The bedrock of society: Understanding and growing the MENA region’s middle class

The middle class is often the catalyst for positive socioeconomic change in developing countries. In the MENA region, there is a dire need for change, which can be effected via a set of economic, social, and political policies aimed at developing a large, dynamic, and sustainable middle class.

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Ideation Center Insight

Richard Shediac Samer Bohsali Hatem Samman

The Bedrock of Society Understanding and Growing the MENA Region’s Middle Class

Contact Information Abu Dhabi Richard Shediac Senior Partner +971-2-699-2400 [email protected] Beirut Samer Bohsali Partner +961-1-985-655 [email protected] Dubai Hatem Samman Director, Ideation Center +971-4-390-0260 [email protected]

Daniel Clarke, Leila Hoteit, Karim Abdallah, Jussi Hiltunen, and Dima Sayess also contributed to this Ideation Center Insight.

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EXECUTIVE SUMMARY

The middle class is often the catalyst for positive socioeconomic change in developing countries, yet that has not happened in the Middle East and North Africa (MENA). Many of the region’s middle-class residents have grown dependent on their governments for jobs and services. Combined with weak social and economic infrastructures, this reliance on the state has prevented middle-class people from advancing and helping their national economies become stronger.

Governments in the region can change this, yet they must first understand who constitutes the middle class, how these people feel about economic conditions in their countries, and what their future hopes and dreams are. To that end, Booz & Company surveyed roughly 1,450 middle-class people in Egypt, Saudi Arabia, and Morocco. Our results show that, with minor national variations, the middle class in these countries are anxious about core issues such as living standards, inflation, and job security. Respondents expressed dissatisfaction with the delivery of public services, including education, healthcare, and social security. Perhaps most troubling, many middle-class residents in the region do not believe

their home countries offer them opportunities to succeed, and some would consider emigrating to more promising markets. To address these concerns, policymakers in the region must launch political and socioeconomic reforms aimed at helping the middle class become as skilled, entrepreneurial, and productive as their Asian or Western counterparts. Moreover, economic reforms must be complemented by deep institutional and legal reforms to support good governance and public transparency. If these reforms succeed, governments will not only help the middle class advance in MENA countries, but they will ensure greater political stability and stronger economic growth over the long term.

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Contents 1 Executive Summary 3 Middle Class Hopes, Dreams, and Concerns 4 The Middle Class Serves a Key Function in Society 4 Defining the Middle Class 6 Key Challenges for the Region’s Middle Class 8 Survey Methodology 9 Current Economic Outlook 16 Education 9 Job Market Concerns 11 Cutting Back on Spending, and Struggling to Save 12 Entrepreneurs Are Feeling the Pain 12 Food Inflation Is a Potential Threat to Stability 19 Policy Recommendations: Education 20 Healthcare 23 Policy Recommendations: Healthcare 24 Social Protection 35 Policy Recommendations: Dreams and Aspirations 36 Conclusion 31 Policy Recommendations: Entertainment Preferences 32 Dreams and Aspirations 13 Consumer Preferences are Shifting to Reflect New Technology 13 Consumer Housing Is Stable, but Shortages Loom 14 Little Movement in Living Standards 15 Policy Recommendations: The Middle Class and the Economy 16 Education, Healthcare, and Social Protection 25 Policy Recommendations: Social Protection 26 Cultural Considerations 26 Trust in Public Institutions 27 Policy Recommendations: Trust in Public Institutions 27 Women’s Rights 28 Policy Recommendations: Women’s Rights 29 Entertainment Preferences

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Middle Class Hopes, Dreams, and Concerns
-- 43% are concerned about the present state of their national economy, primarily among Egyptian and Moroccan respondents -- 46% rate the current job market as bad or poor -- 28% feel that they are worse off now than five years ago -- 53% of those dissatisfied with the current standard of living cite inflation as the chief concern, followed by a lack of job opportunities -- 34% believe that their children will have a higher standard of living than they do, despite current pessimism about the economy -- 25% of middle-class entrepreneurs have had to fold or relocate their business due to economic difficulties -- 65% of middle-class households get by with one income -- 57% report being able to meet basic expenses with little left over for extras -- 54% have experienced difficulty in saving money over the past five years -- 44% have had to reduce spending -- 26% expect to have trouble paying their bills -- 29% believe that someone in their family will need to work for extra income -- 53% do not think the education system provides excellent opportunities for their children -- 65% would want their children to study overseas -- 86% are saving money for their children’s education -- 34% can afford medical treatment and/or pharmaceuticals -- 55% strongly agree that the primary role of women in society is to be a housewife -- 44% also believe that women should have career opportunities if they choose to work -- 76% own high-definition televisions -- 44% frequently use high-speed Internet connections1 -- 73% believe that governments are corrupt -- 66% do not think their governments are doing enough to support their goals to succeed, primarily in Egypt and Morocco -- 38% would consider emigrating if opportunities abroad became available

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THE MIDDLE CLASS SERVES A KEY FUNCTION IN SOCIETY

The creation and nurturing of a vibrant and sustainable middle class will be critical to the future of nations in the MENA region. Although no government policy should be tailored for a specific demographic group to the exclusion of others, there are clear reasons why the middle class deserves special attention from national policymakers. First, the middle class is typically the largest consumer group in most countries, making it the engine of spending and economic growth. In addition, this group often constitutes most of the entrepreneurial sector of developed economies, leading to job creation and inclusive economic growth through startups and the expansion of small and medium-sized businesses.

The middle class is also a stabilizing force in society—a larger middle class brings greater political stability and less economic inequality, which are, in turn, prerequisites for economic growth. Finally, the middle class traditionally plays a role in public accountability and wider political participation, through its support of economic governance, property rights, and the rule of law. For these reasons, the success of the middle class is in a sense the success of a nation, and its advancement brings ancillary benefits for other social and economic groups, such as the poor.2 Despite this, there is a conspicuous lack of information regarding the middle class in the MENA region. In fact, there is little consensus on how to even define the group—and without a better understanding of this cohort and its needs, it will be impossible to nurture its growth. Defining the Middle Class Pinning down the exact factors that define the middle class is challenging. Some studies apply descriptive parameters, saying that the middleclass segment enjoys “comfortable

living,” a phrase that implies home ownership, stable jobs, access to public services such as education and healthcare, a reasonable social safety net when one is retired or unemployed, leisure time to spend with family, and savings to spend on entertainment and travel. Other studies use varying quantitative measures of income and/or consumption, with equally varying results on the size of the middle class across countries. To identify the middle class in three MENA countries (Egypt, Saudi Arabia, and Morocco), we combined both economic and social measures. Our definition uses daily household income in U.S. dollars, adjusted for purchasing power parity (PPP), of 75 percent to 150 percent of the median for each country: • Egypt—US$42 to $92 (44 percent of total population) • Saudi Arabia—US$70 to $149 (42 percent of total population) • Morocco—US$23 to $46 (38 percent of total population)3

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To include social parameters, we also asked respondents to a Booz & Company survey of 1,445 people in Egypt, Morocco, and Saudi Arabia (see “Survey Methodology,” page 8) to put themselves in one of five social

categories: lower class; lower middle class, middle class, upper middle class, and upper class. An overwhelming majority, 68 percent, viewed themselves as being in the middleclass category (see Exhibit 1).

We added another social dimension by asking respondents to define what the middle class meant to them personally. This open-ended question generated a range of descriptions, but most revolved around the concept

Exhibit 1 Respondents Overwhelmingly Identify as Middle Class

WHICH SOCIOECONOMIC CLASS DO YOU CONSIDER YOURSELF TO BELONG TO? (PERCENTAGE OF SURVEY RESPONDENTS)

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Total Sample 16% 1% 15% 23% 1% Saudi Arabia 68% 70% 56% 15% 13% 21%

1%

13%

78% Lower class Lower middle class Middle class Upper middle class 10% Morocco Upper class

Egypt

Notes: Base number = 1,445. Numbers displayed may not add up to 100% due to rounding. Source: Booz & Company Ideation Center Middle Class Survey

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of a comfortable life—being able to fulfill life’s needs, having a job with a good salary, and having a growing standard of living (see Exhibit 2). Key Challenges for the Region’s Middle Class Although these concepts are in line with perceptions of the middle class

worldwide, the demographic segment in the MENA region differs from that in other parts of the world in one key way. Typically, this class is linked to entrepreneurship, innovation, and economic growth.4 However, the middle class in the MENA region is not a significant source of GDP generation or innovation.

