The key to growth
Trade and more trade may be the only answer to MENA's fragile growth rates, writes Sherine Nasr
>A study of the economic growth in the Middle East and North Africa's (MENA) region in the past 20 years reveals a disappointing history of stagnation. This report, "Trade, Investment and Development in the MENA Region," is one of four recently issued by the World Bank examining the region's most critical problems while recommending solutions. Notably, the World Bank's upcoming annual meeting in September is to be held in Dubai.
"This is the first time for the meeting to take place in an Arab city. We thought this would be a good opportunity to focus on some of the crucial issues related to the MENA region," said Mustafa Nabli, chief economist and director of the Economic and Social Development Group of MENA in the World Bank.
According to the report, real GDP per capita growth has been zero per cent for the last two decades, while formal sector unemployment has risen to an alarming 14 per cent. Meanwhile, other than the mixed blessing of oil, exports from the region have not increased, even as non- oil exports worldwide boomed, increasing an estimated eight per cent.
"The old model based on state protection of the national industry and on the small domestic markets rather than exports is failing now. A new model for trade and investment must immediately be introduced," said Nabli.
The report underlines the unacceptable cost of further inaction. A decline in oil revenues, the trend towards free-market competition in world markets and the limited labour migration opportunities all compel MENA governments to adopt far-reaching and accelerated reform policies based on encouraging trade and foreign direct investment in the region.
"However, the most pressing factor is perhaps the uncontrolled and rapid population growth estimated at three per cent annually," noted Nabli, who added that by 2010, some 40 million more jobs will have to be created to accommodate the current generation of youth.
The experience of countries after the 1982 debt crisis and 1989 collapse of Communism suggest that a trade-oriented approach may be part of the solution. "Countries which export more are able to have better growth rates and to integrate more rapidly and successfully into the world economy," said Nabli who added that in the 1990s, fast-integrating countries such as Argentina, Brazil, Poland and Chile achieved per capita growth of about five per cent a year, nearly twice the growth in the high-income countries.
The report indicates that the MENA non-oil exports are estimated at $34 billion a year, a level far below that of other countries of similar size. "Hungary, for example, exports more than the entire region. This gives an idea of how little MENA trades," said Nabli.
To encourage exports, however, it is not enough to seek new markets and trade concessions. More important is the implementation of internal reform policies including competitive exchange rate policies, the reduction of tariffs and non-tariff barriers, customs reform and the improvement of telecommunication services.
According to the report, Egypt, together with Jordan, Lebanon, Morocco and Tunisia, categorised as resource-poor countries, are relatively advanced in their broad direction of reforms. However, the challenge now is to move on to a new round of more decisive and credible trade liberalisation.
"Egypt's recent shift to a floating exchange rate offers the opportunity to slash tariff protection since the depreciation that has occurred will protect import industries," said Nabli.
However, tariffs imposed in Egypt (21 per cent) and the other group countries remain more than double the average for all low and middle- income countries.
"Customs reforms, which are proceeding well in Jordan and Morocco, need to be accelerated in Egypt and Tunisia," said Nabli, explaining that customs procedures remain complex, with excessive inspections and delayed release times. The costs for complying with official requirements to set up a new business remain high and time consuming.
Meanwhile, much remains to be done to improve the quality of transportation and access to and cost of electricity and telecommunications.
On their part, external partners, mainly the EU and the US, can take action to encourage more trade with the region. "They can provide better access to the region's agricultural exports, to relax restrictive rules of origin for manufactured exports such as garments and to take in more skilled as well as unskilled labour," noted Nabli.
"Egypt still has a long way to go, but there is no way out except by more trade and exports," Nabli concluded.
Al-Ahram Weekly Online : 10 - 16 July 2003 (Issue No. 646)
Located at: http://weekly.ahram.org.eg/2003/646/ec3.htm