Knowledge Economy Transfer Channels: International, MENA, Jordan

Knowledge Transfer in MENA Countries
Jordan Case Study

Table of Content
Page
Introduction Knowledge transfer and absorption in knowledge economy 4
Part I Identification of key drivers and enabling environments for 5
knowledge transfer and absorption, internationally
Policies
Socio-economic regimes
Education & human capital
Innovation, S&T, R&D
ICT infrastructure
Part II Situational Analysis of the Knowledge Transfer Channels in the 17
Middle East and North Africa (MENA), Gaps and
Recommendations
ICT infrastructure
Recommendations on MENA level
Recommended guidelines on MENA level
Part III Deduction and Assimilation based on Findings & Enabling Factors 43
for Knowledge Transfer in Jordan (A Case Study)
- Jordan Case Study
Executive Summary
ICT Infrastructure
Gaps
Recommendations
Addendums: Acknowledgements
Annexes 91
List of tables 2
List of figures 3

EIB CC4459 / PO43610 “Case Study on Knowledge Transfer in MENA Countries - Jordan”
March 10, 2012 - Reem N Bsaiso – Email: reem@nets.com.jo Page 1 of 115

List of Tables
(Back to Table of Content)

Table 1 Inward FDI flows, in $M, current prices & exchange rates, 2000-2010 (sorted
& rounded figures 2010)
MENA

Table 2 Outward FDI flows, $M, current prices & exchange rates, 2000-2010 (sorted
& rounded 2010)
Table 3 Indicators of the KE index for Arab countries (KE Report)
Table 4 Availability of knowledge indicators for Arab countries included by the WB
Table 5 Total public education expenditure as % of GNP & % of total government
spending (median), 2005
Table 6 Main Economic Indicators – JD M
Table 7 Budgetary Central Government, 2010 (domestic revenue & public
expenditure)
Table 8 Sectors contribution to GDP (%) (3rd Q 2011)
Table 9 GDP/ expenditure & value added $M current prices & exchange rates
Table 10 Foreign Trade Statistics (Thousand JD)
Table 11 Jobs Analysis
Table 12 Investment projects per sector
Table 13 Education distribution statistics
Jordan

Table 14 Economic Activity (employment) – Jordan
Table 15 Employment within the Population of Jordan / 6,249,000 (100%)
Table 16 International flows of mobile students– tertiary education & ISCED 5 & 6
levels (2009)
Table 17 Internationally mobile students by host country & origin – tertiary education &
ISCED 5 & 6 levels (2009)
Table 18 Mobile students by region of origin
Table 19 The distribution of students in tertiary and higher education
Table 20 List of tertiary and higher education institutes
Table 21 Students enrolment over mostly attended public and private universities
Table 22 Unemployed youth > 15 years of age, per gender and academic achievements
in percentages
Table 23 ICT Exports to Arab countries


List of Figures
(Back to Table of Content)

Figure 1 Knowledge Economy Values
MENA

Figure 2 Index values for the pillars of KE for Arab Countries, G7 and the world
Figure 3 Latest KEI compared to 1995
Figure 4 Summary of Central Government Budget, 2006 – 2010, JD M
Figure 5 Domestic and foreign investment in million JD
Figure 6 Foreign investment in million JD
Figure 8 Size of domestic investments in 2010
Figure 9 Size of foreign investments in 2010
Figure 10 Consequent job creation (2010)
Figure 11 Growth of total exports, 2000 - 2009
Figure 12 Growth of imports, M JD, 2000 - 2008
Figure 13 Job Analysis
Jordan

Figure 14 FDI inflows and outflows in $M
Figure 15 National Agenda of Jordan Phases
Figure 16 Unemployment per age groups, 2000 – 2009
Figure 17 Jordanian students in higher education
Figure 18 Outbound Jordanian Students
Figure 19 Outbound Jordanian Students distribution per country
Figure 20 iPARK statistics
Figure 21 Researchers per million population in the Arab world, 2007
Figure 22 ICT sector contribution to GDP
Figure 23 ICT sector contribution to employment


Introduction
Knowledge Transfer and Absorption in Knowledge Economy
(Back)

Today's global economy is one in transition to a "knowledge economy1" focused on the production and
management of knowledge where knowledge is a product; using knowledge technologies where knowledge is a
tool, to produce economic growth and job creation. Within interconnectivity and globalization settings,
knowledge resources are as critical as economic resources and the application of knowledge is key for
growth in the global economy; where organizations and people acquire, create, disseminate and use
knowledge more effectively for greater economic and social development. The knowledge revolution
incorporates education, life-long learning, S&T, innovation and increased investment in R&D – more
than that in fixed capital2, supported by ICT. Making effective use of knowledge in any country requires
developing appropriate policies, institutions, investments and coordination across these four functional
pillars3 that help countries articulate strategies for their transition to a knowledge economy (WB Model):

 Socio-Economic Regime: an economic and institutional regime that provides incentives for the efficient
use of existing and new knowledge and the flourishing of entrepreneurship.
 Education: an educated and skilled population that can create, share and use knowledge well.
 Innovation: an efficient innovation system of firms, research centres, universities, think-tanks,
consultants and other organizations that can tap into the growing stock of global knowledge,
assimilate and adapt it to local needs and create new technology.
 ICT Infrastructure: that can facilitate effective communication, dissemination and processing of
information.

Alongside the same vision, the EIB has been financing investment in development, education, research,
innovation and ICT – i.e. pillars of knowledge economy, since 2000, for the establishment of a
competitive, innovative and knowledge-based society, capable of sustainable growth, creation of more
and better jobs and greater social cohesion, in addition to its keenness in supporting entrepreneurship and
transfer of technologies that are essential for RDI and its progress4. In fact, both the EU and EIB,
according to the European Growth Initiative, are launching 56 projects that invest in networks and
knowledge across the EU generating strong cross-border impact and expected to yield positive results in
terms of growth, jobs creation and protection of the environment.

In light of the dominancy of knowledge in post-industrial turned knowledge economy society; residing in
organizations, tools, tasks and networks; “knowledge transfer”5 has become essential in organizing,
creating and disseminating tacit knowledge6 ensuring its availability for future users, becoming a public
and advanced economies and policies context, from resource-based to knowledge-based production7. A
main transfer enabler is “diffusion of innovation”8, denoting the “how, why and at what rate” new ideas
and technologies are spreading through cultures. It is also defined as a process by which an innovation is
communicated through “Knowledge Transfer Channels” over time in socio-economic systems. Foreign
direct investment (FDI) and international trade, are two major channels for international technology
transfer, through which cross-border technological knowledge travels. Factors promoting “knowledge
diffusion“ are the identification and motivation of knowledge holders towards designing a sharing
mechanism that facilitates transfer, executes a transfer plan, measures transfer and applies the transferred
knowledge. This process is further guided by experience, experimentation, simulation, mentorship, work
shadowing9, paired work and community of practice (CoP)10. On the other hand, knowledge transfer

1 http://en.wikipedia.org/wiki/Knowledge_economy
2 See Definitions
3 http://go.worldbank.org/94MMDLIVF0
4 http://www.eib.org/about/events/conference-in-economics-finance-2009.htm
5 http://en.wikipedia.org/wiki/Knowledge_transfer#cite_note-Argote_Ingram_2000-0
6 See Definitions
7 OECD (1999), Managing national innovation systems, OECD publications service, Paris
8 See Definitions
9 See Definitions


between nations and within organizations raises concern where there is imbalance in power relationships
or relative needs for knowledge resources e.g. developed and developing worlds (Harman & Brelade
2003)11. Impediments to knowledge transfer are attributed to accessibility, source, recipients,
organizational context and implementation. Knowledge transfer maybe also hindered by distance, ICT
limitation, lack of a shared social identify, language barriers, areas of expertise, internal conflicts,
generational differences, lack of incentives, disability to visualize, beliefs, previous experiences or
exposures, misconceptions, faulty information, resistant cultures (highly non-conductive to knowledge
sharing), motivational issues, lack of trust and incapability. ICT-based innovation diffusion, education and
R&D render knowledge, as a fixed and intangible capital. Knowledge transfer, can only occur in the
presence of its enablers, namely: knowledge holders, transfer channels, knowledge recipients and
diffusion that will lead to well being (van der Meer, EIB, CMI 2011)12.

