Middle East and North Africa Economic Developments and Prospects, January 2011: Investing for...

7/29/2019 Middle East and North Africa Economic Developments and Prospects, January 2011: Investing for Growth and Jobs

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Sustaining the Recovery

and Looking Beyond

the world bank

Middle east and north africa region

econoMic developMents & prospects, January 2011


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Sustaining the Recoeryand Looking Beyond

Middle east and north africa region

econoMic developMents & prospects, January 2011

the world bank


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2011 The Internationa Ban or Reconstruction and Deveopment/The Word Ban

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iii

Acknowledgements..................................................................................................................................ix

Foewod..................................................................................................................................................xi

Abbeviations........................................................................................................................................ xiii

ExecutiveSummay...............................................................................................................................xvii

PatI:Sustainingtherecovey................................................................................................................1

Chapte1. MENAisrecoveingomtheCisis,butSlowly...............................................................3

MENA ecoery ha been rien by the lobal ebound and,

to varying egree, by ometic stimulu ............................................................................................4

MENA abor Market emained elatiely ncathed by the rii but

Imact iered between ountrie ......................................................................................................8

Job loe in the countrie were tee but aected mainly

exatriate worker .............................................................................................................................9The imact o the crii on oil imorter labor market wa mild .........................................10

Chapte2. MENAsrecoveyisPoceedinginanncetainlobalEconomicContext.................. 13

Financial Market volatility efect the nuually ncertain lobal utlook .............................14

The utlook or ountrie i Tied to the utlook or the lobal Economy ..........................17

Mot eeloing il Exorter are vulnerable to il price shock and volatility .......................25

il Imorter ecoery eend on eeloment in Key Market,

Notably the E ..........................................................................................................................................31

PatII.LookingBeyondtherecoveyandBeyondOil.........................................................................37

Chapte3. MENAremainsncomotablyependentontheCapital-IntensiveOilSecto............................................................................................................................39

MENA Non-il Exort o ood and serice are elow potential ue

to eeloing il Exorter ndererormance ...............................................................................44

MENA ha ened and ieried it Exort ............................................................................46

serice are an Area o elatie strength or MENA .........................................................................49

Market Acce i more o an Iue or il Imorter than il Exorter .......................................54

MENA ountrie are le succeul than other eeloing Economie

in penetrating Foreign Market .............................................................................................................55

Table of Contents


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Sustaining the Recovery and Looking Beyond A Regional Economic Developments and Prospects Report

iv

Chapte4. WhataetheMajoConstaintstoMENAsNonoilExpots?.......................................... 61

protection in eeloing MENA i igh, argely ue to NTM.......................................................61

Tari and Nontari protection ate vary idely Acro MENA ...................................................62

Intra-egional Trade stagnated and Intra-Indutry Trade emain imited ...............................65

MENA serice sector i eaily protected .....................................................................................69

ther Factor urting MENA Firm ometitiene .....................................................................75

Acce to nance i limited, eecially or mall enterrie ..................................................79oernance iue imede reorm imlementation, raie uncertainty

and lead to uneen laying eld ...................................................................................................82

skill hortage in the tate are an acute but old roblem .............................................83

A ocu on technology i central to MENA eort to imroe

cometitiene ...............................................................................................................................83

Chapte5. WhatShouldCountiesdotoImpoveNonoilExpotowth?......................................93

What Did We learn? Summary o key Findings ............................................................... ............ 93

Are eorm Imlemented by ountrie Addreing the Major ontraint? ...............................96

StatisticalAnnex................................................................................................................................... 101

reeences............................................................................................................................................. 117

ListoBoxes

ox 1: The ubai orld debt retructuring .............................................................................................................21

ox 2: ow i the oerall trade retrictiene index calculated? .......................................................................55

ox 3: Nontari meaure denition and tate o knowledge .........................................................................63

ox 4: Intra-indutry trade (IIT) index .....................................................................................................................68

ox 5: Meauring retriction aecting trade in erice ......................................................................................72

ox 6: Tuniia national innoation ytem: achieement, challenge and iion ........................................90

ListoTablesTable 1: emand-ide ource o growth in MENA .................................................................................................4

Table 2: MENA countrie cal ace in 2008 ........................................................................................................6

Table 3: ebt retructuring in the , 20082010 ...........................................................................................24

Table 4. Imact o a wheat rice hike in oil exorter ................................................................................26

Table 5: MENA cal ace in 2009 .........................................................................................................................27

Table 6: Imact o a wheat rice hike in deeloing oil exorter.....................................................................29

Table 7: Imact o a wheat rice hike in oil imorter .........................................................................................33

Table 8: share in world exort ..............................................................................................................................50

Table 9: ontribution o intenie and extenie margin to nonoil merchandie growth,

19982008.....................................................................................................................................................51

Table 10: ecomoition o the intenie margin ...................................................................................................52

Table 11: Index o exort market enetration by country, 1995 and 2005 (ercent) ......................................58Table 12: ilateral index o exort market enetration o E and s market ................................................60

