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2020Coping withthe COVID-19 Pandemic

N o r t h A f r i c a E c o n o m i c O u t l o o k 2 0 2 0

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Copyright © 2020 African Development Bank

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www.afdb.org

The opinions expressed and arguments employed herein do not necessarily reflect the official views

of the African Development Bank, its Boards of Directors, or the countries they represent. This

document, as well as any data and maps included, are without prejudice to the status of or sovereignty

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territory, city, or area.

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ISBN 978-9973-9848-2-1 (electronic)

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ACKNOWLEDGEMENTS

The North Africa Regional Economic Outlook 2020 was prepared in the Vice Presidency for Economic Governance and Knowledge Management, under the supervision and general direction of Charles Leyeka Lufumpa, Acting Vice President and Chief Economist.

The preparation of the Outlook was led by Emmanuel Pinto Moreira, Director of the Country

Economics Department, with a core team consisting of Sara Bertin, former Acting Lead Economist

for North Africa and Chief Country Economist for Egypt and Audrey Verdier-Chouchane, Lead

Economist for North Africa. Tricia Baidoo provided excellent administrative and logistical support to

this work.

The macroeconomic part of the report benefitted from the contributions of the Country Economists

in the North Africa region: Kaouther Abderrahim Ben Salah (Senior Country Economist for Libya and

Mauritania), Richard Antonin Doffonsou (Chief Country Economist for Morocco), Guy Blaise Nkamleu

Ngassam (Lead Economist for Algeria) and Philippe Trape (Principal Country Economist for Tunisia).

Prof Léonce Ndikumana (University of Massachusetts at Amherst, USA) served as peer reviewer.

David A. Robalino (American University of Beirut, Lebanon), led the preparation of the thematic part

of the report.

The data appearing in the report were compiled by the Statistics Department led by Charles Leyeka

Lufumpa, Director and Louis Kouakou, Manager of the Economic and Social Statistics Division.

The Statistics team included Anouar Chaouch, Mbiya H. Kadisha, Soumaila Karambiri, Stephane

Regis Hauhouot, Slaheddine Saidi, Kokil Beejaye, Adidi Ivie and Guy Desire Lakpa.

The cover of the report is based on a general design by Laetitia Yattien-Amiguet and Justin Kabasele

of the Bank’s External Relations and Communications Department. Editing was provided by

Nenkashé Associates (UK) and layout support by Yasso Création (Tunisia). The African Development

Bank Language Services Department ensured the translation of the report into French.

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TABLE OF CONTENTS

ACKNOWLEDGEMENTS

TABLE OF CONTENTS

LIST OF TABLES

LIST OF BOXES

LIST OF ANNEXES

LIST OF FIGURES

LIST OF ACRONYMS

EXECUTIVE SUMMARY

PART I: RECENT MACROECONOMIC TRENDS AND DEVELOPMENTS

1.1 Global Macroeconomic Trends and Developments

1.2 Recent Macroeconomic Developments in North Africa

1.2.1 Growth momentum in North Africa

1.2.2 Inflationary pressures have eased

1.2.3 Fiscal consolidation faces challenges

1.2.4 Debt ratios to GDP are quite high in North Africa

1.2.5 Current accounts were improving

1.2.6 The COVID-19 pandemic could worsen poverty and growth inclusiveness

1.3 COVID-19 pandemic has completely changed the medium-term growth outlook (2020-2021)

1.3.1 Risks are tilted to the downside

1.3.2 Transmission channels of the COVID-19 on North African economies

1.4 Key Policy Recommendations

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v

vii

vii

vii

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iX

Xi

1

1

2

2

12

14

16

19

21

22

23

24

28

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PART II: DEVELOPING THE WORKFORCE AND SKILLSFOR THE FUTURE IN NORTH AFRICA

2.1 The current situation of job markets and skills in North Africa

2.2 Skills Development Policies in North Africa

2.3 Education, Skills and Labor Market Outcomes

2.4 Technological Progress, Structural Transformations and the Future of Jobs

2.5 Policy Recommendations

Annexes

References

33

33

34

39

47

55

59

61


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Table 1

Table 2

Table 3

Table 4

Table 5

Table 6

Table 7

Table 8

Table 9

Table 10

Table 11

Table 12

Table 13

Tourism in Egypt, Morocco and Tunisia

Contribution of manufacturing and industry to GDP

Doing Business Indicators in North African countries in 2019

Pre-COVID-19 vs Post-COVID-19 projections for economic growth in North Africancountries (in percent)

COVID-19 in North Africa: summary of the transmission channels to the economies

Failures in the Market for Education and Training Services and Corrective Policy Interventions

Cumulative dropout rate to the last grade, general education

Public Expenditures in Education and Training

Enrolment and Transitions Rates in the Formal Education System

Unemployment Rates by Education

Skills Composition of Different Occupations

Level of Development of the ICT Sector

Job Creation by Sector (2000-2018)

LIST OF TABLES

Box 1

Box 2

Box 3

Box 4

Flexibility of exchange rate in the region and the parallel markets

Algeria’s non-conventional financing model

The Growing Debt of Moroccan State-Owned Enterprises

The African Continental Free Trade Area

LIST OF BOXES

Annex 1

Annex 2

Unemployment in North Africa

Competitiveness in North African countries in 2019

LIST OF ANNEXES


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Figure 1

Figure 2

Figure 3

Figure 4

Figure 5

Figure 6

Figure 7

Figure 8

Figure 9

Figure 10

Figure 11

Figure 12

Figure 13

Figure 14

Figure 15

Figure 16

Figure 17

Figure 18

Figure 19

GDP Growth, by country 2011-2021 (%)

Sectoral contributions to GDP growth (percentage points)

Structure of uses of nominal GDP (percentage points)

Inflation by country, 2011-2021 (%)

Fiscal balance by country, 2011-2021 (% of GDP)

Total external debt by country, 2018-2019 (% of GDP)

Current account balance by country, 2011-2021 (% of GDP)

Level of Training of Human Resources in the Education Sector (scale 0-7)

Training among Formal Firms and Workers in Manufacturing

Human Capital Index, Expected Number of Years Education, and Standardized Test

Scores

Population 15+ by Level of Education and Projected Share with Higher Education

Labor Force Growth Rates and Types of Jobs

Change in the Stock of Analytical Skills (1991-2018)

Enrolment by Professional Field

Potential for Job Creation by Type of Job and Economic Sector

Economic Diversification in North African Countries

Decomposition of GDP Per Capita Growth in North African Countries

Perception of Employers about the Skills of the Labor Force (scale 0 to 7)

Firm Growth and Entrepreneurship

LIST OF FIGURES


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4IR

AfDB

AI

AEO

AfCFTA

ALMP

CBE

COVID-19

DZD

EBRD

ECA

ECD

ECEC

ECOWAS

EGP

FDI

GNI

HCI

ICT

IMF

LDC

LIC

MAD

MPC

OPEC

OECD

Fourth Industrial Revolution

African Development Bank

Artificial Intelligence

African Economic Outlook

African Continental Free Trade Area

Active Labor Markets Programs

Central Bank of Egypt

Coronavirus Disease 2019

Algerian Dinar

European Bank for Reconstruction and Development

Economic Commission for Africa

Early Childhood Development

Early Childhood Education and Care

Economic Community of West African States

Egyptian Pound

Foreign Direct Investment

Gross National Income

Human Capital Index

Information and Communication Technologies

International Monetary Found

Less Developed Country

Low Income Countries

Moroccan Dirham

Monetary Policy Committee

Organization of the Petroleum Exporting Countries

Organization for Economic Co-operation and Development

LIST OF ACRONYMS


x

OJT

SME

SOE

TND

TVET

UN

USD

VAT

On the Job Training

Small and Medium Enterprise

State Owned Enterprise

Tunisian Dinar

Technical and Vocational Education and Training

United Nations

United States Dollar

Value Added Tax


xi

EXECUTIVE SUMMARY

Before the spread of the coronavirus (COVID-19) pandemic at the global level, economic growth in North Africa wasexpected to rebound to 4.4 percent and 4.5 percent respectively in 2020 and 2021. However, the uncertain globalenvironment, the COVID-19 pandemic and the projected contraction in advanced economies will negatively impact

the growth forecast for the region. Among all African regions, North Africa had registered the most important number

of COVID-19 confirmed cases as of May 2020. The latest projections for 2020 indicate a loss of 5.2 points of growth

in the region, from a growth rate of 4.4 percent to -0.8 percent if the pandemic were to last until June 2020 (baseline

scenario) and a loss of 6.7 points with a growth rate of -2.3 percent if the pandemic were to perdure until December

2020 (worst-case scenario). In 2019, for the second year in a row, North Africa was the second-best performing region

in Africa with a growth rate estimated at 3.7 percent. However, the six countries of the region – Algeria, Egypt, Libya,

Mauritania, Morocco and Tunisia – fared differently. Mauritania and Egypt were the most buoyant economies of the

region with a 2019 rate of growth at 6.7 percent and 5.6 percent respectively. Morocco’s growth is was estimated at

2.5 percent, slightly down from 3 percent in 2018. In Algeria and Tunisia, growth was estimated to be modest, at 0.7

and 1.0 percent respectively, in 2019.

