Recent economic developments in the MENA region

Speaker: Mr. Antonio FanelliSenior Advisor, Global Relations Secretariat, OECD

Paris, 23 September 2014Session 1

2

The economic growth in the MENA region has slowed down since the global financial crisis in 2008 and recent political events, leading to several internal and external imbalances.

Real GDP growth rate in GCC and Arab Countries in Transition (ACTs), 2000-2014 (annual change, in %)

Source: World Economic Outlook, April 2014. Data for 2013 and 2014 are projections. GCC countries include: Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, United Arab Emirates . Arab Countries in Transition include: Egypt, Jordan, Morocco, Tunisia, Yemen. Libya is not included in the graph.

2000-2002 2003-2005 2006-2008 2009-2011 2012-20140

1

2

3

4

5

6

7

8

9

10

GCC Arab Countries in Transition

3

Trade with ACTs has decreased during the financial crisis; exports are still stagnating…

2005 2006 2007 2008 2009 2010 2011 20120

10

20

30

40

50

60

70

80

Arab Countries in Transition GCC

Expo

rts

(in %

of G

DP)

2005 2006 2007 2008 2009 2010 2011 20120

10

20

30

40

50

60

70

Arab Countries in Transition GCC

Impo

rts

(in %

of G

DP)

Exports and imports of goods and services in the MENA region, 2005-2012 (in % of GDP)

Source: World Development Indicators. Libya and Yemen are not included in the graphs.

4

… leading to increasing current account deficits

Egypt Jordan Morocco Tunisia-20

-15

-10

-5

0

5

0.32

-0.16

2007 2012

Curr

ent a

ccou

nt b

alan

ce (i

n %

of G

FP)

2007-08 2008-09 2009-10 2010-11 2011-12 2012-13-15

-10

-5

0

5

10

15

20

25

Arab countries in transition East Asia & Pacific Latin America & Caribbean OECD

Expo

rts

of g

oods

and

ser

vice

s (a

nnua

l % g

row

th)

Source: World Development Indicators. Libya and Yemen are not included in the graphs.

Year-on-year export growth of goods and services and current account balance, 2007-2013 (in %)

5

Investment has been significantly negatively affected.

FDI inflows to the MENA region, 2005-2013 (in USD billions)

FDI inflows in oil exporters remain low. Although FDI rebounded in 2012, inflows to ACTs remain unstable due to high perceived

risk/return profiles. Investment insecurity has even further skewed the sectoral composition of FDI towards natural

resources, which are more immune to political shocks, but have the lowest job creating potential.

Source: UNCTAD. MENA transition countries include: Egypt, Jordan, Libya, Morocco, Tunisia, Yemen.

2005 2006 2007 2008 2009 2010 2011 2012 20130

10000

20000

30000

40000

50000

60000

70000

80000

90000

100000

MENA total GCC Arab Countries in Transition

6

Increasing youth unemployment and low female labour participation rates are key internal challenges.

PA

Tunisia

Egypt

Jord

an

Saudi A

rabia

Algeria

Moro

cco qatar

0

5

10

15

20

25

30

35

40

452009-2010 2012-2013

Yout

h un

empl

oym

ent r

ate

(%)

Source: ILO and World Development Indicators. Data for Jordan is an average for unemployment rates for the 15-19 and 20-24 age groups.

Youth unemployment rate, 2009-2013 and labour force participation rate, 2012 (in %)

MENA

Lower middle in

come

OECD members

Latin America & Carib

bean

Sub-Saharan Africa

0

10

20

30

40

50

60

70

80

90female male

Labo

ur fo

rce

parti

cipati

on ra

te (%

)

7

ACTs have large public deficits and increasing public debt…

Egypt Jordan Morocco Tunisia0

2

4

6

8

10

12

14

2010-20112012-20132014

Source: IMF World Economic Outlook, April 2014. Data for 2014 are projections; no data available for Libya and Yemen.

