The Arab World’s Soaring Youth Unemployment Rate Requires Immediate Action by Large Employers
Booz & Company in collaboration with the World Economic Forum and Saudi Basic Industries Corporation (SABIC) examine the pivotal role of large employers in decreasing the Arab World’s youth unemployment rate – now at an average of 24.9%.
In the coming decade, the Arab World will need to create a staggering 75 million jobs – an increase of 40 % more than currently exist – to keep pace with the young and fast-growing population set to enter the workforce. However, with the substantial jobs-skills mismatch currently plaguing the region, this much-needed rise in employment may not be achievable. Management consulting firm Booz & Company along with the World Economic Forum and Saudi Basic Industries Corporation (SABIC) have identified various ways in which large employers can significantly bridge this widening skills gap, by adequately leveraging their “ecosystem” – which refers to the collaboration network that large employers nurture with strategic partners, clients, suppliers, educational bodies and government institutions.
The Arab World’s Distinctive Employment Challenges
The region’s recent political uprisings require an imminent and urgent response to employment challenges as the revolutions which unravelled have demonstrated that widespread economic inequality can stir social turmoil. These transitions have, effectively, accelerated changes in public sentiment, raised levels of engagement and heightened expectations region-wide. For such reasons, innovative thinking and responses, framed within a shifting socio-political context are quickly needed to dent unemployment in this part of the world.
In addition to this, more than half of the region’s population is under 25 years of age – a high proportion which generates significant pressure on job creation. “These young people complete their formal education and then seek to enter the labour force, which poses the challenge of providing them with meaningful jobs so as to truly reap the benefits of this economic potential,” said Chadi Moujaes, partner with Booz & Company.
In fact, according to World Bank data, the six GCC states (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates) have some of the highest youth unemployment rates in the world, as high as 40% among certain age groups.
A key factor behind this level of unemployment is the mismatch between the skills garnered through educational systems and providers and those actually required by the private sector. Enterprises in the region regularly identify a shortage of appropriate skills as the greatest impediment to hiring employees: The World Economic Forum’s “Global Competitiveness Survey” identified “inadequately-educated force” as the fourth most problematic factor in the Arab World, after access to financing, restrictive labour regulations and inefficient government bureaucracy.
It is important to note that “inadequately educated” does not signify “uneducated”. Indeed, unemployment across the Arab World is also high amongst the most educated: over 43% of those with tertiary education are unemployed in Saudi Arabia, 22% are unemployed in Morocco and the United Arab Emirates, 14% in Tunisia and over 11% in Algeria. The solution to the youth unemployment challenge in the region is therefore not simply better education. Based on the World Economic Forum and Booz & Company’s study on The Role of Large Employers in Driving Job Creation in the Arab World, the labour force across the Arab World lacks both the job-specific and general employability skills that would allow them to be productive and motivated members of the workforce.
A New Paradigm
While the changes in public sentiment and the level of channels for youth engagement may be relatively new for the region, the employment challenge itself is not. “Governments in the GCC have attempted to alleviate their unemployment crisis in recent years through two main initiatives – mandating quotas for hiring nationals and contributing to the cost of employing them,” explained Samer Bohsali, partner with Booz & Company. “While these policies have had some success, they have not met the objectives that they set out to achieve.”
A new paradigm is needed to tackle the climbing unemployment rate in the Middle East. In this model, potential jobs need to be identified, followed by specifically-tailored training programs designed to deliver the required skills. Key stakeholders in this paradigm include government, business, and academia – all of whom must combine their efforts to align skills with national economic needs, thereby maximizing the impact of the new approach. “It is only by working together in a new paradigm of multi-stakeholder partnership that regional stakeholders can hope to have a significant, positive impact on job creation across the Arab World,” said Moujaes.