Except for Libya, the service sector contributes the most to GDP in North Africa. This sector is significantly impacted

by the COVID-19 outbreak through travel bans, disruption to transport, distribution, hotels and restaurants, entertainment

and so on. In Egypt, Morocco and Tunisia, tourism is of paramount importance. In 2018, the sector accounted for

25 percent of total exports in Egypt and 20 percent in Morocco. The industrial sector is the second highest contributor

to nominal GDP in 2019. However, the share of manufacturing is limited while the development of the private manufacturing

sector is fundamental for economic growth. It also absorbs large numbers of workers and provides them with productive

and decent paying jobs. Given the high population growth, the workforce in the region should expand further.

Since 2016, macroeconomic performance has been improving. However, the COVID-19 outbreak and its adverse impact

on commodity prices and macroeconomic stability are expected to increase fiscal and current account deficits in North

African economies. In 2019, the regional average inflation rate remained comparatively high due to inflationary pressures

in Egypt and Libya, whilst inflationary pressures were subdued in the other countries of the region. The fiscal balance,

estimated at -5.6 percent of GDP on average in North Africa for 2019, was higher than the African average of -4.7 percent.

High debt refinancing costs often limited spending on public investment, especially on human capital and targeted

transfers to the poor. Yet, countries in the region have undertaken significant fiscal consolidation since 2016. The

pre-pandemic forecast for the regional fiscal balance was expected at -6.1 percent of GDP in 2020. However, due to

the counter-cyclical and fiscal measures undertaken to mitigate the impact of the coronavirus crisis on the North African

population and private sector, widened fiscal deficits are expected. If the pandemic were to last until December 2020

(worst-case scenario), the fiscal deficit could reach 10.9 percent of GDP for the region, with high deficits in Algeria

(17 percent of GDP), Egypt (8.7 percent of GDP) and Libya (22.5 percent of GDP).


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In North Africa, reduced access to financial resources represents an important transmission channel of the coronavirus

crisis. Over the last decade, the general government debt of North African countries increased, except in Libya. For a

country like Tunisia where more than 70 percent of the public debt is external, the event of a global financial crisis

triggered by the COVID-19 pandemic can expose Tunisia to a substantial exogenous shock. Also, Egypt’s Eurobond

financing has been on the rise in recent years and could be impacted by the current crisis.

North African countries also experienced high current account deficits on average, at 4.4 percent of GDP in 2019. The

2020 pre-COVID-19 outlook indicated a slight deterioration of the regional current account deficit, at 5.6 percent of

GDP. However, the strong impact of the crisis on commodity prices and trade will significantly affect North African

economies. North African countries have important trade relationships with China and European countries as well as

important tourism receipts and remittances. The worst-case scenario, which assumes a reduction of the global demand

by 7.9 percent and an international price of oil at USD 20 per barrel in 2020, projects a current account deficit of 11.4

percent of GDP in 2020, mainly driven by a double-digit deficit in oil-exporting countries (20 percent of GDP and 19.8

percent of GDP in Algeria and in Libya, respectively) but also in Mauritania (17 percent of GDP) and Tunisia (12.2 percent

of GDP) whose main trading partners are China and European countries.

In all countries, economic growth has not been inclusive and social and regional disparities remain high. Domestic risks

to the outlook include social discontent. Over the last decade, most countries have suffered from episodes of socio-

political instability and security issues. However, whilst the security situation remains uncertain in Libya, other North

African countries made some progress. In 2019, Tunisia went through its second democratic presidential election.

Algeria elected a new president in December 2019. The new government will face the difficult task to reform and diversify

the economy in the context of declining oil prices. External risks to the outlook include a slowdown in major economies,

exacerbated by the COVID-19 pandemic. Advanced countries and China – leading the global demand for commodities

and trade – will adversely affect global trade and create uncertainty and volatility in global financial markets. Overall,

the negative effects of the COVID-19 crisis will depend on the magnitude and duration of the pandemic as well as the

effectiveness of policy responses to the crisis, including the amount of resources devoted to containing it.

In this context, socio-economic stability will be paramount for the countries of the region. Countries will also have to

undertake significant structural reforms to enhance public sector efficiency, private sector competitiveness and to create

jobs in a region where unemployment is high. Maintaining macroeconomic stability and fiscal consolidation, including

economic diversification measures, will be crucial. Considering the spread of COVID-19, and its projected impact on

regional economies, it is important that governments in the region allocate adequate resources to deal with the pandemic

and mitigate its impact on firms and households. Countries are confronted with the challenge of making growth

pro-employment and offer equal access to social and economic opportunities across regions, particularly in remote

and rural areas. The development of the agribusiness should enhance productivity and address some aspect of regional

disparities. Countries should also explore opportunities to reinforce regional integration and trade openness vis-a-vis

other African regions, in the framework of the African Continental Free Trade Area.

Investment in human capital and skills is a necessary condition for the acceleration of economic development in North

Africa. Despite large investments in education (between 3 to 6 percent of GDP are allocated to the education sector in

the region) and several attempts to reform educational systems, countries in the region have not been able to generate

structural transformations in the level and distribution of skills in the labor force and the quality and distribution of jobs

across economic activities. Countries are lagging behind in terms of human capital indicators compared to the world


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average, including the expected number of years of education of the population and standardized test scores. The

distribution of skills in the labor force continues to be biased towards manual-routine and interpersonal skills instead of

analytical skills. As new technologies driven by the fourth industrial revolution (4IR) continue to emerge and change the

distribution and nature of jobs, human capital constraints will become more binding.

In North Africa, upgrading the skills of the labor force will require coordinating reforms at various levels of the education

and training systems: from early childhood education and care (ECEC) where socio-emotional skills develop; through

basic and secondary education where foundational and learning skills are acquired; up to universities and technical

and vocational training centers where the relevant job-specific skills are transferred. For workers who are already in the

labor force, countries need to reform and expand active labor markets programs (ALMPs) and set up more efficient

mechanisms to promote on-the-job training (OJT). North African countries might also consider targeted subsidies to

promote private investments in certain economic sectors conditional on job creation for specific population groups such

as youth and women. Finally, the development of the private manufacturing sector is fundamental for economic growth

as it absorbs large numbers of workers and places them into productive and decent paying jobs.

1


RECENT MACROECONOMIC TRENDS

AND DEVELOPMENTS

1.1 GLOBAL MACROECONOMICTRENDS AND DEVELOPMENTS

In 2019, global growth has softened to 2.4 percent on

account of subdued trade and manufacturing, as per the

January 2020 World Bank estimates.1 Monetary policies

have been accommodative in advanced economies and

emerging markets, thanks to moderate inflation. The global

environment and current slowdown in advanced economies

affect the six North African countries differently. Commodity

price volatility affects Algeria, Libya, Morocco and Mauritania,

whilst exports from Tunisia and Morocco depend on real

sector activity in Eurozone countries. International capital

market turmoil, volatility of exchange rates and changes in

investor sentiment would affect the cost of government

debt in Egypt and Tunisia given significant total external

debt.

The impact of COVID-19 crisis has put global

macroeconomic trends on the downside. The economic

consequences of the pandemic in terms of declined

economic activity and trade, volatile markets, growing credit

stress will weigh on the global economic growth for 2020.

For instance, the International Monetary Fund (IMF)2 has

revised its 2020 world growth forecast downwards from

3.3 to -3 percent, the European Union’s economic growth,

from 1.3 to -7.5 and economic growth in China, from 6 to

1.2 percent in 2020. However, this is an interim outlook and

projections will change, depending on the magnitude and

length of the pandemic. The COVID-19 outbreak severely

disturbed financial markets, with equity indices in major eco-

nomies dropping significantly, and is expected to negatively

affect global FDI flows. At the Africa level, the adverse impact

of the COVID-19 outbreak voided the projected growth

trends. Africa’s economic growth, initially projected by the

African Development Bank at 3.9 percent in 2020 and 4.1

percent in 2021, was revised downwards to a range going

from -1.7 percent in a baseline scenario to -3.4 percent

in the worst-case scenario.

The volatility of oil prices greatly affects growth momentum,

current account balances, the fiscal stance and projected

investments in Algeria and Libya. As a result of the spread

of the COVID-19 pandemic, oil prices plunged in the inter-

national market, below USD 25 a barrel of Brent on March 2020.