General government structural deficit general government gross debt in Arab Countries in Transition (in % of GDP)

Egypt Jordan Morocco Tunisia40

50

60

70

80

90

100

2010-20112012-20132014

General government gross debt in Arab Countries in Transition, 2010-2014 (in % of GDP)

8

… But some measures have been taken to reduce public deficits.

• Egypt: On 5 July the government put into effect long-awaited increases in prices for fuel and electricity (by up to 78%).

• Jordan: Fuel prices were raised in November 2012 and are now adjusted on a monthly basis, in line with international price trends; A revised income tax law is planned for 2014.

• Morocco: Subsidies on petrol and fuel oil were removed in early 2014; reform of the pension system is planned.

• Tunisia: Since 2012 fuel prices were gradually increased; energy subsidies are gradually phased out.

Challenges:

Despite these efforts, fiscal deficits will remain high.

Subsidy reforms, especially higher prices for food and fuel, may hit the poorer spheres of societies harshly, if adequate social nets are not established.

9

Crisis in Iraq, Libya and Syria cause further economic disruptions and negative spillovers at the regional level. The recent Gaza conflict has led to economic disruptions in the territory.

More than 3 million people are displaced in the MENA region, in addition to more than 7 million internally displaced people, particularly in Iraq, Syria and Gaza (UNHCR).

Next to the humanitarian problems in the countries concerned, lowered investor confidence undermines domestic and foreign investment in the region.

Major trading routes are disrupted, particularly in Syria, which has a central geographical position in the region.

Lebanon, Jordan and Turkey are directly affected by the Syrian/Iraqi crisis. The Libya crisis also directly affects Egypt and Tunisia. Less affected are GCC countries and Morocco.

10

The push to reform the business and regulatory environment has weakened.

Country ranking in Doing Business of MENA countries and OECD, 2010 and 2013

Sources: World Bank, Doing Business Indicators 2014; The World Bank: Doing Business 2010.

United Arab

Emira

tesOEC

DOman

Tunisia

Morocco

West

Bank a

nd Gaza Iraq

Djibouti

Saudi A

rabia

Bahrai

nQata

r

Kuwait

Leban

on

Jordan

Egyp

t

Yemen

Algeria

Syria

Libya

0

20

40

60

80

100

120

140

160

180

200

2329

47 51

87

138151

160

26

46 48

104111

119128 133

153165

187

2010 2013

11

GDP per capita growth in ACTs is underperforming compared with other regions. MENA is loosing ground in catching up with high-income economies.

Source: World Development Indicators. In the left-hand graph South East Asia includes: Indonesia, Malaysia, Singapore, Thailand, ; Sub-Saharan Africa includes: Angola, Ethiopia, Nigeria, South Africa. MENA transition countries include: Egypt, Jordan, Morocco, Tunisia, Yemen. Libya is not included in the graph.

GDP per capita growth (in %) and ratio of real GDP per capita (in USD) of selected regions and OECD countries (annual change, in %), 2005-2013

2005 2006 2007 2008 2009 2010 2011 2012 20130

0.05

0.1

0.15

0.2

0.25

Arab Countries in transition Latin America & Caribbean East Asia & Pacific

Ratio

of r

eal G

DP p

er ca

pita

(in

%)

2008 2009 2010 2011 2012 2013

-4

-2

0

2

4

6

8

South East Asia Sub-Saharan AfricaArab Countries in Transition

Real

GDP

per

capi

ta g

row

th ra

te (i

n %

)

12

The implications for the future of SME Policy

• People’s expectations in the MENA transition countries are that political transition will open the way for a better future and increased prosperity;

• In the first phase of transition economic growth has slowed down, unemployment has increased and economic unbalances deepened;

• Strong economic growth has to return to underpin political transition. The private sector should be the driving engine;

• In the current circumstances what should be the direction and the priorities of SME policy and broader private sector development policies?