Posts Tagged ‘Middle East’

At Tahseen Consulting our core values reflect our organizational culture and guide our decision-making and interactions. One of our fundamental values is sharing our research with funders, businesses, educational institutions, community organizations, governments, and others through agenda-setting applied research so that we all learn and work together. Our research and insights have been featured in 40+ prominent publications and cited by several international organizations such as the New York Times, Forbes, World Bank. UN, OECD, European Investment Bank, and the Sheikh Saud bin Saqr Al Qasimi Foundation.

Occasionally we publish articles that are so compelling that others “borrow” word-for-word from our work without proper citation or attribution. This was the case with a recent article that appeared in a prominent academic journal that “borrowed” largely upon the findings of Tahseen Consulting’s research on knowledge economy transitions in the Arab World but failed to acknowledge our work. The article, which can be viewed here: http://onlinelibrary.wiley.com/doi/10.1111/rsp3.12034/abstract, has since been retracted.

While imitation may be the highest form of praise, even if some people neglect proper attribution, it is clear we have reached an important milestone of success. You can read our article The Knowledge-based Economy and the Arab Dream: What Happened? below as well as explore our cutting-edge work on Arab knowledge economies by following the links below. However, if you find our work useful, please ensure you give us credit where credit is due.

Rethinking Arab Knowledge-based Economies

Knowledge Economy in the Arab World: The Arabization of the Concept of Knowledge Economy

Arab Knowledge Economies Require More Effective Skills Formation Systems to Generate High Skill, High Wage Employment

Tahseen Consulting’s CEO Walid Aradi appeared on Dubai TV’s Money Map to discuss the role of entrepreneurship policy in economic development and meeting the region’s youth unemployment challenge. Aradi sat down with Zeina Soufan, host of Money Map, to discuss Tahseen Consulting’s work on entrepreneurship policies and programs in the Arab World.

We have placed a recording of the webinar on our website at: http://www.tahseen.ae/r&iopengovernment.html#header

You can also download Tahseen Consulting’s accompanying study An Arab Open Government Maturity Model for Social Media Engagement. The study challenges previous models of e-government and open government maturity based on the experiences of Western countries by offering region-specific guidance that accounts for the unique governance tradition of Arab public sector entities. The report describes organizational changes government leaders can make to help their agencies leverage social media to complement national strategies to increase citizen participation. 

In response to several messages we received regarding the potential of Arab SMEs to meet the region’s youth employment challenge, we decided to also look at the other end of the employment spectrum to determine which entities across the region are the largest employers.

Related Blog Posts

In our post Company Sizes in the Arab World: Small and Medium-sized Enterprises Dominate Arab Economies we found that 92% of businesses in the Arab region are under 200 employees. The concentration of SMEs in Arab economies has a significant on employment creation and potential public sector responses the region’s youth employment challenge.

Below is a list of the Arab region’s largest employers segmented by country and industry gathered from press accounts, regulatory filings, and government sources. In several countries education, health, and defense ministries employ large segments of the population. We also observe much similarity across the region in terms of industries which are large employers (telecom, services, construction, diversified conglomerates, aviation, and financial services). What is less clear, however, is whether these industries have produced high skill and knowledge-content, high wage jobs.

Related Blog Posts

In our blog post Many Arab Countries Are Headed Towards Knowledge-based Economies.. But What are Knowledge-based Industries? we explore how the concept of Knowledge-based industries and economies lacks a clear definition. Defining the size and growth of knowledge-based industries is especially difficult in the Arab region.

In our blog post Knowledge-based Economy and Employment Generation in the Arab World we show that the emergence of knowledge-based industries has not necessarily led to meaning levels of job creation in the region. 