One reason is the considerable dependence on the state.5 The public sector is often the employer of first and last resort in the region, and the dominant economic agent. Such a reliance on government has marginalized private-sector activities and reduced incentives for the kind of innovation and entrepreneurship that

Exhibit 2 For Most Respondents, “Middle Class” Means Having a Comfortable Lifestyle

WHAT DOES THE TERM “MIDDLE CLASS” MEAN TO YOU PERSONALLY? (PERCENTAGE OF RESPONDENTS WHO AGREED WITH THE FOLLOWING DESCRIPTIONS)
Egypt Fulfill all of life's needs The salary is enough for life Average life in terms of income, living standard The class of limited income The class between the poor and the rich A life with education The class of public servants The class that saves little money / The low class (not poor) A salary that is enough to afford life’s needs and save some money A pleasant life Regular monthly salary House ownership A good job A life without any luxuries Owning an average car Not being in debt to anyone 33% 26% 17% 6% 12% 6% 3% 2% 7% 2% 6% 1% 6% 2% 4% 3% Saudi Arabia 35% 10% 39% 11% 0% 13% 0% 17% 4% 11% 4% 4% 0% 9% 5% 6% 0% 25% 50% 75% 100% 6% 18% 15% 2% 16% 0% 3% 2% 6% 8% 5% 0% 1% 2% 0% 25% 50% 75% 100% Morocco 6% 30%

0% 25% 50% 75% 100%
Source: Booz & Company Ideation Center Middle Class Survey

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typically come through the middle class in other regions and generate economic growth. In addition, middle-class women in the region do not take part in economic activities to the same degree that women do in other parts of the world. This exclusion, while based on historical and cultural norms, limits productivity growth. As with entrepreneurship, it presents a specific regional issue that will have a negative impact on the way that national economies compete worldwide. Equally important is the need for strong public services such as education and healthcare, which largely determine the overall well-being of the middle class. Indeed, social satisfaction equals political satisfaction, which results in socioeconomic stability and development. In sum, the middle class is a bellwether for a nation’s overall

prospects, and its confidence in the economy—expressed through spending and savings decisions—can determine the future direction of that economy. Moreover, its trust in government and public institutions can serve as societal ballast during periods of disruption, just as a lack of trust in these institutions can trigger instability and social upheavals. These issues present a principal challenge for policymakers in the Arab world. They must work to expand the middle class, primarily through social, economic, and political reforms that empower the private sector. At a fundamental level, rather than providing jobs, the state should aim to provide economic opportunities, strong education institutions, and a level playing field. Accordingly, these reforms are becoming a high priority on the agenda of policymakers and business leaders in the region.

Before they can tailor such reforms, however, policymakers must develop a better understanding of the middle class. To that end, the survey results shed significant light on this group— their aspirations, concerns, and anxieties. We also have some clear policy recommendations for government reforms that help address the current concerns of the middle class and help this demographic segment take its rightful place as an engine of future growth in the MENA region. The survey findings span a wide range of topics, but we have grouped them into three principal categories: 1) current economic outlook; 2) the delivery of public services such as education, healthcare, and social security; and 3) cultural preferences among the middle class, including trust in public institutions, the evolving role of women, entertainment preferences, and the hopes and aspirations of the middle class.

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Survey Methodology Booz & Company conducted the survey “The Bedrock of Society: Understanding and Growing the MENA Region’s Middle Class” in Egypt, Saudi Arabia, and Morocco. Fieldwork took place from May 15 to June 9, 2011, with additional interviews in Egypt from August 2 to August 18. Researchers interviewed subjects face-to-face during 20-minute sessions, using a questionnaire with a series of closed-ended questions, with answers ranging from 1 to 5, and six open-ended questions. In order to be assigned to the middle class, respondents had to meet at least one of the following criteria: • Monthly net household income within a specific range (75 percent to 150 percent of the median income in the respective countries) • Self-identification as belonging to the middle class • Categorization of their own income as “average” This resulted in a total of 1,445 interviews. The sample was representative for the total population in the relevant countries with regard to gender, age, and residence area. In Egypt, 39 percent of the interviews took place in the greater Cairo area, 39 percent in Alexandria and the Delta, and the remaining 21 percent in Upper Egypt. Respondents were evenly split between men and women, with the following age profile: • 25–34 • 35–44 • 45–55 • 56–65 37% 30% 24% 9%

In Saudi Arabia, 69 percent were Saudi nationals, with 37 percent of the interviews conducted in Riyadh, 39 percent in Jeddah, and 24 percent in Dammam/Al Khubar. The respondents were slightly skewed in terms of gender: 53 percent were women and 47 percent were men, with the following age profile: • 25–34 • 35–44 • 45–55 • 56–65 41% 33% 18% 8%

In Morocco, 32 percent of the interviews were conducted in the Atlantic region, which comprises Casablanca and Al Jadida; 24 percent in the Center (Fes and Khemissat); another 24 percent of the interviews were conducted in the North (Tanger and Nador); and the remaining 20 percent were completed in the South of the country (Marrakech and InzaganAït Melloul). Respondents were equally split between men and women, with the following age profile: • 25–34 • 35–44 • 45–55 • 56–65 33% 27% 23% 17%

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CURRENT ECONOMIC OUTLOOK

countries. To Moroccans, economic conditions have not changed markedly over the past five years, whereas Egyptians are the most dissatisfied with the present situation, and Saudis overwhelming rate favorably their current economic status (see Exhibit 3). Despite these concerns, respondents voiced general optimism about the future state of the economy. About 70 percent have a positive outlook for the economy over the next five years, especially in Saudi Arabia and Egypt. This perhaps reflects anticipation from several already-announced government spending initiatives and

reforms in those countries, some of which have been spurred by events of the “Arab Spring.” Job Market Concerns Perceptions about the job market are slightly worse than those for the region’s overall economic prospects, and again vary by country. In Egypt, less than 10 percent of respondents rated the current job market positively, and only a third think it is better than five years ago. In Morocco, the figures are not much more encouraging, with a quarter of respondents rating the current job market positively, and slightly fewer

Overall, middle-class respondents expressed dissatisfaction with their current economic prospects. Only 31 percent of all respondents are “extremely satisfied” or “very satisfied” with their current economic situation, though perceptions vary among

Exhibit 3 Respondents Are Dissatisfied with Their Current Economic Status but Upbeat About the Future

RESPONDENTS’ PERCEPTIONS OF ECONOMIC PROSPECTS, PAST, PRESENT, AND FUTURE

Five Years Ago Total 8% 5% Egypt 35% 28% 28% 4% 31% 33% 25% 2%

Today 26% 5% 9% 20% 33% 38% 25% 23% 20%

Five Years from Now 29% 41% 12% 5% 12% 6% 35% 36% 14% 10%

Saudi Arabia

20%

40%

24% 14% 1%

17% 2%

52%

24% 5%

2%

35%

36%

20% 8% 2% 13%

Morocco

17% 0% 25%

51% 50%

32% 75%

1% 100% 0%

25% 25%

34% 50%

28% 75%

11% 100%

15% 0% 25%

56% 50% 75%

15% 2% 100%

Much worse Somewhat worse About the same Somewhat better Much better

Not at all satisfied Slightly satisfied Moderately satisfied Very satisfied Extremely satisfied

Much worse Somewhat worse About the same Somewhat better Much better

Note: Numbers displayed may not add up to 100% due to rounding. Source: Booz & Company Ideation Center Middle Class Survey

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believing it has improved over the past five years. By comparison, the middle class in Saudi Arabia is far more confident, with about twothirds rating the current job market positively, and more than half feeling it has improved compared to five years ago. As with the overall economy, future expectations for the job market were fairly positive and consistent across all countries; nearly 70 percent of the middle class believe jobs will be more

available in the next five years. This optimism may reflect a cultural aspect of the Middle East, specifically a connection between the role of family in people’s lives and their material aspirations and anxieties. A healthy family life and the reassurance of close social connections make people less anxious about the future, despite professed economic concerns about their present situation. There are two other important aspects to the MENA job market worth

noting. One is its high unemployment rate, especially among Arab youth (see Exhibit 4), who suffer from joblessness at rates that are two to three times higher than the overall level in most MENA countries. According to the United Nations Development Program (UNDP) and the League of Arab States, Arab countries must create approximately 51 million jobs by 2020 to stabilize their youth labor market.

