A young and increasingly educated population could be the source of prosperity in the Middle East and North Africa (MENA) region if an environment that promotes open competition is created, supported by an education system that teaches relevant skills, Global Arab Network reports according to according to a forthcoming report from the World Bank Group. The report on Jobs in MENA offers a detailed analysis of the many factors that have contributed to one of the highest rates of youth unemployment in the world, along with one of the lowest rates for female participation in the labor force. It proposes a set of policy reforms to unlock the region’s large and untapped human potential.

“The call for bread, freedom and dignity is a mandate for change in the Arab World, and the expression of immense expectations, on the part of young people in particular,” said Inger Andersen, World Bank Vice President for the Middle East and North Africa. “This presents an unprecedented opportunity for enacting the reforms that will set the stage for higher growth and the more and better jobs the region needs. This report offers a formula for seizing this opportunity.”

Increased competition will be critical for converting the MENA private sector into an engine of economic growth and good jobs. The current environment continues to protect a limited number of privileged firms through complex and unevenly enforced regulations, and limited access to credit. This has resulted in an insider/outsider model that has limited innovation and creativity, which played such an important role in the fast growing economies of Eastern Europe and South Asia. The report identifies a number of remedies to ease the entry of new firms; including the aggressive simplification of business regulations, along with holding to account those responsible for enforcing them, and building the financial infrastructure necessary to expand access to credit. Lowering the barriers to both entry and exit would create a dynamic private sector, which encourages investment and innovation, and ultimately increases the demand for labor.

In addition to an environment that stifles competition, MENA is also subject to a set of regulations and incentives that make hiring difficult, and encourage investments in machinery over labor. In the same way current rules protect a limited number of firms, labor laws that restrict an employer’s ability to manage the workforce end up protecting the privileged few with jobs (mainly older men). The report recommends strengthening unemployment benefits and safety nets while easing regulations to increase the mobility of workers and encourage more hiring. This should be accompanied by the removal of energy subsidies that make it cheaper to buy and operate more machines rather than hire new workers.

Once the private sector is ready to hire, reforms will be needed to ensure it can find the skills required. The public sector continues to dominate employment in MENA, with its promise of job security and better conditions. This has led to the phenomenon of the most talented and skilled essentially standing in line and waiting for public sector jobs that provide high individual returns, but are not necessarily associated with the highest social productivity. Success in this environment is all too often dependent on connections rather than aptitude; again excluding all but the most privileged. It has also influenced education systems, which focus on providing students with skills relevant to the public sector, at the expense of those required by the private sector.