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Mustapha K. Nabli
The World Bank
Presentation at the 7th AFD/EUDN Annual Conference
European Development Research Network
December 9, 2009; Paris, France
A sense of optimism in Europe despite weak economic conditions◦ Fall of the Berlin Wall and end of the Cold War◦ Prospects of a Unified Europe and larger market
A sense pessimism in the South-MED ◦ Regional/International conflicts and wars◦ Declining oil revenue with heavy oil dependence
and collapse in growth, most countries got into some macroeconomic crisis
◦ Rapid growth in labor force and unemployment in part due to delayed demographic transition
◦ Decline in poverty stalls
Falling oil prices dampen growth
-2.00%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
18.00%
0.00
5.00
10.00
15.00
20.00
25.00
30.00
35.00
40.00
45.00
50.00
55.00
60.00
65.00
70.00
1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
Crude oil price (LHS) GDP growth rate (weighted average)
Crude Oil prices and GDP growth
-6.00
-4.00
-2.00
0.00
2.00
4.00
6.00
MENA-Emerging MENA - oil rich MENA-GCC MENA-13
1971-1980
1981-1990
1991-2000
2001-2007
GDP per Capita growth (Weighted Average)
Poor growth performance in 1980s
0
5
10
15
20
25
30
Jordan(1983-1995-2004)
Egypt (1984-1995-2005)
Morocco (1987-1995-2005)
Tunisia(1984-1995-2005)
Algeria (1989-1995-2005)
Syria (1984-1995-2003)
Iran(1986-1996-2005)
Kuwait (1983-1995-2004)
mid-1980s mid-1990s mid2000s
Unemployment, total (% of total labor force)
Non-convergence of economic and social development outcomes
Poverty reduction continues to stall Levels of life satisfaction low.
EU-Med: Portugal, Spain, Greece EU new member states: Czech Republic,
Poland, Hungary; MENA emerging: Jordan, Egypt, Morocco,
Tunisia; MENA oil-rich, labor abundant: Algeria,
Syria, and Iran MENA-GCC: Bahrain, Kuwait, Oman, Qatar,
Saudi Arabia, and UAE.
EU-Med outperforms MENA withthe exception of GCC
Mixed picture in terms of convergence of social indicators
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
GDP per capita (relative to EU-Med)
EU new members Emerging (MENA) Oil-rich (MENA) MENA-GCC EU-Med
0.60
0.80
1.00
1.20
1.40
1.60
1990 1992 1994 1996 1998 2000
Average years of schooling - Barro Lee 2000 (relative to EU-Med)
EU new members Emerging (MENA) Oil-rich (MENA) MENA-GCC EU-Med
International poverty incidence, under $2/day, $ PPP 2005
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
80.00%
90.00%
100.00%
2000
2006
Life Satisfaction Levels (World Values Surveys)
Low global trade and capital integration? Weak and slow domestic reforms? Weak response of the private sector to
reforms?
Positive effects of financial/trade liberalization in Europe and weakening trade ties between MENA and EU
Declining trade/investment flows in MENA until 2000s
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
Capital Inflows & Outflows-to-GDP ratio Trade-to-GDP ratio
Trade-to-GDP ratio (EU-Med) Trade-to-GDP ratio (EU new members)
Trade and Capital flows (EU-27)
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
1.2%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
Fuel imports share Non-fuel imports share (RHS) Non-fuel imports share - MENA-Emerging (RHS)
MENA-13's share in EU-27's fuel and non-fuel imports
Reform area
Resource-poor
Labor-abundant
Resource-rich
Labor-
abundant
Resource-rich
Labor-importing
Macroeconomic
Environment
0
(Lebanon: -2)
+1 +2
Trade Policies 0 -1
(Algeria: +1)
+1
Regulatory Environment 0
(Jordan: +1, Egypt:
-2)
-1 +2
Financial Sector +1
( Lebanon: +2)
-2
+2
Weight of public sector 0 -2 -2
Quality of public
administration
+1
(Egypt: -1)
-2 +1
Private investment as a share of GDP
Reform episodes and private investment response
0
5
10
15
20
t-15 t-10 t-5 Reform t+5 t+10
5-year time intervals.Pr
ivate
inve
stmen
t (%
GDP)
Latin America
South Asia
East Asia
MENA
0
5
10
15
20
t-15 t-10 t-5 Reform t+5 t+10
5-year time intervals.Pr
ivate
inve
stmen
t (%
GDP)
Latin America
South Asia
East Asia
MENA
Private investment rates 2006 versus 1990 (percent of GDP)
0
10
20
30
40
Oman
Egyp
t
UAE
Syria
Yeme
n
Tuni
sia
Jord
an
Alge
ria
Leba
non Iran
Mor
occo
Polan
d
Turk
ey
Thai
land
Mala
ysia
Chin
a
1990
2006
(1) Is it political instability and heightened political tensions? ◦ Continued Israeli-Palestinian conflict ◦ Conflicts in Lebanon, Algeria, Iraq, Yemen◦ 9/11 and the aftermathHigh uncertainty and riskHigh cost of doing business
-1.00
-0.50
0.00
0.50
1.00
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
Average Polity Index (relative to EU-Med)
EU new members Emerging (MENA) Oil-rich (MENA) MENA-GCC EU-Med
Leading constraints to MENA firms.(simple average of a country's share of firms ranking a constraint as "Major or severe")
47.6%44.9% 43.0% 42.4% 41.4%
33.4% 33.2% 33.1%
27.2% 26.6%23.4%
46%
35%
0%
10%
20%
30%
40%
50%
Mac
roeco
nomi
cun
certai
nty
Tax r
ates
Corru
ption
Acces
s or c
ost o
ffin
ancin
g
Infor
mal/u
nfair
comp
etitio
n
Regu
lator
y poli
cyun
certai
nty
Elect
ricity
Skills
and
educ
ation
Tax a
dmini
strati
on
Acces
s to l
and
Licen
sing/o
pera
ting
perm
its
Custo
ms an
d tra
dereg
ulatio
ns
Lega
l sys
tem /
conf
lict r
esolut
ion
y = -0.2502x + 2.9261R² = 0.0468
y = 0.2902x2 - 2.89x + 4.3825R² = 0.5556
-8.00
-6.00
-4.00
-2.00
0.00
2.00
4.00
6.00
8.00
10.00
-2 0 2 4 6 8 10 12
Net exports of petroleum per worker (000s USD, annual average 1980-2005)
GDP P
er ca
pita (
cons
tant
LCU
) Gro
wth R
ate
Oman
S. Arabia
U.A.E.