The 2020 African Economic Outlook (AfDB, 2020), indicated

PART 1

1 World Bank (2020) Global Economic Prospect, Slow Growth, Policy Challenges, Washington, January 2020.2 International Monetary Fund (2020) World Economic Outlook, April 2020, available at /https://www.imf.org/en/Publications/WEO/Issues/2020/04/14/weo-april-2020

2


that oil prices averaged around USD 60 per barrel in 2019,

down from USD 69.78 in 2018. The 14 percent drop in price

took place despite supply disruptions in Saudi Arabia,

American sanctions against Venezuela and Iran and recurring

supply cuts by members of Organization of the Petroleum

Exporting Countries (OPEC).3 However, in recent years OPEC

cuts had little impact on crude oil price given the steady

increase in the United States shale oil production. For 2020,

AfDB (2020) assumed an average price of USD 63 per barrel,

which was in harmony with Brent prices oil future contracts

as of December 2019 but higher than the price of future as

of February 2020. However, oil prices are expected to be very

low on average in 2020, dragged down by the coronavirus

pandemic. Oil prices could positively affect the fiscal stance

of countries with energy subsidies such as Mauritania and

Tunisia. In contrast, oil-exporting countries in North Africa

(Algeria, Libya) will be particularly affected, with reduced

exports in nominal terms and fiscal revenues.

In 2019, global trade volumes continued the deceleration

that started in 2017 due to the slowdown in China and

Europe as well as the ongoing trade war between the

United States and China. Trade volume growth in the

first half of 2019 was at 1 percent, the weakest since 2012.

Prior to the coronavirus pandemic, the prices for iron ore and

copper were expected to remain unchanged in 2020.

However, a sharp drop would influence the value of Mauritania’s

exports. Experts assess refined copper inventories as low.

Therefore, if world demand were to strengthen, the price

should spike up. Morocco who owns two thirds of the world's

phosphate reserves, is the third biggest producer of phos-

phate and the world's largest exporter. In 2019, the price of

phosphate trended down from its peak in January 2019.

According to World Bank (2019), from December 2018 to

December 2019 the year-on-year decline in phosphate price

was 26.9 percent. Over the short term, the coronavirus

pandemic will negatively affect the Chinese and advanced

economies’ growth and consequently the price of commodities

and global trade.

In 2020, the COVID-19 pandemic outbreak will affect

global trade and financial markets. The economies of the

European Union, which absorb more than 50 percent and 65

percent of Morocco’s and Tunisia’s total exports respectively,

could contract sharply, following Brexit and the coronavirus

pandemic. Disruptions of international financial markets could

push up borrowing costs for Egypt, with an external debt at

34.1 percent of GDP. And tourism receipts in Egypt, Morocco

and Tunisia would be negatively impacted by the pandemic.

1.2 RECENT MACROECONOMIC DEVELOPMENTS IN NORTH AFRICA

1.2.1 Growth

As in 2018, North Africa is the second fastest growing

region of the African continent in 2019 with a 3.7 percent real

GDP growth rate. Mauritania and Egypt stand out as the

most buoyant economies of the region with a 2019 rate of

growth at 6.7 percent and 5.6 percent respectively. Egypt has

the region’s largest population — 98.2 million — and its GDP

accounts for 50 percent of the region’s GDP. At 0.7 percent

in 2019, growth in Algeria was very modest despite a slight

rebound in the production of hydrocarbons, especially gas.

Morocco’s growth is estimated at 2.5 percent, slightly down

from 3 percent in 2018. The Moroccan economy is quite

diversified, but its growth rate remains affected by weather

conditions. In 2019, Morocco’s agriculture, especially cereals,

performed modestly due to a low and poorly distributed

rainfall. In 2020, Morocco’s agriculture is forecasted to

decrease in relation to poor rainfall and the pandemic.

Growth in Tunisia is estimated to be modest at 1.0 percent

in 2019, down from 2.7 percent due to slow structural reforms

and low industrial production.

3 Those supply cuts have been taking place for the last 3 years. In December 2019, meeting in Vienna, OPEC members increased the cuts by 500,000barrels a day, i.e. 1.5 percent of global output. The decision stands until the end of March 2020.

3

The pre-COVID-19 growth in the region was projected

to strengthen in 2020 and 2021, with GDP growth rates

increasing from 3.7 percent in 2019 to 4.4 percent and 4.5

percent respectively in 2020 and 2021. The post-COVID-19

projections have been revised downwards. According to the

worst-case scenario, the region is likely to register an economic

recession in 2020 with a negative growth rate of -2.3 percent.

In both scenarios, many North African countries would be

in recession. In the baseline scenario, regional growth will

decrease by 5.2 percentage point to -0.8 percent in 2020.

A striking feature of real GDP growth in North Africa over

the last decade is its volatility. Over the 2011-2019 period,

volatility measured by the standard deviation of GDP growth

in North Africa (3.48) is higher than for the continent (1.29),

emerging markets and developing economies (0.71) and

advanced economies (0.43). Countries’ dependence on

rain-fed agriculture, prices of commodities in international

markets and tourism receipts explain part of this volatility.

For all the six countries except Algeria, volatility of

GDP growth dropped over the last four years. In North

Africa, the volatility of GDP growth was smaller over 2016-

2019 (0.7) than over the 2011-2015 period (4.9), indicating

that the economies are regaining some macroeconomic

stability. Likewise, the evolution of volatility is not identical

across the six countries. The security situation in Libya

hinders oil production, oil refinery and oil exports in the

context of lower oil prices.4 Consequently, the volatility of

GDP growth (59.7) is by far the highest among the six


3.0 1.4 0.7

-5.4

5.23.2 5.35.6

0.8 2.11.7

7.84.0

-43.7

3.44.0 3.66.7

-1.1

2.93.6 3.0 2.5

-4.6

4.11.6 2.5 1.0

-4.0-0.7

3.8 3.9 3.7

-2.3

3.0

-45.0

-35.0

-25.0

-15.0

-5.0

5.0

2011-2017 2018 2019(e) 2020(p) 2021(p)

Algeria Egypt Libya Mauritania Morocco Tunisia North Africa

Figure 1: GDP Growth, by country 2011-2021 (%)

Source: Computed using data from AfDB Statistics Dept.

Note: Projections are based on the worst-case scenario.

4 At its peak on June 24, 2014, Brent price was USD 106.03 per barrel.

4

countries. In Egypt, Mauritania, Morocco and Tunisia,

growth started to rebound in 2016 because of macro-

economic stabilization policies, the increase in the price of

oil and base metals and the rebound of tourism, especially

in Egypt and Tunisia. In contrast, Algeria’s volatility of

GDP growth has significantly increased over the 2016-19

period (0.88) representing twice its level over 2011-15

period (0.44).

Which sectors of the economy are driving growthin North Africa?

The agricultural sector is important for North African

economies. On average, it accounts for 12.2 percent of

nominal GDP at basic prices in 2019 slightly down from

an average of 12.9 percent over the 2015-2017 period. In

contrast, the impact of agriculture on real GDP growth in

North Africa is minimal, at 0.4 percent point in 2019 (Figure

2). A more productive agriculture would have a positive

impact not only on economic growth but also on poverty.

Geographic disparities are important in Algeria, Egypt and

Morocco, with the poorest areas being mainly agricultural.

For example, in Egypt, data points to an average level of

poverty at 32.5 percent, compared to 56 percent in Upper

Egypt where agriculture represents the main source of

livelihood for the population. The Egyptian and Moroccan

governments aim to develop the agribusiness industries to

foster inclusive growth. The share of agriculture in nominal

GDP is insignificant in Libya (0.9 percent) and substantial in

Mauritania (25.9 percent). Mauritania is the least developed

country of the region with the lowest gross national income


Algeria Egypt Libya Mauritania Morocco Tunisia NorthAfrica



Average 2015-17 2018 2019

Agriculture Industry Services

-2.0

0.3 0.4 0.1 -0.10.5 0.4 0.5

-0.90.5 0.0 1.1 0.4 0.5 0.5 0.0 1.1 -0.6 0.1 0.3

1.4 0.4

10.0

-0.20.9

2.25.4

-0.60.8 1.2

-0.5

2.1 2.9 1.70.9

-1.1

1.11.0 1.9

4.5

1.21.5

1.31.6

1.8

2.6

2.4

2.6 1.6 1.52.2

1.0

2.6 1.03.6

1.92.0

2.0

0.02.04.06.08.0

10.012.014.016.0

0.50.6

0.1 1.00.1

0.3

Figure 2: Sectoral contributions to GDP growth (percentage points)


Note: GDP at basic prices equals GDP at market prices, minus taxes and subsidies on products.

5

(GNI)5 per capita. In Mauritania, agriculture contributed

1.4 percent point to real GDP growth in 2019, the highest

contribution to real growth in the region.

Except for Libya, the service sector contributes the most

to GDP in North Africa. The share of the service sector in

GDP can be as high as 62.7 percent for Tunisia in 2019 and

56.3 percent in Morocco, whilst the average for the region

was 49.2 percent in 2019, down from the 2015-2017 average

of 51.1 percent. In addition, services are the highest contributor

to real GDP growth, and the contribution has been trending

up from 1.7 percent point on average during the 2015-2017

period to 2.4 percent points in 2019.