CountryEntitySectorNumber of Employees
Saudi Arabia Ministry of Education Education
418362
Saudi ArabiaMinistry of Defense and Aviation
Defense
106000
Saudi ArabiaMinistry of Health Healthcare
73314
Saudi ArabiaSaudi Aramco
Oil & Gas51000
Saudi ArabiaSaudi Basic Industries Corporation
Chemicals
31000
Saudi ArabiaSaudi Electricity Company
Utilities 28300
Saudi ArabiaSaudi Telecom Company
Telecoms
21190
Saudi ArabiaThe Savola Group
Conglomerate
12500
Saudi ArabiaZamil Group
Conglomerate
10000
Saudi ArabiaAlmarai Co.Food Industries
9505
Saudi ArabiaAl-Rajhi Banking & Investment Company
Financial services
8299
Saudi ArabiaZamil Industrial Investment Co.
Financial services
8200
Saudi ArabiaAbdullah Al Othaim Markets Co.Retail5097
Saudi ArabiaSaudi Public Transport Co.Transport
5065
Saudi ArabiaRiyadh Bank
Financial services
4768
United Arab EmiratesArabtec Construction
Construction
52000
United Arab EmiratesMinistry of Defense
Defense
48800
United Arab EmiratesAl Habtoor Group
Conglomerate
40000
United Arab EmiratesEmirates GroupAviation
30297
United Arab EmiratesDP WorldTransport
30000
United Arab EmiratesAl Jaber Group Conglomerate
25000
United Arab EmiratesMinistry of EducationEducation
24000
United Arab EmiratesAl Ghurair Group
Conglomerate20000
United Arab EmiratesAl Futtaim Group Conglomerate20000
United Arab EmiratesAbu Dhabi National Hotels Company
Hospitality
12000
United Arab EmiratesMajid Al Futtaim Group
Conglomerate
11000
United Arab EmiratesJumeirah Group
Hospitality
11000
United Arab EmiratesEtisalat
Telecoms10083
United Arab EmiratesDepartment of Health & Medical ServicesHealthcare
9422
United Arab EmiratesEmirates NBD
Financial services
8139
United Arab EmiratesMinistry of HealthHealthcare7000
KuwaitAl-Kharafi Group Conglomerate
100000
KuwaitMinistry of Health
Healthcare
36000
KuwaitMinistry of Education
Education
34801
KuwaitAgility
Services
31055
KuwaitKuwait Food Co. - Americana
Food Industries
21522
KuwaitArabian Construction Company
Construction16500
KuwaitAlshaya
Retail16130
KuwaitMinistry of Defense
Defense15500
KuwaitAl-Abraj Holding Co.Services15000
KuwaitZain GroupTelecoms
15000
KuwaitKIPCO
Services8000
KuwaitSultan Center Food Products Co.Food Industries7000
KuwaitNational Cleaning Co.Services6022
KuwaitHeavy Engineering Ind. & Shipbuilding Co.Services5000
KuwaitKuwait & Gulf Link Transport Co.Services5000
KuwaitThe National Industries Group
Conglomerate
4000
KuwaitKout Food Group
Food Industries4000
KuwaitNational Mobile Telecommunications Co.Telecoms2923
KuwaitNational Bank Of Kuwait
Financial services
2921
KuwaitCombined Group Contracting Co.
Construction2831
KuwaitAl Arabi Group Holding Co.Conglomerate2763
KuwaitKuwait Hotels Co.Hospitality2540
KuwaitKuwait Finance HouseFinancial services 2032
KuwaitACICO Industries Co.Construction2000
OmanMinistry of Defense
Defense41700
OmanOmzest Group
Conglomerate
40000
OmanMinistry of Education
Education39993
OmanMinistry of Health
Healthcare
21447
OmanSuhail Bahwan Group
Conglomerate
15000
OmanSaud Bahwan Group
Conglomerate
11000
OmanRenaissance Services Co.Services9000
OmanOman Aviation Services CoServices3360
OmanOman Telecommunications CompanyTelecoms2735
OmanOman National Engineering & Investment Co.Services2630
OmanShanfari Group
Conglomerate2500
OmanBank Muscat
Financial services
2157
OmanSalalah Port Services
Services2079
OmanOman Holding International Co. Financial services 1600
OmanNational Bank Of Oman Ltd.Financial services 1155
BahrainMinistry of Defense
Defense12000
BahrainMinistry of Health
Healthcare
7213
BahrainMinistry of Education
Education5000
BahrainAlmoayyed Group
Conglomerate
5000
BahrainAhmed Mansour Al A'ali Group
Conglomerate5000
BahrainNass CorporationServices
4729
BahrainDadabhai GroupConglomerate3500
BahrainAhli United BankFinancial Services2800
BahrainBahrain Telecommunications Company (Batelco) Telecoms2579
BahrainFakhro Group
Conglomerate1000
QatarSupreme Education Council
Education13000
QatarMinistry of Defense
Defense11800
QatarQatar Shipping Company
Services3518
QatarIndustries Qatar
Conglomerate
3400
QatarAamal Company
Conglomerate3000
QatarQatar Navigation Company
Services2500
QatarMannai Corporation
Services2400
QatarQatar Telecom (Qtel)Telecoms2000
QatarSalam International Investment Co LtdServices2000
QatarQatar Electricity and WaterUtilities1500
QatarQatar National Bank
Financial services1400
QatarQatar National Health Authority
Healthcare1200
QatarBarwa Real Estate Company
Services
1100
QatarQatar National Cement CoServices1050
IraqMinistry of Interior
Civil Affairs
348000
IraqMinistry of Defense
Defense
270000
IraqMinistry of Education
Education 120000