An individual, group, firm or nation’s ability to recognize the value of new information, assimilate it and
apply it to commercial ends and in business, has been defined as the “absorptive capacity”, an enabler
of innovation, based on developing cumulative absorptive capacity (Cohen and Levinthal 1990)13,
investment in R&D and hiring of diverse teams serving diversity and creativity. Two concepts govern
absorptive capacity: i) Receptivity14: a firm's overall ability to be aware of, identify and take effective
advantage of technology; and ii) Innovative routines: adoption of practiced routines that define a set of
competencies the firm is capable of doing confidently and the focus of the firm's innovation efforts
(Nelson & Winder 1982)15. Enablers to evaluate absorptive capacity include (Zahra & George 2002) 16: i)
Knowledge acquisition capability (number of years of experience of the R&D department, amount of R&D
investment), ii) Assimilation capability (the number of cross-firm patent citations, the number of citations
made in a firm’s publications to research developed in other firms), iii) Transformation capability (number of
new product ideas, number of new research projects initiated) and iv) Exploitation capability (number of
patents, number of new product announcements, length of product development cycle).

Part I
Identification of Key Drivers and Enabling Environments for
Knowledge Transfer and Absorption, Internationally
(Back)

A. Policies

Making effective use of knowledge in any country requires developing appropriate coordinated policies
and institutions within the necessary supportive legislative framework (UNDP AHR 2003)17, to articulate
transitional and long term strategies for knowledge economy, through socio-economic regimes, education
and human capital, innovation, S&T, R&D and ICT Infrastructure, in a cross-cutting and integrated
model that supports knowledge transfer and absorption capacity across sectors (finance, education,
health, energy, ...), respective of enabling environments (policies, regulative and institutionalized systems,
governance, reform...), that promote levels of development, advancement, economic growth and job
creation. Demand-driven national policies promote economic and political contexts conducive to
knowledge transfer and promotion of absorption capacity, heeding sector-related domestic enabling
factors across channels and institutional characteristics.

10 See Definitions
11 Harman, C.; Brelade, S. (2003). Knowledge Management Review (Melcrum Publishing) 6 (1): 28–31.
12 KT and Absorption in MENA, Dr. Jacques van der Meer, EIB, CMI 2011

13 Cohen and Levinthal (1990), "Absorptive capacity
14 Seaton R.A.F. & Cordey-Hayes M., Technovation, 13: 45-53, 1993.
15 Nelson & Winter (1982), "The Schumpeterian Tradeoff Revisited",
16 Zahra and George (2002), "Absorptive Capacity: A Review, Re-conceptualization and Extension"
17 UNDP AHR 2003, AKR 2009


The dominant, dynamic and rapid social, economic and technological changes will shape life in the 21st
century, dwelling on human capital as key enabler in new knowledge-intensive environments and
increasingly competitive economies, creating a broad pallet of unprecedented opportunities, yet brings
uncertainties and risks (Michalski)18. Accepting change and adaption are key, as we approach an integrated
planet of socio-economic and technology systems, where knowledge has become the predominant input,
output and structural feature of economy and society in the 21st century, in addition to inter-connected
digital networks, acting as socio-economic and knowledge transfer enablers. Governments will not be
able to meet highly diverse markets and societies and will focus on providing enabling conditions to
empower citizens to determine their choices and life paths. This will empower diversity, creativity and
complexity, which are the heart of the transition to knowledge-intensive socio-economies, yet digital
divides will grow in terms of accessibilities, usage, easy access to the new wealth, attainment of good
education and the ability to interpret effectively the use of information.

Michalski predicts either one of two reactions: embracing dynamic transformation, creativity and
experimentation, within competitive international environment, or de-link from globalization and delay
structural change and innovation with the aim of avoiding associated problems, turbulences and
uncertainties; the latter of which is extremely harmful and costly choice, as an attempt to preserve the past
at the expense of the future. Michalski advocates for change for long-term benefits, based on values-fed
sustained innovation, supported by policy.

B. Socio-economic regimes (Back)

A policy driven socio-economic regime, enables knowledge transfer and absorption, reliant on a
coherent and supportive legislative system, sufficient allocation of funds and financial resources, adequate
ICT infrastructure and sound economic and sectors-specific policies that support human capital,
innovation and R&D. It harbours services and business sectors support, institutionalized organizational
context, investment, consolidation of linkages between R&D institutions and industries, investing in
building high human capital and local knowledge workers, across all policies-governed sectors, in order to
achieve economic growth, through international skills gain, knowledge transfer, increased knowledge
content and innovation.

Most effective knowledge transfer channels include: FDI, international trade, human capital mobility and
scientific cooperation in education and research.

In the knowledge economy formula, developed economic policies are key knowledge transfer enablers,
that support increased diversification of economies, creation of new enterprises and jobs, increased
productivity, competitiveness and institutionalized capacities by increasing institutional knowledge
transfer, knowledge content, innovation and therefore increased absorptive capacity of the economy,
where FDI and international trade are two major channels through which technological knowledge
developed in one country is transferred across borders into another (Saggi, Keller & Pantia)19.

FDI Indicators
The FDI indicators facilitate achieving competitiveness among countries in support to investment policy reforms
and open doors to broader investment climate improvements.
Indicator Indicator Details Enablers Target audience
Doing Business-type  Starting a business  Foreign ownership Governments
indicators of  Dealing with licenses restrictions to target, stimulate,
investment policy  Employing workers  Investment promotion implement and
 Registering property  Pre-establishment communicate investment
 Getting credit procedures policy reforms
 Protecting investors  Access to land Investors
 Paying taxes  Currency convertibility to help guide their

18 Ref. Prof. Dr. Wolfgang Michalski - The Role of Education in the Knowledge-Intensive Economy and Society of the 21st
Century
19 Saggi, 2002; Keller, 2004 and Kneller, Pantea and Upward, 2009


 Trading across borders and repatriation investment location
 Enforcing contracts  Expropriation and int’l decisions and policy
 Closing a business arbitration dialogue with
 governments
Country benchmarks for • Employment restrictions on expatriates Advisors / Consultants
the ease of • IPR protection and enforcement to focus their assistance to
establishment and • ADR mechanisms client
operation of a foreign • Excluded investment climate variables: countries on key policy-
owned business in a • Infrastructure level constraints
country • Human resources to increasing FDI
• Trade policy competitiveness
Measures of formal  Survey of laws/regulations (objective info) and
statutory restrictions administrative processes (subjective info)
on FDI, and regulatory  Respondents are private sector, intermediaries
and administrative (investment lawyers, consultants, accountants, ...)
barriers in practice  Survey filled out by governments for validation / cross-
checking purposes
Source20: Global Forum on International Investment, 2008

Economic policies aim to enhance the business environment by promoting ease of business creation and
licensing, ownership, finance, local competition and openness to trade and investment, as well as product
market flexibility, in a two-way producer-consumer knowledge transfer (Cowan, Soete and Tchervonnaya,
2001)21, while heeding different types of key determinant domestic institutions in terms of knowledge
absorption capacity, namely private and public sectors, research institutions and education.

There are estimates that more than half of the GDP in major OECD countries22 is based on the
production and distribution of knowledge (WB 1099).

The services sector23 has increased in importance in promoting growth, as an enabler for knowledge
transfer, through various channels, in the context of the new economy, creating the need for companies
to sustain themselves in highly competitive markets by improved accessibility and usage of new
knowledge that is relevant to their activities. This section looks closely at this sector, at the international
level, in terms of its enabling environment, channels, domestic determinant factors and challenges,
serving as a guideline to assess countries knowledge transfer absorption, alongside this and other vital
sectors. Moreover, knowledge transfer channels in manufacturing and services are very similar, yet the
latter, i.e. the service sector, is gaining more importance than the manufacturing sector in terms of FDI
and international trade (training and producer-consumer two-way knowledge transfer); average
importance in terms of suppliers, licensing/franchising, intra-company strategic knowledge management,
knowledge intensive business services, human capital mobility, Internet and links with academy; and less
importance in terms of patents.

The impact of ICT is seen on the macroeconomic level (Kozma, UNESCO)24, every one of the world’s
25 largest economies has shifted from manufacturing to services provision, accounting to more than 50%
of the GNP (Kamarkar and Apte, 2007; Apte, Kamarkar and Nath, 2008).