Table 13: ilateral index o exort market enetration o MENA market ........................................................64

Table 14: Technological Achieement Index ............................................................................................................84

Table 15: Index o Technological Adatie aacity ..............................................................................................85

Table 16: Knowledge Economic Index ......................................................................................................................85

Table 17: Index o Technological eadine ............................................................................................................85

Table 18: FI ha grown raidly in MENA (% o p, net infow) .....................................................................86

Table 19: Number o reident atent ling er million eole ...........................................................................89


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v

Table of Contents

ListoFigues

Figure 1: Growth outoo (rea GDP growth rates in percent)....................................... ................................. 3

Figure 2: Growth acceerations in 2010 (percentage point change reative to 2009) .................................... 3

Figure 3: MENAs annua rea growth perormance beore, during, and ater the crisis ................................ 5

Figure 4: Sources o externa revenue, 2008 ............................................. ............................................. .......... 5

Figure 5: Goba unempoyment and rea growth ............................................. .............................................. .. 9

Figure 6: Changes in number o unempoyed, 200709 (in miions).............................................................. 9Figure 7: Job cuts by country and sector in GCC, 2009 ........................................... ...................................... 10

Figure 8: The crisis did not aect aggregate empoyment in Egypt, Arab Rep. ........................................... 10

Figure 9: Crisis-reated decine in rea earnings and wages growth in Egypt, Arab Rep. ............................ 11

Figure 10: Output and empoyment growth in Jordan ........................................ ............................................. 11

Figure 11: Industria production (percent dierence rom pre-crisis pea to June 2010) ............................ 13

Figure 12: Industria production, seasonay adjusted year-on-year rea growth rates .................................. 14

Figure 13: Output growth (rea GDP, % change quarter-on-quarter) ...................................... ....................... 14

Figure 14: Credit growth (YoY, in percent) ........................................... ............................................. ............... 15

Figure 15: Import growth, seasonay adjusted year-on-year in voumes ......................................... ............... 16

Figure 16: Export growth, seasonay adjusted year-on-year basis in voumes ....................................... ....... 16

Figure 17: Sovereign 5-year CDS spreads (bps).......................................... .............................................. ....... 17

Figure 18: Stoc maret reaction to events in Europe ....................................... ............................................. 18

Figure 19: Ris perceptions refecting deveopments in Europe ....................................... .............................. 19

Figure 20: Crude oi average spot price (current US$ per barre) ........................................... ....................... 20

Figure 21: MENA sca outoo (percent o GDP) .............................................. ............................................. 20

Figure 22: MENA current account positions (percent o GDP) ........................................ .............................. 21

Figure 23: Credit growth in GCC ........................................... .............................................. .............................. 22

Figure 24: Spreads over lIBOR on Goba (SkBI) and GCC suu (GSkI) and

GCC conventiona bonds (SkBI) ......................................... ............................................. ............... 24

Figure 25: Exposure to EU marets or merchandise goods ............................................. .............................. 25

Figure 26: US wheat prices ............................................. ............................................. ...................................... 26

Figure 27: Commodity voatiity (standard deviations in monthy prices) ..................................................... 28

Figure 28: Some potentia poverty impacts o a wheat price spie ........................................... ...................... 29

Figure 29: Non-oi merchandise exports to EU25 ........................................ ............................................. ....... 30

Figure 30: Non-oi merchandise exports to Southern Euro Zone .............................................. ...................... 31

Figure 31: Credit growth in oi importers ................................................................................... ...................... 34

Figure 32: Rodris rea undervauation index or lebanon ........................................ ..................................... 34

Figure 33: Jordan has made a dramatic shit in export destinations......................................... ...................... 35

Figure 34: Popuation and abor orce growth (%, annua averages) ........................................ ...................... 40

Figure 35: Growth o per capita income by region (percent) ............................................ .............................. 41

Figure 36: MENAs oi dependence ......................................... ............................................. .............................. 42

Figure 37: Current account surpuses and decits (US$ biions) ............................................. ...................... 43

Figure 38: Contribution o demand components to growth in MENA....................................... ...................... 43

Figure 39: Export revenue by type o exports (% o GDP, 2008)..................................................... ............... 44

Figure 40: MENA underperformed relative to its nonoil export potential in the period 19982007...................................45Figure 41: MENA countries nonoi export potentia reative to that o other midde income

countries or the period 19982007............................................ ............................................. ........ 46

Figure 42: Non-oi merchandise exports as a share o GDP (percent) ........................................... ................ 47

Figure 43: Export concentration in deveoping regions ............................................. ...................................... 47

Figure 44: MENAs export structure, 2008 ........................................... ............................................. ................ 48

Figure 45: MENAs non-oi merchandise export destinations ........................................... ............................... 48

Figure 46: Import growth in major export marets ............................................ .............................................. 49