Exhibit 4 Unemployment Rates Are Higher Among Arab Youth Than the Overall Population

AVERAGE YOUTH UNEMPLOYMENT RATE 2000–2007

RATIO OF YOUTH UNEMPLOYMENT TO OVERALL UNEMPLOYMENT 2000–2007

40% 35% 30% 25% 20% 15%

37% 30% 23% 22% 23% 17% 11% 16% 31%

5

4.7

4

3.7 2.9 2.6 1.8 2.0 1.5 1.6 3.1 2.8 2.6 2.1 3.0

20%

21%

3

2 8%

10% 5% 0% Iran Bahrain Egypt Kuwait Lebanon Morocco Qatar Saudi Arabia Algeria Syria Tunisia Jordan 5%

1

0 Iran Bahrain Egypt Kuwait Lebanon Qatar Saudi Arabia Algeria Morocco Syria Tunisia UAE Jordan UAE

Source: World Bank, “World Development Indicators,” average from 2000–2007; Booz & Company Ideation Center analysis

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The second aspect is that many of the salaried employees in the MENA region—including the middle class— tend to work in the public sector. This stands in stark contrast to the economies of most developed countries, where small and medium-sized enterprises (SMEs) figure prominently in contributing to GDP and employment. In Saudi Arabia and Egypt, for example, SMEs represent 25 and 38 percent of employment, respectively, compared to 55 percent in the U.S., and 60 percent in Germany.6 Contribution to GDP is similar: SMEs represent just 25 percent of GDP in Saudi Arabia and 33 percent in Egypt, compared to more than half of the GDP contribution in both the U.S. and Germany. As a result of this disparity, the middle class in MENA countries is unable to act as a stabilizing factor

against external economic shocks. This is particularly relevant in a region with oil-based economies, which are subject to large boom-and-bust swings. The reliance on public-sector jobs shows up in answers about the criteria that middle-class respondents assess when choosing an occupation. Job security ranks most important, followed by a good salary (see Exhibit 5). The fact that respondents seem to value job security over money reflects either a sense of uncertainty about the future job market or—more likely—a tendency to avoid taking risks with one’s career. This is one of the fundamental challenges to the MENA region’s future growth. An overreliance on the public sector creates problems that are self-perpetuating: Economic

volatility and structural unemployment become exacerbated by an oversized public sector, creating an economically constrained middle class. However that situation is unlikely to change as long as people prefer safe government positions to more lucrative (but potentially riskier) positions in the private sector, or—even better— launching their own company to fulfill their personal dreams. Cutting Back on Spending, and Struggling to Save Questions regarding the personal finances of the middle class drew responses ranging from satisfaction to stress. In terms of meeting basic expenses, an average of 57 percent— for all three countries—stated that their salary covers such expenses with a little left over for extras. Another 13 percent stated that they live comfort-

Exhibit 5 Job Security Is the Principal Criterion in Choosing an Occupation

WHICH OF THE FOLLOWING IS MOST IMPORTANT FOR YOU WHEN CHOOSING AN OCCUPATION? WHAT ELSE IS IMPORTANT?

Having a secure job

44%

34%

22%

Having good career options

13%

50%

37%

Working independently (only depending on oneself)

12%

35%

53%

Having a good salary/income

23% 1%

58%

19%

Flexibility in daily life 4% Fulfilling your professional dreams 3% Participating in new business ventures 0%
Source: Booz & Company Ideation Center Middle Class Survey

54%

45%

53%

43%

Not important Also important Most important

23% 25% 50%

74% 75% 100%

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ably. However, of the remaining 30 percent, 27 percent stated that they are only able to make ends meet, while 3 percent expressed an inability to do even that. From a budgetary perspective, 44 percent of respondents report cutting back on spending in recent years because money has been tight. (Morocco was highest among the three countries, at 54 percent.) In a similar vein, 54 percent expressed trouble saving money for future needs (with Saudi Arabia leading, at 58 percent). Entrepreneurs Are Feeling the Pain More unsettling findings come from those who identify themselves as entrepreneurs, meaning those who are self-employed or own a business. Although these people typically live more comfortably among the middle

class, the survey respondents reported financial pressures roughly in line with the overall sample. About 25 percent have gotten out of business or had to relocate their company because of economic difficulties, and 21 percent experienced a decline in their real income, as a result of high inflation. Roughly a third expects to experience similar financial hardships in the future. This effectively puts a brake on the potential economic contribution from these companies. Business owners who don’t feel confident about their future prospects are unlikely to hire workers or pursue new ventures. Food Inflation Is a Potential Threat to Stability Food often constitutes a significant part of household spending in develop-

ing countries, and the survey results reflect this: Respondents spend 30 percent of their monthly household income on food, beverages, tobacco, and personal care (see Exhibit 6). Although this may reflect certain cultural and/or culinary aspects of the region, it also has greater relevance given recent headlines. Increases in food prices have ravaged the world—and MENA countries in particular—over the past several years, contributing to social and political unrest in countries like Egypt,7 where food inflation has been highest. Moreover, food inflation remains a major concern today. According to a recent index released by the UN Food and Agriculture Organization (FAO) in 2011, global food prices remain near historical highs.

Exhibit 6 Food Accounts for the Greatest Portion of Middle-Class Spending

WHAT PERCENTAGE OF YOUR MONTHLY HOUSEHOLD INCOME IS SPENT ON EACH OF THE FOLLOWING CATEGORIES?

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

6% 7% 4% 6% 6% 4% 5% 6% 6% 7%

2% 8% 5% 4% 6% 2% 3% 7% 6% 5% 6% 7% 3% 3% 10% 5% 7% 4% 5% 6% 8% 5% 7%

6% 8% 4% 4% 8% 1% 2% 3%

Other Saving Furnishings and household durable goods Clothing and footwear Other transport (car, public transport, etc.) International travel Local travel Internet Mobile phone Recreation, entertainment, meals outside the home, etc.

3% 3%

7% 6% 5% 8%

30%

36%

24%

27%

Health and insurance Education (including extra tuition, books, kindergarten expenses) Food, beverages, tobacco, and personal care

8% Total

4% Egypt

11% Saudi Arabia

10% Morocco

Rent/Housing

Note: Numbers displayed may not add up to 100% due to rounding. Source: Booz & Company Ideation Center Middle Class Survey

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Consumer Preferences Are Shifting to Reflect New Technology Middle-class spending has also shifted due to new consumer preferences, specifically for high-tech goods and services that were limited or nonexistent a decade ago. Today, many middle-class households in the region have a flat-screen TV (complete with cable or satellite) and a PC; more than half have high-speed Internet access. Internet service levels vary among countries, although this likely stems from discrepancies in availability rather than a reluctance to spend. Respondents in Saudi Arabia have the highest rate of high-speed Internet access (at 78 percent), which matches expectations, given that Saudi Arabia has more-developed telecom infrastructure than Egypt or Morocco.

These consumption preferences are characteristic of a new generation of the middle class that has grown up with the Internet and other related technologies. Tech-savvy consumers are different from previous generations in several ways. First, they are more knowledgeable about what they consume, and are more participatory than their parents in what they purchase and watch, and how they feel about economics and politics. Their social and business networks—including Facebook, LinkedIn, blogs, and other media venues—have provided new socioeconomic and political platforms for Arabs that will require new policy and business models. Despite this professed interest, however, many public- and private-sector organizations continue to underutilize

the Internet as a means of spreading information about products, job vacancies, investment opportunities, or other services. Consumer Housing Is Stable, but Shortages Loom In the face of uncertain economic conditions, home ownership remains a bedrock desire among the middle class. The current generation of middle-class residents in MENA countries—as their parents before them—are hedging their economic risks by investing in a place to live, and a majority of respondents (62 percent) own their place of residence. However, there is an important qualification here: More than 40 percent of these residences in Egypt, and nearly 47 percent in Morocco, are smaller

Home ownership remains a bedrock desire among the middle class.

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than 150 square meters. In Saudi Arabia, by comparison, middle-class residents tend to own larger homes, with 31 percent living in dwellings larger than 250 square meters. However, the abiding relationship between middle-class status and home ownership is currently being jeopardized by housing shortages in all three of the markets we assessed— and, in fact, through most of the MENA region. These countries are experiencing increased housing demand from growing populations and rising urbanization, even as

the supply of new housing has been constrained by limited access to capital and a lack of suitable land for construction. Together, these factors have pushed up home prices, affecting low- and middle-income households most directly. Morocco and Egypt are estimated to experience shortages of 1 million and 1.5 million units respectively.8 Saudi Arabia recently initiated a multi-billion dollar housing program for low- and middle-income families, to address the projected demand for new housing in the country of more than 1.2 million units by 2014.9

Little Movement in Living Standards Overall, 53 percent of the middle class remain dissatisfied with current living standards. Despite general optimism about the future, many do not believe that living standards have improved since the time of their parents; nearly 50 percent have stated that standards are the same (29 percent), worse (18 percent), or much worse (2 percent). In particular, those who are generally not satisfied cited inflation and a scarcity of jobs as their top reasons (see Exhibit 7).