The service sector is being significantly impacted by

the COVID-19 pandemic through travel bans, lockdowns,

disruption to transport, distribution, hotels and restaurants,

entertainment and so on. The final impact will depend on

the duration of the pandemic and the consumers’ behaviors

after the pandemic. In North Africa, the service sector

contributed 2.4 percentage points to GDP growth in 2019.

In Egypt, Morocco and Tunisia, tourism is of paramount

importance. In 2018, the sector made up 25 percent of total

exports in Egypt and 20 percent in Morocco (Table 1). The

share of tourism in Tunisian exports has been steadily declining

over the last decade from 18 percent in 2009 to 12 percent

in 2018, despite an increasing number of tourists (from 7.8

million in 2009 to 8.3 million in 2018). In Tunisia, the tourist

sector centers on price competitive mass tourism. The

receipts per arrival dropped by more than 40 percent over

the last decade. Table 1 also illustrates the negative impact

of the Arab Spring in 2011 and perceived poor security

conditions on international tourist arrivals in Egypt and

Tunisia. In contrast, in Morocco, tourist arrivals and total

receipts have steadily increased since 2009 with a yearly

average of 5 percent and 2 percent respectively. The

coronavirus pandemic worldwide will imply a drop in East

Asian and European tourist arrivals, affecting Egypt,

Morocco and Tunisia the most. It will tremendously impact

hotels, restaurants, airlines and local activities putting many

jobs at risk. As international flights have been banned and

restaurants, cafes and entertainment venues have closed

for an undetermined period, reducing the tourism industry

to zero. Based on the 2018 figures, it represents an estimated

loss for the region of between USD 10.6 billion and USD

21.1 billion in tourism receipts.


5 As per the GNI per capita, the World Bank classifies Mauritania (USD 1,190); Morocco (USD 3,449.49); Egypt (USD 2,907.3) and Tunisia (USD 3,453.7) aslower middle-income economies whilst Algeria with a GNI per capita standing at (USD 4,115) and Libya at (USD 7,235) are upper middle-income economies.

6

The industrial sector is the second highest contributor

to nominal GDP with a regional average of 38.5 percent

in 2019, up from 36 percent in 2015-2017. The sector is

significantly contributing to real growth (0.9 percentage point

on average for the region in 2019). However, the contribution

of industry to real GDP growth varies across countries and

time. Whilst it rebounded in Egypt (from 0.4 percentage point

in 2015-2017 to 1 percentage point in 2019) and Mauritania

(0.4 percentage point in 2015-2017 to 1.9 in 2019), it remains

low but stable in Morocco (0.6 percentage point in 2015-

2017 and in 2019). In contrast, it keeps decreasing in Algeria

(1.4 percentage point in 2015-2017 to 0.4 in 2019) and is

negative in Tunisia (-0.2 percentage point in 2015-2017

to -0.1 in 2019). As shown in Table 2, the contribution of the

manufacturing sector, excluding energy and construction,

remains limited.


Table 1: Tourism in Egypt, Morocco and Tunisia

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

International tourist arrivals (million)

Egypt 12.5 14.7 9.8 11.5 9.5 9.9 9.3 5.4 8.3 11.3

Morocco 8.3 9.3 9.3 9.4 10 10.3 10.2 10.3 11.3 12.3

Tunisia 7.8 7.8 5.7 7 7.4 7.2 5.4 5.7 7.1 8.3

International tourism receipts (USD billion)

Egypt 10.8 12.5 8.7 9.9 6 7.2 6.1 2.6 7.8 11.6

Morocco 6.6 6.7 7.3 6.7 6.8 7.4 6.3 6.5 7.4 7.8

Tunisia 2.8 2.6 1.9 2.2 2.2 2.4 1.4 1.2 1.3 1.7

Receipts per arrival (USD)

Egypt 860 850 880 850 640 730 650 490 940 1020

Morocco 790 720 780 710 680 720 620 630 660 630

Tunisia 360 340 330 320 300 330 260 220 190 210

Share of tourism of total exports (in %)*

Egypt 26 27 19 21 14 16 17 8 19 25

Morocco 27 25 24 23 23 23 21 21 21 20

Tunisia 18 16 11 13 13 14 11 10 10 12

* Export revenues from international tourism are composed of "travel" (receipts in destinations) and "passenger transport" receipts.

Source: UNWTO World Tourism Organization.

7

A key feature of the worldwide sluggish growth of 2019

is the sharp and geographically broad-based slowdown

in manufacturing and global trade which is expected to

continue with the coronavirus pandemic. Global supply

chain disruptions caused by the COVID-19 disease are not

expected to return to normal before July 2020. In the worst-

case scenario, the world economic demand is expected to

decline by 7.9 percent (7.8 percent in the Euro zone) implying

sluggish global trade, investments and a sharp slowing

manufacturing sector in North Africa which mainly responds

to the European demand for manufacturing products.

Manufacturing in North Africa recorded in Q1 2019 a year-

on-year growth rate of 1.8 percent, down from 2.5 percent

in the fourth quarter of 2018.6 With 3.1 percent year-on-year

growth, Morocco’s manufacturing production expanded in

the first quarter of 2019.

Private manufacturing should pick up as competitiveness and the ease of doing businessare improving

The development of the private manufacturing sector is

fundamental for economic growth as it absorbs large

numbers of workers and provides them with productive

and decent paying jobs. Modern industry provides relatively

well-paid jobs for large numbers of unskilled or under-

educated workers. This issue is important for North Africa

given the significant unemployment rates, especially among

the youth. North Africa has 194 million inhabitants, representing

16 percent of Africa’s population estimated at 1.2 billion.

The region also faces high unemployment levels with no signs

of improvement.7 Youth unemployment is one of the main

challenges faced by the six countries. Except in Mauritania

and Morocco where youth unemployment stands at 15.2

percent and 19.4 percent respectively, in all other countries it

is above 25 percent and as high as 34.7 percent in Tunisia.

Moreover, the median age of the population in North Africa is

25 years as compared to 19.4 years for the continent. The

working age population is expected to remain young over the

medium term given the current growth rate of the population

in the region.8 The development of the manufacturing sector



Table 2: Contribution of manufacturing and industry to GDP

Manufacturing, value added in % of 2018 GDP

Industrial sector including construction, value added in % of

2018 GDP

Algeria 4.3 39.0

Egypt 16.2 35.0

Libya N.D N.D

Morocco 15.7 25.9

Mauritania 7.8 24.5

Tunisia 15.2 23.4

6 UNIDO Statistics.7 Data from the International Labour Organisation.8 In Algeria, Egypt and Mauritania, the population grows at a rate close to 2 percent or above (the average for North Africa is 1.89).

8


would also reduce vulnerable and under-employment as well

as informality and potentially, the high unemployment rates

among educated youth. In North Africa, a “gender paradox”

exists whereby young women generally achieve higher

educational levels but are also more likely to be unemployed

or not economically active. The issue of unemployment

becomes more challenging in the context of fast-growing

digital technologies, which are transforming the profile of jobs

and the required skills (see Part II).

On a positive note, competitiveness across the countries

in the region is steadily improving as shown by the

improvement in competitiveness indicators except for

Mauritania (Annex 2). In most North African countries, the

private sector still represents an insufficient part of the formal

economy to powerfully drive job creation (EBRD et al., 2016).

The improvement of the Ease of Doing Business composite

indicator of the World Bank in North Africa (Table 3) highlights

the numerous reforms undertaken by the authorities of all

countries. Despite the improvements in their overall scores,

the countries of the region ranked diversely. Whereas Morocco

and Tunisia are respectively 53 and 72 out of 190 countries,

Egypt ranks 114, Mauritania 152 and Algeria 157. On the

sub-indicator representing the ease of starting a business,

Tunisia (19 out of 190), Morocco (43 out of 190) and Mauritania

(49 out of 190) perform especially well. Egypt progresses

given ongoing structural reforms but currently ranks 90th out

of 190 countries. Mauritania ranks well on two sub-indicators

(starting a business and enforcing contract) whilst it does not

on the other sub-indicators. Except in Egypt, accessing credit

remains one of the impediments of new businesses in Algeria,

Mauritania, Morocco and Tunisia.