IraqMinistry of Higher Education and Scientific Research
Education 100,000
IraqMinistry of Health
Healthcare100000
IraqMinistry of Electricity
Utilities42000
IraqSouth Oil Co
Oil & Gas18000
IraqNorthern Oil Co
Oil & Gas13000
IraqKBR -IraqOil & Gas7000
IraqAl Elaf Group of Companies
Conglomerate5000
IraqFalcon Group
Conglomerate3500
IraqBaghdad Soft Drinks CoFood Industries3400
IraqBahrani Group
Conglomerate3000
IraqZain Iraq
Telecoms3000
IraqIraqi Airways
Aviation
2400
IraqDanube Group
Conglomerate2000
IraqAsiaCell
Telecoms2000
YemenMinistry of Education
Education194443
YemenMinistry of Defense
Defense66000
YemenMinistry of Interior
Civil Affairs
51200
YemenHayel Saeed Anam Group
Conglomerate25000
YemenPublic Electricity Corporation
Utilities15000
YemenSabaFon
Telecoms10000
YemenMinistry of Health
Healthcare7300
YemenPublic Telecommunication Corporation
Telecoms7000
YemenYemen Company for Drug Manufacturing and Trading (Yedco)
Services
5000
YemenYemen Economic Corporation (YECO)
Services5000
EgyptMinistry of Education
Education
1099000
EgyptMinistry of Interior
Civil Affairs
350000
EgyptMinistry of Health
Healthcare215000
EgyptMinistry of Defense
Defense
80000
EgyptTelecom Egypt
Telecoms55000
EgyptOrascom Construction Industries
Construction50000
EgyptKuwait Food Company (Americana) in EgyptFood Industries45000
EgyptOrascom Development
Real estate18000
EgyptOrascom Telecom Holding
Telecoms15000
EgyptMansour Group
Conglomerate11000
MoroccoMinistry of Defense
Defense196300
MoroccoMinistry of Interior
Civil Affairs
93500
MoroccoMinistry of Health
Healthcare
52000
MoroccoGroupe OCP
Chemicals
20000
MoroccoChabbi Group
Conglomerate
18000
MoroccoMaroc Telecom
Telecoms
11000
MoroccoYNNA Holding, Group Miloud Chaabi
Conglomerate
11000
MoroccoONA Group
Conglomerate10000
MoroccoMinistry of National Education
Education
7400
MoroccoLesieur Cristal
Food Industries5000
MoroccoBanque Marocaine du Commerce Exterieur
Financial services4000
MoroccoCompagnie Generale Immobiliere
Real estate
2800
MoroccoAttijariwafa Bank
Financial services
2000
TunisiaMinistry of Education and Training
Education124000
TunisiaMinistry of Health
Healthcare105000
TunisiaPoulina Holding Group
Conglomerate
13000
TunisiaTranscom Worldwide Tunisia
Services11000
TunisiaSatex
Textiles10000
TunisiaCompagnie des Phosphates de Gafsa
Chemicals9000
TunisiaTunisie telecom
Telecoms7500
TunisiaLeoni Tunisie
Services6500
TunisiaTunisair
Aviation5200
TunisiaGroupe ChimiqueTunisien Services4500
TunisiaSystem De Cablerie Automobile De Sousse Services4300
TunisiaEvolServices4000
TunisiaSte des Arts TextilesTextiles3300
TunisiaThe Banque Nationale Agricole
Financial services2700
TunisiaThe Societe Tunisienne de Banques
Financial services2600
TunisiaBanque Internationale Arabe the Tunisie
Financial services2200
LibyaGumhouria Bank
Financial services3500
LibyaGeneral Tobacco Company
Tobacco1500
LibyaTrucks and Bus Co
Services1000
LibyaArab Union Contracting Company
Construction800
LibyaAlmadar
Telecoms550
LibyaCentral Bank of Libya
Financial services300
LibyaAkida Group
Conglomerate195
LibyaLibyan Tractor Company
Services100
AlgeriaMinistry of Education
Education323000
AlgeriaSonatrach
Oil & Gas120000
AlgeriaNaftalOil & Gas30000
AlgeriaAlgerie Telecom
Telecoms27000
AlgeriaAir Algerie
Aviation8800
AlgeriaGiplaitFood Industries
4500
AlgeriaGroupe Saidal
Pharmaceuticals4400
AlgeriaMinistry of Health and Population
Heath care4400
SudanFederal Ministry of Health
Heath care54000
SudanMinistry of Education, Science and Technology
Education 18000
SudanSudan Railways Corporation
Transport13000
SudanChina National Petroleum Corporation (CNPC) in Sudan
Oil & Gas11000
SudanKenana Sugar Company
Services6000
SudanDAL Group
Conglomerate4000
SudanSudatel Telecommunications Group Ltd.Telecoms2500
SudanSudan Airways Company
Aviation2000
LebanonSarkis Group International
Conglomerate
7000
LebanonMinistry of Health
Healthcare5400
LebanonZakhem Group
Conglomerate5000
LebanonOgeroTelecoms
3800
LebanonAverda Group ( Sukkar Engineering Group)
Conglomerate 3,500
LebanonMiddle East Airlines (MEA)
Aviation3000
SyriaMinistry of Defense
Defense319000
SyriaMinistry of Health
Health care63354
SyriaMinistry of Petroleum and Mineral Resources
Oil & Gas47000
SyriaSyrian Telecommunication Establishment
Telecoms25000
SyriaSyrian Petroleum Company
Oil & Gas17500
SyriaGeneral Establishment of Syrian Railways
Transport12000
SyriaSyrian Arab Airlines
Aviation5300
SyriaCham Holding
Conglomerate4000
SyriaJoud Company
Conglomerate3000
SyriaGeneral Company for Electrical and Communication Works
Utilities2500
SyriaMTN Syria
Telecoms2100
SyriaAlfadel Group
Conglomerate2000
SyriaSyriaTel
Telecoms1900
SyriaND Group

