This presentation is based on an article that won best academic paper at the 2012 Arabian Society for Human Resources Management Annual Conference. This presentation traces the evolution of knowledge-based economic development in the Arab World. In pursuing this objective, many countries in the region have made large state-driven human capital investments with the goals of job creation, economic integration, economic diversification, environmental sustainability, and social development. An assessment of the effectiveness of Arab investments in human capital shows marginal progress towards knowledge-based development over the last decade. A disconnect between the skills developed in Arab skills formation systems and those required by private sector employers relegates Arab businesses to contesting lower-skilled, non-knowledge intensive industries which has stalled knowledge-based development in the region.

1. Knowledge-Based Economic
Development as a Unifying Vision in
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2. The Arab Spring has led to renewed emphasis on solving national development
challenges that may provide a basis for regional economic cooperation for KBED
Arab Key questions of future These changes may Evolving national and
Spring state design have present an opportunity regional policies are likely
emerged … for national growth … to stress KBED
• Can new government • Political violence, even if • Economic growth at the
administrations form organized, generally seen national level may provide
political consensus? as severely detrimental to an impetus for integration
economic growth and cooperation towards
• What economic trajectory KBED
can address development • But … Competitive political
challenges? participation and relatively
free elections can actually
increase economic growth Knowledge-
based Economic
Development
Sources: Henry and Springborg 2011, Bodea and Elbadawi 2008
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3. Popular theories suggests intangibles are becoming a more important driver of modern
economic growth in the transition to knowledge-based economies
Knowledge-based
Through public policy and institutions, Economic
governments influence long-run growth Development
Financial and
Intangible capital
other tangible capital
Economic Computerized
Capital markets Infrastructure Capital equipment Innovative property information (programs
Competencies and databases)
Brand equity
R&D (patents, licenses and
Economic growth can be affected by public policies (investments to retain or gain
market share and investment
general know-how) and
mineral exploration
and Institutions concerned with in brand names)
• International trade and openness Organizational capital
Creative property
• Education and training policies (investments in strategic
planning, adaptation,
(innovative/artistic content in
commercial copyrights,
• Domestic and foreign Investment climate organizational structures and
business processes)
licenses and designs)
• Macroeconomic and competitive policy
• Financial markets
• Institutional quality of government Firm-specific human
capital (employee
• Security skills)
• The availability of public services and infrastructure Knowledge Components of KBE
Source: Corrado, Hulten and Sichel (2006)
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4. Knowledge-based economic development emerged as a policy goal in the early 90s due
to the regional commonality of several economic, socio-political, and cultural factors
Regional Drivers Illustrative Regional Development Challenges
1
• Dependence on foreign technologies
• Shortages/difficulty in finding/developing qualified employees
• Low capacity to transfer technologies
• Capital formation has not led to higher value industry or exports
Economic • Low levels of total factor productivity
• Suboptimal environment for business, entrepreneurship, and FDI
• Volatile oil prices leading to regional booms and busts
• Low R&D spending
Knowledge-
2
based Economic
Development • Youth bulge
• Supply of highly educated youth has outpaced job creation
Socio-political • Education systems are not well suited to the needs of KBED
• Political reform has proceeded at varying rates
• Work of international organizations has encouraged KBED
3
• Religious importance of the quest for learning and knowledge
Cultural • Brain drain of prominent academics and scientists
• Perception the region is lagging behind in development
Sources: Al-Ali 1991, Sawhel 2009, Djeflat 2009, Program 2002, Hertog 2010, Program 2003, United Nations Educational 2010, Dhillion and Yousef 2009, Program 2010, Foundation and Program 2009, House
2011, Miller and Holmes 2011
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5. Knowledge-based economic development in the Arab World is closely intertwined with
economic and social development issues
Emerging Thinking on Knowledge-based Empirically Established Links Between Human
Economic Development in the Arab World Capital and Social and Economic Development
Closely intertwined with policies that support Several social and economic benefits are attributed
to higher levels of human capital:
 Economic integration and diversification
 Innovation Social Outcomes
 Technology development
 Entrepreneurship • Higher levels of educational attainment
 Job creation/workforce skills development • Increased health
 Education and training system reform • Efficiency of consumer choices
 Environmental sustainability • Higher levels of savings and charitable giving
 Social development • Social cohesion
 Healthcare reform • Increased self-reliance and econ. independence
 ICT infrastructure development • Reduced Crime
Economic Outcomes
Significant
emphasis on • Growth and competitiveness
human capital • Enabling comparative advantage
• Increased productivity
• Domestic innovation
• Speeding technology adoption
Sources: Powell and Snellman 2004, Planning 2010, Rischard 2009
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6. This shared vision of a knowledge-led future and similar human capital challenges has
led to the convergence of human capital development policies as a precursor to KBED
Human Capital
Illustrative Challenges
Development Challenges
Low productivity • Across the region, labor productivity is low
• The social aspects of career choice has slowed integration, led to the substitution of
Preference for public expatriate labor in certain industries, and decreased productivity in low value added industries
sector employment
• Governments unable to create opportunities to absorb youth, particularly educated women
Increasing female • Cultural values/familial obligations influential in labor participation and obtaining education
labor participation • Many women find employment in part-time work, microenterprises, the informal economy
• Low match between the skills/qualifications of public employees and the roles they perform
Workforce skills
• Disconnect between regional human capital and the skills demanded by the private sector
Education system • Education systems failing to produce the right quality and mix of human capital
Barriers to • The procedures, time, costs, and minimum capital required to start a business are high
entrepreneurship • Funding for entrepreneurial endeavors is very limited
• R&D is significantly lower than in the developed world with very little private sector funding
Weak innovation systems
• Weak government policymaking in research and innovation
Sustainable growth • Population growth/urbanization has ▲ demand for health, education, housing, water, sewage
A key challenge for Arab governments is strategically investing in endowing citizens with human capital that meets
the demand of labor markets and leads to productive employment that benefits the national economy as a whole
Source: Hanouz and Khatib 2010, Oman 2010, Miles 2002, Flynn and Oldham 1999, Al-Yahya 2008, Dunlop 2006, Bank 2010, Klapper 2010, Djeflat 2002, United Nations
Educational 2010, Zahlan 2007, Mirkin 2010, Asia 2009, Zahlan 2007 | 6