9


Table 3: Doing Business Indicators in North African countries in 2019

Algeria

Egypt

Morocco

Mauritania

Tunisia

Score Ranking*

Score

compared

to 2019

Score Ranking*

Score

compared

to 2019

Score Ranking*Score

compared

to 2019

Score Ranking*Score

compared

to 2019

Score Ranking*

Score

compared

to 2019

Ease of Doing

Business

48,6

157

↑(48.5)

60,1

114

↑(58.5)

73,4

53↑(71.7)

51,1

152

↑(49.4)

68,7

72↑(67.2)

Opening a business

Starting a business

78152

↑(77.9)

87,8

90↑(83.8)

9343

No Changes

92,2

49No Changes

94,6

19↑(88.5)

Getting a Location

Dealing with

Construction

Permits

65,3

121

↑(64.6)

71,2

74↑(70.8)

83,2

16↑(82.5)

66,9

109

No Changes

77,4

32↑(77.1)

Getting Electricity

72,1

102

↑(71.9)

77,9

77↑(71.5)

87,3

34↑(81.3)

48,2

166

↑48.2)

82,3

63↓(82.4)

Registering

Property

44,3

165

No Changes

55130

No Changes

65,8

81↓(66.6)

61,4

103

↑(61.3)

63,7

94↑(62.7)

Accessing Finance

Getting Credit

10181

No Changes

6567

No Changes

45119

No Changes

40132

↑(30)

50104

No Changes

Protecting

Minority Investors

20179

No Changes

6457

↑(62)

7037

↑(64)

32147

No Changes

6261

No Changes

Dealing with Day to Day Operation

Paying Taxes

53,9

158

No Changes55,1

156

↑(52.6)

87,2

24↑(85.2)

42,6

177

No Changes

69,4

108

↑(62.2)

Trading Across

Borders

38,4

172

No Changes

42,2

171

No Changes

5885,6

↑(84.8

60,3

144

No Changes

74,6

90No Changes

Operating in a Secure Business Environment

Enforcing Contract

54,8

113

No Changes

40166

No Changes

63,7

60↑(60.9)

6648

(60.4)

58,4

88No Changes

Resolving

Insolvency

49,2

81No Changes

42,2

104

↓(42.3)

52,9

73↑(52.8)

0168

No Changes

54,2

69No Changes

Sourc

e: D

oin

g B

usi

ness

, 2020 W

orld

Bank.

* R

anki

ng o

ut

of 190

10

Consumption is the biggest contributor to GDP butcontributes little to growth whilst investment hasbeen a strong growth driver

In North Africa, the sum of public and household

consumption represented 83 percent of GDP on average

in 2019. The structure of the use of GDP has not changed

widely across time. Indeed, public and household

consumption in the region accounted for 81.5 percent of

nominal GDP over the 2015-2017 period and 80.7 percent

in 2018. However, the structure differs widely across

countries. Household consumption represents the lowest

share of GDP in Algeria at 41.8 percent in 2019 and the

highest in Egypt at 84.4 percent. Mauritania (55.5 percent),

Morocco (58 percent) and Tunisia (71 percent) stand between

the two extremes. However, the contribution of household

consumption to GDP growth has been modest in 2019 at 0.9

percentage point, down from its 2015-2017 and 2018

average, standing at 1.9 and 1.3 percentage point respectively.

Except in Mauritania and Morocco, household consumption

contribution to growth has slowdown in 2019 in the four other

North African countries. Because most households have

been confined and most of the shops have closed, the

coronavirus crisis will certainly reduce household consumption.

Also, households reduce the purchase of capital goods (such

as cars) in time of uncertainty.

Investment has been one of the growth drivers in 2019.

Its contribution to GDP growth was 3.3 percentage

points in 2019 against 2.2 over the 2015-2017 period and

2.4 in 2018. In the region, investment (both public and

private) is on average strong at close to 30 percent of

GDP. However, during the COVID-19 pandemic, private

investment decisions are expected to be postponed. For

instance, UNCTAD (2020) estimates the downward pressure

on FDI ranging from -5 to -15 percent for 2020-2021 while

initial forecasts projected marginal growth in the FDI trend.

Only public investment could remain important, notably to

mitigate the negative effects of the pandemic and support

economic growth. While investment is higher in countries

highly dependent on oil (Algeria and Libya) and extractive

industries (Mauritania), the investment rate is low in Egypt at

15.1 percent in 2019, slightly down from the 2015-17 period

(15.6 percent) and from 2018 (16.7 percent). Since 2016,

Egypt has restored macroeconomic stability and undertaken

numerous structural reforms, including a new law on industrial

licensing, investment and insolvency aiming to anchor

medium to long-term inclusive growth. However, private

investment is undermined by a significant infrastructure-financing

gap as per the G20’s Global Infrastructure Outlook.9 Finally,

in 2019, the contribution of net exports to growth is negative

for the region at -0.5 percentage point on average. It is

negative for all the countries of the region except in Mauritania

where it contributed to growth positively at 0.9 percentage

point in 2019. The COVID-19 pandemic will push further

the negative contribution of net exports to growth with the

expected widening of the trade deficits. The current account

deficit in North Africa, initially projected at 5.6 percent of GDP

in 2020, is likely to reach 10 percent of GDP with reduced trade

in volume and reduced prices of oil and other commodities.


9 https://outlook.gihub.org/countries/Egypt.

11

Negative net exports point to a saving investment

imbalances in the region (i.e., the countries spend more

than they save), especially in Libya. This is regardless of the

openness to trade of those economies.10 Indeed, Algeria and

Egypt are the least open to trade with a ratio of exports plus

imports to GDP at 58 percent and 48 percent respectively

in 2018, compared to 111 percent for Tunisia. However,

the ratio of net exports to GDP is comparable in the three

countries. In addition, the openness to trade of Algeria

and Egypt has declined since 2008 (from 71.6. and 71.7

respectively). For the other four countries of North Africa,

despite significant volatility since 2008, openness to trade

remains unchanged.11

Since 2016, macroeconomic stability has been improving

in most of the countries of the region. However, fiscal

imbalances and current account deficits remain compa-

ratively high and are expected to be exacerbated by the

COVID-19. Consequently, vulnerabilities remain. Fiscal deficits

in North Africa were higher than the African average, at 5.6

percent of GDP against 4.7 percent respectively in 2019.

Likewise, North African current account deficits were improving,

yet in 2019 at 4.4 percent of GDP against an African

average of 4.3 percent of GDP. The worst-case scenario,

which assumes a reduction of the global demand by 7.9

percent and an international price of oil at USD 20 per barrel

in 2020, projects a fiscal deficit at 10.9 percent of GDP.





49.0

15.7 30.0 42.9 32.919.5 30.5

47.8

16.732.8

45.9 33.520.7 31.1

48.7

15.1

35.3

43.9 32.220.3 29.6

-10.8 -11.2 -18.6 -20.2 -10.1 -11.3 -12.0 -7.5 -10.5 -30.5 -21.5-10.5 -10.9 -11.9 -9.5 -10.2

-38.1-21.4 -10.1 -11.2 12.6

-50.0

-30.0

-10.0

10.0

30.0

50.0

70.0

90.0

110.0

130.0

150.0

Average 2015-17 2018 2019

Nets Exports Investment

20,110,0

48,621,8 19,1 20,3 17,7

20,18,4

54,1

21,5 19,0 19,7 17,920,3

10,7

55,5

21,9 19,4 19,9 18,4

Figure 3: Structure of uses of nominal GDP (percentage points)


10 Openness to trade is defined as exports plus imports in USD over GDP at current price in USD. The World Bank data, used for comparative purposes,are available at: https://data.worldbank.org/indicator/NE.TRD.GNFS.ZS.11 In the four other North African countries, openness to trade was as follows: in Libya, 102 in 2018 against 101 in 2008; in Mauritania, 121 in 2018 against113 in 2008; in Morocco, 88 in 2018 against 86 in 2008; and in Tunisia, 111 in 2018 against 114 in 2008.

12


The current account deficit is projected at 11.4 percent

of GDP in 2020, mainly driven by a double-digit deficit in

oil-exporting countries (20 percent of GDP and 19.8 percent

of GDP in Algeria and in Libya, respectively) but also in

Mauritania (17 percent of GDP) and Tunisia (12.2 percent of

GDP) whose main trading partners are China and European

countries.

Over the six African countries, 2019 yearly inflation

average 7.9 percent, down from 13 percent in 2018.

The regional average is high due to inflationary pressures

in Egypt and Libya (Figure 4). Egypt has been the country

with the highest level of inflation in the region since 2017.

Following the adoption of a flexible exchange rate system

in 2016 and the concomitant devaluation of the Egyptian

Pound (EGP), the country experienced double-digit inflation.

The Central Bank of Egypt (CBE) subsequently adopted a

restrictive monetary policy to cut down inflation, which was

on a downward trend, standing at 8.7 percent in July 2019.

Annual headline inflation continued its decline in September

and October 2019, standing at 4.8 percent and 3.1 percent

respectively, the lowest rate since December 2005. The

recent decline was mainly driven by lower annual food

inflation but also by changes of the reference basket of

goods and the base year. In November 2019, the CBE

Monetary Policy Committee (MPC) cut its rate by 100 basis

points. This was the third consecutive rate cut in an easing

cycle that has seen the CBE cut rates by 450 basis points

over 2019. However, the overnight deposit rate is still high,

standing at 12.25 percent and the lending rate at 13.25

percent could constrain the demand for credit from the

private sector. Inflation in Morocco is low, allowing for an

accommodative monetary policy. Algeria and Mauritania

benefitted from subdued inflation with an inactive monetary

policy. In Algeria, inflation has been steady, and even

declining to around 2 percent in 2019, despite the depre-

ciation of the Algerian Dinar. Over the last few years, the

Algerian Dinar (DZD) depreciated against the US dollar.

