job CreationHigher probability of creating additional jobs Primarily focused on employing themselves and have lower probability of creating additional jobs
Firm Survival Higher survival and lower failure and closure ratesFace a higher risk of failure, or, if they survive, they may produce only marginal businesses, invest insignificant amounts of capital, fail to create further jobs, and earn minimal incomes
Capital Investment and Risk ToleranceInvest higher amounts of capital into their venture and are more risk tolerantLower amounts of invested capital and lower tolerance for risk
Tendency to Seek External SupportMore likely to have built their network to include people valuable in the process of venture creation such as potential customers, cofounders or financiersLess likely to seek support in the form of professional or personal assistance during venture creation

These empirical findings present strong evidence that national training and support programs for entrepreneurship require significant tailoring to meet the needs of both necessity and opportunity-driven entrepreneurs. By not accounting for particular needs of different types of entrepreneurs, regional entrepreneurship policy is designed around a one size fits all approach which is particularly lacking in regards to serving necessity-driven entrepreneurs. Based on the proposition that entrepreneurship policies in a given country should reflect the mix of necessity versus opportunity-driven entrepreneurs operating in the country, Arab countries, based on the equilibrium stage they fall into, should have significantly different, contextually dependent economic policies surrounding entrepreneurship. However, in many Arab countries entrepreneurship policies are not necessarily aligned with macroeconomic and other critical policies for economic development. Several studies (See for example Aradi, Buckner, & Schwalje, 2013) of the Arab region have shown a large disconnect between entrepreneurship policies and programs and critical sector development strategies. For example, Aradi, Buckner, & Schwalje show that Qatar’s entrepreneurship and educational policies are not necessarily aligned and are not viewed as complimentary. This results in a lack of career guidance for aspiring entrepreneurs and entrepreneurship training being rarely offered in K-12 schools due to lack of an approved curriculum. Rather than complementing existing curricula, aspiring entrepreneurs in Qatar are exposed to entrepreneurship much later in their schooling or have to seek out such training at specialized institutions outside the formal education system.

Implications for Policy and Practice

Due to the scarcity of empirical work on necessity and opportunity entrepreneurship in the Arab region, it is difficult to formulate specific prescriptions at the national level. However, this exploratory analysis shows that strong differences exist between necessity and opportunity entrepreneurs which have not been accounted for in regional entrepreneurship policies. Entrepreneurship policy across the region fails to differentiate between necessity and opportunity entrepreneurs favoring a one size fits all approach that is largely shaped by programs that serve opportunity-driven entrepreneurs. In doing so, tailored offerings based on the characteristics of different types of entrepreneurs are rarely considered.

International empirical findings, assuming applicability to the Arab region, suggest a strong case for more tailored national entrepreneurship policies in the Arab region which reflect the mix of necessity versus opportunity-driven entrepreneurs operating in particular countries. Entrepreneurship in countries at a high opportunity entrepreneurship equilibrium, which likely includes all of the Gulf countries, is presumably much different than entrepreneurship in countries like Egypt, Palestine, and Yemen in a low opportunity entrepreneurship equilibrium. Necessity and opportunity entrepreneurs differ in socio-economic characteristics; motivation and the types of opportunities pursued; and the potential for their entrepreneurial endeavors to create jobs and motivate private investment. These differences are potentially unexploited policy levers which might serve as guidance for targeted national policies. Instead of classifying all entrepreneurs as a homogenous group driven by opportunity and offering undifferentiated support, regional governments can introduce targeted training programs and support, contingent financing, and subsidies which might better serve both necessity and opportunity entrepreneurs. If entrepreneurship is to continue to be championed as a panacea for the region’s youth unemployment challenge and resolving structural economic and labor market issues, then such tailored policy measures appear long overdue. Figure 3 presents a summary of potential components of regional entrepreneurship policy which may need to be reconsidered to more effectively meet the needs of both opportunity and necessity entrepreneurs.

