The shops in Cairo's bazaars, once packed with tourists, are often deserted.
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Now the Middle East must jump into the globalization game. But playing catch-up won't be easy. The region's costs are too high compared with those of large, poor Asian countries like Bangladesh, and its workers lack the engineering talent and other skills to attract more high-tech manufacturing. Intrusive, inefficient bureaucracies, weak legal systems and feeble infrastructure make many Arab nations less appealing to foreign investors than other emerging economies. The World Economic Forum's most recent competitiveness survey ranks Egypt, Syria and Libya behind Rwanda, Guatemala and Kazakhstan.
Arab countries do have some advantages. Tunisia has been able to woo factories from European manufacturers because of its proximity and lower costs. Egypt could attract investors interested in tapping its large consumer market of 84.5 million people. The Arab states that opened to the world have shown that foreign companies, if made welcome, will part with their money. Dubai, in the United Arab Emirates, for example, has combined regulatory reform, top-notch infrastructure and religious tolerance to build the region's primary finance and transport hub out of little more than sand dunes.
Closing the Gap
Competing on the world stage, however, will require intensive reforms. The biggest problem is inadequate education. Inflexible, exam-based school systems stifle creativity and channel top students into a handful of fields, like medicine, while fields like teaching are starved of talent. The quality of public classroom education is so miserable that in the case of Egypt, for instance, parents are forced to spend extra money on private tutoring, something the poor can't afford. Vocational training is also lacking. The result is a skills gap: a chasm between the qualifications of graduates and what employers actually require. The IFC study discovered that executives in the region believe only a third of new hires arrive prepared for the workplace. Many are missing everything from language skills to the ability to think critically. "Education has been going in an avenue that has nothing to do with the job market," says Moataz Al Alfi, chairman of Cairo's Al Alfi Foundation, which supports educational programs. That adds tremendously to the costs of doing business in the Middle East. OMS, an IT-services firm based in Cairo, invests about $12,000 per new employee--not pocket change for a start-up--and places every hire in a four-month in-house training program. "Egypt is not producing the minimum level of required skilled people," says OMS co-founder Ahmed Kabeel.