The yearly average exchange rate went from 77.6 DZD

per USD in 2012 to 120 DZD in 2019 but the exchange

rate on the parallel market is much weaker including a

60 percent currency premium (see Box 1 on exchange rate

regime and parallel markets). Over the short term, inflation

in Algeria is expected to remain contained given the

authorities’ active management of liquidity in the context of

an extensive monetary financing of the fiscal deficit and given

the restrictions on imports of consumption goods, especially

food. Since the beginning of the political crisis in 2014,

Libya has experienced high inflation with double digit rates.

However, in 2019, inflationary pressures have eased

significantly. The inflation rate is estimated to have decreased

to -2.7% compared to 13.6% in 2018. This deflation is

mainly due to improved hard-currency distribution that

led to a appreciation of the Libyan dinar (LYD) in the black

market in 2019 (see Box 1), which in turn lowered import

costs.

13


2011-2017 2018 2019(e) 2020(p) 2021(p)


5.2 4.32.0

3.9 3.7

11.8

21.6

13.8

8.0 8.5

13.0 13.6

-2,7

15.4

9.6

3.5 3.1 3.0 4.0 3.91.2 1.9 0.2 0.4 1.3

4.77.3 6.8 8.0 7.08.0

13.0

7.96.1 6.3

-5.0

0.0

5.0

10.0

15.0

20.0

25.0

Figure 4: Inflation by country, 2011-2021 (%)



Box 1: Flexibility of exchange rate in the region and the parallel markets

Apart from Egypt and Mauritania, North African countries still maintain foreign exchange controls. Egypt liberalized theforeign exchange market to preserve reserves and tackle dollar shortages. The decision was taken after the foreignexchange parallel market thrived in November 2016. In Mauritania, market forces also fix the value of the Ouguiya. However, transfer of convertible currencies is subject to the availability of such currencies, with frequent shortages. Thisis the reason why individuals and private companies sometimes obtain hard currency through the informal market.

In Algeria and Libya, the foreign exchange parallel markets flourish with a significant differential between the official andparallel market exchange rates. The Algeria’s Dinar (DZD) is managed against an undisclosed basket of major currenciesand the government imposes tight controls on foreign exchange. For instance, Algerian companies can only receive upto 50 percent of their export earnings in foreign currency except those in the hydrocarbons sector, which can receive upto 100 percent. An Algerian citizen is only granted a yearly allowance of 100 euros for travel expenses. Algerians preferto exchange dinars with other currencies in the parallel circuit rather than the banking system. At the beginning of July2019, a USD 1 was exchanged officially at about DZD 120 in the banking system but at around DZD 190 unofficially.

To bridge the gap between the rates, the Central Bank of Libya has imposed a fee of 183 percent on hard currencytransactions since September 2018. Hence, the Libyan Dinar (LYD) has significantly appreciated in the black market,going from USD 1 for LYD 9 in November 2017 to LYD 4.29 in December 2018. At the end of October 2019, the commercial banks in Libya officially sold USD 1 for LYD 1.4078 compared to LYD 3.9 in the parallel market.

Due to easy convertibility, the Moroccan Dirham (MAD) and the Tunisian Dinar (TND) leave little room for a foreign exchange parallel market. The MAD is pegged against a Euro-USD basket, with a weighting of 60 percent-40 percent,respectively. Morocco widened the band from 0.3 percent to 2.5 percent in January 2018, and to 5 percent in March2020 in which the dirham trades against hard currencies and has planned to progressively move towards a more flexibleforeign exchange regime. The TND is also under a crawling peg regime based on an undisclosed basket of currencies.The TND is convertible for current-account transactions through the Central Bank of Tunisia. There is no limit for foreigncompanies’ repatriation of profit and dividends.

Sources: http://export.gov/usoffices; https://www.echoroukonline.com/algeria-the-price-of-hard-currency-plummets-on-the-informal-market;https://www.libyaobserver.ly/economy/libyan-dinar-gains-value-against-foreign-currencies-black-market

14


The coronavirus pandemic is expected to have adverse effects

on both inflation and exchange rate depreciations against

hard currencies. In North African countries where the tourism

sector is an important source of foreign currencies (Egypt,

Morocco, Tunisia), the COVID-19 pandemic with the halt of

tourism may lead to foreign currency scarcity and to the

depreciation of the local currencies. The exchange rate is also

expected to be impacted by the turmoil in international financial

markets. This would in turn weigh on the alreadyimportant level

of external debts in some North African countries. As far as

inflation is concerned, the significant fiscal and stimulus measures

and possible depreciation of currencies are expected to

increase inflation levels. Initially expected to ease at 5.6 percent

in 2020 and 5.3 percent in 2021 on average in North Africa, the

projections remains the same for 2020 but has been revised

upward for at 6.1 percent in 2021 in the worst-case scenario.

Fiscal balance is -5.6 percent of GDP on average in North

Africa for 2019, higher than the African average of -4.7

percent (Figure 5). The volatility of the fiscal deficit over

the 2011-2019 period is also higher in North Africa

than across the continent.12 The fiscal deficit for the six

countries peaked in 2015 with the regional average reaching

14 percent of GDP. Likewise, the standard deviation

drastically dropped from 3.6 to 1.3 over the 2011-2019

period, which remains the second highest in the continent

after Central Africa.

Since 2016, fiscal consolidation has been ongoing all

over the region. Nevertheless, the COVID-19 pandemic

could cancel these efforts and significantly widen

budget deficits, due to economic stimulus and tax

exceptions measures to support the private sector.

Hence, according to pre-COVID-19 forecasts, the fiscal

deficits which were still high in 2020 (6.1 percent of GDP)

and in 2021 (5.6 percent of GDP) have been revised

upward. The worst-case scenario provides a fiscal deficit

at 10.9 percent of GDP in 2020 for the region, with

double-digit deficits in Algeria (17 percent of GDP), Egypt

(8.7 percent of GDP) and Libya (22.5 percent of GDP).

12 The standard deviation is 3.6 for North Africa, against 1.63 for the continent.

15


Algeria continues to face important challenges posed by

the fall in oil prices over the past four years and exacerbated

by the recent plunge of oil prices in March 2020. Hydro-

carbons revenue accounted to close to 19.7 percent of

GDP.13 Despite a sizeable fiscal consolidation in 2017, the

deficit rebounded in 2018 at 7 percent of GDP. The pre-election

season in the fall of 2019 delayed further fiscal consolidation

pushing the fiscal deficit up to 9.1 percent of GDP. The tax

rate in Algeria is comparatively low, but there was no room to

increase it given social pressure in 2019.

For the fiscal year 2018/2019, Egypt recorded a primary

budget surplus of 2 percent of GDP (and a total fiscal

deficit at 8.1 percent of GDP, from 9.6 one year earlier).

Over the last three years, the country completed a fiscal

consolidation. This was made possible by the introduction

of a 14 percent value added tax (VAT) in 2016 and the

phasing out of energy subsidies. At the same time, Egypt

enhanced targeted cash transfer through two programs,

Takaful and Karama (“Solidarity and Dignity”). Since their

onset in 2016, the programs expanded from 200,000

to 2.3 million households currently benefiting 10 million

people, i.e. a third of the poor population. Despite the

ongoing fiscal consolidation, the fiscal deficit at around 8

percent of GDP remains high due to debt refinancing costs.

The government of Egypt aimed to keep the primary surplus

at around 2 percent of GDP over the medium term and to

reduce the debt to 72 percent of GDP by 2022/2023.14

However, the COVID-19 pandemic will imply an increase in

the debt ratios.

2011-2017 2018 2019(e) 2020(p) 2021(p)


-6.8 -7.0 -9.1-17.0 -15.7

-11.4 -9.6 -8.1 -8.7-7.8

-50.7

-5.9

25.3

-22.5-16.3

-0.8

1.6 0.1

-4.0 -2.8-5.2 -3.7 -3.6 -6.9 -5.3-5.1 -4.6-3.6 -6.0 -4.5

-9.2 -7.1 -5.5 -10.8 -9.4

-50.0-45.0-35.0-25.0-15.0-5.05.015.025.0

Figure 5: Fiscal balance by country, 2011-2021 (% of GDP)



13 Algeria, Article IV, 2018, IMF.14 IMF, Fifth Review under the Extended Arrangement under the Extended Fund Facility, October 10, 2019.

16


In Morocco, the 2019 fiscal deficit amounts to 3.6 percent

of GDP (down by 0.2 percent point since 2018). The ratio of

fiscal expenditure to GDP decreased by 1 percent of GDP

since 2019. The authorities are containing the civil sector

wage bill.

Tunisia has been under an IMF program since June 2013.

