while the youth unemployment rate was approximately 12.6%<sup>4</sup> . While youth employment is a growing challenge, it is seen as more chronic in the MENA region that peaks unemployment and particularly youth unemployment relative to other regions, putting this issue as the primal threat to the regions stability and growth (see Figure 1).

The demographic transformation of the region has led to an abundance of young working-age adults. The Middle East and North Africa<sup>5</sup> (MENA) countries face a rising labor supply that has outstripped demand, leading to stubbornly high unemployment rates of around 10 percent or more with even higher female unemployment rates of 16 percent. The most shocking high unemployment rates are among the youth, at 25 percent, the highest in the world. In addition to the global slowdown, the problem of unemployment has been sharply exacerbated in the aftermath of the social unrest and revolutions associated with the “Arab Spring”.

The uncertain political situation, and fragile macroeconomic status as well as the risks associated with the “Arab Spring” in a number of Arab countries have weakened investor confidence, leading to a decline in private investment, and consequently rising unemployment rates. Prior to the Arab Spring, private investment rates had been relatively high in a number of Arab countries: Morocco and Lebanon experienced private investment rates of up to 25 percent; while Tunisia and Jordan achieved investment rates around 18 percent between 2004 and 2010. Nevertheless, these countries failed to create sufficient productive employment opportunities for skilled labor. The Arab Spring and the associated disruptions and risks led to a decline in private investments, and foreign direct investment (FDI) inflows to the region. The number of announced investment projects, a predictor of future FDI inflows, fell substantially over the first three quarters of 2011, except for Algeria and Morocco, signaling that FDI inflows to the region may continue their downward trend in 2012. The private sector fell short of creating sufficient jobs for young entrants into the market. At the same time, the public sector jobs that account for a majority of formal employment in a number of countries, have created distortions in the market and contribute to exacerbating long term unemployment spells.<sup>6</sup> The number of projects with foreign majority ownership established in the Middle East and Africa (MEA) declined by 11.78% in 2012 to 1,370 projects. Capital investment in the region fell by an estimated 43.31% and job creation by an estimated 23.32%. Of the top 10 countries for inward FDI into the MEA region, Morocco experienced the biggest decline with project numbers falling by 34.25% to 48 projects in 2012. Due to the widespread political instability and civil unrest in Syria, the country saw a massive decline in the number of inward FDI projects by 92.86% in 2012<sup>7</sup> .

High unemployment rates have been aggravated by the recent drop in private investments. The investment climate was not very conducive to private sector development. The large informal

> 4 World Economic Forum’s Report on Global Agenda Council on Youth Unemployment, 2013.

> 5The MENA Region includes: Algeria, Bahrain, Comoros, Djibouti, Egypt, Iraq, Jordan, Kuwait, Lebanon, Libya, Mauritania, Morocco, Oman, Qatar, Saudi Arabia, Somalia, Sudan, Syria, Tunisia, United Arab Emirates, West Bank and Gaza, and Yemen (World Bank). 6Since public sector jobs are still associated with relatively generous benefits, many educated young graduates, mainly females, are still keen on getting a government job.

> 7 For details on FDI trends to MENA please see fDi Report 2013 - Middle East and Africa, FDI Intelligence, accessible at http://www.fdiintelligence.com/Custom/Special-Reports/fDi-Report-2013/Middle-East-and- <u>Africa#microsite</u>

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