Components of Entrepreneurship PolicyTypical Opportunity Entrepreneur Approach in the Arab RegionWhat Might be Needed to More Effectively Reach Necessity Entrepreneurs in the Arab Region
Entrepreneurship Policy Approach Policies view entrepreneurs as a segment of the national economy who can take advantage of all programs and may not distinguish between small business support and policies which support entrepreneurial venturesDefined policies and programs to meet the specific needs of necessity entrepreneurs and other country specific challenges
Entrepreneurship EducationEarly and post-secondary entrepreneurship education and business skills training at university and non-university based business incubatorsSupport for training in specific technical and vocational areas potentially below the post-secondary level in addition to early and post-secondary entrepreneurship education and business skills training
Access to Finance Increasing the supply of capital through direct loans and venture funds Public financing programs that may target a broader range of industries along with a stronger focus on helping entrepreneurs access capital by focusing more on business issues such as management skills and evidence of a solid business plan
Optimizing the Regulatory EnvironmentMacroeconomic approach to tax and regulatory policy focused on changes in laws (e.g., general tax reductions) and regulations that affect everyone doing business Policy impact analysis to determine if regulatory changes are sufficiently focused on the needs of necessity entrepreneurs; Policies that most benefit these businesses are those that defer expenses,
allow companies to convert tax incentives into cash, and lower development costs
Technology
Exchange and Innovation
Cluster development and leveraging public funds,
that encourage university-private sector collaboration
Benchmarking and evaluating the benefits associated with state investments on necessity entrepreneurs and whether they are adequately served by such initiatives

From this analysis, it is clear that a large number of Arab states should be reassessing their strategies, policies, and programs to maximize expenditures on fostering entrepreneurial activity. This article is designed to raise issues to spur a more informed debate around the impact of entrepreneurial policies in the region and promote national policies that accommodate, when necessary, both opportunity and necessity entrepreneurship.  


[1] Caliendo & Kritikos identify a third classification of push-and-pull entrepreneurs who are driven by a mixture of push (unemployment or difficulty locating a suitable job) and pull factors (personal interest, greater independence, or higher income). Though they express mixed motivations for pursuing entrepreneurship, push-and-pull entrepreneurs are more similar to opportunity entrepreneurs.

[2]Upper-middle income countries like Lebanon may not be able to emulate many of the policies and practices of the richer Gulf Cooperation Council countries which generally offer highly paid public sector work and social benefits that affords many individuals the time and resources to pursue opportunity-based entrepreneurial endeavors alongside full time work. This suggests that even at particular equilibrium stages, countries will likely need to follow country context dependent policies aligned with national resources available to support entrepreneurship relative to other socio-economic government aims.

As Arab countries pursue knowledge-based economic development, national skills formation policies require significant rethinking says a new report from Tahseen Consulting in collaboration with the Sheikh Saud bin Saqr Al Qasimi Foundation for Policy Research

August 20, 2013 – Dubai, UAE – Nearly all of the countries in the Arab World have adopted development of a knowledge-based economy as a policy objective to meet economic, political, and social objectives. Policies aimed at catalyzing knowledge-based economies are highly related to job creation, economic integration, economic diversification, environmental sustainability, and social development. While the advantages of knowledge-based economic development have become clearer, so too have the challenges of implementing related policies. A Conceptual Model of National Skills Formation for Knowledge-based Economic Development in the Arab World, a new report by Tahseen Consulting, developed in collaboration with the Sheikh Saud bin Saqr Al Qasimi Foundation for Policy Research, provides a framework and best practices from the Gulf Cooperation Council for helping governments align skills formation policies with knowledge-based economic development.

A copy of the report can be downloaded at http://www.alqasimifoundation.com/en/Publications

National Skills Formation for Knowledge-based Economic Development

Beginning in the 1990s, there was a shift in the Arab World away from viewing education and training systems as solely suppliers of skills toward an emphasis on the relationship between governments, educational systems, labor markets, and firms to generate demand for skills. By adopting demand-driven, ecosystem approaches to skills formation, Arab governments can align education and training systems with high-growth sectors of industry for knowledge-based economic development and achievement of accompanying economic, political, and social objectives.

