Rethinking Inequality in Arab States

Rethinking Inequality in Arab States Khalid Abu-Ismail, Paul Makdissi and Oussama Safa Special Session Rethinking Inequality in the Arab States, Beirut, April 2019

AARC in indicator (%) 1. Declining Outcome Inequalities in most basic Health and Education Indicators Figure 1 : Average annual rate of change (AARC) for selected indicators and their respective wealth ratio MRT YEM 5 COM SDN MAR MRT JOR MAR COM YEM PSE 3 SDN IRQ COM YEM MRT MAR IRQ JOR LBY MRT IRQ SDN JOR 1 SDN PSE JOR JOR IRQ PSE PSE JOR JOR MRT -10-8 -6-4 -2 PSE JOR LBY -1 0 COM 2 4 PSE LBY MAR LBY Less Inequality -3 MRT YEM 11 9 7 COM Higher Achievement COM IRQ AARC in ratio of wealth quintiles (%) Stunting Average years of education (Age 25+) Completion 6 years (Age 25+) Completion 12 years (Age 25+) Skilled attendance at birth Infant Mortality Rate Improved sanitation Safe drinking water Source: ESCWA s calculations based on household surveys Note that for all indicators, we set -10 and 10% as lower and upper bounds for the average annual rate of changes (AARC) in the ratio of richest to poorest quintiles. Generally, AARC values for all countries fall within this range, except for the following cases. Palestine and Sudan for safe drinking water. Mauritania and Morocco for improved sanitation. All indicators are measured as achievements ; so, the wealth ratio measures richest to poorest quintile. Overall, Arab countries have had human capital gains while also reducing inequality. -5 LBY

AARC life expectancy index(%) AARC education index (%) 2. Supporting Evidence from Human Development Report Figure 2 : Average annual rate of change (AARC) in life expectancy and education indices and their Atkinson measures (2010-2017) Life expectancy Education 4.0 4 3.0 2.0 IRQ* MRT SAU SDN MAR 1.0 DZA LBN* YEM COM OMN* BHR TUN JOR KWT LBY UAE QAT 0.0 PSE* -25-20 -15-10 -5 0 SYR 5 10 15 20 25-1.0 3 MRT 2 MAR* IRQ* 1 COM LBN* JOR TUN PSE* 0-25 -20-15 -10-5 0 5 10 15 20 25-1 -2.0-2 -3.0-3 -4.0-4 SYR* -5.0 AARC inequality in life expectancy index(%) -5 AARC inequality in education index(%) Source: Based on Human Development Indices and Indicators: 2018 Statistical Update, UNDP. Note that for life expectancy, in Lebanon, Iraq, Oman and Palestine, the baseline year is 2011 due to data unavailability in 2010. For education, in Lebanon, Iraq and Palestine, the baseline years are 2011, 2012 and 2013 respectively due to data unavailability in 2010. For Morocco and Syria, the end-line year is 2015 and 2016 due to data unavailability in 2017. Consistent with our findings, the majority of countries mark improvements in human capital and reduction in inequality. Inequality reduction in health dimension is much higher than that in education.

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 GNI per capita ($ 2011 PPP) AARC income index (%) 3. Human capital gains set against stagnating income and rising income inequalities Figure 3 : GNI per capita ($2011 PPP) over 1990-2017 70000 Figure 4 : Average annual rate of change (AARC) in income index (i.e. normalized GNI per capita, $ 2011 PPP) and its Atkinson measures 4 60000 3 50000 40000 30000 20000 1 IRQ* MAR* MRT PSE* 0 TUN -25-20 -15-10 -5 0 COM 5 10 15-1 LBN* JOR 2-2 10000-3 0-4 SYR Arab Very High Arab High Arab Medium Arab Low Arab Source: Author s calculations based on HDI data -5-6 YEM AARC inequality in income index(%) Source: Based on Human Development Indices and Indicators: 2018 Statistical Update, UNDP. Note that for Lebanon, Iraq and Palestine, the baseline years are 2011 and 2013 respectively due to data unavailability in 2010. For Morocco and Syria, the end-line year is 2015 and 2016 due to data unavailability in 2017. Sluggish progress in GNI per capita levels, especially relative to the education and health dimensions. Several countries have increasing income inequality.

$/year 4. Increases in GNI per capita not transmitted to households in middle-income countries and widening gaps Figure 4 : GNI per capita levels versus household income (annual) 18000 16000 14000 12000 10000 8000 6000 4000 2000 0 2002 2010 2015 2002 2010 2015 2002 2010 2015 2002 2010 2015 2002 2010 2015 2002 2010 2015 2002 2010 2015 2002 2010 2015 2002 2010 2015 2002 2010 2015 2002 2010 2015 2002 2010 2015 Algeria Lebanon Tunisia Jordan Iraq Egypt Morocco Palestine Sudan Mauritania Syria Yemen Mean HH income($ppp/year) GNI per capita ( $2011 PPP) Source: Povcal for household income levels and Human Development Data for GNI per capita levels High and middle human development countries have wide gaps between GNI per capita and actual household incomes that persisted over time. The narrower gap in low development and conflict countries reflect the overall poor socioeconomic conditions.