In the USA, manufacturing material goods and delivery of material services accounted for nearly 54%
economic output (1967). Production of information products and provision of information services

20 FDI Indicators Project, OECD Global Forum on International Investment, 2008, Peter Kusek, pkusek@ifc.org - FIAS The
multi-donor investment climate advisory service of the World Bank Group.
http://www.oecd.org/dataoecd/2/32/40435871.pdf
21 Cowan, Soete and Tchervonnaya, 2001
22 The Organization for Economic Co-operation and Development (OECD), There are currently 34 members of the OECD

http://en.wikipedia.org/wiki/Organisation_for_Economic_Co-operation_and_Development#Member_countries
23 http://www.merit.unu.edu/publications/rmpdf/2001/rm2001-021.pdf / Knowledge Transfer and the Services Sector in the

Context of the New Economy by Robin
Cowan, Luc Soete & Oxana Tchervonnaya - 2001-2021
24 The Technological, Economic and Social Contexts for Educational ICT Policy, Robert B. Kozma . A UNESCO Publication


accounted for 63% of output (1997), marking a growth from 36% to 56%. People now use eBay, Google
and Yahoo, none of which existed 15 years ago, yet their combined market value exceeds $200 billion.
The proliferation of information products and services or “information economy” is dominating wealth
and job creation (Cogburn and Adeya, 1999). On the other hand, manufacturing increased in China,
Thailand, Malaysia and Indonesia, creating jobs and pulling millions out of poverty (Sachs, 2005, 2008),
but significant problems were created related to economic inequity, urbanization, pollution and
environmental degradation. Macroeconomic and microeconomic studies (11 Papers, 6 Countries)25
showed changes in organizational structures and practices, towards organizationally flatter companies,
decentralized decision-making, participatory disciplines and wide sharing of information. These changes
have been enabled by the application of ICT for communication, information sharing and simulation of
business processes

The use of ICT is promoting new content of knowledge through new types of competencies calling for
knowledge-intensive services consultancy and growing codification (e.g. delivery of traditional knowledge
or advanced memory storage features), with improved inter- and intra-firm communication. Customer
participation in service operations may control the specification of the service, or its diagnostics, or co-
production (e.g. self-service retailing or banking, excluding high expertise requirements), or intervention
(e.g. tracking courier shipment), where services are best categorized as private or public services, on- or
off-line and producer or consumer-based. Simultaneity of production and consumption, more evident in
services as opposed to goods industries, is related to or caused by the inability to store services. This is
gradually changing today, as new technologies – like clouding, offer broad opportunities for new e-means
of storage. Most service industries are now employing “innovation without formal research” (as opposed
to the industrial sector), given the non-tangibility nature of services, hence less patentable, but closely
linked to “changes in processes, organizational arrangements and markets”; in large service companies
R&D is performed in “operations research, strategic planning or IT departments”.

"Not only does a country's total productivity factor depend on its own R&D capital stock, it also
depends on the R&D capital stocks of its trade partners." (Coe and Helpman p.875).

The ICT and high-speed communication networks have revolutionized innovation. In Denmark, 70% of service
industries innovative firms use mobile phones and email for innovation, while 40% use Internet
homepages (Van Ark et al. 1999)26. The use of Internet to offer services to customers is considered as an
innovation, with increasing trends towards e-services to include delivery of “functions” such as the
maintenance of goods, within enhanced security schemes and networks to facilitate communication
between different kinds of users with different kinds of data. Call centres are representing a substantial
share of employment in the service sector. It can be concluded that a strong ICT infrastructure is an enabler
for knowledge transfer in services, as relatively inexpensive way to transfer large amounts of information
(and knowledge) at a very high speed and hence is conducive to formation of producer-user, producer-
producer and consumer-consumer networks which are capable of generating considerable knowledge
spill-overs to the service industry and the society at large.

Selection of knowledge transfer channels is affected by cost, speed, accessibility, IP rights protection and past
experience, so that a knowledge transfer channels platform, is reliant on: knowledge holders, recipients and
institutional settings, where knowledge holders regulate the amount and quality of shared knowledge and
recipients need to be ‘receptive’ to the flow and absorption of knowledge – often a limiting factor
attributed to “resistance to change”. In transfer channels suppliers provide new equipment hence new
knowledge for product enhancement. In Germany, 27% of the total innovation expenditure came from
equipment service delivery. FDI as a knowledge transfer channel affects the inward and outward investments
and brings new knowledge into a country, particularly to intangible services and consequent contribution
to a country’s GDP, e.g. the FDI by/in the Netherlands, in the services sector had grown by 20 fold over

25 USA (Stiroh, 2003), UK (Borghans and ter Weel, 2001; Dickerson and Green, 2004; Crespi and Pianta, 2008), Canada (Gera
and Gu, 2004; Zoghi, Mohr and Meyer, 2007), France (Askenazy, Caroli and Marcus, 2001; Maurin and Thesmar, 2004),
Finland (Leiponen, 2005), Japan (Nonaka and Takeuchi, 1995) and Switzerland (Arvanitis, 2005)
26 Van Ark et al. 1999, p.31


the last two decades accounting to the largest share of Dutch FDI stock (Van Hoesel & Narula 1999)27.
However, for this channel to function properly it is necessary to have a favourable regime for service
providers functioning abroad. The General Agreement on Trade in Services (GATS) ensure effective
knowledge transfer in services through FDI via market access commitments, transparency and
recognition of qualifications. Human capital mobility as a channel relies on human beings as “carriers” of
tacit knowledge, particularly in organized two dimensional mobility across firms or institutes, while other
channels depend on “employees’ profiles” where services are directly delivered. Liberal and transparent
trade and investment regimes, are also major enablers of knowledge transfer.

Intellectual property protection: an important specificity of services is that patents are less important
instruments for IP protection in this sector, since much of the difficult-to-codify innovative capacity of
service firms resides in human experience and expertise and shortness of innovation cycles for “lengthy
patenting procedures”. Hence, most service industries employ other forms of IP protection like
copyrights and trademarks. Consumers‘ knowledge involvement, on the other hand, is based on a learning
dialogue between supplier and customer in highly interactive ways, while sources of consumer information is
reflective of the consumers’ attention to the whole service delivery system where policy-backed
enhancement of employee expertise in people-to-people communication is so important in relation to
innovation and economic performance, therefore, emphasis on multi-disciplinary and lifelong learning
must focus more on working in teams, communicating effectively, networking and adapting to change.
This leads to education and networked knowledge economy, based on merging ICT and tools in education,
instilling knowledge economy, entrepreneurial and job creation skills, within national, scalable and low
cost schemes. The Internet is a constantly growing channel serving different users in services and
manufacturing sectors, to receive and transmit knowledge.

Other service sector channels of knowledge transfer include: licensing as in franchised services, industry-
academia linkages, job related training, employing intra-company strategic knowledge management such
as Intranet or MIS, producer-consumer two-way knowledge transfer, knowledge intensive business
services by private enterprise reliant on professional knowledge to produce knowledge-based products
and services such as computers, engineering, advertising, R&D, accounting and management consultancy,
as well as knowledge generation and transferring through international conferences in both manufacturing
and services sectors.

Enablers across channels are comparable between manufacturing and service sectors, according to the
specificity of services, nature of output, degree of customer participation in the production process,
simultaneity of production and consumption, so that new economy services are impacting employment
and development of knowledge and skills, e.g. financial, software or digitized entertainment and
shopping services, by using new technologies, innovation and on-line provision, denoting a clear demand
for e-commerce related services. It is essential to compare manufacturing and services sectors according
to the nature of output, customer participation and simultaneity of production and consumption, in terms of
knowledge transfer, transfer channels, knowledge holders and recipients; institutional settings and impact
of ICT.
The challenge of constantly changing scientific and technological realities, the level of knowledge required
to manage modern industries is so high, that even competitors are choosing to collaborate, where output,
innovation and knowledge creation are rapidly gaining more importance, as intangible services impact
economic performance.

The impressive input of services into the economic development of many countries, including the
Netherlands, has put it on an equal footing with manufacturing, so that more elaboration is placed on
innovative policies, measurable by service-oriented innovation surveys (implemented by several OECD
countries).

In general, recommendations to policy-makers on knowledge transfer in the services sectors (a case study
of the Netherlands), include the need for IP protection for national and foreign business; regular

27 Van Hoesel and Narula 1999, p.16


innovation surveys; investing in a country’s ICT infrastructure, merging ICT in education, participation of
national scientists in international networks directing diffusion of new knowledge to service businesses;
training of future scientists; promote knowledge transfer in a two-way process; encourage foreign
specialists through incentives; publishing information on legal procedures; maintaining liberal and
transparent trade and investment regimes.

Drivers of development (DFID, Dec. 2011)28 in low income countries depends on human capital
pressures stemming from private sector growth, public sector policies and reforms which remain poorly
understood, amidst a likely global recession and possible global financial meltdown with serious
consequences on private sector growth, prompting fast research-backed policy-making to ensure support
to private sector development. Market dynamics on the other hand determine entry of new firms and exit
of weak ones, prompting needs for job creation in low income countries and support to open
competitiveness.