While many international models of skills formation promote an exclusively market based approach, several Arab countries view investment in human capital as a political and economic goal in which significant government intervention is warranted. Yet, many previous attempts at skills formation policy have failed to address persistent skills development problems and do not present a comprehensive strategy to develop the skills of the national workforce as a whole. Despite the need for countries to adopt demand-driven approaches to skills formation, many of the countries in the region have pursued policies with no clear link between key stakeholders and specific economic outcomes.

“The changing demands of knowledge-based economic development create a need for interdependence and collaborative networks for effective skills formation, said Wes Schwalje, Chief Operating Officer of Tahseen Consulting and author of the report. “The widespread regional pursuit of knowledge-based economic development is driven by policies that envision the emergence of high skill, high wage economies that will create jobs. However, the global availability and growth of low cost, high skill workers potentially threatens the viability and economic fundamentals of sophisticated, innovation-driven knowledge-based industries taking root in the region if skills formation challenges are not addressed.” 

The Need for a New Approach

The changing demands of knowledge-based economic development, global macroeconomic trends, and social development, create a need for interdependence and collaborative networks consisting of education and training providers, firms, government entities, and other key stakeholders for effective skills formation. Citing good practices of skills formation policy from across the Gulf Cooperation Council countries, the report presents a framework via which countries can analyze their skills development systems.

“Arab skills formation system reforms must challenge the assumption that more education is always better,” said Walid Aradi, Chief Executive Officer of Tahseen Consulting. “Particularly in non-resource rich Arab countries, governments must reconsider the full employment promise which hampers global competitiveness, reduce wage inequality to ensure equal distribution of wealth, and determine the Arab world’s position in a global economy with emerging low cost, high-skill competitors that challenge knowledge based economic development both in the developed and developing world.”

While some Arab countries are more suited to competing in a high-skill, low-wage global economy, other Arab countries which are unable to compete in high-skill, high-wage knowledge-based industries will need to adequately calibrate the expectations of their citizens regarding the types of jobs that will be available in the future. They will also have to account for the likely instability of salaries due to wage compression from competing low-wage, high-skill workers. Efforts in the region to privatize education attainment so that labor market success or failure passes the burden on to individuals are prone to market failure without sufficient demand for skills from the labor market. If knowledge-based industries fail to take root and lead to employment, many of the reforms and money spent on higher education expansion, education quality, R&D ecosystems, and entrepreneurial growth could be deemed inappropriately spent.

The European Union’s Forum Euroméditerranéen des Instituts de Sciences cited Tahseen Consulting’s research on the changing post-Arab Spring conceptualization of knowledge-based economy as a potential model for a policy road map to restructure regional economies.

Tahseen Consulting’s Related Work

Read about Tahseen Consulting’s work on creating national skills formation for knowledge-based development

Last week the UAE joined the growing list of global financial hubs which aspire to also become Islamic finance hubs. The list includes countries such as Thailand, UK, Singapore, Hong Kong, India, France, Canada, Japan, India, China, Nigeria, Malaysia, and Bahrain. Despite their aspirations, many of these countries lack the critical financial sector standards and human resources to offer substantial sharia compliant banking and financial services.

Our study of Islamic financial hubs reveals several common structural approaches pursued by Islamic banking leaders:

  • Dual Banking Systems: The most successful Islamic banking hubs operate a full-fledged Islamic banking system in parallel with a full-fledged conventional system complete with liberalization measures that also allow foreign banks to operate
  • A Step-by-step Approach: Successful Islamic banking hubs have an overall long term strategy to develop a large number of instruments; a large number of institutions; and an Islamic interbank market
  • Comprehensive Legislation: Successful Islamic banking hubs pass comprehensive Islamic banking legislation and typically have a common Sharia Supervising Council for all Islamic banks
  • A Practical, Open-minded Approach: To complement education and training of potential employees entering the Islamic financial services sector, Islamic banking hubs employ research-based approaches and product experimentation to serve local needs and ensure innovation
  • Participation in Forming International Standards: Several Islamic banking hubs have established bodies to internationalize Islamic banking standards which are  involved in regulating the global industry and establishing standards involved in furthering Islamic finance training and education

As shown in the figure below, these structural approaches to forming an world-class Islamic banking system are underpinned by sound financial systems rooted in internationally accepted economic, financial, and statistical standards.