Exhibit 7 Inflation Is a Major Concern for the Middle Class

USING A FIVE-POINT SCALE, RATE THE FOUR OR FIVE TOP REASONS YOU ARE SATISFIED OR NOT SATISFIED WITH YOUR STANDARD OF LIVING

Not satisfied with standard of living (n = 762) Ongoing price increases Few jobs Salaries are low/are not enough Lack of security Education fees are high; it’s cheaper abroad Economic stagnation affects income Medical care is very costly Living standards are getting worse High electricity and water bills The family doesn’t/I don’t own a house Recession/shortage of goods House rents are getting higher 26 23 22 19 16 15 13 7 7 6 5 0 25 50 75 100 53

1

Satisfied with standard of living (n = 683) A fixed monthly salary that covers daily needs Access to good education/private schools Access to good medical treatment Getting a job Owning a house Excellent salaries/regular raise in salary The ability to fulfill financial needs To afford my children’s needs Enjoy a good/happy life with family and children To own a car for me and my family To ensure a safe life To provide the appropriate residence Save money for the future To have peace of mind Not in debt to any person I am/my family is in good health Promising opportunities in a vibrant and growing economy People respect me/my family respects me 49 39 35 31 26 14 13 12 11 11 9 9 8 7 6 5 5 5 0 25 50 75 100

2

Not Satisfied = respondents who answered “not at all satisfied,” “slightly satisfied,” and “moderately satisfied.” Satisfied = respondents who answered “extremely satisfied” and “very satisfied.” Note: These are the main reasons mentioned by at least 5% of the respondents. Source: Booz & Company Ideation Center Middle Class Survey
1 2

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Policy Recommendations: The Middle Class and the Economy
To address these concerns, policymakers should take clear steps aimed at managing stability and growing national economies in the region. There are a number of measures that policymakers can pursue in this regard. Safeguard Macro-Financial Stability Inflation is a significant risk in the region, and a primary concern for the middle class. Government leaders must address this by enhancing the management of public finances. Initiatives to improve the efficiency of public spending, achieve fiscal sustainability, and more effectively coordinate disparate economic policies would help stabilize economies and reduce the risk of inflation. For example, governments in the region could establish a more transparent budget process. This approach could align the country’s long- and short-term economic strategies (such as setting up rules to control debt and use unexpected surplus funds) along with meeting the expectations of the public (including increased public spending during economic downturns). Other measures aimed at reducing inflationary pressures include more proficient central-bank operations—specifically more effective monetary policies to control the money supply—and better exchange rate policies. Accelerate Entrepreneurship A more entrepreneurial and independent middle class can create more resilient MENA economies. Policymakers can drive this evolution by providing advice and seed funding to aspiring business owners, developing entrepreneurship education initiatives for schools and corporations, and eliminating some of the obstacles to entrepreneurship. For example, the legal costs and administrative steps required to establish a new business in the region are unnecessarily burdensome.10 In addition, governments can streamline the funding process for startups by developing a legal framework that encourages venture capital investments and eliminates legal barriers to foreign investors. Beyond that, entrepreneurs in the region would benefit from a wider support structure that establishes strong links between venture capitalists and prospective business owners, to connect investment funds with entrepreneurial ideas.11 Unlock Private-Sector Growth Over the past decade many countries in the MENA region have implemented reforms aimed at unleashing economic activity in the private sector and increasing jobs. In the countries that we have surveyed, along with several others, the liberalization of major sectors such as telecommunications, banking, and tourism has contributed to new and more diversified economic activity. Despite this success, however, future challenges regarding employment in the region will require more aggressive policies. Neither governments nor government-owned enterprises are sufficient to create jobs in line with demand in the region. Without a growing and vibrant private sector that is able to create jobs, the MENA region’s middle-class segment will likely shrink over the next decade. In that context, policymakers must take steps to accelerate the growth and competitiveness of the private sector and create new jobs. This will require a number of specific measures: 1. Introduce credible reforms that increase competition and discourage monopolistic behavior in key industries such as the financial sector. In a competitive setting, banks will have an incentive to diversify their business activities, which in turn can provide easier access to credit, boosting private-sector expansion and creating new jobs. 2. Remove the major obstacles to establishing businesses, such as the relatively weak enforcement of contracts and weak protection of investors. 3. Ensure that any economic reforms are transparent to all stakeholders. This increases the flow of credible market information, which in turn encourages more investments, greater competition, and increased confidence among the middle class (and other constituencies). 4. Finally, for these state-level reforms to be effective, governments must have a clear channel of communication with middleclass business owners and entrepreneurs. The onus in this case is on individuals, who must leverage existing business networks such as chambers of commerce—or create new networks—in order to collaborate with government and ensure that proposed reforms are truly addressing their best interests. Explore Integration Policies MENA countries should explore economic integration across national borders in the region. The most promising trade policies would develop more complementary economic sectors and ease current restrictions on labor movement. In the financial sector alone, more integrated regional markets—and even monetary integration—would help lower the overall cost of capital, increase consumption and jobs, and create opportunities for upward mobility that would directly benefit the middle class.

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EDUCATION, HEALTHCARE, AND SOCIAL PROTECTION

The hallmark of a developed nation is the extent to which it can provide for its citizens in a broader social context. Typically, this revolves around three core services: education, healthcare, and social protection. The middle classes are heavy consumers of such services and, more important, they care deeply about them. Members of the middle class have passed the point at which they meet only their most basic “survival” needs, and they therefore aspire to improve the quality of life. Strong public services help them reach this goal. However, in general, the survey results indicate broad dissatisfaction with how MENA countries are currently delivering on education, healthcare, and social protection. Education Several Arab countries have recently allocated a substantial share of their domestic investments to education. These investments have yielded multiple gains, by reducing educational disparities between boys and girls, increasing enrollment rates, lengthening the duration of young people’s schooling, and pushing illit-

eracy rates downward. However, even with such investments, the MENA education landscape continues to experience substandard performance on key indicators, such as high dropout rates, low science and math scores on international tests (which contributes to the high concentration of students in humanities at the university level because of their lower aptitude in science and technology fields such as medicine and engineering), and a critical lack of research and innovation on education methods.12 The primary explanation for these results has been limited access to quality private schools and an overburdened publiceducation system. Our survey results indicate that the middle class feels the education system is not performing as it should. Over 50 percent of middle-class respondents think that the region’s education system does not provide opportunities for them or for their children, in terms of increasing the likelihood of finding jobs. This reflects a fundamental misalignment between the education system and the job market, because of the marginal economic role of the

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private sector in the region, and also due to government’s position as the employer of first and last resort. In a setting where the education and skill levels of school graduates do not match the demands of private companies—national or multinational—government jobs will continue to be the fallback option for market entrants. At the same time, the middle classes in the Middle East clearly recognize education as important. More than 80 percent claim to save money specifically for their children’s education, up to 10 percent of their monthly income in some cases. Many are also seeking to continue their own education—

two-thirds of respondents in Saudi Arabia are likely to attend an adult educational course in the near future, in order to increase their knowledge and skills. Often these efforts are supported by government assistance. In Saudi Arabia, for example, the Human Resources Development Fund’s (HRDF) objective is to introduce training programs for employees, as well as job applicants, whose qualifications do not match the available vacancies.13 Overall, satisfaction with education offerings (such as teachers, curriculum, and general education) varies significantly by country. In

Saudi Arabia, 72 percent of the middle class express satisfaction with the country’s educational opportunities. This may stem from the positive experience that many respondents had with the education system when they were students, or, more likely, because parents today are not sufficiently engaged with the education system to be aware of better alternatives. However, the current crop of Saudi youth—who are experiencing the country’s education system firsthand— do not necessarily agree. In a recent Booz & Company Ideation Center survey of Gulf Cooperation Council (GCC) nationals, only 14 percent of Saudi men and 7 percent of Saudi

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women between the ages of 15 and 24 said that the nation’s education system is equipping them with the right skills and knowledge for the job market.14 In Egypt and Morocco, the middle classes are far less content. Only 18 percent of Egyptians express satisfaction with the educational opportunities provided by the government, and less than 10 percent

of Moroccans (see Exhibit 8). This unhappiness spans both the past experiences of respondents and the current opportunities available for their children. As a result, many parents are looking abroad. Some 86 percent of middle-class Moroccans are keen for their children to study overseas. This may be a result of Morocco’s ties to the French education system and perceived opportunities that foreign

education provides there. Even in Saudi Arabia, the desire to acquire Westernstyle education is high, at around 70 percent.15 This is further supported by a recent Booz & Company survey of Saudi Arabia and other GCC countries, which indicates that nationals have a preference for Western-style curricula in greater numbers than currently exist in these markets.16

Exhibit 8 Respondents Expressed Low Satisfaction with Education in the Region

USING A FIVE-POINT SCALE, HOW WOULD YOU RATE THE OVERALL QUALITY OF EDUCATION?