The World Bank (Doing Business, WB/IFC 2012)29 investigated enhancive regulations for business
activities and inhibitors, across 183 economies, reliant on comparable quantitative indicators on business
regulation and protection of IP affecting 11 areas of business life: i) start-up: starting a business, minimum
capital requirement, procedures, time and cost; ii) expansion: registering property, procedures, time and
cost; getting credit, credit information systems, movable collateral laws, protecting investors, disclosure
and liability in related-party transactions, enforcing contracts, procedures, time and cost to resolve a
commercial dispute; iii) operations: dealing with construction permits, procedures, time and cost, getting
electricity, procedures, time and cost, paying taxes, payments, time and total tax rate, trading across
borders, documents, time and cost; iv) insolvency: resolving insolvency, time, cost and recovery rate, so that
clarity on IP rights and cost of resolving disputes is key to ensure predictability, certainty and protection
that the sector needs, in addition to supporting credit and enforcing contracts. Regulative processes also
depend on macroeconomic conditions, market size, workforce skills and security. A vibrant private
sector with investments firms, job creation and improved productivity promotes growth-expanding
opportunities for poor people. Governments are implementing reforms, including price liberalization
and macroeconomic stabilization; yet focus more on daily economic activity. The “Doing Bossiness”
guide has advantages and limitations. It is transparent, factual on laws and regulations, yet it has a limited
scope in that if focuses on only 11 areas of regulation affecting local business and does not measure all
aspects of business environments or all areas of regulation; it compares and benchmarks, yet it is based
on standardized cases; it is inexpensive and replicable, yet focuses on the formal sector; it is actionable
with data on obstacles, sources and points of change, yet, only reforms related to indicators can be
tracked; it has multiple interactions with local respondents to clarify potential misinterpretation, yet
assumes that business is informed on requirements; and finally, it nearly completed coverage of world’s
economies, yet part of the data obtained refer to an economy’s largest business city only.

On Gender, there is concern on low female participation in employment and self-owned business,
inequity in job types, hours and wages, in addition to increasing numbers of economically inactive
females, particularly in developing countries; as well as being able to assess the threshold, whereby the
quantity of offered jobs in the market or the job-creation rate is enough to get female enterprises and
employment growing. Women, business and the law merit support and the need to remove barriers to
economic inclusion. A WB/IFS study finds 103 out of 141 economies studies impose gender-based legal
differences (accessing institutions, using property, getting a job, providing incentives to work, building
credit and going to court)30.

The UNDP Human Report; links the Environment directly to the quality of life. Environmental
achievements, linkages and performance are greater in developed countries, yet environmental trends
over recent decades show deterioration on several fronts, with adverse repercussions for human

28 DFID Growth Research Newsletter - December 2011
29 Doing business in a more transparent world , WB and IFC 2012-01-09. Comparing regulation for domestic firms in 183
economies

30 http://wbl.worldbank.org/


development, especially for the millions of people who depend directly on natural resources for their
livelihoods. The most disadvantaged people carry a double burden of deprivation: more vulnerable to the
wider effects of environmental degradation, they must also cope with threats to their immediate
environment posed by indoor air pollution, dirty water and unimproved sanitation.

Environmental degradation stunts people’s capabilities in many ways, going beyond incomes and
livelihoods to include impacts on health, education and other dimensions of well-being.

A 10% increase in the number of people affected by an extreme weather event reduces a country’s HDI
almost 2%, with larger effects on incomes and on medium HDI countries. Meeting unmet needs for
family planning by 2050 would lower the world’s carbon emissions an estimated 17% below what they are
today. There are many promising prospects for expanding energy provision without a heavy
environmental toll. The report argues that a clean and safe environment is a right, not a privilege and
should be embedded as environmental rights in national constitutions and legislations to be effective.
This can be aided by empowering citizens to protect such rights and put a stress on the need to promote
human development to address equity and care for environmental sustainability because of the
fundamental injustice of one generation living at the expense of others, as it tackles innovative means
for alternative and clean / renewable energy, clean water and sanitation, alongside reducing Carbon
Dioxide (CO2) emissions and green house effect.

C. Education and human capital (Back)

The needs to allocate sufficient human capital in the implementation of foreign technologies (Keller
1996)31 is key in knowledge transfer, reliant on pro-knowledge absorption governing national policies,
educational reform, (formal, informal education and vocational training) merging ICT in education,
instilling knowledge economy and entrepreneurial skills through training for employment, job creation
and innovation. Other knowledge transfer channels include labour markets, human capital mobility and
labour migration including different kinds of diasporas caused by imbalanced inter-state economic and
cultural territorial relationships based on domination and subordination, where the type of social
coherence plays an important role, such as ties with ancestral lands and hence lack of full assimilation to
the host country.

The importance of building up human capital, was stressed by Keller (1996). To achieve higher growth, a
country must actively support human capital formation, otherwise it will be locked in the role of an
imitator. He pointed out that mere access to information is not sufficient for technological catch up. In
particular, skill levels of domestic workers constrain a country’s ability to absorb and implement
technologies invented abroad, emphasizing the key role of domestic skills in the assimilation of imported
knowledge. Technology is only implementable among skilled labour force. Trade liberalization
disseminates new technologies and goods to the domestic economy, but sustained growth gains are only
forthcoming if in addition to the arrival of new technologies also skills are accumulated at a high rate.

Education is considered as a key enabler to rapidly dominating social, economic and technological
changes, to prepare human capital for global knowledge-intensive economies and societies. Education for
employability in industrial societies, will no longer be a typical pattern of working life in new knowledge-
based economy. In fact, in the enterprise sector, any given knowledge stock is becoming rapidly obsolete,
as one takes on multiple occupations over working life. The growing internationalization of economic
activities, ICT and innovation have major implications on educational content, with no mere focus on
common core competencies, but rather on specific profession-oriented knowledge. Therefore, there is
little value in educating people simply in the use of a particular technology or particular occupation-
specific skills when any such technology or occupation is likely to become rapidly obsolete.

“The top 10 in-demand jobs in 2010 didn’t exist in 2004; We are currently preparing students for jobs that don’t yet exist,
using technologies that haven’t been invented, in order to solve problems we don’t even know are problems yet”, Richard

31 Keller, 1996, p.200


Riley, former U.S. Secretary of Education

There is a need to prepare a human capital with new sets of knowledge economy and ICT skills, namely:
critical, creative and analytical thinking, problem solving, employing scientific research methodologies,
working collaboratively and distantly within groups, gaining advanced communications and outreach skills
and competencies, in addition to entrepreneurship and job creation skills. Hence the creation of a self-
and lifelong leaner, which is able to search for and identify available resources and tools, namely ICT; and
harness those tools effectively and safely. Another important dimension in education, is good citizenship,
democracy and human rights, in stand-alone models or ICT-based models given increasing role of social
media networks, digital multi-media material, speed and ease of communications and networking,
fostering dialogue, exchange of information (knowledge transfer channels) and tolerance.

Despite rapid socio-economic transformations around the world, education is slow to change (Kozma,
UNESCO 2010)32; and although people work collaboratively using a variety of digital tools and resources
to devise new ideas and products, students in schools are still meeting in structured classrooms at
specified times; (Law, et al., study, 2008), with ICT rarely being used. The shift from a paradigm that is
based on mass production and consumption of standardized goods and the hierarchical structuring of
business, governmental and social institutions to a paradigm based on the collaborative, customized
creation, sharing and use of new knowledge by a large, diverse and distributed population is creating
tremendous pressure for change on all components of the education system. It has profound implications
for what is taught, how it is learned, how teachers teach, how students are tested and how schools are
structured. And it has significant implications for changes in education policies, as well as the visions that
organize structures, programs and practices in education systems. Changes in educational systems, in
support of knowledge creation, creates capital accumulation and increased productivity through capital
deepening (knowledge acquisition), high quality labour (knowledge deepening); and knowledge creation
and innovation (knowledge creation33) (Kozma 2007)34. Educational transformations come from
systematic changes, involving vision, policy, planning and alignment between policies and programs,
creative financing and resources, where ICT is a lever for change and enabler, acting on curricula and
assessment, teaching and learning, teachers’ training and pedagogy, technology applications and social
infrastructure. Despite the significant investment that policy-makers have made in hardware, software and
networking, to date, ICT have had a marginal impact on education. Outside of schools, ICT have had a
significant social impact, too. Large numbers of people in developed countries use the internet regularly
to conduct online purchases, access government services, make friends, use online chat and messaging,
download music and movies, play games, exchange email, conduct banking transactions and search for
information, as they develop into a knowledge society. These changes are reaching the most remote rural
villages in the least developed countries. Yet education remains, by and large, unchanged. For many
policy-makers, it will be a major accomplishment to introduce ICT innovations that can, over time, be
scaled up, system-wide.

If research on ICT impact on the economy, business structures and on practices is any indication, the
major impact of ICT on education is yet to come. But it will only be realized when ICT is accompanied
by organizational changes and practices that align education systems with the emerging information
technology paradigm.