The Contribution of Large Employers to Job Creation
It is large employers, rather than governments, that can play an increasingly important role in job creation, by fostering the development of skilled national workforces. These employers – whether state-owned enterprises (SOEs) or private family-owned conglomerates – dominate the national economies and they can, in the short term, best understand what the labour market needs and spearhead a number of job-creation opportunities accordingly. “They have the levers to influence decisions within their organizations as well as within their suppliers, and thus have the ability to develop national talent for the required jobs,” added Bohsali.
Key Imperatives: Those companies must be proactive by expanding upon existing successes and advancing on a number of fronts simultaneously, all the while working with the government as a partner. The initiatives that should be undertaken by large employers include:
- Defining their current and future skills needs based on accurate development forecasts.
- Offering a compelling package of benefits to attract and retain the best talent, in a strategic manner.
- Launching collaborative projects that allow government agencies to support jobs and skills development.
- Coordinating with educational institutions to support skills development.
- Committing to educating and training existing workforces. E.g. From its founding in 1976, SABIC has invested in human resource development: each year, 100 to 1,000 high school graduates enroll in an elaborate training programme abroad and in Saudi Arabia, culminating in on-the-job training.
- Tapping the underutilized pool of female talent by creating hiring and retention programmes to make companies attractive to educated, ambitious female nationals.
- Encouraging their suppliers to create jobs.
- Advocating for their sector, such as through export promotion for other firms within their ecosystem.
Large employers undeniably have the ideas, incentives and resources to catalyse employment growth. With their strong market presence and extensive know-how, they are ideally-placed to implement job creation and skills-development programmes.
Fostering Entrepreneurship: To maximize employment, large employers can also increase the activity of entrepreneurship, which is, for many countries, an important engine of job creation. SOEs, in particular, should become champions of entrepreneurialism and actively nurture its development. Such a top-down approach has, in fact, already begun in some GCC countries: Saudi Aramco, SABIC and Abu Dhabi Basic Industries Corporation (ADBIC) are helping to develop downstream industries by using this method.
Overall, four main types of strategies are available for SOEs and large employers to encourage entrepreneurialism and they include: fostering entrepreneurialism within their own organizations; promoting entrepreneurship among suppliers; encouraging entrepreneurship in downstream industries; and launching philanthropic initiatives to support entrepreneurship.
A New Role for Government
While large employers need to be more proactive and engaged in job creation and skills development, the government also retains a critical role to play. In adopting the new collaborative and multi-stakeholder model, governments need to shift their purpose from a commanding and controlling position to a communicating and convening one. This approach includes:
- Enhancing internal communication to better coordinate policy across their different branches and prioritizing which sectors require immediate attention and which have longer-term needs.
- Using their convening power to assemble stakeholders, facilitate dialogue, set goals and pursue joint solutions.
- Revising labour laws to create a combination of incentives and regulations which stimulate national skills development and increase labour-market flexibility, without undermining basic social protection.
- Taking advantage of their main untapped national resource: women. At present, workforce participation among female nationals is just 35% in Qatar, 30% in Bahrain, 28% in the UAE and 17% in Saudi Arabia.
By acting as a convenor of strategic initiatives, governments can create enabling environments to reduce unemployment.
Education and a Changing Labour Market
Educational systems in the countries of the Arab World are producing a generation of young graduates without the adequate training and skills to contribute productively to the economy. To resolve this pressing matter, businesses and the education sector need to join forces and identify the jobs that present quick employment opportunities by specifying the skills needed and developing the correct training programmes to prepare these young people for these positions.
In order to do so, educational systems can take the following steps:
- Coordinate with industries to translate workforce needs into curricula and scholarship opportunities for students.
- Liaise with the government to produce data that guide economic development policies and job readiness programmes.
- Strengthen technical and vocational training programmes to address the skills needs of the industry.
- Provide or increase opportunities for internships and on-the-job apprenticeship models for young nationals while still in high-school, in training institutes or at university.
Indeed, large companies, in particular SOEs, can play an important role in the process of job creation and growth by adequately leveraging their ecosystem, while the education sector needs to adopt a more practical approach by focusing on immediate priorities, all the while driving long-term systemic reforms.