Total

7% 1%

25%

20%

23%

25%

Egypt

17%

24%

26%

32% Not at all satisfied

Saudi Arabia 1% Morocco 0% 7%

20%

52%

20%

6%

1%

Slightly satisfied Moderately satisfied

15% 20%

38% 40% 60%

39% 80% 100%

Very satisfied Extremely satisfied

Note: Numbers displayed may not add up to 100% due to rounding. Source: Booz & Company Ideation Center Middle Class Survey

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Policy Recommendations: Education
Given the importance of education—not only in addressing middle-class concerns regarding job opportunities and quality of life but, equally significant, in increasing national competitiveness—governments must make a stronger push to increase the quality of outcomes in the region. Indeed, the acceleration of education reforms will lead to a number of interconnected benefits: It will generate faster economic growth and help build a more skilled middle class, triggering a larger and more immediate impact on economic performance as more skilled workers will be able to enter the labor force sooner.17 Align Education and Economic Strategies The misalignment of economic and education plans is partly to blame for the current unemployment crisis across the region and the inhibition of middle-class growth. The MENA region has ambitious economic expansion and diversification plans, but it will not succeed without a new crop of highly skilled white- and blue-collar professionals—not only scientists, doctors, engineers, and teachers, but carpenters, plumbers, and electricians. Moreover, the organization of a labor force is as important as its education. Therefore, governments should take a more active role in aligning education priorities with market requirements. For example, government grants to public universities should be conditional on developing science and technology offerings in these schools and, more generally, developing programs to address the most immediate priorities of the labor market. Other examples include company training programs that help develop needed job skills among current employees or job applicants. HRDF in Saudi Arabia, which aims to strengthen the Saudi workforce and help workers transition to the private sector, is a good example of how government efforts to improve education can also address the region’s employment situation. Welcome Private-Sector Solutions Although public education remains the predominant model in many MENA countries, an increasing number of households, particularly among the middle class, believe that private schools offer a better education for their children. Given this rising demand, national governments should allow private-sector competition to make up for gaps in quality and demand at public schools in the region. Among other things, this means reputable institutions with a history of education excellence should be allowed to establish operations in the region—with fewer bureaucratic hurdles and a more transparent set of regulations. Reforms should also strengthen regional capabilities, such as operational and management skills, for both private- and public-sector school systems. To that end, governments should reduce the bureaucracy in K–12 education, by clarifying regulations and allowing schools and regions more leeway in creating their own innovative solutions. Moreover, there is an information shortage regarding the performance of schools, teachers, and students— information that would allow middle-class parents to make more informed choices. To rectify this, governments should track and evaluate students’ performance on an internal basis and set concomitant policies to improve education outcomes. At the same time, governments can publicly release the inspection results of schools and provide incentives for them to improve. Finally, working middle-class adults should be able to go back to school or take classes without worrying about losing their jobs. Hence, labor laws should include incentives to facilitate continuing education. Improve Quality of Public Education In addition to aligning education with economic priorities and welcoming private-sector solutions, governments must reform public schools in order to deliver better results for the middle class and stabilize overall education costs. This entails adopting a more modern operating model for the education sector. Specifically, several elements must be in place to allow greater autonomy at individual schools while also delivering greater efficiencies across the overall education system. These include operating entities (such as monitoring agencies and parents’ councils), good governance within each school, and sufficient funding.

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Healthcare Although the Arab world has significantly improved its healthcare systems over the last 30 years, those upgrades have not kept up with wide-ranging and changing dynamics, especially among the middle class, which is among the largest consumers

of healthcare services and a priority in government social spending. These shifts are evident in the survey results. More than 50 percent of respondents have some form of health insurance, and in parts of Morocco, the rates are as high as 80 percent. Saudis again

expressed the greatest levels of satisfaction with their healthcare system compared to the other countries surveyed; 46 percent say that there are enough doctors and medical specialists to cover all relevant treatments (see Exhibit 9). This perception may also be a result of the billions of

Exhibit 9 There Is Limited Satisfaction with Healthcare

PERCEPTIONS ABOUT THE HEALTHCARE SYSTEM

Egypt The healthcare system in my country covers all relevant treatments 5% 27% 43% 24%

Saudi Arabia 3% 41% 46% 11% 7% 3% 40% 28% 12% 46% 44%

Morocco 10% 48% 42%

There are enough well-educated doctors and medical specialists 20% in my region 4% 24%

2% 18% 41% 40% Completely disagree Disagree 51% 44%

The government takes care of people who cannot afford healthcare by themselves 0%

3% 49% 23% 39% 44% 13%

5%

Agree Completely agree

25%

50%

75% 100%

0%

25%

50%

75% 100%

0%

25%

50%

75% 100%

Note: Numbers displayed may not add up to 100% due to rounding. Source: Booz & Company Ideation Center Middle Class Survey

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dollars recently spent by the government to develop the healthcare system. However, nearly 50 percent of Saudi nationals claim not to have adequate access to preventative treatments and necessary prescription drugs, and only about one-third rate the system as truly affordable. (A majority perceives that the government will take care of those who cannot afford healthcare themselves, such as the elderly.) Indeed, despite the extension of nominal healthcare coverage to the general population in

many MENA countries through government subsidies, the public-sector healthcare service is seen by many, especially those in the middle class, as substandard. The situation is far less positive in Egypt, where satisfaction is low overall. Only about one-third of respondents believe the healthcare system in the country covers all relevant treatments. About half of middleclass Egyptians see their healthcare as affordable, but only one-third has

confidence that the government will step in when cost becomes an issue for some residents. In Morocco, perceptions about the healthcare system are also unfavorable: Overall satisfaction falls between 10 percent and 20 percent, and less than 10 percent have access to preventative treatment or needed drugs. Just 15 percent of middle-class Moroccans believe that healthcare is affordable, and less than 5 percent trust in government assistance for

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those who need it. Given these results, the country’s high level of health insurance is understandable. Such results illustrate the deep and growing problems in the region’s healthcare systems. Governments are in a perpetual state of catch-up, as the demand for healthcare services is rising, driven by an aging population, poor lifestyle choices and dietary habits, and increases in the prevalence of chronic diseases including diabetes and cancer. Healthcare costs are growing at historic rates for the whole population, squeezing out the middle

class and putting unsustainable strains on the welfare funding models currently prevalent across the Middle East. Indeed, MENA healthcare expenditures have been growing at an average rate of 15 percent a year since 2005,18 and although currently accounting for only 5 percent of GDP (compared to OECD levels of about 10 percent), this is expected to become a more significant share of total economic output in the coming generation. Compounding the issues are severe structural inefficiencies and quality gaps within the healthcare system,

including lengthy average hospital stays, underutilized hospitals resulting from poor infrastructure master planning, and a mismatch between needs and delivered services (such as patients receiving expensive inpatient treatments when outpatient facilities would have sufficed). Furthermore, given acute shortages in physicians and other healthcare professionals, the importation of talent and capabilities not only comes at a high price, it is also not sustainable in the long run. In short, some MENA countries now require major improvements to their healthcare systems.

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Policy Recommendations: Healthcare
Looming issues regarding healthcare in the MENA region will require the substantial involvement of both government and the private sector, and they boil down to three elements: access (having the optimal breadth of services available in the right amount, at the right places, and at the right time); quality (improving levels of performance and outcomes); and affordability (price levels at which the middle class can afford the care they need). Access An endemic issue in public-sector healthcare delivery is the low level of up-front planning that goes into infrastructure investment, particularly for the vast swath of services that cater to the middle class. For example, fully half of all public hospitals in Saudi Arabia were built at insufficient scale (with fewer than 100 beds), and thus cannot provide quality care. Even as the need for healthcare grows, these facilities remain underutilized and become a drain on national resources. To ensure optimal access to the right healthcare services, governments should seek to anchor their master planning and infrastructure development in robust population and disease demographic analysis, not only to better understand the current needs of the existing population, but to get ahead of the curve and forecast better where spikes in demand are likely to emerge in the future. Quality Quality in healthcare is measured both by hard data, such as key performance indicators and clinical outcomes, and by softer measures such as public perception and individual patient experiences. Governments must work to improve both. In order to truly improve the quality of care, accreditation standards like the Joint Commission of International Accreditation (JCIA) will not be enough. Governments must also invest in educational campaigns to ensure that patients are treated better in all phases of care, and to help patients become better consumers of their own treatment. Affordability There are no easy answers in making healthcare costs more affordable. Several governments are contemplating switching from a public welfare system to mandatory healthcare insurance. Some have already rolled this out to non-nationals and private-sector employees, but these governments are still vexed by how to treat the remaining nationals. Among other challenges, private health insurance for nationals implies a transfer of a cost burden from the government (social welfare system) to the employer and hence the patient (similar to the U.S. insurance system), which is not palatable in the current political climate. The need for a decision on how to best reform national healthcare funding models is becoming urgent, and most governments realize that the growth in chronic lifestyle diseases will soon leave them unable to meet the continuing rise in costs. While working to resolve these big-picture issues, governments can work to reduce costs on a per-case basis. One way—as with education—is to leverage the private sector, which has a superior track record in healthcare management, marked by efficiency increases and competitive dynamics. Governments can tap into this cost advantage through public–private partnerships—for example, hiring private providers to manage public hospitals.