Higher education witnessed new emerging dynamics in i) higher education demand: covering diversification
of provision, changing lifelong learning needs, growing ICT usage and enhanced networking and social
engagement with both the economic sector and community at large; ii) scientific research: particularly
tensions between basic and applied research; and iii) fields of innovation: noting that innovation often occurs
outside academic environments, as a result of inventive thinking and creative experimentation. The
advancement of Knowledge Societies is compelling all countries, whatever their levels of developments

32 May 3, 2010 ICT Policies and Educational Transformation - A UNESCO Publication. Chapter 2 - A Framework for ICT
Polices to Transform Education - Robert B. Kozma, PhD.
33 See Definitions
34 Ref. ICT, Education Reform and Economic Development, Dr. Robert Kozma, Oct. 2007, Dead Sea, Jordan


are, to review and reorganize their capacities for accessing and benefiting from the high-level knowledge
which shapes social change, or otherwise risk marginalization. Today, systems of knowledge production
cover a vast range of entities inter alia universities, public laboratories, research centres, think-tanks run
by policy and civil society groups, industry and the private sector and the military complex, with more
inclinations for sustainable social development orientation. This involves placement of knowledge to
include high-level scientific knowledge, at the service of development; converting knowledge, in all its
forms, into value via applications and impact assessments; and sharing good practices, to ensure
widespread benefits. The knowledge divide on the other hand, is being created among nations, as a
concept that describes the gap in living conditions between those who can find, manage and process
information or knowledge and those who are impaired in this respect and will become increasingly
isolated and marginalized. Governance of higher education is, in the end, primarily about the governance
and management of knowledge and knowledge workers; and the formation of coherent knowledge
systems that organizes knowledge within a coherent and accessible framework addressing posed
challenges where people converge around common understandings of the issues at hand and collaborate
for purposes of sharing knowledge, developing new knowledge, or even applying knowledge to their own
needs” (Choucri, 2007). Added value provided by well-organized knowledge systems is the re-use and re-
configuration of existing knowledge. In developing and developed countries alike, the utility of higher
education governance and management models will be judged in terms of how well they allow the higher
education institutions to contribute to further the knowledge society and knowledge economy.

Challenges of academic work (Teichler and Yagci) include physical mobility of students, graduates and
scholars. Most experts agree that mobility has accelerated in recent years, as a consequence of increased
opportunities, declining national controls and global economic and societal interconnectedness. Mobility
in higher education and research tends to be discussed notably in four respects: i) the role physical
mobility plays for knowledge transfer, ii) the contributions of mobility to quality of teaching, learning and
research as well as the risks as far as quality is concerned, iii) the impact of mobility on the knowledge,
values and subsequent life course of the mobile persons and iv) the ambivalent setting of costs and
benefits of mobility for the mobile persons, the higher education and research institutions and the nations
experiencing an influx or out-flux of persons.

UNESCO argues that student opportunities and problems linked to student mobility have changed in
light of evolving ‘knowledge societies’, playing a role in knowledge transfer, contribution to quality of
teaching, learning and research, impact on knowledge, values and subsequent life course of the mobile
persons and setting of costs and benefits of mobility for the mobile persons, the higher education and
research institutions and the nations experiencing an influx or out-flux of persons.

Education statistics collected by UNESCO show that the worldwide number of students studying abroad,
i.e. in a country different from that of their citizenship, has increased substantially in absolute terms from
less than 200,000 in the early 1950s to more than 2 million in most recent statistics. However the overall
student population has increased at a regular pace and the rate of foreign students has remained more or
less constant at about 2%. Available data suggests that incoming students from other countries comprise
more than 10% of all students in various economically advanced countries and that of the students from
some low- and middle income countries, more than half study abroad. International student mobility is
linked to professional mobility and migration were many students in low- and middle-income countries
opt for study abroad in general, or choose the field of study or host country, in the hope that study
abroad will provide access to a career after graduation in an economically advanced country. However,
temporary mobility within economically advanced countries, in terms of professional impact show that
the study period abroad turned out to be helpful in the job search process, namely: formerly mobile
students are more frequently professionally active abroad and those who are not employed abroad take
over clearly more frequently visible international assignments such as communicating with foreigners,
using foreign languages, travelling abroad for professional purposes, using knowledge on other countries,
etc.” (Rivza and Teichler, 2007: 465). “Brain Drain” on the other hand is the most frequently employed
term in this context to underscore the loss of investment and talent through outflow. “Brain
Circulation”, in contrast, is often used to point out that countries facing an outflow of talent (also an
outflow of scholars) often experience a “return” in terms of remittances. “More developing countries are


seeing the diasporas as a source of expertise, knowledge and networks rather than only a source of
income” (Knight 2007). “While the Brain Drain continues to be a reality for many developing countries,
returning experts or the circulation of expertise can offer positive aspects, but require innovative
approaches to academic and professional credentials. Examples of this include Silicon Valley IT experts
returning to India, mobilization of the diasporas from Africa and the Arab states and burgeoning
cooperative arrangements such as joint professorships, dual research appointments and laboratories
(known as ‘collaboratories’) and jointly awarded graduate degrees” (Kearney 2008). Altogether, there
seems to be an inflationary use of the term “brain circulation” in order to play down the net losses many
low- and middle-income countries suffer from, in light of the international mobility of highly-qualified
labour and notably of researchers. Thus, it cannot come as a surprise that calls are often made for the
receiving countries of mobility to compensate financially the enormous losses of the sending “drained”
countries.

Impacts of Brain Drain: the financial cost of $4 billion is spent annually on the salaries of approximately
100,000 western expatriates who help make up for the loss of professionals in sub-Saharan Africa.
Policymakers worry about subsidizing the education of students who ultimately go elsewhere. The cost of
training, for example, a non-specialized doctor in a developing country is about $60,000 and for a
paramedical specialist about $12,000.

D. Innovation, S&T and R&D (Back)

Innovation as one of the key enablers of knowledge transfer and absorption and can manifest itself in
different forms and levels across sectors and borders, through the promotion of S&T, openness of
academic research, scientific cooperation in education and research, patents, domestic R&D, institutions
linkages with industrial, service and business sectors, as well as the promotion of academia and industries
linkages for effective diffusion of innovation. Demand and acceptance of innovation is enabled and
enhanced by socio-economic policies that mobilize and promote governments’ roles, markets, social
factors and active educational and research cooperation networks with enhancive international
communities to knowledge absorptive that is vital to the economy (Gallouj 2000)35.

Entrepreneurship and innovation for economic development (UN University)36 are two of the most
pervasive concepts of our times, yet there are still gaps in our understanding of the interactions between
entrepreneurship and innovation, particularly in developing countries.

A key message is that entrepreneurial innovation, whether through small firms, large national firms, or
multinational firms, is often vibrant in developing countries, but does not always realize its full potential.
This is due to institutional constraints, the absence of the appropriate mix of different types of small,
large, domestic and foreign firms and insufficiently developed firm capabilities. There is a need to assess
the impact of entrepreneurship and innovation on growth and development, determinants and impacts of
innovative performance of entrepreneurs in developing countries and the role institutional environments
play in shaping the extent and impact of innovative activities, as well as policies and institutions that
support or hinder innovation.

The Europe 2020 Strategy (EIB)37 suggests that knowledge and innovation for sustainable growth can
be achieved through resource efficiency, greener and competitive economy; high employment economy,
research, climate action and energy; education; and combating poverty. It all starts with education which
supports employability, greater capacity for R&D, innovation across all sectors of the economy that is
combined with increased resource efficiency, improved competitiveness and job creation. Investing in
cleaner technologies helps our environment, contributes to fighting climate change and creates new
business and employment opportunities. ICT infrastructure and digital networks strengthen and

35 Gallouj, 2000
36 http://www.wider.unu.edu/publications/books-and-journals/2011/en_GB/Entrepreneurship-Innovation/
37 www.eib.org/report


accelerate this dissemination. Competition and innovation-driven growth (WB)38 can be promoted by
increasing competitiveness in the manufacturing sector. World Bank studies show that innovative firms
exhibit higher employment growth, depending in strength on the level of skills and qualifications, with
younger firms portraying higher innovation rates, where enabling pro-competitive enabling environments
support access to information, finance, export opportunities, essential services that facilitate entry and
expansion of young firms. The Global Innovation Index39, explores the transformative power of
innovation and identifies its enablers that are important for socio-economic growth, despite data
limitation and different interactive factors per country.

A global assessment on “Science and Technology” in terms of budget, human resources, status of
science and research goals and despite formal similarities among countries, found out that: i) emerging
countries use science as a tool for innovation, supported by state and incentives, seeking international
cooperation and participation; ii) research is seen as luxury, distant from needs and out of reach; funding
is accepted without working on projects themselves, as some countries suffer from wars or poverty. Yet
some countries are rich with oil and do not need research for economic reasons; to those, research is a
decoration, as some tribal or monopolizing regimes have divergent values. The little science that remains
will need international support to ensure viability and sustainability. Authorities should take interest,
private sector participation inclusive academia should play an active role; and iii) intermediary countries
have not clearly identified the actual function of research, with fluctuating state support. Institutions are
strong, where researchers are firmly rooted, yet strategy building is difficult. Components of S&T are
reliant on human resources in terms of numbers, critical mass, profession standards, work conditions and
brain drain. The challenge has become to keep capacities from disappearing, by building on good
treasures (dedicated scientists) and availing enabling environments for their research (labs, networks…).
International support and appropriate mechanisms can boost research (UNESCO)40.

