UNECE-PAM-UNCTAD CONFERENCE ON “HARNESSING TRADE FOR GROWTH IN THE

MEDITERRANEAN”

PALAIS DES NATIONS,GENEVA, SWITZERLAND, 30-31 MAY 2013

JEAN-PIERRE CHAUFFOURLEAD ECONOMIST, WORLD BANK

From Political to Economic Awakeningin the Arab World:

The Path of Economic Integration

Background – Deauville Partnership

In wake of Arab Spring, Deauville Summit of the G8 (April 2011) establishes a Partnership between Deauville Partners: G8, Kuwait Qatar, Saudi Arabia,

Turkey, UAE, and 9 associated international and regional financial institutions

Arab countries in transition: Egypt, Jordan, Morocco, Tunisia, and later Libya and Yemen

Deauville Partnership commissions an analytical report “to provide an appropriate framework to enhance trade and FDI”

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4Youth Unemployment Rates

0

5

10

15

20

25

30

35

40

North Africa

Middle East

SA LAC World Sub Saharan Africa

South Asia

East Asia

MENA has highest youth unemployment rate in the world (%)

Source: Regional Economic Developments and Prospects, MENA, World Bank, 2011

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Soaring youth population

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Insufficient economic growth to create enough jobs

Source: From Privilege to Competition, World Bank, 2009

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What are the available policy instruments ?

Fiscal policy Lower revenues Higher social expenditures

Monetary and exchange rate policies Small open economies Declining foreign exchange reserves

Structural policy Subsidies Pension Domestic competition

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Could Trade & Investment be part of the answer?

Trade. MENA could produce more if it were to export more. Excluding oil exports, the MENA region of over 400 million people exports roughly the same amount as Switzerland

FDI. Excluding oil and real estate investment, FDI in manufacturing—the type of investment rich in employment—has remained marginal, accounting for just a fifth of all FDI inflows in the region

Flat share of global exports of goods and services

84%77%

64%

6%11%

17%

1% 3%6%

5% 6%6%

2% 1% 3%2% 1% 3%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1988 1998 2008

LDCSSA

LDCouthSAsia

LDCMNA

LDCLAC

LDCEurope

LDCEastAsia

High income

Source: Regional Economic Developments and Prospects, MENA, World Bank, 2011

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Limited intra-MENA integration Measured by nonoil exports

Asia25%

EU29%

MENA27% RoW

15%

USA4%

EU41%

Asia 14%

MENA 29%USA 6%

RoW 10%

MENA

1998 2008

Source: World Bank (staff calculations), 2011

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FDI inflows surged

-2

0

2

4

6

8

10

12

14

FDI, 1990s FDI, 2000s

Source: Regional Economic Developments and Prospects, MENA, World Bank, 2011

In percent of GDP

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Mainly in real estate and mining

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Egypt Jordan Libya Morocco Tunisia

Tourism

Real Estate

Other Services

Mining

Manufacturing

Source: Regional Economic Developments and Prospects, MENA, World Bank, 2011

Share of greenfield FDI inflows by sector

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13

Domestic private investment has not yet taken off

Source: From Privilege to Competition, World bank, 2009

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A complex business environment(and indicators hide uneven application of rules)

0

25

50

75

100

125

150

175

200

Egypt Jordan Morocco Tunisia Libya (estimates, not official DB

rank)

Doing Business 2012 Ratings for 2011 (and Libya Estimates, 2010)

Starting a business

Dealing with construction permits

Getting electricity

Registering property

Getting credit

Protecting investors

Paying taxes

Trading across borders

Enforcing contracts

Resolving insolvency

Source: Doing Business in a More Transparent World, Doing Business 2012, World Bank Group

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Overall lack of competitiveness

0

1

2

3

4

5

6

7Institutions

Infrastructure

Macroeconomic environment

Health and primary education

Higher education and training

Goods market efficiency

Labor market efficiency

Financial market development

Technological readiness

Market size

Business sophistication

Innovation

Global Competitiveness Index

Egypt

Jordan

Morocco

Tunisia

Source: Global Competitiveness Report, 2011

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Top 5 features of successful emerging economies:

committed, credible, and capable governments

maintain macroeconomic stability

exploit the world economy

let markets allocate resources

muster high rates of saving and investment

Source: Growth Commission Report (2008)

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How to do it? Leadership and Vision

Leadership in both Partnership Countries and partner countries is needed to provide a credible long term vision: the 4 freedom agenda

Leaders will need to promote sustained growth and job creation, in a framework of common values of peace and stability; cannot focus exclusively on short-term priorities: need to demonstrate credibility

The main proposal of the report12

Objective. Expanding market opportunities while undertaking policy reforms needed to seize them, including trade facilitation measures

Expected Result. Deeper integration as an anchor for “meritocratic” domestic reform, sustainable economic growth and jobs creation

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Outline of the report

Section 1: The new global Trade & FDI landscape—dealing with the fragmentation of production (i.e., global value chains)

Section 2: Market access and rules—creating opportunities to trade and invest across borders cheaply, securely and predictably

Section 3: Competitiveness and diversification—implementing complementary domestic reforms of the business climate

Section 4: Trade facilitation and trade finance—oiling the Trade & FDI engine especially for SMEs

Section 5: Inclusiveness, equity and sustainability—making economic integration a sustainable and inclusive long term political economy proposition

What could Deauville Partners do?

The EU could deepen its trade relationships with Egypt, Jordan, Morocco, and Tunisia with the effective implementation of the proposed deep and comprehensive FTAs (DCFTAs).

In a coordinated and coherent approach, and on the basis of its growing political and economic influence in the region, Turkey could similarly deepen its existing Association Agreements.

The GCC could strengthen its relationship with Egypt and Tunisia (Jordan and Morocco have been officially invited to join the GCC), in the framework of a deepened cooperation with the Agadir agreement.

The USA could (a) increase the value of its existing agreements with Jordan and Morocco, and (b) invite Tunisia and, once the appropriate circumstances are in place, Egypt to enter into FTAs.

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What must Deauville Partnership countries (Egypt, Jordan, Tunisia, Morocco, Libya) do?

Parallel implementation of complementary domestic policies as part of a comprehensive reform agenda to improve competitiveness – critical to take advantage from enhanced market access

Put in place institutional mechanisms to negotiate, implement, and evaluate the process of regulatory and policy convergence

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Political economy challenges

Past political legacy with Arab authoritarian regimes

Lack of credibility and trust among partnersEU in economic and financial turmoilLittle room for financial supportUnclear policy direction and vision in Arab

countriesPopulist policies and shortermismPressing political issues dwarfing all

economic priorities

Emulating Turkey

Since anchoring domestic reforms in a comprehensive integration process with the EU, Turkey has created 3 million new jobs

1980

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1994

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2006

2008

2010

0

2000

4000

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8000

10000

12000

MoroccoTunisiaTurkeyJordanEgypt

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Thank youAvailable at https://openknowledge.worldbank.org/handle/10986/12221