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Social Protection A system of social protection— including a retirement pension scheme, unemployment insurance, and social safety nets—is essential for the middle classes worldwide, yet many residents in the region feel that MENA countries lack such a system. Middle-class Moroccans do not feel there is any form of social protection provided by their government: less than 10 percent believe the government takes care of people who are struggling, and this number rises only marginally when considering the elderly or unemployed. Confidence in Egypt is not much better, although more than 50 percent do believe the government helps to look after the

elderly by paying their pensions. As with other social and economic indicators, Saudi Arabia again scores highest in this category; more than 85 percent of middle-class residents believe the government can and will support them if the need arises. These perceptions are likely to grow worse in time. Public pensions, for example, which represent the main source of retirement income in most MENA countries, are projected to be depleted over the next two to four decades unless serious reforms are implemented. Most MENA countries have defined-benefit schemes, which pool employee contributions to finance current pension payments.

However these schemes generally favor high-income earners and are under direct pressure from shifting demographics. As the MENA region’s current youth bulge grows older, these aging “baby boomers” will increasingly rely on state support, and the gap between pension assets and liabilities will increase, requiring that governments intervene to finance the difference. In addition, unemployment insurance is rare in MENA countries, which makes many middle-class workers risk-averse regarding their careers and compounds the reliance on publicsector jobs.

Unemployment insurance is rare in MENA countries, which compounds the reliance on public-sector jobs.

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Policy Recommendations: Social Protection
This concern for social protection among the middle class will not go away without strong government action. Social Insurance To strengthen pension systems, governments must introduce reforms that can better align pension assets with liabilities regardless of changing demographics. This often involves establishing multiple pension “tiers”— for example, one baseline level of guaranteed retirement income (typically through a public defined-benefit system), which is supplemented by additional benefits from privately administered funds (such as definedcontribution and voluntary defined-contribution systems). These tiers allow contributors to transfer part of their contributions to individual accounts that are linked to market returns, diversifying the sources of financing and types of investments. Such a system also provides individuals with a savings vehicle to improve post-retirement income above the government-guaranteed minimum. To reduce the principal economic risks from changing jobs and taking positions in the private sector, governments will need to institutionalize more widespread unemployment coverage. This insurance should be designed as a temporary protection rather than a long-term source of income; however, MENA countries can customize the length, eligibility, and design features based on their national objectives and in line with their labor market policies. Social Safety Nets MENA countries could make significant gains in providing social safety nets if they viewed such efforts in an integrated way. This involves greater coordination between the three main levels of aid: formal entities (such as government ministries and agencies tasked with distributing funds and services); semiformal organizations such as NGOs and other communitybased groups; and informal providers such as neighborhoods and extended family networks. All three levels play a key role; however, policymakers have sway over only the first two. Accordingly, they should strengthen formal provisions by developing and funding a set of active services/programs that help vulnerable segments of the population. MENA countries must also ensure that semiformal organizations such as NGOs complement such planned investments, rather than compete with them. Government institutions can provide a critical boost to early-stage semiformal entities, either in the form of expertise, financial assistance, or complementary programming. Semiformal entities, in turn, engage the community and help develop ideas and insights for designing and implementing new formal programs.

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CULTURAL CONSIDERATIONS

Survey responses regarding middleclass culture in the Middle East fall into four principal categories: trust in public institutions, the evolving role of women in the region, entertainment preferences, and the dreams and aspirations of the middle class. Trust in Public Institutions Opinions on the credibility of the media differ by country. In Egypt,

trust is low, and fewer than half of middle-class respondents feel they can rely on media content to be accurate. Interestingly, there is little difference regarding local and international media among survey results, although the local press is typically seen as less credible. Middle-class Moroccans have a similar opinion of their own media landscape, and express greater confidence in international outlets (which are trusted by nearly 60 percent of respondents). In the Middle East, trust in government is low. For example, less than 30 percent of the middle class rate the government well on key trust attributes, such as disclosing adequate

and accurate information, fighting corruption, and having a fair and open court system. This figure is below 10 percent in Morocco, and less than 20 percent trust in the court system. Despite this limited confidence in the way their countries are run, a majority of respondents (82 percent) still generally believe that they have the opportunity to shape the future; 69 percent agree that their countries are fundamentally safe. This feeling of security may be a function of the Arab Spring and some of the reforms that governments have initiated since then (see Exhibit 10).

Exhibit 10 Confidence in Public Institutions Is Low

PERCEPTIONS ABOUT GOVERNMENT AGENCIES

Government and the public sector publish adequate information in their press releases Government and the public sector publish accurate information in their press releases I can trust that the government and the public sector work transparently I can trust that the government and the public sector are not corrupt People have the opportunity to design the country’s future The court system is trustworthy

2% 25% 3% 20% 5% 21% 4% 23% 45% 28% 50% 25% 53% 24% 48% 25%

28%

54%

11% 7% Completely disagree

27%

49%

18%

6%

Disagree Agree

People can feel safe in this country 0%

23% 25%

46% 50%

20% 75%

11% 100%

Completely agree

Notes: Questions about the government and public sector are sensitive. In Morocco, 134 respondents refused to answer. Numbers displayed may not add up to 100% due to rounding. Source: Booz & Company Ideation Center Middle Class Survey

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Policy Recommendations: Trust in Public Institutions
If there is one lesson from the Arab Spring, it is that people of the Middle East yearn for public accountability. To meet citizens’ aspirations and win their trust in government institutions, new and more transparent processes are sorely needed. For example, government organizations can leverage technology in an effort to reduce corruption and promote accountability, through systems that track and report progress on public programs.

Women’s Rights A significant indicator of cultural progression within a society is the extent to which gender equality is evolving. Tradition and religion are often key influencers. Given the Middle East’s rich history, tempered with strong traditional values, the role of women as homemakers has remained fairly consistent for centuries. Progressive observers might speculate that women in the Middle East are frustrated by the reality of this role and expectations to keep the status quo. However, this does not appear to be true of the middle classes, where attitudes call for choice rather than forced change. In Arab countries in general, and the countries surveyed in particular, women’s rights have improved in education, the job market, and appointments to government offices. However, these changes have been slow in coming (see Exhibit 11), partly because of historical practices and traditions but

also because of substandard education and cultural development regarding women’s issues. Around 80 percent of the survey respondents believe that women should be limited to housekeeping and child-care roles, and this number rises as high as 97 percent in Saudi Arabia. Interestingly, this perception is consistent between both men and women. But it is worth noting that the middle classes we sampled are primarily traditional families, in which women are already in a housekeeping and child-care role. Although this view is also held by a majority (59 percent) of younger men ages 15 to 24, especially in more conservative countries like those of the GCC, it stands in stark contrast to younger women of the same age. In a recent Ideation Center survey of youth in GCC countries, only 22 percent of young women agree with such traditional and limited roles for themselves.19

Exhibit 11 Women’s Rights Have Not Improved Recently

SOCIAL AND CULTURAL RIGHTS 2.9 2.6 2.4 2.9

ECONOMIC RIGHTS AND EQUAL OPPORTUNITY 2.9 2.7

2.8

2.8

1.6

1.6 1.4

1.7

Morocco Saudi Arabia Egypt 2004 2009 2004 2009

Note: Country ratings are based on a scale from 1 to 5, with 1 representing the lowest and 5 the highest level of freedom women have to exercise their rights. The ratings are based on a checklist of questions for each category conducted in a survey. Each question from the checklist was given a raw score from 1 to 5 and the total raw scores from each category of questions were calculated and averaged to reflect the final ratings. Source: Sanja Kelly and Julia Breslin, eds., Women’s Rights in the Middle East and North Africa: Progress Amid Resistance, Freedom House and Rowman & Littlefield, 2010; Booz & Company Ideation Center analysis

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Equally telling, the survey respondents believe that the future holds a wider range of opportunities for women in the economy and civil society—with an increasing range of professional career options—compared to the past. Some 80 percent say that women should have a career and professional advancement if they want to. In other words, women should have the right to choose their path. In reality, of course, job opportunities may not be so abundant, nor yield a sufficient net gain in impact, especially when factoring in the cost of child care. For example, in many Arab countries there are no public schools for kindergarten, and neither private nor public support for working women with children. This may simply mean that the default option—i.e., being a homemaker—will prevail. But the progression of attitudes regarding women is encouraging. Even among Saudi middle-class men, traditionally an extremely conservative section of the population, 94 percent agree that women should have a choice in determining their careers.