Kuwait
y = -0.0148x + 1.4414R² = 0.0013
y = 0.0682x2 - 0.698x + 1.7751R² = 0.2329
-2.00
-1.00
0.00
1.00
2.00
3.00
4.00
5.00
-2 0 2 4 6 8 10 12 14
Net exports of petroleum per worker (000s USD, annual average 1980-2005)
GDP P
er ca
pita (
cons
tant
LCU
) Gro
wth R
ate
Oman
S. Arabia
Kuwait
Qatar
U.A.E.
y = 0.3082x + 2.4459R² = 0.0478
y = -0.1622x2 + 1.8115x + 1.7908R² = 0.1314
-5.00
0.00
5.00
10.00
15.00
20.00
-2 0 2 4 6 8 10 12
Net exports of petroleum per worker (000s USD, annual average 1980-2005)
GDP
Per
capi
ta (c
onst
ant c
onst
antL
CU) G
row
th R
ate
S. Arabia
Kuwait
y = -0.6453x + 0.0259R² = 0.5085
y = -0.0594x2 - 0.0509x - 0.2645R² = 0.5435
-10.00
-8.00
-6.00
-4.00
-2.00
0.00
2.00
4.00
6.00
-2 0 2 4 6 8 10 12 14
Net exports of petroleum per worker (000s USD, annual average 1980-2005)
GDP P
er ca
pita (
cons
tant
LCU
) Gro
wth R
ate
Oman
S. ArabiaKuwait
Qatar
U.A.E.
1961-1970
1971-1980
1981-1990
1991-2000
Limited success of the model can be inferred from the successive attempts to adapt and change it: ◦ from Barcelona and Euro-Med ◦ to EU Neighborhood Policy ◦ to Union for the Mediterranean
Trade agreements in 1990 Trade agreements in 2008
Morocco
Tunisia
Libya
Egypt
Jordan
Lebanon
WBG
Syria
Algeria
Iraq
Kuwait
Bahrain
Qatar Saudi Arabia
UAE Oman
Yemen
AMU
GCC
MENA
Eastern and South African PTA (COMESA in 1994) (1)
Djibouti Angola, Burundi, Comoros, D.R. Congo, Ethiopia, Kenya, Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Namibia, Rwanda, Sudan, Swaziland, Tanzania, Uganda, Zambia, Zimbabwe
United States EFTA-4 European Union-12(4)
Mauritania
EFTA (3) Austria Finland Sweden
Bulgaria, Czech Republic, Estonia Hungary, Latvia, Lithuania, Poland Romania, Slovakia, Slovenia
CEE (2)
AMU: Arab Maghreb Union (5) GCC: Gulf Cooperation Council (6) COMESA: Common Market for Eastern and Southern Africa (20) EFTA-4: European Free Trade Association (4), includes Iceland, Switzerland, Norway, and Liechtenstein
Potential complementarities: Declining labor force in Europe vs. Increasing labor force in MENA But the “politics” are opposed
Status quo in education and participation rates: changes in labor force with some or completed secondary
education 2005-2050 (millions)
Significant policy changes*: changes in labor force with
some or completed secondary education, 2005-2050 (millions)
-15
-10
-5
0
5
10
15
2005-2010 2010-2020 2020-2030 2030-2040 2040-2050
EU net decline MENA net increase
-15
-10
-5
0
5
10
15
2005-2010 2010-2020 2020-2030 2030-2040 2040-2050
EU net decline MENA net increase
Replacing people and medium-level skills over time
High degree of heterogeneity and fragmentation in the Euro-Med space in terms of development outcomes and levels of life satisfaction:
◦ Between EU and South-Med/MENA◦ Within MENA between GCC and non-GCC◦ Within non-GCC between emerging and natural
resource dependent countriesThe institutional framework for economic exchange is
highly fragmented, with major fault lines regarding:o agriculture and services tradeo energy tradeo migration and security
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