RDI systems are reliant on these critical activities: i) provision of R&D investment to create new
knowledge, primarily in engineering, medicine and natural sciences, ii) capacity-building to create a highly
skilled work force to be used in R&D, iii) establishment of new product markets, iv) quality assurance
mechanisms, v) encouraging creative organizations which promote entrepreneurship and enhance the
infrastructure to boost innovation, vi) networking through markets and mechanisms with interactive
learning amongst the institutions involved, vii) creating enabling institutions which facilitate innovation -
such as IPR and tax laws, R&D investment, sound environmental and safety regulations; viii) incubation
activities to foster innovative projects; ix) financing of innovative processes to facilitate the
commercialization of knowledge; and x) consultancy services for technology transfer - including the legal and
commercial aspects of innovative activities (Edqvist, 2006). In such a climate, innovation can be
generated from the synergies amongst opportunities, capacities, resources and incentives. Countries with
robust innovation systems have privileged research in a variety of contexts including universities and the
private sector. This has led to new challenges for research management and universities to expand their
research links with industry, commerce, government and the community at large.

Universities are key players who fuel through “Research” the reservoir of future researchers and highly
qualified, inquisitive and creative human capital for production sectors, given the advantage of harbouring
the greatest number of researchers, adding value through liaisons with other international bodies.
Nationally universities can participate in dealing with impending problems. Challenges facing research has
been attributed to: financial, professional and institutional reasons. Universities have to compete for
funding, based on value and assessment from basic to applied research. Research centres face more
serious dilemmas, as mostly are ‘mission oriented’, set up to provide new technologies to governments, or
entrusted with public services requiring accuracy and reliability (e.g. producing vaccines). Issues to address
are the roles of centres, whether technical, service provision, social programs or other sophisticated
services for international firms. Research needs setting up or strengthening of adequate building blocks,

38 http://go.worldbank.org/5HRC2LA230
39 Global Innovation Index 2011 Accelerating Growth and Development Soumitra Dutta, INSEAD Editor
40 Mapping research systems in developing countries, UNESCO


namely laboratories, supported by criteria-based assessments, for both research outputs. Cooperation is
vital for co-authorships, which are indicative of multi-national cooperation, less occurring in Africa, Asia
and the ME and mostly taking place in Europe, USA and Japan, by scientists from the metropolis of
science. Yet, many emergent countries have national articles (India, China, Asian).

The UNESCO Forum on Higher Education (2009)41 focused on the role and status of “National
Research Systems” in relation to the challenges posed knowledge economy and policy dialogue on key
underpinning research systems: (i) policy trends; (ii) infrastructure; (iii) human capacity; and (iv)
investment, as well as charting the course in light of new and changing knowledge society dynamics
within the areas of higher education, research and innovation, namely: (i) demand; (ii) diversification of
provision; (iii) changing lifelong learning needs; and (iv) growing ICT usage, enhanced networking and
social engagement, both with the economic sector and with the community at large. Increased
partnerships among governments, economic sectors and research universities help link knowledge to
development goals, needed a flexible and pragmatic research approaches, within academia. Overall, the
situation of research universities in low-income countries remains bleak needing rapid and effective
solutions. Other challenges facing research include equity; quality; relevance; ownership; international
networking, research and innovation systems that support creation of new knowledge through R&D,
human capital, new product markets, quality assurance, creative organizations, entrepreneurship,
infrastructure, networking and interactive learning, innovation-based environment, support to IP rights,
tax laws and other safety regulations; in addition to incubation activities to foster innovative projects;
financing of innovative processes to facilitate the commercialization of knowledge; and consultancy
service for technology transfer (including legal and commercial aspects of innovative activities (Edqvist,
2006).

One success story is the significant rise in the number of Singapore’s Research Scientists and Engineers
(RSEs), from 4329 in 1990 to 11,596 in 2004 (Mouton, 2007).

E. ICT infrastructure (Back)

A dynamic ICT Infrastructure ranging from radio to the internet is required to facilitate effective
communication, dissemination and processing of information, hence a key knowledge transfer enabler
and communications channel and network. The impact of ICT is reliant on the human capital and the
availability and level of the ICT infrastructure, in addition to the governments governing policies and
interventions, on the national level, while being reliant on skills set and degree of innovation, on the
business level (UN Conference on Trade)42, yet measuring this impact is difficult due to the diverse and
changing nature of ICT, complexity of impacts and illustrating a cause-and-effect relationship between
the different variables. However, positive impact was found on economies, businesses, poor communities
and individuals, directly and indirectly across economic, social and environmental realms. ICT is also used
in management information systems (MIS) and decision support systems (DSS). Challenges facing such
systems, are updating, particularly from very old technologies, as well as maintenance, skilled human
resources and finance. The global telecommunications services (Pyramid Perspective 2012)43 market is
expected to grow at a more modest 4% in 2012 (after expanding at7% in 2011), as a result of the rising
volatility and uncertainty facing the global economy, at a total service revenue of US$1.7 trillion, or 2.4%
of global GDP (2012). Mobile broadband, enabled by the proliferation of high-speed mobile computing
devices including smart phones and tablets, will be one of the largest growth areas in 2012, enabling
further penetration in emerging markets. Regulators and policy makers around the world are pushing for
broadband adoption, putting incentives to increase investment in broadband infrastructure, key for
development as governments make unprecedented financial commitments to the sector and mobilizing
private capital along the way. Since the late 1990s wireless technologies and liberalization of
telecommunications markets lead to tremendous access to ICT.

41 Ref. Higher Education, Research and Innovation – changing dynamics, Higher Education, Research and Innovation: Changing
Dynamics Report on the UNESCO Forum on Higher Education, Research and Knowledge 2001-2009
42 Measuring the Impacts of ICT for Development. UN Conference on Trade & Development
43 Pyramid Perspective 2012 Top Trends in the Global Communications Industry


Part II
Situational Analysis of the Knowledge Transfer Channels in the
Middle East and North Africa (MENA), Gaps and
Recommendations
(Back)

Developing countries are facing challenges in attaining knowledge-empowered systems, failing to tap the
vast and growing stock of knowledge because of their limited awareness, poor economic incentive
regimes and weak institutions, thus increasing the “Knowledge Divide” between them and countries
that are generating most of this knowledge, amidst increasing international competition emitting out of a
combined trade policy liberalization and knowledge revolution, challenging the natural resources and low
labour costs advantages most developing countries had relied, or still relying on. A widening knowledge
gap with industrialized countries, is attributed to lack of innovative capabilities, R&D, scientific articles,
patents and inequality in internet accessibility.

Developing countries need to build on their strengths and carefully plan appropriate investments in
human capital, effective institutions, relevant technologies, innovative and competitive enterprises in
order to capitalize on the knowledge revolution and improve their competitiveness and welfare.

A. Socio-economic regimes (Back)

Arab countries, of about 355 million inhabitants, stretch by more than 6300 km from Baghdad to
Nouakchott, of lower middle income classified economies, with Egypt having the largest market and
population size of 23% of the Arab world (about 80,8 million)44. In fact 6 Arab countries account for
more than 70% of population. In terms of GDP Saudi Arabia alone accounts for more than 26% of total
Arab GDP and only 6 countries account for nearly 70% of total Arab GDP (2007). The Arab region is
very heterogeneous in terms of economic and social development. Its market size and business
environment climates vary, as does the income per capita of 80,000 US$ in high income GCC countries
to just 385 US$ in low income countries such as Mauritania, Sudan and Yemen.