5. Economic Policy Drivers of Inequality: Rents and Liberalization 1. Lack of structural transformation: over the period 1990-2012, growth was concentrated in low value added service sectors (ESCWA,2014). High levels of informality: According to ILO (2018), 68.6% of employment is informal in the Arab states. Inequality in factor shares: Arab firms tend to have higher capital shares relative to wages (ESCWA-ILO, forthcoming 2019). High levels of unemployment and discouraged workers (partially reflected in decreasing labor force participation rates over time), especially among the youth and females. Declining labor productivity growth. 2. Lack of progressive fiscal policies Although social expenditure is relatively high in the Arab region, most of the subsidies, especially fuel subsidies, were actually regressive. Arab governments rely mostly on regressive indirect taxation (e.g. VAT) for fiscal revenues. 3. Fiscal capacities for development expenditures are increasingly constrained, especially with high debt obligations and low oil prices.

G3 inedx 6. Region also has very poor governance (closely associated with conflict) Figure 5 : GNI per capita ($2011 PPP) and Governance index(g3) in 2017 Figure 6 : Percentage change in G3 and political stability indices, 2000-2017 1.4 1.2 1 0.8 JOR TUN 0.6 MAR OMN PSE 0.4 LBN MRT DZA SDN DZA 20 COM MAR0-100 -80-60 UAE PSE -40-20 0 20 40 60 80 JOR KWT OMN -20 QAT SAU BHR MRT UAE LEB IRQ -40 QAT TUN BHR KWT -60 SAU LBY 40 Change in political stability index(%) IRQ 0.2 SDN COM SYR LBY 0 YEM 0 20000 40000 60000 80000 100000 120000 140000 GNI per capita ($ 2011 PPP) YEM SYR -80-100 Change in governance index: G3 (%) Source: World Governance Indicators (WGI) and Human Development Indices and Indicators: 2018 Statistical Update, UNDP. Source: Based on World Governance Indicators (WGI). Oil- rich countries have high GNI per capita and relatively low governance levels in line with the rentier social contract.

Key Message Poverty and Inequality Reduction Peace and Stability Enhanced Governance and Institutions Human Capital Development (i.e. Health and Education) Decent and Productive Employment Acquiring skills demanded in the labor market, especially by private sector. Increase tax base and fiscal capacity for social expenditures. Inclusive Economic Growth This cycle is not functioning properly in the Arab region => Impaired links weaken its functionality

ERF-ESCWA collaboration The Economic Research Forum (ERF) is a regional network dedicated to promoting high quality economic research to contribute to sustainable development in the Arab countries, Iran and Turkey. Currently, there are 311 affiliates: 179 Research Fellows, 66 Research Associates, 42 Senior Associates and 24 Policy Affiliates. In 2018, ERF and ESCWA agreed to prepare a joint report on inequality in the Arab region. ERF s researchers contributed in providing the analysis of the inequality of opportunities component in educational attainment, health, with a special focus on the gender contribution to these inequalities.

Ever Attended Complete Primary Incomplete Secondary Complete Secondary Above Secondary Ever Attended Complete Primary Incomplete Secondary Complete Secondary Above Secondary Inequality of opportunity in education: An example 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Palestine 2006 2014 Gender Father's Education Mother's Education Area of Residence Wealth Source: Author s calculation based on household surveys

Inequality of opportunity in education: Gender aspect 50.19 38.28 44 27.75 28.51 17.78 7.72 6.03 13.55 0.63 5.20 11.65 10.7610.5 9.18 8.16 1.87 0.43 ALGERIA 2012 COMOROS 2012 PT 2014 IRAQ 2011 JORDAN 2012 LIBYA 2014 PALESTINE 2014 SUDAN 2014 TUNISIA 2011 Source: Author s calculation based on household surveys Primary completion rate Secondary completion rate

Inequality of opportunity in health outcomes and services: An example Source: Author s calculation based on household surveys

ALGERIA COMOROS PT IRAQ JORDAN LIBYA MAURITANIA MOROCCO PALESTINE SUDAN TUNISIA YEMEN Inequality of opportunity in stunting: Gender aspect 38.85 17.99 16.8 14.61 16.66 0.1 6.16 9.65 4.04 0.56 0.3 4.3 2.14 3.14 2.89 3.4 6.36 3.79 4.29 0.66 0.03 Baseline Endline Source: Author s calculation based on household surveys

Gender Inequality: Where should we look? Arab countries average World average Yemen Iraq Syria Saudi Arabia Lebanon Oman Jordan Morocco Mauritania Egypt Bahrain Algeria Qatar Kuwait United Arab Emirates Tunisia 0 0.2 0.4 0.6 0.8 1 1.2 Political Empowerment Health and Survival Educational attainment Economic participation and opportunity Source: Global Gender Gap Report

Thank you! Special Session Rethinking Inequality in the Arab States, Beirut, April 2019