The fiscal deficit was 3.6 percent of GDP in 2019, down

from 4.6 percent in 2018. In 2019, fiscal performance was

very strong. This reflected increased tax collection efforts,

including corporate tax increases, and increased efficiency

within the tax administration. Tunisia’s fiscal consolidation

should be ongoing and focus on expenditure as its tax rate

is comparatively high. In 2019, subsidies still accounted

for 4.9 percent of GDP (1.7 percent of GDP for food and 2.8

percent for energy).

In 2018, Mauritania ran a 1.6 percent of GDP fiscal surplus,

owing mainly to strong tax revenue performance and

exceptional exploration licenses. In 2019, the country is

expected to experience a minimal surplus of 0.1 percent

of GDP. Additional fiscal space should allow the country to

invest on productive spending and/or to reimburse some

debt, which is still high, albeit on a downward trend.

External shocks could also jeopardize fiscal sustainability.

Countries with ongoing energy subsidies or fixed domestic

prices may be particularly vulnerable to fluctuations in

global oil prices (Mauritania and Tunisia). In contrast, fiscal

positions in countries with near-complete cost recovery are

much less vulnerable to global oil price increases (Egypt and

Morocco).

Over the last decade, public debt of North African countries

increased except in the Libya. Following the coronavirus

pandemic, the possible depreciation of local currencies

and the scarcity of resources on the financial markets,

leading to less favorable borrowing conditions for the

countries, should increase refinancing risks and costs in

countries where external debt is high (Mauritania and

Tunisia). The gross government debt over GDP recorded by

the IMF (2019)15 stood at 103.8 percent of GDP for advanced

economies. Africa’s debt was at 55.7 percent of GDP, closed

to the emerging market and developing market economies.

The average for North Africa was higher at 71.2 percent,

whilst Egypt, Mauritania and Tunisia’s gross debts were

above the regional average, respectively at 83.8 percent,

79.3 percent and 78.7 percent of GDP. According to the joint

IMF-World Bank debt sustainability analysis of Low-Income

Country (World Bank and IMF, 2020), Mauritania belongs

to the group of 19 countries in debt distress or at risk of

debt distress. For other North African countries, World Bank

and IMF (2020) assessed general government debts as

sustainable.

In Algeria, the public debt is limited given the use of

non-conventional financing (see Box 2). The gross public

debt currently stands at 49.2 percent of GDP. However, it has

increased significantly since 2016, reflecting the materialization

of fiscal risks. The government’s decision to monetize the

fiscal deficit in October 2017 has also kept the cost of debt

(artificially) low.

15 The use of gross debt as presented by the IMF allows to compare data across different regions of the World. 16 As per this list, 8 African countries are in debt distress (Republic of Congo, Gambia, Mozambique, São Tomé and Príncipe, Somalia, South Sudan, Sudanand Zimbabwe) and 11 countries present a high risk of debt distress (Burundi, Cabo Verde, Cameroon, Chad, Central African Republic, Djibouti, Ethiopia,Ghana, Mauritania, Sierra Leone and Zambia).

17


Egypt is still the most indebted country in the region, with

a gross public debt to GDP ratio at 83.8 percent of GDP.

The debt is on a downward trajectory due to the ongoing

fiscal consolidation and a primary surplus. However, the

maturity of the debt is low with 60 percent carrying a maturity

of one year or less. In order to lengthen maturities, the

government has issued sovereign bonds on international

capital markets pushing external debt up to 36 percent

of GDP (Figure 6). Egypt should have benefitted from the

benign conditions in emerging debt markets. Global financial

conditions have eased following a shift towards a more

accommodative monetary policy stance by major central

banks in advanced economies. As a result, long-term yields

on debt instruments in advanced economies have tapered,

improving external financing conditions for African countries

in 2019. However, refinancing cost could increase if market

sentiments were to change. Indeed, the current coronavirus

pandemic impacts the five-year cost of insurance (Credit

Default Swap) on the Egyptian sovereign debt which

increased by 93.43 percent in one month, from February 20,

2020 to March 20, 2020.

Public debt in Morocco rose from 47 percent of GDP

in 2009 to 64.9 percent of GDP in 2019. An ambitious

infrastructure investment program and multisectoral

plans generated the debt over GDP surge (Box 3). The

authorities aim to gradually reduce public debt to 60 percent

of GDP by 2024 through improved growth and fiscal

consolidation. Refinancing risk is limited in the context of

Morocco as 89 percent of the debt carry an average maturity

of 6 years and 5 months, whist the maturity of external

debt is even longer at 7 years and 10 months. Moreover,

55 percent of external debt is owned to multilateral

creditors.

Box 2: Algeria’s non-conventional financing model

Facing volatile oil prices, decreasing liquidity within the banking system and difficult financing conditions of the economy,the government decided to rely on non-conventional financing in October 2017. A modification of the law authorizedthe central bank to buy directly bonds issued by the Treasury on behalf of the government. Hence, the deficit could bemonetized, and additional money created. Non-conventional financing was subject to prudential rules. For instance, itcould only take place during five years from 2017 to 2022 and the amount (including rediscount operations, openmarket operations and quantitative easing) would be limited. Between 2017 and 2019, a maximum of 3,050 billion Algerian Dinar (DZD) (representing around USD 27.5 million, or 15 percent of Algeria’s GDP in 2018) was authorized to be created.

However, the creation of money exceeded this maximum amount. From mid-November 2017 to March 2019, the totalamount mobilized by the Treasury at the Algerian Central Bank totaled 6,556 billion DZD, equivalent to USD 55 million,or 32 percent of 2018 GDP. Since May 2019, non-conventional financing has been suspended by the government.However, as it remains legal until 2022, it could still be used by the government to finance the Treasury. Following the December 12, 2019 presidential election, the new government may face the potential consequences of high non-conventional financing on inflationary pressure, on household purchasing power and the exchange rate over themedium term.

18


Over the 1987-2011 period, Tunisian public debt decreased

from 63 percent of GDP to 49.7 percent. But after the

2011 revolution, it has significantly increased to finance

the transition. Tunisia’s debt-to-GDP ratio is expected to

peak at 80 percent of GDP in 2020 from 39.7 percent

in 2010. The cost of subsidies as well as a surge of public

sector jobs caused the surge. In 2019, the wage bill totaled

15.3 percent of GDP. In 2019, 72 percent of the outstanding

public debt is contracted in foreign currencies, with half owed

to bilateral donors and multilateral institutions (for 48.9

percent of the debt) with favorable conditions. Currently, the

Tunisian debt can be characterized as weakly sustainable.

Box 3: The Growing Debt of Moroccan State-Owned Enterprises

The development model of Morocco is partly centered on the important role of the State in the economy. In 2019, theState portfolio includes: 225 public companies, 43 companies in which the Treasury has a direct holding and 449 subsidiaries or entities in which the State has some participation. The State is the majority shareholder in 54 percent ofthose ones.

The presence of the State in the economy has allowed for the modernization of the economy, especially through largeinfrastructure projects in transport (road, port, airport and railways) but also in the water and energy sectors. State-Owned Enterprises (SOEs) account for two thirds of public investment and for close to 10 percent of GDP. However,SOEs have contracted debt estimated at about 16 percent of GDP and 95 percent of this debt is concentrated amonglarge groups in the following sectors: mining, energy, water, waste, and transport. In the analysis of the total publicsector debt of Morocco, the debt of SOEs, which is guaranteed by the State, should be added to the central governmentdebt totaling 64.9 percent of GDP in 2018.

The debt of SOEs has reached its upper limit in Morocco. It now encompasses fiscal risk. In the context of the ongoingdiscussion on a new development model for Morocco, the role of SOEs and the State as economic actors could begiven some thought in order to free fiscal space and enhance inclusive growth.

0102030405060708090100

2018 2019(e)

Tunisia Mauritania Egypt Morocco North Africa Algeria Libya

Figure 6: Total external debt by country, 2018-2019 (% of GDP)


19


Figure 6 presents external debt which is composed of the

external debt which incurs to both the public and the private

sectors. Whilst Algeria borrows internally and has nearly

no external debt, the situation is rather different in Egypt,

Mauritania, Morocco and Tunisia.

Mauritania and Tunisia have significant external debt.

In Mauritania, in 2019, external public debt to GDP ratio

has dropped for the first time since 2011. It went from 82.8

percent in 2018 to 77.4 percent in 2019 (excluding the

passive debt to Kuwait) thanks to a significant rebound of the

GDP as well as a broad-based fiscal consolidation. Indeed,

the primary balance recorded a 4.8 percent and 1 percent

surplus in 2018 and 2019, respectively. External debt totals

86 percent of the total public debt, including 20 percent

contracted with Kuwait, for which cancellation negotiations

are under way. The external debt jumped from 66.2 percent

of GDP in 2014 to 81.9 percent in 2015 owed to a USD 300

million non-concessional deposit from Saudi Arabia to support

the Mauritania Central Bank foreign exchange reserves.