Conglomerate1450
SyriaByblos Bank
Financial services1150
SyriaSyrian Modern Cables
Services1050
JordanMinistry of Health
Healthcare24000
JordanArab Bank
Financial services6500
JordanThe Royal Jordanian Airlines Company
Aviation4300
JordanThe Royal Jordanian Airlines Company
Metals and mining4300
JordanJordan Telecom Group /Orange
Telecoms4000
JordanHikma Pharmaceuticals
Pharmaceuticals2700
JordanArab Potash Company
Services2000
JordanHousing Bank for Trade & Finance
Financial services1900
PalestineMinistry of Education
Education48000
PalestinePalestine Development & Investment Ltd. (PADICO)
Conglomerate35000
PalestinePalestinian Security Forces
Defense30000
PalestineMinistry of Health
Health care13000
PalestinePaltel
Telecoms12000
SomaliaSecurity Forces of Somaliland
Defense7000
SomaliaAmal Group of Companies (Amal Express)
Conglomerate1000
SomaliaSOMTEL
Telecoms1000
SomaliaTelecom Somalia
Telecoms750
SomaliaSomafone
Telecoms150
MauritaniaSociété Nationale Industrielle et Minière--SNIM
Conglomerate804
MauritaniaSOMAGAZ
Oil & Gas400
MauritaniaAir Mauritanie
Aviation300
DjiboutiDaallo Airlines
Aviation 250
DjiboutiDjibouti National Army
Defense11000

