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Al-Ahram Weekly 27 Jan. - 2 Feb. 2000 Issue No. 466 
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Published in Cairo by AL-AHRAM established in 1875 |
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Al-Ahram Weekly 27 Jan. - 2 Feb. 2000 Issue No. 466
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| Published in Cairo by AL-AHRAM established in 1875 |
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Egypt Region International Economy Opinion Culture Features Profile Travel Living Sports People Time Out Chronicles Cartoons Letters MENA at the heart of process
By Kemal Dervis *
Globalisation -- the emergence of an increasingly integrated world trading, financial and production system -- has been one of the most striking economic phenomena of the late 20th century. Fueled by the reduction of trade barriers and revolutionary advances in information technology, telecommunications, transportation and logistics management -- buffeted but not bowed by bouts of financial volatility -- the process of globalisation appears to be not simply robust but likely to gather pace in the years to come.
Globalisation offers many benefits. In a more open international trading system consumers gain from more competitive pricing of goods and services. Products gain from the wider dispersion of knowledge, improved access to factors of production and the opening up of new markets. But the trade-based benefits of globalisation are only part of the story, and arguably not the most world-changing part of the process. The increasing integration of financial markets and investment flows is transforming opportunities for business expansion worldwide, not least for the countries of the developing world. Foreign Direct Investment (FDI) in developing countries grew from $20 billion in 1990 to nearly $150 billion in 1997, falling back only slightly to $130 billion in 1998 following the East Asian crisis. By 1997, developing countries accounted for 30 per cent of the worldwide stock of FDI.
Meanwhile, another aspect of globalisation -- the international "slicing up of the value chain", whereby different components of a given product are manufactured in different countries and the product is then assembled in yet another country -- is on the rise, offering important benefits to developing countries that can successfully insert themselves into global production networks. By the mid-1990s about one-third of world trade took place within such networks. Exports of components have come to form an increasingly large share of the exports of developing countries. Both domestic and international firms have set up new factories in these countries, creating new jobs, transferring know-how and offering new market prospects.
It would be wrong, however, to be complacent about globalisation. There are dangers that cannot be ignored. Workers in industrialised and developing countries alike can feel -- and often are -- marginalised as jobs are lost in traditional industries and labour markets fail to absorb those made redundant. The Darwinian nature of the globalisation process, whereby the gains go to the agile and the rest are left behind, can increase inequalities both within and between countries, straining the social fabric and presenting new problems for policy makers. And specifically with respect to the developing world, only a very small number of countries have thus far reaped substantial rewards from the process. I have already mentioned the 30 per cent share of developing countries in the total stock of global FDI. This is a substantial percentage -- but just eight countries accounted for two-thirds of the total (20 per cent), with the rest of the developing world accounting for only 10 per cent of all FDI worldwide. Clearly much remains to be done before globalisation can hope to become a generalised force for poverty alleviation throughout the world.
That having been said, however, I believe that we must recognise that barring global catastrophe globalisation is here to stay. The technologies driving it cannot be uninvented. The task for policy makers, at both national and international levels, is to manage the process in ways that maximise, and lead to a greater sharing of, its benefits while minimising its adverse side effects. Some fear that globalisation will undermine the authority of national governments; in fact what will be needed is not so much "less government" as more capable government, able to respond swiftly and effectively to the new challenges and opportunities of an increasingly integrated global marketplace. It is also true that global markets do call for a stronger global judicial and regulatory framework that can only be built on increased international cooperation.
Finally, globalisation raises issues of identity and culture. Globalisation does not necessarily mean westernisation. There are many cultures and traditions that can contribute to what will become the global modernity of the 21st century. Globalisation should not be a process destructive of identity, but rather a process facilitating exchange and leading to enrichment and development of the global human experience.
Where do the countries of the Middle East and North Africa (MENA) region stand with respect to globalisation? Despite important moves towards market opening and domestic reforms designed to make national economies more investor-friendly, I think it is fair to say that the region has lagged in its integration into the world economy. This spared it from the worst direct effects of the financial crises of the past two years. But over the longer term, the future lies with stronger efforts to become more fully integrated into the global economy. Several countries in the region, including Egypt, are already taking important steps in this direction. But an understandable reluctance to share elements of economic sovereignty, born of past colonial exploitation and aggressions coming from outside, has inhibited national leaderships from rapidly embracing the opening to global markets and investment.
There is, of course, a major exception to this generalisation -- the integration of the region's oil producers into the international oil market. These countries account for over half of global oil exports, and nearly 30 per cent of world exports of natural gas. But price swings have demonstrated that oil is a volatile commodity on which to rely for growth. And the oil producers have yet to find a way to smooth out the peaks and troughs of price movements. The World Bank's latest "Global Economic Prospects" notes that savings and investment in oil-exporting countries as a group (including non-MENA countries) moved sharply up and down in line with petroleum prices. And of course, there are substantial spill-over effects for non-oil economies in the region which depend on workers' remittances from nationals working in oil producing countries. Overall, the lesson from the oil experience is that wise management of surpluses in good years and pursuit of diversification away from dependence on oil revenues need to be priority areas for government action.
More generally, and given the reality of an increasingly integrated global economy, what might be some key areas of focus for the region in seeking to participate more fully in it?