7. However, employers, particularly in the GCC, face both “skills shortages” as well as “skills
gaps” that limit performance and achievement of business objectives
Our Research Focus
Skills Shortages Skills Gaps
Skill Shortage
Skills Gap
Desired
Quantity of
Internal
Workers
Workforce
With a Quantity of Current
Skill Level
Particular Workers Internal
Skill With a Workforce
Required Particular Skill Level
Skill
Available
• Genuine lack of adequately skilled individuals available • Employers feel that their existing workforce has inadequate
in the labor market with the type of skill being sought skill types/levels to meet their business objectives
• Employers unable to recruit staff with the skills they • New entrants to the labor market trained and qualified for
are looking for at the going rate of pay occupations but still lack a variety of the skills required
7
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8. Skills deficiencies have severely negative impacts on firms in the region
Internal firm deficiencies
External labor market deficiencies
Skills Well Functioning Labor Markets Employers Require Effective
Formation Require Allocative Efficiency Firm-level Utilization of Workforce Skills
Objective
Workforce skills levels meet the expectations of
Preparation of individuals with the skills, work experience, employers either in terms of full occupational
Description and qualifications in the quantity and quality to meet labor
of Objective proficiency or in the ability to meet business
market needs objectives with current workforce skills levels
Impact on Skills shortages requiring expatriate reliance for Even when employees are hired, many still have skills
firm if skills technical/commercial roles such as gaps requiring remediation through measures such as
formation Technical Roles Commercial Roles
Discipline Engineering Finance • Increased training and trainee programs
system is Geology/Geophysics Business Analysis • More staff appraisals / performance reviews
weak Process Engineering Contracting & Procurement • Implementation of mentoring / buddying schemes
Product/Process Human Resources • More supervision
Research Information Technology • Changing working practices and redefining jobs
Production Engineering Sales & Marketing • Reallocation of work within the company
Production Technology Supply & Distribution • Outsourcing to external providers
Project/Facilities Trading • Using government resources / funding
Engineering O&G • Incentives/rewards/recognition
Reservoir/Petroleum Example • Sending employees for certification
Engineering • Providing cross functional exposure to the business
Well Engineering
Influence on Medium to severe, but recruiting from outside Severe because skills gaps influence many
business region is a short-term solution to what is a large- aspects of current operations including
operations scale, systemic problem efficiency, service, and profitability
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9. Several failures of the skill formation system can lead to skills gaps
Market and Institutional Human Resources Management
Structural Skills Gaps Transitional Skills Gaps
Failure Induced Skills Gaps Related Skills Gaps
Poor Skills Formation Policy Insufficient Staff Development Strategic shifts in response to Incomplete Orientation
changing business and Integration
• Lack or weakness of • Depressed levels or
environments
government institutions that inadequately planned training • Attributable to the beginning of
prevent underinvestment in and development • Failure to increase and the employee-employer
skills, provide adequate maintain workforce skills to relationship whether due to
regulation, and coordinate Poor Retention and Motivation build and renew firm recent recruitment or post-
stakeholders Practices competencies in response to merger employee integration
changing business
• HR practices that inadequately • Presumably decrease as
Education and Training opportunities
address employee retention or employees complete induction
System Misalignment
a misalignment of HR practices • A strategy-skills lag in which training and gain confidence in
• Accessibility, quality, and the with sources of workforce current workforce skills lag new their roles
degree to which education and motivation or expanded skills required by
training systems produce alternative strategic directions
employable students are associated with competency
insufficient renewal
Insufficient Individual
Investment
• Unclear returns to particular
skills which negatively impact
individual skilling decisions
| 9