Knowledge economy oriented policies in the MENA are taking the low-road approach to economic
development, as the UNIDO report (2002/2003) points out, when confronted with intense global
competitive pressures, developing countries may be tempted to take the low road and foster development
by devaluating exchange rates, disregarding labour or environmental regulations and reducing wages, only
to enrich the few and perpetuate social inequities – a trait seen during Arab Spring. A high-road approach
to economic development, in when less-developed countries use competitive advantages, create a stable
macroeconomic structure, liberalize trade, develop human capital and infrastructure and attract
transnational corporations, foreign direct investment and imported technology. Knowledge, education
and infrastructure play particularly important roles in the high-road approach, as witnessed in 13 countries
(Commission on Growth & Global Development)45, crafted policies to create economic growth of 7%
GDP over 25 years, in countries that were poor 35 years ago (such as Singapore and Thailand) had
invested in schooling its citizens and deepening its human capital. The development of human capital was
one of the principal means by which government policy was used to support economic development in
these high growth countries. Conversely, the study found that no country had sustained rapid growth
without also keeping up impressive rates of public investment in infrastructure and education. But for
those policy-makers who choose the high road, development policy and programs can build the
infrastructure, human capital and knowledge needed to fuel economic productivity, while promoting
social equity and broad-based

44 2010 (Wikipedia)
45 Commission on Growth and Global Development (2008)


Using World Bank Governance Index and indicators, the quality of Arab institutional framework was
assessed; showing that Arab countries in general suffer from a weak regulatory framework and
widespread corruption. The Corruption Perception Index, published by Transparency International,
assessed the magnitude of corruption in 180 countries based on 13 independent indicators in the public
and political sectors. Arab countries showed a level of ‘Perception of Corruption’ of less than 5 on a scale
of 1 – 10 . This implies a direct correlation between the spread of corruption and the decline of
government performance. Jordan scored a little above 5. Corruption and regulatory framework
assessments showed that only 7 Arab countries had positive scores (2007). Countries that had relatively
better governance status are Bahrain, Jordan, Kuwait, Oman, Qatar, Tunisia and the UAE. It is clear that
the quality of the institutional framework is a big handicap for FDI inflows to the Arab region. Political
stability is low, rendering a risk-prone region that inhibits foreign investors despite the investment
opportunities of the region. Only 6 Arab countries had positive values on political stability of the index
out of 17 Arab countries. The rule of law situation is better with 8 countries having positive scores,

Long term impact of a stable macroeconomic policy is essential as FDI responds to macroeconomic
fundamentals rather sluggishly (Kamaly, 2006), therefore, macroeconomic stability is important to
translate the impact of FDI on economic growth (Jallab et al, 2008). FDI exerts a positive impact on
growth, but more so through employment and value added and less through spill-over effects of
technological transfers (Nicet-Chenaf, 2007). FDI inflows to the MENA region are not related
investments to human capital and technology (Onyeiuw 2008), yet the difficulty of measuring human
capital and technology in the region due to serious data limitations makes it difficult to conclude that
these factors are not relevant to FDI. The region is not FDI attractive despite good macroeconomic
frameworks and progress in liberalization. Trade and exchange liberalization, infrastructure availability
and sound economic and political conditions help increase FDI (Sekkat and Varoudakis 2004). Arab
countries aiming to attract European FDI should learn from East European experiences in terms of
regulations and use of investment diplomacy as a tool to attract more FDI (Zukrowska et al, 2006).
Multinationals allocate FDI to regions where return is highest – this is heavily impacted by the quality of
infrastructures; most countries aim for more FDI by investing in infrastructure projects, since the quality
backbone services are affecting FDI inflows to MENA countries (Sekkat, 2002).

The status of infrastructure is linked to the level of economic development. Most Arab non-Gulf countries
need to upgrade their infrastructures in order to improve their business environments.

Arab Countries Share in Global FDI Inflows and Cross-border Mergers and Acquisitions (1997-2006)
was $62,406 M, which is 16.% of the developing countries share and 4.8% of the $1,305,852 M global
share. The impact of quality institutions on FDI flows is evident . Bad institutions and governance deter
FDI and increase the risk of hesitation among investors. Using World Bank Governance Indicators
(Marani 2007)46 developed by Kraay et al (2005) found that institutions play a significant role in
investment attractiveness of countries. Alessandrini (2000) concentrated on the role of legislation and
regulation that directly manage FDI inflows. Sarisoy et al (2007) argued that FDI depends on the political
regime. He found that autocracies are likely to receive relatively more vertical47 FDI, whereas democracies
are more likely to receive more horizontal FDI.

Attracting higher levels of FDI is premised upon a sufficient level of education and skills. Without
policies and systems in place to ensure increasing levels of skills formation, investors choose other
destinations or bring low levels of technology which is not upgraded over time and fails to increase
demand for higher skilled labour (Lall 2000).

46 Marani (2006)
47 See Definitions


According to the Arab Human Capital Challenge Report (UNDP/MBRF 2009)48, record high levels of
liquidity in the Gulf have encouraged public spending, re-investment and FDI outflow to many Arab
countries such as Egypt, Jordan and Tunisia. This FDI outflow has gone into numerous sectors that have
since prospered, such as tourism, real estate, construction and financial services. These sectors became
main vehicles for growth and generated employment for people in the region at all levels, creating
heightened need for skilled and qualified labour. Intra-Arab FDI is found to be very unpredictable and
unevenly distributed between countries, yet encouraged by regulating environments, discouraged by
infrastructure quality and can benefit from improved business environment, control of corruption, risks
and deepening cooperation. FDI flows are determined by market size, purchasing power, quality of the
business and investment environment. Trade flows are strongly related to investment flows, however
economic freedom is not a strong impediment to attracting FDI as most government have special
regulations with regards to FDI. It is important to highlight economic, geographical and regulatory
factors involved in the intra-regional investment decision to address the gaps and strengthen the drivers
of intra-regional FDI (Laabas & Abdmoulah)49. Inter-Arab investment flows, are shown using an
augmented gravity model based on both Standard Gravity Variables (distance, income and population,
congruity and other dummies) of both sending and receiving countries, as well as on a set of variables
specific to cross-border investment flows using panel data of Arab countries.

Table 1
Inward FDI flows, in $M, current prices & exchange rates, 2000-2010 (sorted & rounded figures 2010)
Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
S. Arabia 183 504 453 778 1,942 12,097 17,140 22,821 38,151 32,100 28,105
Egypt 1,235 510 647 237 2,157 5,376 10,043 11,578 9,495 6,712 6,386
Qatar 252 296 624 625 1,199 2,500 3,500 4,700 3,779 8,125 5,534
Lebanon 964 1,451 1,336 2,860 2,484 3,321 3,132 3,376 4,333 4,804 4,955
UAE -506 1,184 95 4,256 10,004 10,900 12,806 14,187 13,724 4,003 3,948
Jordan 913 274 238 547 937 1,984 3,544 2,622 2,829 2,430 1,704
Tunisia 779 487 821 584 639 783 3,308 1,616 2,758 1,688 1,513
Morocco 422 2,808 481 2,314 895 1,654 2,449 2,805 2,487 1,952 1,304
Palestinian 62 19 9 18 49 47 19 28 52 265 115
Kuwait 16 -176 4 -67 24 234 121 112 -6 1,114 81
Yemen 6 136 102 6 144 -302 1,121 917 1,555 129 -329

Table 2
Outward FDI flows, $M, current prices & exchange rates, 2000-2010 (sorted & rounded 2010)
Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
S. Arabia 1,550 46 2,020 473 79 -350 -39 -135 3,498 2,177 3,907
Kuwait -303 -242 -77 -4,960 2,581 5,142 8,211 9,784 9,091 8,636 2,069
UAE 424 214 441 991 2,208 3,750 10,892 14,568 15,820 2,723 2,015
Qatar 18 17 -21 88 438 352 127 5,160 6,029 11,584 1,863
Egypt 51 12 28 21 159 92 148 665 1,920 571 1,176
Morocco 59 97 28 12 31 75 445 622 485 470 576
Lebanon 108 1 0 611 827 715 875 848 987 1,126 574
Tunisia 2 6 6 5 4 13 33 20 42 77 74
Yemen -9 1 39 61 21 65 56 54 66 66 70
Jordan 9 32 14 -4 18 163 -138 48 13 72 28
Palestinian 213 377 360 49 -46 13 125 -8 -8 -15 -11
UNCTAD, UNCTADstat
(back to list of tables)

48 Arb knowledge report 2009, Towards Productive Intercommunication for Knowledge, Mohammed bin Rashid Al Maktoum
Foundation (MBRF) and the United Nations Development Programme/ Regional Bureau for Arab States (UNDP/RBAS
49 Belkacem Laabas, Walid Abdmoulah API/WPS 0905


From 2000 to 2008 trade as a percentage of regional GDP (Schwalje, LSE/UK)50 increased at a
compound annual growth rate of 2.87%, with imports and exports increasing from 72% of regional gross
domestic product (GDP) in 2000 to 90% in 2008. Trade in knowledge-based services as a percentage of
regional Gross Domestic Product (GDP) also increased from 2000 to 2009 at a compound annual growth
rate of 2.76% which was roughly the same as the OECD countries. Exports of knowledge-based services
during this period increased at a compound annual growth rate of 12.40% which was less than S. Asia at
24% and E. Asia and the Pacific at 13.41% but comparable to OECD countries at 11.23%. However,
export sophistication is declining. Royalty and license fees decreased at a compound annual growth rate
of -2.3% from 2000 to 2009.

