World Economic Forum's Arab World Competitiveness Report 2005 highlights urgent need to speed up economic reform

The Report, which also ranks and compares a dozen of the region's economies, highlights the enormous challenges that the Arab world currently faces as it struggles to integrate with a rapidly changing and increasingly complex global economy.

While the short-term outlook for the Arab world remains clouded with substantial uncertainties, the Report is primarily concerned with the policy and institutional requirements for sustained economic growth over the medium to long run. With contributions from a team of leading academics and scholars, it reveals why growth in the region has stagnated since the 1980s in spite of some of the highest investment rates in the world. The Report also examines why, despite its distinct natural resource endowments, the region has failed to capture a greater proportion of international trade and capital flows. Noting the implications of exploding population growth in the region, it stresses the need to shift the orientation of economic policies to boost job creation and to develop educational systems that better prepare the population for the needs of the global marketplace.

The Report focuses on the challenges of improving the region's competitiveness at a particularly critical time. To remain viable in the global economy in areas other than the energy sector, Arab countries will need to significantly raise their levels of competitiveness. In particular, they must improve macroeconomic management, institute reforms to enhance the efficiency of public sector institutions and, more generally, the quality of governance, and facilitate the absorption of new technologies.

"There is growing acceptance among prominent leaders in these countries that only reform - and comprehensive economic reform - will enable the region's development agenda to move forward, and to broaden the sources of growth," observes Professor Klaus Schwab, Founder and Executive Chairman of the World Economic Forum. "This Report is intended as a contribution to better understand the problems and challenges that confront the Arab countries."

The Report shows that a handful of Arab countries are already reasonably competitive, providing regional examples to be emulated by other nations in the region. However, the obstacles to growth faced by the great majority of countries must be tackled head on in order to prepare the region for a more prosperous future.

"This Report is a contribution to the debate on the policy requirements for implementing a new vision for the Arab world," notes Augusto Lopez-Claros, Director of the World Economic Forum's Global Competitiveness Programme. "In centuries past, the Arab world was a thriving centre of knowledge, learning and innovation. Its peoples long ago demonstrated their capacity for enlightened, creative engagement with the rest of the world, in ways that left an indelible mark on the course of civilization. A return to that golden age requires a clear comprehension of the problems and challenges which the region faces today, an acceptance of the need for change, and the formulation of viable paths of reform."

The Report also presents the first ever competitiveness ranking among Arab world countries. Twelve Arab countries are included in the ranking: Algeria, Bahrain, Egypt, Jordan, Lebanon, Morocco, Oman, Qatar, Saudi Arabia, Tunisia, United Arab Emirates (UAE) and Yemen.

Qatar is ranked first in the region, followed closely by the UAE and Bahrain. The small Gulf states are thus found to be the most competitive of the countries in the region, with stable macroeconomic environments and institutional reforms providing the background against which governments are engaged in processes of rapid modernization. While Arab countries face many of the same challenges — unusually high levels of unemployment, insufficiently diversified economies unduly dependent on the energy sector and a productive structure dominated by the public sector — the Gulf states show the region has the capacity to shift gears and tackle head on the challenges of effective integration and modernization.