Policy Recommendations: Women’s Rights
Women can serve a central function in improving economic growth and raising overall living standards. Accordingly, it is critical that governments work to increase awareness about the important role that women can play in society, while also maintaining cultural and religious beliefs. To that end, national policies must be geared toward providing women with wider socioeconomic possibilities, such as job opportunities across economic sectors, and incentives to apply in fields that traditionally were unavailable to women, such as engineering. In more conservative societies like those in the GCC, governments can leverage ICT or modified business models to create opportunities for women to work from home or in a women-only center, allowing them the privacy they need while providing the right tools to get the job done. Governments can also actively recruit more women to leadership and government positions, creating role models for future generations.

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Entertainment Preferences The cultural values of a society will also shape how people spend their time outside of work. The middle classes, which by definition have sufficient time and money for leisure pursuits, have developed some distinct habits. Many of these derive from family relations, which favor social pursuits rather than individual activities. Among survey respondents, visiting shopping malls and going out to

restaurants are at the top of the social agenda, with more than twothirds engaging in these activities on a regular basis. Amusement and theme parks are also frequent options (see Exhibit 12). In Saudi Arabia, for example, shopping is clearly the prime leisure activity among the middle classes, with 94 percent claiming they visit a shopping mall regularly. In Egypt, cinema is a popular option; this is in stark contrast to Saudi Arabia, where public cinemas are illegal. At

the same time, other entertainment options that promote information and education, such as museums, do not feature heavily in the entertainment profile of the middle classes in the MENA region. Indeed, a majority of respondents indicated that such forms of entertainment are simply not widely available in their respective countries. To many Westerners, these forms of entertainment may seem superficial and limiting. Yet surprisingly, middle-class

Exhibit 12 Shopping Malls, Restaurants, and Amusement Parks Feature Heavily in Middle-Class Entertainment

WHICH OF THE FOLLOWING ENTERTAINMENT OPTIONS ARE AVAILABLE TO YOU?

Egypt Amusement/Theme Parks Cinema Live Events Shopping Malls 61% 58% 11% 36% 48% 32% 37% 54% 30% 22% 8% 5%

Saudi Arabia 84% 100% 19% 21% 94% 16% 24% 100% 10% 6% 4% 83% 90% 50% 75% 100% 15% 2% 60% 60% 6% 15% 1%

Morocco 51% 19% 8% 47% 69% 4% 40% 10% 66% 72% 8% 15% 0% 25% 77% 50% 75% 100% 60% 36% 13% 21% 46% 28% 57% 24% 24% 4% Not available Is available, but not visited Visit 4%

Museums 16% 30% 1% Pubs/Nightclubs 24% Restaurants Other 57% 5% 3%

54% 74% 33% 91% 50% 75% 100%

0%

25%

0%

25%

Note: Numbers displayed may not add up to 100% due to rounding. Source: Booz & Company Ideation Center Middle Class Survey

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respondents report overall contentment with their entertainment options. Around 50 percent claim to be satisfied, and in Saudi Arabia that number rises to 70 percent, with the highest rating among women. One explanation for this disparity is that people cannot miss something they have never experienced. Many of the MENA middle classes have not yet spent enough time outside of their country to develop an appetite for a wider range of entertain-

ment options. Thus, the local options are seemingly sufficient. In addition, there is a strong sense that simply staying at home and spending time with the family is entertainment in itself. As such, television features heavily on family agendas. About 95 percent of the middle classes in the Middle East claim to watch TV every day as entertainment—the majority of which is a mix of local and interna-

tional content (see Exhibit 13). This consumption pattern is much higher than other media: just under half consume print media daily, and fewer than one-third either listen to the radio or use the Internet daily, despite growing access to high-speed Internet. Middle classes favor local press and radio over international sources, and see print media in particular as a source of information, not just entertainment.

Exhibit 13 TV Is the Most Popular Form of Media Among the Middle Class

MEDIA CONSUMPTION

Frequency of Usage 4% 3% Print Media TV Radio Internet Sites Internet Blogs/ Social Media 0% 31% 29% 23% 44% 20% 11% 95% 10% 16% 12% 8% 14% 11% 7% 13% 12% 40% 5% 39% 60% 80% 100% 17% 1% 1% 3% 5% 26% 5% 33%

Origin of Media 1 4% 61% 7% 10% 54% 6% 6% 88% 6% 7% 0% 20% 40% 87% 60% 80% 100% 83% 3% 43% 35%

Purpose of Consumption1 6% 40% 4% 8% 16% 4% 17% 6% 15% 0% 20% 40% 80% 60% 80% 100% 79% 19% 88% 65% 53%

20%

Once a week Several times a week Every day

Never Once a month or less Several times per month

Both International Local

Both Information/Lastest news Entertainment

Only users of the respective types of media were asked the origin of media and purpose of consumption. Note: Numbers displayed may not add up to 100% due to rounding. Source: Booz & Company Ideation Center Middle Class Survey
1

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Policy Recommendations: Entertainment Preferences
Clearly, citizens are free to enjoy their leisure time as they see fit. However, MENA governments can take steps to help create a culture of learning as entertainment in the region. Learning need not occur only at school: A cultural and scientific environment—with museums, theaters, and science competitions—can stimulate creativity among all classes. Therefore, MENA governments should make the arts and culture an integral part of school curricula in all levels of pre-tertiary education. Governments can also facilitate school trips to national museums and archeological sites, as well as leverage the Internet to introduce the arts and culture to the region’s youngest children. Furthermore, given the increasing levels of Internet use by the region’s middle class—close to 30 percent go online daily—governments and businesses can tap into this medium to deliver more information. This is particularly pertinent for Arabic content, which is still under-represented on the Internet. Accordingly, policymakers can create subsidies and grants to fund the creation of digital content that has value for middle-class residents. At the same time, the MENA region’s middle classes need to be encouraged to become physically fit, in order to reduce the prevalence of lifestyle diseases and the concurrent burden of rising healthcare costs. Clearly, the first step is to educate the population—especially the young— about the benefits of physical exercise. Governments should also promote different types of sports through intra-mural, national, and regional competition, and ensure that infrastructure development promotes physical activity such as walking and jogging. In short, physical activity should be promoted at various local, national, and regional levels across MENA countries, making physical exercise a regional characteristic.

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Dreams and Aspirations Somewhat less quantifiable, though no less important, is the aspirational component of middle-class life, particularly the sense of relative progress among members of this group toward achieving their hopes and aspirations. If the population feels that there is no hope of reaching their goals—or if their concerns become too great—they will look beyond their own country in search of better prospects. Indeed providing hope for the middle class, and allaying their most immediate worries, provides a bedrock for stability and development. Governments must not forget this element.

As it happens, the dreams of the middle class in MENA countries are decidedly practical and modest. Principally, they want a safe and secure country, a strong and developing economy, and stability. Beyond that, they dream of excellent educational opportunities (for themselves and their children) and enjoying a happy life with family. Material dreams, such as home ownership and personal financial stability, are on this list as well, but far fewer people focus on them (see Exhibit 14). Nearly a third of overall respondents define success as having a secure job and achieving ambitions in a “quiet

atmosphere” (i.e., a stable environment). In Saudi Arabia, a quarter of the middle class associates success with having a unique or advanced education level, while in Egypt a similar proportion simply defines success as having achieved one’s goals in life. Furthermore, the lack of material ambitions is stark; in all three countries, less than 10 percent of respondents defined success as having a job with a high salary. Respondents understand what it takes to be successful, however: about 38 percent rate working hard as most important, more than any other factor, followed by a strong education and having a sense of ambition.

Exhibit 14 Middle-Class Dreams and Aspirations, in Their Own Words
WHAT DO YOU DREAM OF (FOR YOURSELF, YOUR FAMILY, YOUR COUNTRY)?