Only 1% of the Arab World’s manufactured exports are classified as high-technology, R&D intensive
exports and the region’s portion of high technology exports as a percentage of manufactured exports
actually declined at a compound annual growth rate of -4.83% from 2000 to 2009 (Bank 2010).

The "Investment Climate in the Arab Countries 2007 Report51" shows a stable investment climate
despite regression in composite indicators, inclusive surged inflation in 12 Arab countries. There was an
unprecedented growth of US$ 62.4 B in 2006 (UNCTAD 2007) accounting for 4.8% of the global FDI
inflows, as an outcome of the tangible increase in FDI inflows to 14 Arab countries (Egypt, KSA, Jordan,
Sudan, Lebanon, Oman, Qatar, Syria, Algeria, Bahrain, Tunisia, Djibouti, Libya and Somalia), on one
hand and decreased FDI inflows to 7 Arab countries (UAE, Morocco, Mauritania, Iraq, Palestine, Kuwait
and Yemen), on the other. Arab foreign trade in 2007, grew by around 15.1% (WTO 2007 Estimates), so
that total Arab foreign trade, excluding Iraq & Somalia, amounted to US$ 1234.9 B, of which exports
accounted for 60.6%, i.e. US$ 749 B and imports for 39.4%, i.e. US$ 486 B. There was a tangible progress
in Arab stock markets, following reform and corrective programs adopted by most Arab stock markets
(2005 - 2006). Amended legislations, enhanced market watch and control and appropriate policies were
further boosted towards more appropriate doing-business environment. Investment legislations and
reform enhanced the doing-business environment through improvement of investment laws, tax
incentives & exemptions, bilateral, international & regional agreements, new free areas & industrial zones,
new airports & seaports and activation of the private sector's role within the comprehensive economic
process. New economy components were further boosted through the possession of latest IT &
Telecommunications applications, improvement of digital infrastructure, transparent economic statistics
& databases as well as programs for poverty elimination, employment, woman empowerment and
enhancement of civil societies. The periodic international sovereign rating by the Financial Times, based
on the sovereign rating of the international credit rating agencies, showed that Egypt, Morocco and
Jordan had a ‘speculation grade’, medium risk and probability of payment risks, while the Composite
Country Risk Index was low for Jordan and Tunisia and moderate for Egypt. The Euro-money Country
Risk was moderate for Tunisia and Egypt and high for Jordan. The Institutional Investor for Country
Rating was moderate for Tunisia and high for Jordan and Egypt. The DUN & Bradstreet Country Risk
Indicator was low for Tunisia, moderate for Jordan and Egypt. The COFACE The Global
Competitiveness Index (2007)showed improvement in Tunisia’s rank and dropped down ranks for Jordan
and Egypt. Doing Business 2008 ranks were 80 for Jordan (dropped) and 88 for Tunisia (dropped), while
Egypt showed improvement. Gulf countries were leaders on related indicators, followed by medium
income countries (Jordan, Lebanon, Tunisia, Egypt, morocco), reflecting a negative correlation between
each country's level of income and its digital divide. Arab telecommunications & ICT markets were
subject to reforms by independent regulative bodies to create favourable investment climates and
promote market opportunities.

Political players, public, private and civic sectors, the diasporas and the international community are all
“Actors of Reform”. Political actors decide the feasibility and implementation of reforms, so that they
are influenced by the change demand and the nature of the regimes. The bureaucracy in the region, highly
sized, is one of the major reforms blockers. Public servants have often rent-seeking behaviour for their

50 Wes Schwalje, LSE, UK
51 Investment Climate in the Arab Countries 2007 - The Arab Investment & Export Credit Guarantee Corporation


own and their mentors’ benefits. This explains the large observed differences between regulations and
their enforcement. The private sector is one of the main beneficiaries of the reforms but often in
collusion with political powers. The civil society is one of the main actors of change, with exceptions
resisting change, like education trade unions to protect the teachers’ interests. The media are an
instrument for dissemination of knowledge especially the social media. The Diaspora’s role is enhancive
to knowledge economy and should be drivers of change, while the international community is supportive
in terms of nationally channelled financial assistance and opening up trade access to their markets, while
introducing more open policies towards immigration and support to outflows going to the Arab
countries. This support should be used as an incentive to change.

Reform should lead to structural trade and investment policies, downsizing of public sector, financial
sector, competition and innovation, governance, government effectiveness, accountability, control of
corruption and stability.

Education, gender disparities and youth exclusion should be set also as top priorities. The feasibility of
reforms depends on local conditions. The most difficult part is related to the societal dimension, these
groups could be considered: (i) in-transition groups that need to build governance reforms and conducive
environments for KE, (ii) constitutional reformers (e.g. Morocco and Jordan that set up inclusive
processes to build reforms for democratic transition). The sequencing of reforms is essential for success
and must be adapted to the specific situation of each country, based on progressive approach with short
term wins anchored in a shared long term vision for change. This approach will be then strategic with
adequate participatory, transparent planning, budgeting, monitoring and evaluation frameworks.

Arab countries seem to have missed on rapid diffusion of ICT (Samia Satti)52, advanced knowledge
systems, recent trends of globalization and impact on economic systems and global prosperity are
lagging behind in terms of knowledge, skills, technological capabilities, spending, diffusion of ICT,
competitiveness and average growth rate. Their poor performance minimizes their integration and share
in new and global economic systems, portraying poor technology achievement index, poor absorptive
capacity and capacity to create knowledge. Gulf countries are leading the Arab States in terms of GDP
per capita, human development indicators, spending and diffusion of ICT, but fail to present a
convincing and coherent performance in the new economy. Arab countries show that most of R&D,
FTE researchers and S&T activities are mostly allocated within both public and university sectors. There
is also a gap in terms of ICT diffusion, in particular, the Internet users, telephone mainlines and cellular
subscribers, with higher numbers of users in the Gulf.

The Arab region failed to reach economic convergence with developed countries (average per capita
GDP hovers around 8% of that of N. America and has even decreased relative to the EU and E. Asian
countries), with lower labour market participation rates, especially for women and high unemployment, in
particular for the youth who suffer the highest regional level of unemployment (24.4%) in the world.

This stunning figure explains, along with the quest for freedom, good governance and social justice, the
frustration that led to what is now called the “Arab Spring”, calling for the need to adjust the economic
model for rapid, sustained and inclusive growth, with high levels of job creation.

This can be achieved by strengthening productivity and the competitiveness of regional economies,
shifting towards a knowledge-based economic model that opens up opportunities to FDI and trade (two
channels for technology inflows), develop education and training to step up readiness to knowledge
rendering skilled and productive workforce, fosters innovation and makes a full use of the ICT for the
development.

The success of the KE model depends on credibility and government commitment towards ensuring
efficient transformation of resources into outcomes by building sound institutions, especially budgetary
ones, managing public servants on merit-basis and applying the rule of law that is essential to ensure

52 Ref. The incidence and transfer of knowledge in the Arab countries Dr. Samia Satti Osman Mohamed Nour


confidence in national institutions, especially by building a credible and predictable judicial system.
Indicators of knowledge economy include measures of GDP growth, poverty, tariff and non-tariff
barriers, regulatory quality, rule of law, royalty & license fees payments & receipts, S&T journal articles,
granted patents, adult literacy rate, secondary & tertiary enrolment, telephone & computers & internet
penetration. The Arab world, falls short on most of these indicators, as shown in Figure 1.

Figure 1
Knowledge Economy Values

Source: KE Report, WB database, Knowledge Assessment Methodology KAM)
(back to list of figures)

According to the WGI, the region is still underperforming many others (36%). Fight against corruption that
undermines the credibility of policies and institutions and the confidence of investors and citizens alike in
their governments is too low in this central dimension (34%); and enhanced security that is the basis for
building any development, especially a knowledge-based one, that needs a lot of inflows from the
technological frontier, is also low. Economic and institutional regimes should foster trade and investment
flows for the transfer of technology and stimulate efficiency, for a knowledge-led growth model. The
region remains relatively closed with highest overall Trade Restrictiveness Index with less than 1% of
world exports (excluding oil), lack of facilitation (28 days for customs procedures against 12 days in
OECD), mediocre transport infrastructures and logistics performances (the latter’s index is one point
below the OECD average).

Knowledge transfer from expatriates to national staff, as per the Arab Human Capital Challenge Report,
is shown by Arab CEOs to be 74%. However, this rate was lower in UAE and Qatar than the remainder
of Gulf countries and much larger at 88% - 85% respectively in the Levant and North Africa. Knowledge
transfer was more significant in key drivers of economic growth: financial services, media, entertainment,
transport, logistics and storage (80’s%), followed by retail and consumer goods, energy and travel and
tourism (70s%), mining and utilities, engineering and construction and real estate (60s%).


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