Fragmentation and Fault Lines in the EuroMED Space

1
Fragmentation and Fault Lines in the Euro-MED
Space

• Mustapha K. Nabli
• The World Bank
• Presentation at the 7th AFD/EUDN Annual
  Conference
• European Development Research Network
• December 9, 2009 Paris, France

2
The landscape in the early 1990s Europe vs.
South-Med

• 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

3
Collapse of economic growth

• Falling oil prices dampen growth

Poor growth performance in 1980s
4
Surge in unemployment
5
Decline in poverty stops by the end of the 1980s
6
20 years later non-convergence and fault lines

• Non-convergence of economic and social
  development outcomes
• Poverty reduction continues to stall
• Levels of life satisfaction low.

7
Country groupings used

• 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.

8
Divergence of economic and social outcomes

• EU-Med outperforms MENA with
• the exception of GCC

• Mixed picture in terms of convergence of social
  indicators

9
Decline in poverty continues to stall until the
early 2000s, and levels of life satisfaction low
10
Why such outcomes? The proximate explanations

• Low global trade and capital integration?
• Weak and slow domestic reforms?
• Weak response of the private sector to reforms?

11
Trade/Capital integration North vs. South

• Positive effects of financial/trade
  liberalization in Europe and weakening trade ties
  between MENA and EU

• Declining trade/investment flows in MENA until
  2000s

12
Progress on reforms slow and weak in the
South-MED
13
Private investments response to almost 2 decades
of reforms relatively weak

• Private investment as a share of GDP

• Reform episodes and private investment response

14
Why such outcomes? The ultimate explanations

• (1) Is it political instability and heightened
  political tensions?
• Continued Israeli-Palestinian conflict
• Conflicts in Lebanon, Algeria, Iraq, Yemen
• 9/11 and the aftermath
• High uncertainty and risk
• High cost of doing business

15
(2) Is it lack of political reforms weakens
content and credibility of economic
reforms?Large gap and Non-convergence in
political systems
16
Policy uncertainty and the unequal
implementation of rules are leading constraints
to businesses
17
(3) Is it about dependence on natural resources
and volatility?
18
However relationship is not a stable over the
decades
1971-1980
1961-1970
1991-2000
1981-1990
19
(4) Is it the inadequacies of the model of
cooperation with the EU?

• 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

20
The institutional framework for trade has become
much more fragmented

• Trade agreements in 1990

• Trade agreements in 2008

21
Migration conflict between potential large
economic benefits and the politics?

• Potential complementarities Declining labor
  force in Europe vs. Increasing labor force in MENA

• But the politics are opposed

22
Concluding Remarks

• 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 countries
• The institutional framework for economic exchange
  is highly fragmented, with major fault lines
  regarding
• agriculture and services trade
• energy trade
• migration and security

23
Concluding remarks

• The political environment both domestically and
  regionally remains a big handicap for progress in
  the South-Med
• The instruments used by the EU in its
  relationship with the South have not been
  successful in creating a common area of peace and
  prosperity.