To keep my country safe and secure High economic status and development for my country Stable life Education to be excellent/ prestigious/for free Enjoying a happy life with my family Ownership of real estate Transparency of government and news Better medical care To achieve complete stability for my country 0% 19% 17% 15% 11% 9% 9% 7% 25%

37% 31%

Having a stable job Stability regarding my personal finances To educate my children in a university (local or abroad) Education that offers a promising future for my children A promising future To achieve my dreams and my family’s dreams To get a job with a high salary To stop the increase of food prices To increase family income

7% 7% 6% 5% 5% 5% 5% 5% 5% 0% 25% 50% 75% 100%

50%

75%

100%

Source: Booz & Company Ideation Center Middle Class Survey

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Although these are all positive indications, other results in this area are less reassuring. Middle-class residents also realize that their own efforts must be matched by sufficient opportunities to succeed, and in this regard, regional confidence is low. In Egypt and Morocco, only around a quarter of respondents believe that their country provides opportunities to those who seek success. Even fewer people believe that the government and public sector offer these opportunities. In economies that have a high proportion of government workers, this is cause for concern, as it reflects overall perceptions of the public sector as a whole. Conversely in Saudi Arabia, confidence is quite high,

with 90 percent of the middle class believing that the country affords opportunities for success, and that the government is a strong provider of such opportunities. If the dreams of the middle classes are practical, the same can be said for their concerns. In Egypt and Morocco, the dominant concern, expressed by roughly over one-third of the middle class, is terrorism or extremism. Political instability of the region as a whole is also a primary worry, with the status of the global economy coming in third. In Saudi Arabia, regional political instability is a concern, but beyond that, middle-class worries are closely linked to achieving success.

For example, Saudis are concerned with having a good education and enjoying a happy life with family, their own definition of the elements that constitute a successful life. In other words, political stability at a national level frees them to pursue their aspirations. Ultimately, however, the dreams and concerns of the middle class converge upon two simple questions, which represent the ultimate litmus test of contentment: Do residents in this group feel their country is the right place for them to succeed? And would they consider emigrating in search of better opportunities?

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In Morocco, the results are most clear: 57 percent believe that it is the right place for them to be successful, whereas 43 percent would consider emigrating. In Saudi Arabia, by contrast, although 91 percent believe the country affords the best opportunity to succeed, 50 percent would consider emigrating. The results among Egyptians are not as consistent either; only half (53 percent) believe Egypt

is the right place for them to stay, yet only 27 percent would consider emigrating. This may hint at a strong sense of nationalistic pride and a refusal to abandon a once greatly developed nation. It might also reflect a desire among the Egyptian middle class to help restore the country to prosperity. Overall, however, respondents clearly perceive that opportunities in the

region are limited, and most believe that governments could do more to improve conditions for the middle class (see Exhibit 15). The fact that a considerable percentage of the middle class harbors serious thoughts about emigrating for better opportunities elsewhere should give policymakers some pause.

Exhibit 15 The Middle Class Perceive That Their Opportunities Are Limited

AVAILABILITY OF OPPORTUNITIES

In my country, opportunities are provided to those who seek success

16%

29%

35%

20%

Government and the public sector offer support to those who want to succeed in life

14%

26%

38%

22%

My country is the right place for me to be successful

28%

37%

24%

11%

Completely disagree I would consider emigrating from my country if the opportunities abroad are better 16% 22% 33% 29% Disagree Agree Completely agree 0%
Source: Booz & Company Ideation Center Middle Class Survey

25%

50%

75%

100%

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Policy Recommendations: Dreams and Aspirations
This is perhaps the most fundamental area for MENA governments to address, and it requires two elements: comprehensive reforms, and a long-term vision for the region that provides the middle class with incentives to stay. Reform Socioeconomic Institutions In order to ensure future equality and stability, MENA leaders must not only establish economic growth policies but complement those with strong institutional reforms. Specifically, initiatives that can help create vibrant free markets—such as laws and enforcement mechanisms—will provide opportunities for small-business owners, entrepreneurs, and investors to succeed in their home countries. Adopt Visionary Policies In addition, MENA leaders need to go beyond these reforms and develop a clear social and economic vision for the future, which they must present to residents to persuade them that their country—and their individual lives—are moving in the right direction. Economic integration is a key part of this. Countries that have a vision of their future and work toward achieving that vision will not only create economic opportunities but also become social and cultural magnets, across the region and the world.

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CONCLUSION

There has never been a more critical time for policymakers in the Middle East to focus on empowering the region’s sizable—and politically significant—middle class. Recent protests by masses from all walks of life across Arab countries point to a common challenge: There is a dire need for change, via a set of economic, social, and political policies aimed at developing a large, dynamic, and sustainable middle class. Progress in the region will always be limited if half the population do not feel they have sufficient opportunities to succeed. In tailoring these policies, governments cannot focus solely on economic

issues. They must keep in mind the inextricable links between cultural advancements and economic progress. For example, when trust in government runs out, social disorder can ensue. Leaders should also ensure that any changes in the region create expanding opportunities for all residents, including women and youth. The strategic agenda most likely to succeed and build a healthy nation is one that balances development across economic, social, and cultural parameters—and meets the expectations of the middle class in order to earn their trust.

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Endnotes
1

About the Authors Richard Shediac is a senior partner with Booz & Company in Abu Dhabi. He leads the firm’s public-sector activities in the Middle East region, with a focus on public policy, socioeconomic development, and organizational effectiveness. Samer Bohsali is a partner with Booz & Company in Beirut. He specializes in public policy development, strategic planning, and instructional restructuring for key governments in the Gulf. Hatem Samman is the director of the Booz & Company Ideation Center. He is based in Dubai. As a lead economist, he has written extensively on policy issues across diverse economic sectors.

This includes those who access the Internet daily and those who access it once a week.

For more on the role of the middle class in supporting economic governance see Nancy Birdsall, “The Macroeconomic Foundations of Inclusive Middle-Class Growth.” In The Poorest and Hungry, International Food Policy Research Institute, 2009.
2

The number of middle-class individuals (measured by 75 percent to 150 percent of median income) as a percent of total population is estimated based on 2010 Euromonitor figures of disposable household income, assuming a normal distribution in each income category. These figures do not reflect those who consider themselves middle class but do not fall in the specified income category.
3

Matthias Doepke and Fabrizio Zilibotti, “Occupational Choice and the Spirit of Capitalism,” NBER Working Paper No. 12917, National Bureau of Economic Research, February 2007.
4

This feeling of dependency is also apparent from answers expressing the expectation that governments will take care of those who are unable to afford healthcare.
5

“Accelerating Entrepreneurship in the Arab World,” a World Economic Forum report in collaboration with Booz & Company, October 2011.
6

As mentioned earlier, of those who are not satisfied with their standard of living, 53 percent cited inflation as the main reason.
7

See “Enabling Shelter Strategies: Review of Experience from Two Decades of Implementation,” UN-HABITAT, 2006; and “MENA Missing Out on Global Capital Flows,” Real Estate Investor Sentiment Survey—Institutional Edition, Jones Lang LaSalle, June 2011.
8

Saudi Arabia’s Ninth Development Plan, Ministry of Economy and Planning: http://www.mep.gov.sa; accessed September 26, 2011.
9

Saudi Arabia is an exception; it is one of the leading MENA countries in doing business and currently ranks 12th among 183 economies in the World Bank’s Ease of Doing Business report.
10

For a more detailed account of supporting entrepreneurship in the MENA region, see “Accelerating Entrepreneurship in the Arab World,” a World Economic Forum report in collaboration with Booz & Company, October 2011.
11

A recent executive opinion survey (“Global Competitiveness Report 2008–2009,” WEF) shows that Arab countries are perceived to have low human capital capabilities in R&D as a result of the relatively low number of science and engineering graduates.
12

“Human Resources Development Fund—The Guide Book,” Saudi Arabia Human Resources Development Fund: http://www.hrdf.org.sa/downloads/GuideBookEng.pdf
13

Karim Sabbagh and Mona AlMunajjed, “Youth in GCC Countries: Meeting the Challenge,” Booz & Company, 2011.
14

This is also a result of an inherent bias in the job market in favor of Western-educated graduates who are paid higher wages because they are perceived to be better educated.
15

Chadi N. Moujaes, Leila Hoteit, and Jussi Hiltunen, “A Decade of Opportunity: The Coming Expansion of the Private-school Market in the GCC,” Booz & Company, 2011.
16

Nabih Maroun, Hatem Samman, Chadi N. Moujaes, and Rabih Abouchakra, “ How to Succeed at Education Reform: The Case for Saudi Arabia and the Broader GCC Region,” Booz & Company, 2008.
17

Detlef Schwarting, Jad Bitar, Yash Arya, and Thomas Pfeiffer, “The Transformative Hospital Supply Chain: Balancing Costs with Quality,” Booz & Company, 2011.
18

Karim Sabbagh and Mona AlMunajjed, “Youth in GCC Countries: Meeting the Challenge,” Booz & Company, 2011.
19

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