Uncertain recovery for MENA
The International Monetary Fund is forecasting a modest recovery for the global economy, but the extent to which this will be enjoyed in the Middle East and North Africa is debatable
Prior to the war on Iraq, global economic activity practically came to a standstill. Today, even though the war is over, and fears associated with uncertainty and risk are on the wane, economists are still cautious in their estimates for economic growth.
That caution is reflected in the International Monetary Fund's (IMF) World Economic Outlook 2003. To give the Egyptian community a glimpse of that report, the Egyptian Banking Institute organised a conference last week in which IMF economists presented the report's findings for the global and regional economy. Niveen Wahish attended.
The report estimates that the global economy will grow by 3.25 per cent in 2003, up 0.25 per cent from 2002. The report also predicts a four per cent increase in growth in 2004.
A summary of the report, presented during the conference, said that the US is expected to continue to lead the global recovery, albeit at a slower rate than in 2002. In the Euro zone, expectations for growth in 2003 are very low due to weak domestic demand. In Japan, despite a modest improvement this year, the economy is still very weak and faces deep structural problems.
In the emerging markets of Asia, growth is expected to remain relatively strong, especially in China. However, the summary added that it could regress should a further slowdown be witnessed in the global information technology sector. Severe Acute Respiratory Syndrome (SARS) might also have a substantial negative impact on the region's economy.
In Africa, the outlook is generally positive due to the application of an increased number of business-friendly policies, increases in the price of commodities and fewer incidences of armed conflict. However, the summary warned that some problems may arise in the future because of continuing conflict in the region as well as changes in weather patterns -- both of which have led to famine in the continent.
In the Middle East and North Africa (MENA) region, aggregate Gross Domestic Product (GDP) for 2003 is expected to climb -- supported by high oil prices, increased oil production and a recovery in the global economy. However, a drop in oil prices would jeopardise this recovery.
Although the speed with which the war on Iraq was conducted may lead to a quick economic recovery, the summary warned that the weakness of the global economy was due to a number of factors. The current account deficit in the US, structural weaknesses in Japan and Europe, and the fragile situation in emerging markets, are all worrying. The SARS epidemic might also have severe economic repercussions.
A closer look at the MENA region was provided by Abdelali Jbili, a middle east advisor at the IMF. In a presentation to the conference, Jbili said that things may be looking up for the region. He said that growth is projected to rebound to 4.7 per cent, albeit with a wide degree of variance within the region. While growth in the oil-rich Gulf Cooperation Council (GCC) region is projected to double to 4.2 per cent in 2003, that of the Maghreb and the Mashreq regions is expected to show more modest improvement.
Jbili also pointed out that not only have oil prices fallen since the end of the war, but uncertainties still remain over how tourism, investment and regional trade will be affected by developments in Iraq.
Real GDP growth in the MENA region dropped in 2002 to 3.7 per cent -- with the Mashreq recording the sharpest slowdown, from four per cent in 2001 to 2.3 per cent in 2002. Egypt is considered to be part of the Mashreq.
Growth forecasts for the region are expected to remain moderate. According to Jbili, "in the absence of an acceleration in economic reforms, growth is expected to remain modest, that is, along the lines of past trends." From 2004 to 2008, Jbili projects that GDP for the region will be in the range of four to 4.5 per cent.
Jbili highlighted that a number of issues and challenges face the region; namely that the region has under-performed on growth, per-capita GDP has been stagnant, and unemployment has been rising. He also said that the region is undergoing a demographic transition whereby high population growth and the consequent growth of the labour force has outpaced job creation. Jbili felt that structural reforms were needed to improve the business environment, encourage private sector investment, stimulate productivity growth and enhance efficiency.
Additionally, Jbili stated that the region is undergoing a transition towards institutional development. On this issue, he pointed out that improvements are needed in institutions that affect economic activity: such as the rule of law, the integrity and independence of the judiciary, a clear separation between public and private ownership, competition laws and a culture of consultation and consensus-building on economic policy.
The MENA region is also in the process of further integration with the global economy. Jbili said that major advances are needed in MENA countries in the areas of trade liberalisation and openness to foreign direct investment (FDI). "The MENA region will not grow at faster rates behind restrictive trade regimes or by looking inward," he said.
"How the region deals with these transitions will have important implications for its future economic and social development," he added.