10. The GCC countries, in particular, appear to have significant levels of skills gaps
Rank Country and Survey Year
% of Total Firms Suveyed
Which Have a Major or Rank Country and Survey Year
% of Total Firms Suveyed
Which Have a Major or Observations
Very Severe Skills Gap Very Severe Skills Gap
1 Brazil 2009 73.03% 42 Oman 2007 MBRF 33.00%
2 Kuwait 2007 MBRF 68.00% 43 Chile 2006 32.06%
3
4
Egypt 2007 MBRF
Chad 2009
66.00%
57.33%
44
45
Uzbekistan 2008
Peru 2006
31.97%
31.33%
• Kuwait, Egypt, KSA, UAE
5
6
Belarus 2008
CapeVerde 2009
55.31%
53.85%
46
47
China 2002
Dominican Republic 2005
30.73%
30.67%
amongst the top ten
7 Saudi Arabia 2007 MBRF 53.00% 48 Estonia 2009 30.40%
• Maghreb countries and
8 UAE 2007 MBRF 51% 49 Tunisia 2007 MBRF 30.00%
9 Kazakhstan 2009 50.18% 50 Malawi 2009 30.00%
10 Russia 2009 48.90% 51 Thailand 2004 29.96%
11 Argentina 2006 48.35% 52 Egypt 2004 29.80% Egypt moved up the
12 53
13
Morocco 2007 MBRF
Romania 2009
47.00%
46.21% 54
Kyrgyz Republic 2009
Guatemala 2006
29.36%
29.31%
ranking significantly
14 Algeria 2007 MBRF 45.00% 55 Vanuatu 2009 28.91%
15 56
• Levant countries and
Mauritius 2009 44.97% Yemen 2010 28.72%
16 Micronesia 2009 44.12% 57 Kenya 2003 27.64%
17 Ukraine 2008 43.48% 58 Slovak Republic 2009 27.64%
18 Lithuania 2009 43.12% 59 Samoa 2009 27.52% Bahrain in the lower 20s
19 Moldova 2009 42.98% 60 Venezuela 2006 27.40%
20 Tonga 2009 42.67% 61 El Salvador 2006 27.27%
21
22
Latvia 2009
Jamaica 2005
41.70%
41.57%
62
63
Georgia 2008
Turkey 2008
27.08%
26.82%
• Qatar and Oman in 30s
23 Gabon 2009 41.34% 64 Bolivia 2006 26.26%
24 65
• Though there are some
Congo 2009 40.40% Algeria 2002 25.47%
25 Guyana 2004 40.37% 66 Honduras 2006 25.46%
26 Bahrain 2007 MBRF 40.00% 67 Colombia 2006 25.40%
27 Niger 2009 38.67% 68 Benin 2009 25.33% differences in the data that
28 69
29
Lebanon 2006
Jordan 2007 MBRF
37.96%
37.00% 70
Czech Republic 2009
Laos 2009
25.20%
25.00%
are hard to reconcile
30 Syria 2003 36.33% 71 Malaysia 2002 25.00%
31 Paraguay 2006 36.22% 72 Armenia 2009 24.06%
32 BurkinaFaso 2009 35.79% 73 Namibia 2006 23.71%
33 Zambia 2002 35.75% 74 Uruguay 2006 23.51%
34 Cameroon 2009 35.26% 75 Botswana 2006 22.22%
35
36
Qatar 2007 MBRF
Tajikistan 2008
35.00%
35.00%
76
77
Mauritania 2006
Croatia 2007
22.03%
21.64%
• 35% of private sector
37 Oman 2003 34.63% 78 SriLanka 2004 21.33% employers in Qatar
38 Poland 2009 34.51% 79 Morocco 2004 21.06%
39 Albania 2007 33.88% 80 Mali 2003 20.78% indicate a skills gap
40 Ecuador 2006 33.13% 81 Bosnia and Herzegovina 2009 20.50%
41 Ivory Coast 2009 32.32% 82 Bulgaria 2009 20.14%
Data Source: MBRF-PWC Report World bank Enterprise Survey
| 10