It increased further in 2016 and 2017 due to the central

government financing of public investment projects. The

external debt is mostly contracted on concessional or semi-

concessional terms from official creditors, hence it carries

long maturities. The primary balance is expected to remain

positive over the short to medium term, so the debt over

GDP ratio should keep a downward trajectory. However,

the current pandemic could negatively impact the price of

commodity and the growth of the extractive sector which

accounts for more than 26 percent of GDP. Consequently,

the annual decline in the debt of GDP ratio could be hampered

in 2020.

In post-2011 Tunisia, the external debt to GDP ratio

rebounded significantly, reaching 92.8 percent as of 2019

from 86 percent in 2018. To avoid crowding out lending to

the private sector, Tunisian authorities have strived since 2011

to mobilize additional resources on international markets as

well as with donors. Tunisia issued debt on international

capital market totaling around 25 percent of total debt. The

cost of debt refinancing represents 2.7 percent of GDP.17 The

debt is sensitive to fluctuations in the value of the Tunisian

Dinar vis-à-vis the Euro, the US Dollar and the Japanese Yen,

which respectively make 55.9 percent, 27.5 percent and 11

percent of foreign currency debt.

With the COVID-19 pandemic, additional financial resources

will be needed for health care responses, social protection

and fiscal stimulus packages to mitigate the economic

adverse impacts. Given that debt refinancing cost is expected

to increase, availability of resources may be challenging for

some countries, including for debt payment, leading to debt

distress.

The average current account deficit in North Africa was

at 4.4 percent of GDP in 2019, down from the peak of 9.4

percent in 2016. In 2019, three North African countries

(Algeria, Mauritania and Tunisia) exhibited high current account

deficits (Figure 7). In Algeria, the deficit was 11.4 percent of

GDP in 2019. Oil exports decreased due to strong domestic

demand and a stagnant production, leading to an increased

trade deficit and a decline in official reserves in 2019.

Over the medium term, the trade deficit could narrow given

the discovery of a new gas field provided the hydrocarbon

investment framework is conducive. In Mauritania, favorable

iron and copper prices with higher production pushed the

current account deficit down, from 18.6 percent of GDP in

2018 to 12.3 percent of GDP in 2019, whilst financing was

supported by new Foreign Direct Investments (FDIs) in the gas

exploration sector. In Tunisia, the challenging external position

has persisted, with wide trade and current account deficits,

despite improved tourism receipts and remittances transfers

17 IMF, Tunisia Fifth Review Under Extended Fund Facility and Requests for Waivers of Non-observance and Modification of Performance Criteria, and forRephasing of Access, July 2019.

20


in 2019. As FDI remained depressed, the external deficit

has been mainly financed through concessional loans from

multilateral and bilateral donors.

Pre-COVD-19 projections indicated improved current

account balances, with reduced deficits, at 5.6 percent

of GDP in 2020 and 5 percent of GDP in 2021. However,

trade of both goods and services will be negatively

impacted with the lockdown of countries and the global

economic slowdown. In turn, current account deficits will

reflect this low level of exchange. Some countries in North

Africa (Algeria, Libya, Mauritania and Tunisia) are expected to

register double-digit current account deficits in 2020, which

will be reflected in the regional average, at 10 percent of

GDP under the baseline scenario and 11.4 percent under

the worst-case scenario.

In Egypt, the current account deficit has narrowed

since the liberalization of the foreign exchange market.

In 2019, the oil trade balance turned into a surplus and the

good tourism receipts have compensated the non-oil trade

deficit. While non-oil exports remained sluggish, imports

increased due to a peak in economic activity. FDI were

predominantly directed to the oil and gas sectors. Also,

portfolio inflows increased given capital account openness,

hence foreign investors are active on the local debt market.

Moreover, Egypt issued sovereign debt on the Eurobond

market. For instance, the country has planned the issuance

of Eurobonds worth USD 5 billion in 2019/2020. It is currently

the biggest Eurobond issuer in Africa.

In Libya, the current account balance is highly dependent

on oil exports. Libya registered significant surplus in 2018

and 2019. Since 2016, the Central Bank has adopted a

restrictive policy to limit imports and save foreign currency.

2011-2017 2018 2019(e) 2020(p) 2021(p)


-5.0-9.6 -11.4

-20.0-15.9

-3.6 -2.4 -3.6-7.1 -7.2

-15.7

10.8

33.2

-19.8

-9.2

-18.2 -18.6

-12.3-17.0 -15.4

-5.9 -5.5 -4.1 -7.8-5.3

-8.7-11.2

-8.9-12.2 -11.2

-4.5 -4.8 -4.3

-11.5 -9.4

-20.0

-10.0

0.0

10.0

20.0

30.0

Figure 7: Current account balance by country, 2011-2021 (% of GDP)



21


Morocco has had a structural trade deficit for the last

decade due to the weak competitiveness of exports and

high dependence on energy imports. Increased imports

of capital goods, as well as declining remittances also

contributed to the current account deficit, estimated at

4.1 percent in 2019. Prior to the COVID-19 pandemic,

given the strong export performance in manufacturing

exports, including the automobile, electronics and chemicals

sectors, the current account balance was expected to

improve.

Measures of income inequality such as the Gini coefficient

are comparable for Egypt, Mauritania and Tunisia where it

stands at 31.2, 32.6 and 32.8 percent, respectively.18 Inequality

has been going down in Mauritania since 2004 and in Tunisia

since 2010. In Egypt, it declined up to 2012 and experienced

a slight increase from 2012 to 2015, the year of the latest

available data. Income inequality in Morocco has been high

over the last decade, at 39.5 percent.

Extreme poverty has decreased to low levels in North

Africa. The latest figure on extreme poverty from the United

Nations19 indicates that only 2.2 percent of the population

in North Africa lives below the international poverty line of

USD 1.90 per day, down from 4.4 percent in 2010 and

8 percent in 2002. Looking at the employed population in

extreme poverty, the proportion has steadily decreased over

2000-2018. Only 1.4 percent of the employed people were

extremely poor in 2018. This low percentage, compared to

an average of 38 percent in sub-Saharan Africa, indicates

that there are more decent paid jobs in North Africa than in

the rest of the continent.

However, poverty increased in some North African countries.

The economic consequences of the COVID-19 disease

on many vulnerable peoples’ livelihoods are dire. People

being confined cannot go to work, can lose their job or be

temporarily unpaid, which will push many individuals and

families into poverty. Small businesses or self-employed

people, including in the informal sector, are losing customers

and income. Due to the pandemic and without any policy

action, Oxfam has warned that more than 500 million people

could be pushed into poverty globally. In North Africa, the risk

is to set back the fight against poverty by 30 years. Progress

in poverty reduction in the countries of the region has been

unequal. For instance, national poverty rates have recently

increased in Egypt and Tunisia, and most likely in Libya.

About 32.5 percent of the Egyptian population lived with less

than USD 3.20 per day in 2018, up from 27.8 percent in

2015, and rural Upper Egypt registers the highest poverty rate

(56 percent). Macroeconomic reforms triggered a double-digit

inflation and contributed to pull the low-middle class into

poverty. This also happened in Tunisia with rising food and

public service prices, exacerbating social tensions. In Libya,

despite the absence of recent data, poverty and inequality

have certainly proliferated because of the ongoing conflict.

The shortage of public services and food supplies have

resulted in increasing poverty rates. Although Morocco expe-

rienced a significant drop in poverty, the country registered

increased social inequalities and millions of Moroccans are

considered economically vulnerable, at risk of falling into

poverty. Mauritania has recently registered a sharp decline in

poverty rates from 42 in 2008 to 31 percent in 2016 (World Bank).

However, some human development indicators such as school

enrolment in primary education (80.4 percent) and the share

of the population with access to electricity (42 percent) are

a cause of concern. Regional disparities and the urban-rural

divides are significant in most North African countries.

18 The latest data computed by the World Bank are 2015 for Egypt and Tunisia, 2014 for Mauritania, 2013 for Morocco. There is no data available for Algeriaand Libya on the World Bank Poverty and Equity Data Portal http://povertydata.worldbank.org/poverty/19 unstats.un.org/sdgs/20 https://www.oxfam.org/fr/communiques-presse/un-demi-milliard-de-personnes-pourraient-basculer-dans-la-pauvrete-cause-du

22


North African countries face important labor market

challenges in terms of high unemployment rates and gender

gaps. The negative impact of the coronavirus crisis on

small enterprises and vulnerable informal workers is

expected to exacerbate the unemployment situation as

many people will lose their jobs. Based on the 2018 United

Nations statistics on SDGs, the rate of unemployment was

higher in North Africa (11.8 percent) than in sub-Saharan

Africa (5.9 percent) and it was particularly high for the youth

(29.9 percent) and women (20.8 percent). More worrying,

these unemployment rates for youth and women have increased

from 24 percent and 19.5 percent, respectively since 2010.

Consequently, young females aged 15-24 years are particularly

disadvantaged in the labor market with an unemployment

rate of 40.8 percent in 2018, against 25.8 percent for young

males. In addition, 35.7 percent of yo

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