Islamic banking and financial systems

Establishing a sound financial system and Islamic banking sector requires adoption of internationally accepted economic, financial, and statistical standards

Human Resources Frequently Limit Ambitions of Aspiring Islamic Finance Hubs

Based on our projections that a another $87 to $124 billion could potentially enter the Islamic banking system in the UAE by 2015, approximately 7,800 new jobs will be created at Islamic banks in the UAE assuming current asset concentration ratios remain similar. We also project another 500 jobs will be created by 2015 in other Islamic financial services segments. By 2015, the Islamic financial services sector will double in size from approximately 10,000 employees currently to 20,000.

Established 2011 Total Assets in $Current Number of EmployeesProjected Number of New Employees Needed by 2015
Total$69,000,947,4116,2377,864
Dubai Islamic bank1975$24,683,505,1772,0002,522
Sharjah Islamic bank 1976$4,831,918,801412519
Abu Dhabi Islamic bank 1997$20,245,231,6081,2001,513
Emirates Islamic bank (merged with Dubai Bank)2004$5,853,895,0951,0971,383
Noor Islamic bank 2007$4,598,651,499650820
Al Hilal Islamic bank2008$7,697,841,417702885
Ajman Islamic bank2008$1,089,903,815
176222
Number of employees in the Islamic banking sector in the UAE

By 2015, the Islamic financial services sector will double in size from approximately 10,000 employees currently to 20,000.

To meet this growing demand for employees trained in Islamic finance, the UAE will need to significantly broaden its education and training options to ensure availability of human capital does not stall the growth of the sector. While it has a number of current executive training institutions and higher education institutions that target mid-level employees in the Islamic finance sector, the UAE does not have any programs that target new entrants interested in the field or senior level leaders. The UAE also does not have institutions which provide research and analysis that advances the field. The experiences of Bahrain and Malaysia show that research capabilities and institutions have been key structural feature of Islamic banking systems that lead to product innovation and effective regulation. Furthermore, many of the masters programs in Islamic banking and finance in the UAE remain general MBAs or masters degrees with very few specialized courses related to practical aspects of Islamic banking that are required by employers. The exceptions are Zayed University and Hamdan Bin Mohammed e-University which have in-depth course offerings in Islamic finance and economics.

Tahseen Consulting’s Related Work

Read about Tahseen Consulting’s work on skills gaps and how they impact Arab businesses

Islamic Banking Training in the UAE

While it has a number of current executive training institutions and higher education institutions that target mid-level employees in the Islamic finance sector, the UAE does not have any programs that target new entrants interested in the field or senior level leaders.

Malaysia's Islamic Banking Education and Training System

Malaysia’s human capital development programs span all levels of the industry with a focus on internationalizing operational and product standards.

Towards a Islamic Finance Human Capital Development Strategy for the UAE

To solidify its position as an Islamic finance hub amongst the heavy competition, the UAE will need to significantly enhance its current education and training system. This includes human capital development and research programs to ensure:

  • Quantitative supply of Islamic banking graduates through expanded undergraduate offerings or financial sector bridge programs that target non finance graduates
  • High quality executive training focused on resolving likely skills gaps amongst current employees
  • Specific executive training and leadership development training for senior level bank leaders and regulators to create the necessary vision and Sharia knowledge to enable product innovation
  • High quality research and thought leadership that pushes the boundaries of the sector and allows the UAE to participate in the internationalization of operational and product standards which is currently being led by competing Islamic financial hubs

The Organisation for Economic Co-operation and Development’s Economic Commission for Latin America and the Caribbean cites Tahseen Consulting’s research while discussing the impact of workforce skills gaps on small and medium enterprise development in their 2013 Latin American Economic Outlook: SME Policies for Structural Change.

UNESCO’s 2012 Education for All Global Monitoring Report on Youth and Skills: Putting Education to Work cites Tahseen Consulting’s work on national skills formation and skills gaps in Latin America.