11. Many of the Arab countries face workforce skills deficiencies that slow knowledge-based
economic development and negatively impact high skill industries
10
High Skills Equilibrium
United Kingdom Germany
9 Ireland
Employer Demand for higher, knowledge-intensive
Estonia • Strong demand for high level skills
High
Spain
Czech Republic Hungary • Skills formulation institutions and the
Lithuania Korea, Rep.
8 Latvia Portugal enabling environment work in tandem
Knowledge Economy Index Ranking)
Slovak Republic Greece • Knowledge-based economies with
skills (as proxied by the World Bank
Poland Croatia
Chile Bulgaria lower levels of skills gaps
7 United Arab Emirates Qatar
Romania Uruguay
Bahrain Malaysia Costa Rica
Kuwait
6 Serbia
Brazil Russia Turkey • The perception of Arab employers
Medium
Saudi Arabia Jordan Oman Mexico Africa
South
may deter entry into knowledge-
Belarus based industries which are perceived
5 Colombia Lebanon
China to require skills unavailable in the
Egypt Tunisia Sri Lanka Philippines national workforce or too costly to
Morocco Botswana Azerbaijan build internally
4
Bolivia Vietnam
Cape Verde Indonesia
Syria Honduras
India
Guatemala Swaziland
3 Kenya
Algeria
Senegal
Uganda
Pakistan
Ghana Low Skills Equilibrium
Zambia Yemen Tanzania
Lesotho
Burkina
2 Nepal • Employers face few skill gaps in a
Low
Faso Mozambique Cambodia
Bangladesh
Ethiopia Eritrea predominantly low skilled workforce
Rwanda
Guinea
• Little incentive to participate in
1 education and training and raise
qualification levels and aspirations
0
0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00% 80.00% 90.00% 100.00%
Low Medium High
% of firms with sufficient internal skills levels
(1- % of firms reporting major or very severe skills gaps)
| 11

12. Gross value added of knowledge-based industries is the lowest in the world making up
39% of regional gross domestic product
Share of knowledge based industries in gross value added
North America 77%
European Union 75%
Europe & Central Asia 74%
High income 73%
OECD members 73%
High income: nonOECD 68%
East Asia & Pacific 65%
Latin America & Caribbean 63%
Sub-Saharan Africa 57%
Upper middle income 57%
Middle income 55%
Low & middle income 55%
South Asia 55%
Lower middle income 51%
Low income 50%
Least developed countries: UN… 48%
Heavily indebted poor countries 47%
Arab World 39%
0% 20% 40% 60% 80%
Sources: Bank 2010 Note: Includes wholesale and retail trade, transport, and government, financial, professional, and personal services
| 12

13. Employment in knowledge-based industries has increased only negligibly over the last
decade despite Arab government human capital investment and focus on KBED
Employment in knowledge-based industries (% of total employment)
Oman 82%
Kuwait 82%
Saudi Arabia 75%
Jordan 75%
Bahrain 68%
Iraq 65%
Palestine 60%
Qatar 55%
UAE 54%
Algeria 53%
Syria 47%
Egypt 47%
Yemen 35%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90%
Over the last decade, human capital investments do not seem to have led to significant increases in job creation in
knowledge-based industries or meaningful diversification into knowledge-intensive industries
Sources: Bank 2010
| 13

14. The changing demands of knowledge-based economic development create a need for
interdependence and collaborative networks for effective skills formation
WORK IN PROCESS
Education and Training System Business Community
• Ensuring Relevancy and Employability • Workforce Investment
• Quality Assurance Qualitative and • Workforce Development
quantitative
• Expanding Access supply-demand
match Facilitate
regular,
on-the-job
National Skills training and
participation
Link
Formation System in skills
economic for Knowledge- formation
based
• Coordination development
with E&T Development
system • Investment
• Aligning
Optimization
Macroeconomic Policy Address policy,
With Skills informational, or
financial sources of • Lifelong-learning
Formation underinvestment
• Broad-based, Critical Government
Coordination Points
Inclusive Skills Formation
Government Individuals
| 14

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