One absolutely critical area is that of skills formation. Economic growth in the coming century is going to be skills-based. Countries that succeed in developing an agile, adaptable labour force -- able to take advantage of new technologies and market opportunities -- are going to be winners in the global marketplace; those who fall short in this respect risk becoming increasingly marginalised. For the Middle East and North Africa, this means a massive overhaul of education systems. A recent World Bank study has noted that in the past "education in the region has not effectively imparted the higher-order cognitive skills such as flexibility, problem solving and judgement needed by workers who will face frequently changing tasks and challenges in increasingly competitive export markets". Meanwhile, in spite of substantial investment in education systems, adult illiteracy remains high -- at overall rates of nearly 30 per cent for males and 50 per cent for females.
Substantial improvements in education systems are a long term objective, and their effects take years to work through into the labour force. This does not mean that urgent action is not needed or possible. It does mean that long term programmes need to be paralleled by complementary policies to intensify programmes for skills training and retraining based on the private sector or public-private partnerships, and for promoting adult literacy, among women as well as men.
A second critical area relates to what is broadly called "good governance". The concept of governance as being central to successful national economic performance has taken centre stage in development economists' thinking only relatively recently. It embraces a wide range of issues, including effective economic and budgetary management systems, an efficient and honest civil service and judiciary, a legal system that provides a secure environment for business and commerce (including foreign businesses), along with the various elements of what political scientists call an open society -- marked by pluralism, community activism, vibrant non-governmental organisations and the maximum possible transparency in the workings of government itself. History and experience suggest that command economies and authoritarian political regimes do less well over the long term than societies with flexible market economies and well-functioning democratic institutions, at the grassroots as well as at the national level. In addition, surveys show that global investors -- on whose location decisions countries' dynamic participation in the world economy depends -- put core aspects of good governance, such as an efficient bureaucracy and a dependable legal system, high on their lists of priorities when determining where to start up new enterprises or revitalise existing ones worldwide.
Here again, many countries in the region are taking important steps to improve the operations of government, reform and trim bureaucracies and the public sector in general, upgrade legal and judicial systems, minimise red tape, improve customs services, and encourage the emergence of a pluralistic civil society. These are not easy tasks, especially in cases where the legacy of a statist past still has force. But effective integration into global trade, production and financial systems depends critically on undertaking them.
Finally, and relatedly, I believe that the countries of the Middle East and North Africa need to work together to become an effective regional "neighbourhood". With notable exceptions, such as Egypt, many national economies are small and intra-regional trade barriers remain significant. The history of regional integration is a less than happy one, but I believe that it is possible to learn from the mistakes of the past and bring into being an effective regional market for trade in goods and services. In this connection, the moves towards an Arab Free Trade Area are an encouraging beginning. But a regional trading bloc needs to be outward looking. Here the European Union (EU) initiative for a wider Euro-Med association is of great importance. Morocco, Tunisia, Jordan, Egypt, Lebanon and Algeria have either signed or are negotiating Association Agreements with the EU -- agreements whose benefits are likely to be less based on their direct trade impact than on the stimulus that association with the EU will provide for joint business ventures, technology transfer, labour and management upgrading, enhanced marketing know-how and so forth.
But building a good regional neighbourhood involves much more than reducing trade barriers. It includes the various items that I mentioned under the broad heading of good governance. It also includes essentials for the emergence of world-class businesses such as a well-functioning physical infrastructure -- roads, ports, telecommunications, power systems, water supply. In these areas the region is in danger of falling behind, and the problem is compounded by the fact that governments lack the resources to "go it alone" in modernising infrastructure systems. Private participation in infrastructure development has already been successful in other regions, and has started to take foot in several countries in the Middle East and North Africa. The regional "neighbourhood" would benefit greatly from its extension. Another area for neighbourhood-building action is that of labour markets. Labour market rigidities -- often based on over-regulation originally introduced for the best of anti-exploitative motives -- can deter employers from hiring and workers from moving jobs. And last but not least, good economic neighbourhoods tend to be marked by political stability, social cohesion and freedom from conflict. Here the issues involved are complex and fraught with difficulty. I shall not venture into them other than to note that the region's speedy integration into the global economy will be greatly eased if peoples too long held hostage to conflict are freed to devote their energies to the arts of peace. It does seem that prospects for comprehensive peace are now much better than they have been for decades, and one can indeed hope that the promise of peace can be realised.
Much remains to be done if the Middle East and North Africa is to become a full partner in the globalisation process. Much also remains to be done to make globalisation itself a more reliably benign force for balanced and inclusive world economic expansion. But I am optimistic on both scores. National governments and the international community are more aware today than they used to be of the potential adverse effects of globalisation, and will, I believe, take steps to remedy them. And, despite the challenges ahead, I believe that the Middle East and North Africa region is far better placed today than it was only a few years ago to participate successfully in the global economy -- substantially thanks to the broad-based programmes of economic reform now solidly in place in many countries. Maintaining the pace of reform in general, and renewed efforts in the specific areas mentioned earlier -- building a skilled, adaptable labour force able to compete in world markets, devoting special attention to issues of good governance, and creative efforts to make the region a good socio-economic "neighbourhood" -- will, I believe, pay off handsomely for the countries of the region as they enter a new century. There is huge potential in the young populations of the region. There is a huge will to build more prosperous lives. Greater self-confidence, the achievement of peace and continuing reforms could unleash an acceleration of growth that would make MENA a star performer of the early part of the 21st century.
* The writer is World Bank vice president, Middle East and North Africa Region.