شهدت دول مجلس التعاون الخليجي ارتفاعاً ملحوظاً في النمو الاقتصادي في فترة وجيزة حيث بلغ نمو الناتج المحلي الفعلي في دول الخليج 5.8% سنوياً خلال الفترة الممتدة بين 2000 و 2008 متفوقاً بذلك على معدل النمو العالمي والذي بلغ 4.3% وعلى معدلات الدول المتقدمة (2.3%) حسب إحصاءات صندوق النقد الدولي.

واعتمد النمو في منطقة الخليج على الاستثمار في قطاعات تتطلب عمالة مكثفة مثل العقار وتطوير البنية التحتية. ولكن في ظل محدودية القوى العاملة المواطنة اضطرت هذه الدول لاستقدام العمالة الوافدة لتلبية الطلب. وتشير إحصاءات منظمة العمل الدولية إلى أن  نمو الناتج المحلي في دول مجلس التعاون يعود إلى الزيادة في القوة العاملة وخاصة المستوردة منها ولا يعكس زيادة في الإنتاجية. ولم تتجاوز الزيادة السنوية للإنتاجية بين عامي 2000 و 2008 في بعض دول مجلس التعاون في أحسن الأحوال 4.2% في البحرين وتقلصت في الإمارات بواقع 0.1%.

ويشير النمو البطيء في الإنتاجية مقارنة بنمو الناتج المحلي إلى توجه  دول مجلس التعاون في مسار معاكس للطموحات التي رسمتها في خططها الإستراتيجية والمتمثلة بخلق اقتصاد معرفي. وتعتمد هذه الخطط أساساً على جعل المعرفة المحرك الرئيسى للنمو الاقتصادي وعلى خلق فرص عمل في المجالات ذات القيمة المضافة والتي تتمركز حول التقنيات والاتصال والابتكار والرقمنة. ولكن الإحصاءات تشير إلى غير ذلك حيث تتركز العمالة في الإمارات العربية المتحدة في قطاع البناء والتشييد بواقع 40% من إجمالي حجم العمالة ولا يتجاوز عدد العمال الحائزين على تعليم جامعي 9% من عدد العاملين في القطاع الخاص.

وبناء على ذلك ولدعم عجلة التنمية تجاه تحقيق اقتصاد مبني على المعرفة، نقترح أن يتم النظر إلى تحسين الإنتاجية العمالية من خلال منظور منهجي يركز على تحقيق التوازن بين عدة مكونات. في البداية ينبغي اختيار القطاعات التي تؤدي لاستدامة النمو الاقتصادي والتي تساهم في تنويع الإيرادات والتي لها قيمة مضافة ليتم تركيز الجهود تجاه تطويرها. عند اختيار تلك القطاعات يجب تحقيق التوازن في عرض سوق العمل للوصول إلى توافق بين توفير مواطنين مؤهلين واستقطاب العمالة الماهرة الوافدة بهدف سد العجز. وبالمثل ينبغي أن يوازن الطلب بين وظائف القطاع العام والخاص بشكل يجذب المواطنين للعمل في القطاع الخاص ويستقطب أصحاب المهارات العالية نحو التوجه إلى دول مجلس التعاون دون سواها نظرا للتنافس العالمي على هذه المهارات. وينبغي أن تتم عملية التوازن هذه من خلال خلق بيئة عمل تنافسية تدفع الشركات الأجنبية للاستثمار بينما يتم حماية حقوق المواطنين من خلال اتخاذ تدابير للدعم الاجتماعي في الحالات الاستقصائية مثل البطالة. ويسمح هذا النهج بالوصول إلى اقتصاد معرفي متناسق وشامل ومستدام.

للإطلاع على نظرتنا الشاملة بخصوص تطوير المهارات الوطنية للتنمية المؤسَسة على المعرفة الرجاء الضغط هنا. بالإضافة إلى ذلك بإمكانكم الاطلاع على أفكارنا المتعلقة بدفع عجلة التنمية تجاه  خلق الاقتصاد المعرفي الأمثل في الوطن العربي من خلال هذا الرابط. 

The European Investment Bank used our research as background for its presentation on PPPs in Research Development and Innovation for the Southern Mediterranean region citing our work as the rationale for improved skill creation; increased technology transfer through FDI; employment creation; and enhanced regulatory framework for business.