In the Arab World, a society characterized by skilled, flexible, and innovative individuals nurtured through quality education, employment, and broadly accessible life-long learning opportunities is seen as a vital precursor to knowledge-based economic development (Kingdom of Saudi Arabia Ministry of Economy and Planning, 2010). To varying degrees, Arab countries are faced with similar human capital challenges that serve as obstacles to knowledge-based economic development:

Low Levels of Workforce Productivity

Across the region, labor productivity is low. Based on GDP per person employed data from 2008, Qatar, the richest Arab nation, is approximately two-thirds as productive as Organization for Economic Cooperation and Development (OECD) countries, despite the upward trending of oil and gas which forms the majority of Qatar’s domestic product receipts (World Bank, 2010a). Labor productivity data from 1991-2008 show a .7% compound annual growth rate for the Arab World while East Asia and the Pacific grew at 3.97%; Latin America grew at a rate of 1.19%; Sub Saharan Africa grew at 1.46%, and the OECD countries grew at 1.54%.

Preference for Public Sector Employment

Long standing social aspects of career specialization have led to some reluctance to pursue certain professions (United Nations Educational, Scientific, and Cultural Organization, 1960). The social aspects of career choice has slowed economic integration, led to the substitution of expatriate labor in certain industries, and decreased productivity in low value added industries for which low skill expatriate labor is imported from abroad to perform (Ministry of National Economy of the Sultanate of Oman, 2010). The social preference for public sector jobs has precipitated a crisis in which regional governments are unable to create suitable employment opportunities to absorb the youthful population entering the labor market.

Increasing Female Labor Market Participation

Despite significant gains in educational attainment, female labor market participation is estimated at 22% resulting in high levels of female unemployment (International Labor Organization, 2010). While more women have entered the labor market, many have found employment in part-time work, microenterprises, and the informal economy (Flynn and Oldham, 1999). Rapidly evolving cultural values and changing views on familial obligations continue to be influential in labor market participation and obtaining higher levels of education (Miles, 2002).

Poor Match Between Workforce Skills and Those Demanded by Public and Private Sector Employers

In surveying the public sector, Al-Yahya (2008) finds evidence of a low match between the skills of public sector employees and the work roles they perform particularly at lower administrative levels. Al-Yahya also finds evidence that formal educational qualifications are frequently not related to current jobs and a high number of public sector employees who believe their current jobs require low levels of their perceived skills and capabilities. Citing deficiencies in soft skills like communication, teamwork, analytical skills, and innovative thinking, a recent survey of the private sector also found that 46% of regional CEOs do not believe that education and training systems in the Arab World prepare students for the workplace (Mohammed bin Rashid Al Maktoum Foundation, 2008). These findings are indicative of a vast disconnect between current regional human capital levels and the skills demanded by private sector employers.

Education and Training System Misalignment With the Needs of Knowledge-based Economies

Many Arab countries are unable to meet the needs of all students who want to pursue education because of dramatic increases in student enrollment and insufficient resources (United Nations Development Program, 2002). Though there is a continued long-term trend towards increased budgets for education in the region, meeting the combined demands of increased access, assuring relevance, and improving quality in the face of finite resources is challenging (United Nations Educational, Scientific, and Cultural Organization, 2010b). Despite positive gains to promote educational opportunity and increased national spending on education, poor educational quality continues to hamper regional human capital development and the ability of Arab countries to compete in the global economy. At the higher education level, the region’s education systems are failing to produce the right quality and mix of human capital needed for knowledge-based development.

Barriers to Entrepreneurship

While some gains have been made in facilitating entrepreneurship in the region as evidenced by the increasing number of new business registrations, the procedures, time, costs, and minimum capital required to start a business remain much higher than OECD countries (Klapper, 2010, World Bank, 2010b). Though some Arab countries provide venture funding for entrepreneurial endeavors, startup and early-stage financing from banks, venture capitalists, and angel investors is very limited in the Arab World due to low liquidity conditions on exit markets. In terms of nurturing businesses, the Arab World has approximately 100 business incubators as compared to 1,600 in the United States to serve rather similar populations (National Business Incubation Association, 2011).

Weak Innovation Systems

R&D spending is significantly lower than in the developed world with very little private sector funding (United Nations Educational, Scientific, and Cultural Organization, 2010a). Regulatory frameworks do not protect intellectual property leading to low levels of patents and stifling private R&D expenditure. There is weak government policy making in research and innovation in spite of various studies which have shown that critical components necessary for innovation systems, research, market-oriented R&D, and entrepreneurship need to be concurrently fostered and linked in knowledge-based economies (Cooke, 2001, Pietrobelli, 2009). These components include educational systems, institutions conducting basic, applied, and interdisciplinary research, business incubators, funding institutions, and professional societies. Several of the institutions critical to the innovation system are weak in the Arab World (Mohammed bin Rashid Al Maktoum Foundation, 2009).

Managing Growth Sustainably

Underpinned by high fertility rates and increased life expectancy, the population of the Arab World nearly tripled to 359 million growing at an average annual rate of over 2% from 1970 to 2010 (Mirkin, 2010). This growth has increased the demand for basic services such as health, education, housing, water, and sewerage systems which has outpaced the growth rate of national income and government revenues (Rischard, 2009). The Arab World is experiencing rapid urbanization which has resulted in increased poverty, inadequate solid waste collection and disposal, toxic and hazardous waste problems, poor or non-existent sanitation facilities, and degradation of urban environment and coastal areas (United Nations Economic and Social Commission for Western Asia, 2009). Demographic trends are also having a number of societal implications related to marriage and the family, status of women, and care of older people (Mirkin, 2010).

A global economic development narrative based on the transition to knowledge-based economies and accompanying high wage, high skill jobs emerged in the Arab World in the early Nineties very similar to that in the US. Schwalje (2011) shows that seventeen of the twenty-two countries in the Arab World have adopted development of a knowledge-based economy as a medium to long-term economic policy objective. The appeal of an economic development trajectory and policy prescription that promised high skills, high wage jobs was perhaps irresistible in a region facing a youth bulge in which the number of youth 18 – 24 is expected to grow to 88 million by 2030 representing approximately 20% of the population (Secretariat 2008).

The Embrace of Knowledge Economy as an Economic Development Strategy in the Arab World

Schwalje (2011) shows that seventeen of the twenty-two countries in the Arab World have adopted development of a knowledge-based economy as a medium to long-term economic policy objective.

Related Blog Post: In our blog post Knowledge Economy in the Arab World: The Arabization of the Concept of Knowledge Economy we discuss the historical origins of the concept in the region and why the majority of Arab countries have adopted this economic development trajectory in their national development strategies

Initiated under the patronage Zine El Abidine Ben Ali, the former President of Tunisia, the World Bank hosted a conference in 2009 that led to the ‘Tunis Declaration on Building Knowledge Economies.’ Referencing the need for the Arab World to create 5 million jobs per year for the next 20 years, the declaration draws a causal relationship between knowledge-based economic development and ensuing job creation which will create the need for increased supplies of high skill workers. The declaration implies that, assuming the Arab World can develop a  “solid education base, a dynamic information infrastructure, an effective innovation system, and a solid economic and institutional regime (Institute 2009),” economic diversification will lead to increased private sector job creation. Unfortunately, for  the 21 signatory countries (Algeria, Bahrain, Djibouti, Egypt, Iraq, Jordan, Kuwait, Lebanon, Libya, Mauritania, Morocco, Oman, Palestine, Qatar, Saudi Arabia, Somalia, Sudan, Syria, Tunisia, United Arab Emirates, Yemen) many of these results have not materialized.

In addition to high skill, high wage job creation, however, the Arabization of the concept of knowledge-based economy infused economic development with a host of other development issues such as economic integration and diversification, innovation, entrepreneurship, education and training system reform, environmental sustainability, identity, language, gender equality, and political participation and democratic reform. As in the US, the importation of the knowledge economy concept to the Arab region was accompanied by a similar emphasis on the welfare of individuals being tied directly to their success in gaining and maintaining higher qualifications and skills which could be sold in the labor market to match high wage employment opportunities expected to be generated by emerging high skill, knowledge-based industries.

Related Blog Post: In our blog post Many Arab Countries Are Headed Towards Knowledge-based Economies.. But What are Knowledge-based Industries? we explore how the concept of Knowledge-based industries and economies lacks a clear definition. Defining the size and growth of knowledge-based industries is especially difficult in the Arab region. 

The concept of Knowledge-economy has helped to highlight and promote policy dialogue on key development challenges that the Arab World faces and brought coherence to a variety of socio-economic development discourses. While the Arab countries were good students, as evidenced by their embrace, implementation, and localization of reforms towards knowledge-based economic development, there is, however, little evidence that suggest meaningful job creation as a result of pursuing reforms towards knowledge-based economy.

Employment in Knowledge-based Industries in the Arab World

Over the last decade, human capital investments do not seem to have led to significant increases in job creation in knowledge-based industries. Employment rates in knowledge-based Industries in the Arab World have remained virtually constant.

Registered Users is a Poor Proxy for Active Users

eBay is notoriously guarded about statistics on its user base. From 1996 to 2006, the company released statistics regarding its total number of registered users. Starting in 2001, eBay published a new “active user” metric which was defined as any user who had bid, bought, or sold in the trailing twelve month period. From 2001 to 2006, however, both the total registered number of users and the active user metric were published in official filings which provides an interesting insight into the number of registered users on an online marketplace relative to the number of users who actively use the site. In the case of eBay, on average 42% of its total registered user base actually conducted a transaction on the site annually based on 2001 to 2006 data. A perhaps disturbing finding is that the number of active users showed a declining trend over the few short years that both metrics were made public. This finding shows that publicized numbers of total registered users can be misleading if active users are in fact only a small portion of the registered user base. Since most of the online retailers in the Arab World are private companies, published statistics typically reflect total registered users.

eBay’s Registered Users Versus Active Users

Publicized numbers of total registered users can be misleading if active users are in fact only a small portion of the registered user base. Since most of the online retailers in the Arab World are private companies, published statistics typically reflect total registered users.

The Costs of Maintaining an Active User Base have Increased Dramatically

The data points above highlight two issues of potential concern to online retailers in the Arab World: In order to expand their user bases, they must appeal to and acquire consumers who historically have used traditional means of commerce to purchase goods. At the same time, if consumers are not active on their sites they may be unable to gain efficiencies in operating costs and the costs of acquiring new customers which could adversely impact their businesses. In fact, an Elance posting from 2010 seeking a survey design consultant from Souq.com describes exactly the same issue unfolding in the region:

“One of the issues that Souq.com is facing and that we wish to solve through this study is the stagnation of repeat users. In the last year, we have noticed that if the number of registered users keeps going up, the number of repeat users is not. We are looking for explanations for this phenomenon and to find whether it is related to the brand, the services or the product (site) or a mix of issues.”

Turning back to our eBay example, we observe that sales and marketing expenses, for what eBay calls its “sustaining marketing phase” in which its primary objectives are to create a more managed brand message, acquire new users, and increase the activity of existing users, have increased 72% from 2001 to 2011. As of 2011, eBay spent $24.25 per active user on sales and marketing. However, while sales and marketing has increased dramatically, revenue per active user only increased 30% from 2001 to 2011. While sales and marketing expenses have grown, revenue per active user has exhibited decreasing returns to scale. This is a particularly important lesson for emerging online marketplaces in the region,  suggesting that the “sustaining marketing phase” to maintain an active user base is costly and requires ongoing spending that does not always lead to higher revenue, even for very large marketplaces.

The Costs of Maintaining an Active User Base have Increased Dramatically

While sales and marketing expenses have grown, revenue per active user has exhibited decreasing returns to scale for eBay. This is a particularly important lesson for emerging online marketplaces in the Arab region, suggesting that the “sustaining marketing phase” to maintain an active user base is costly and requires ongoing spending that does not always lead to higher revenue, even for very large marketplaces.

Will Surging Regional Internet Penetration Rates in the Arab World Lead to E-commerce Growth?

In the Arab World, increased internet penetration rates are often cited as a key driver of the potential of e-commerce in the region. However, this assumption ignores economic development trends in the region concerning the growth of middle class consumers over the last decade that heavily influence the buying power of the population in a number of countries.

While internet use increased 27 times to 82 million users over the last decade, the fastest regional growth rate in the world, regional per capita gross domestic product adjusted for purchasing power grew at an annual rate of only 4% to $8,507, with the strongest growth in the Levant and North Africa. However, with the region’s quickly growing population, this growth rate trailed all other developing regions of the world (Bank 2010). Although several of the Arab countries have placed amongst the fastest growing countries in the world, only 105 million, or approximately 30% of the population, are estimated as middle class based on a definition which includes the number of people with daily expenditures between $10 to $100 per day.

It is estimated that the Arab World represents only 6% of the world’s middle class, and spending represents just 4% of total spending by the world’s middle class. By 2030, the middle class is expected to grow to 234 million or 44% of the Arab population, representing 5% of the world’s middle class and 4% of global middle class consumption.  While such estimates are not exact, these figures suggest that large growth rates are slowly producing a growing middle class and eliminating rampant income inequality, but other regions like East and Southeast Asia have made huge gains compared to the Arab World (Secretariat 2008; Kharas and Gertz 2010).

The slow growth of the Arab World’s middle class, who are likely potential users of online marketplaces, makes the assumption that increasing internet penetration rates alone will fuel e-commerce significantly less convincing in the majority of countries in the region. It seems more probable that increasing internet penetration rates might drive registered users, but household income growth trends in a number of countries across the region will ultimately determine how active these users will be. The low level of middle income households in a number of countries in the Arab World suggests that revenue from active users may in fact be much lower in quantitative as well as transaction value terms than international benchmarks like eBay. The lack of a middle class in several Arab countries also suggests a potentially limited geographic target market in the region for online marketplaces.

Estimating the Number of Active Users on Souq.com and MarkaVIP

Based on the eBay assumption that an average of 42% of registered users are active users and publicly available press accounts of the number of registered users, we estimate that Souq.com has approximately 273,000 active users. This means that eBay’s user base is 154 times larger than that of Souq.com. Using the same assumptions, MarkaVIP, which recently hit the 2 million registered user mark, would have an estimated 840,000 users.  However, Groupon’s recent quarterly public filings suggest the registered to active user ratio for daily deal sites may in fact be as low as 20% of registered users with revenue per active customer in the low $70s range (about $26 higher than eBay per active user). Similar to eBay years ago, Groupon stopped releasing figures on its number of registered to active users in February. This means sites like Souq.com could have as low as 130,000 active users, and MarkaVIPs 2 million registered users would potentially be reduced to only 400,000 active users. Though many variables are unknown, it remains uncertain if these rather small active users bases can sustain viable marketplaces without consolidation.

Estimating the Number of Active Users on Souq.com and MarkaVIP

Based on the eBay assumption that an average of 42% of registered users are active users and publicly available press accounts of the number of registered users, we estimate that Souq.com has approximately 273,000 active users.

Our work on national skills formation models was cited by ConvergeUS, a bipartisan, political network of technology sector CEO’s and senior executives founded in 2011 to mobilize corporations, academic institutions, and other nonprofits to leverage technology to create positive change on critical issues facing American society. Co-Chaired by TechNet’s CEO, Rey Ramsey, and Twitter’s Co-Founder, Biz Stone, ConvergeUS drives technology-based breakthroughs for critical social problems to accelerate social innovation.

PREPARING AMERICA’S 21ST CENTURY WORKFORCE: THE TECH SECTOR WEIGHS IN ON EDUCATIONAL GAPS AND COMMON CORE S…

We are happy to see that the Sheikh Saud bin Saqr Al Qasimi Foundation for Policy Research mentioned our research on knowledge economies in their policy paper on education quality and economic growth in the UAE.  The link to the report is below.

A few comments

  • We can see from the Psacharopoulos and Patrinos data is a trend of increasing returns to education with level. This is certainly a positive evolution which suggests that the current educational policy focus on primary and secondary access must be complemented now with a focus on higher education quality.
  • One point that could receive some more research is probing why Emirati women choose to pursue higher education at higher rates than men. I am not fully convinced by an economic argument for this trend. I can see the economic rationale for the case of men entering the labor market early, but with women I think there are other reasons beyond private rates of return which are motivating their decisions.
  • With TIMSS and PISA scores there has been some concern that countries cherry pick high performing schools for participation. This is certainly something that must be considered when we look at schools from the region. There is likely to be significant variability around school performance.
  • One critical assumption of the knowledge-economy ideology is that economic growth will always produce high skill, high wage jobs. What if this is not the case in the MENA? What if countries like India or other Arab countries like Egypt develop high skill, low wage workforces that compress wages for knowledge-based professions in the Gulf? This is certainly a trend we see with outsourcing from the US and Europe to low cost destinations which are rapidly moving up the value chain of outsourced services.

The report can be found here

A review of the national economic development plans across the region, shows that seventeen of the twenty-two countries in the Arab World have the development of a knowledge-based economy specifically stated as a medium to long-term economic policy objective. here is a timeline which explains how the concept became so widely embraced in the region.

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