Figure 47: Non-oil merchandise export growth by region for the period 19982008 (in value terms) ................. ................. .. 50


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vi

Figure 48: Nonoi merchandise export growth by maret and industry, 19982008...................................... 53

Figure 49: Maret access or MENA merchandise goods, overa trade restrictiveness index ...................... 56

Figure 50: Market access for nonagricultural products, overall trade restrictiveness

index (2008) ............................................................................................................................................................. 57

Figure 51: Tari protection in Chinas maret (2008) ........................................... .......................................... 59

Figure 52: Overa trade restrictiveness by maret and product (2008) ........................................................ 62

Figure 53: Estimated NTM-reated protection rates in MENA .............................................. .......................... 63Figure 54: Tari and nontari barriers (NTBs) by MENA country ....................................... .......................... 64

Figure 55: Protection aced by dierent regions and country groups in MENA ........................................ .... 65

Figure 56: Intra-industry Trade index by region ................................................................................... ........... 67

Figure 57: Intra-Regiona, Intra-Industry Trade index by region .......................................... .......................... 68

Figure 58: Services vaue-added (% o GDP) .......................................... .............................................. ........... 70

Figure 59: Size o service sector (% o GDP) and income per capita in MENA ......................................... .... 71

Figure 60: Restrictiveness o services trade poicies and share o services in GDP ....................................... 71

Figure 61: Goba Competitiveness Index (GCI) raning by region, 2010 ...................................................... 75

Figure 62: leading constraints to export-oriented rms in MENA region (weighted average

o share o rms raning a constraint as major or severe) ............................................ ........... 76

Figure 63: leading constraints to export-oriented rms in GCC oi exporting countries

(share o rms raning a constraint as major or severe) ......................................................... 76

Figure 64: leading constraints to export-oriented rms in deveoping oi exporting countries


Figure 65: leading constraints to export-oriented rms in oi importing countries


Figure 66: GCCs Goba Competitiveness Index ranings by piar ....................................... .......................... 78

Figure 67: Deveoping oi exporters Goba Competitiveness Index ranings by piar ................................. 78

Figure 68: Oi importers Goba Competitiveness Index ranings by piar ......................................... ........... 79

Figure 69: Regiona raning o ease o getting credit ............................................. .......................................... 80

Figure 70: Gross domestic saving, 2007 ............................................ ............................................. ................... 80

Figure 71: MENA countries FDI potentia conditioned on openness, natura resources and

popuation or the period 1998-2007 (actua to predicted net FDI infows

as % o GDP) .............................................. ............................................. .......................................... 87

Figure 72: Structure o FDI, cumuative 200007 (percent o FDI) .................................................... ........... 87

Figure 73: Technoogica content o exports by region .......................................... .......................................... 88

Figure 74: Research and deveopment expenditure (% o GDP) .......................................... .......................... 89

Figure 75: Research and deveopment expenditure in MENA (2005) ......................................... ................... 90

ListoAppendixTables

Table A1: Macroeconomic outlook ..........................................................................................................................102

Table A2: Trade retrictiene in Eat Aia excluding hina, 2008 (in ercent) .........................................103

Table A3: Trade retrictiene in India, 2008 (in ercent) ..............................................................................104

Table A4: Trade retrictiene in south Aia other than India, 2008 (in ercent) ......................................105

Table A5: Trade retrictiene in A, 2008 (in ercent) ................................................................................106Table A6: Trade retrictiene in ssA, 2008 (in ercent) ................................................................................107

Table A7: Trade retrictiene in EA, 2008 (in ercent) ................................................................................108

Table A8: Trade retrictiene in MENA, 2008 (in ercent) ............................................................................109

Table A9: Trade retrictiene in oil exorter, 2008 (in ercent) ........................................................110

Table A10: Trade retrictiene in deeloing oil exorter, 2008 (in ercent) ............................................111

Table A11: Trade retrictiene in oil imorter, 2008 (in ercent) ................................................................112

Table A12: Trade retrictiene in oil imorter with link, 2008 (in ercent) ....................................113


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vii

Table of Contents

Table A13: Trade retrictiene in oil imorter with E link, 2008 (in ercent) .......................................114

Table A14: Trade retrictiene in I, 2008 (in ercent) ...............................................................................115

Table A15: Trade retrictiene in hina, 2008 (in ercent) .............................................................................116


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ix

The Middle Eat and North Arica Economic e-

eloment and proect reort wa reared

by Elena Ianchoichina (rincial author) and

a team comriing ili Mottaghi, Kein arey,

Julien ourdon, hritina ood, iau ooi Kee,

aniela Marotta, Ndiame io, eonardo ar-

rido, aroline Freund, Maro Ianic, Alberto e-

har, Julian amietti, oimo pancaro, subika

Farazi, Komlan Kounetron, Auguto laijo,

Michelle attat, and Yamine ouai. ountry-

ecic data were roided by country econo-

mit and analyt working in the orld ank

Middle Eat and North Arica egion. The reort

wa reared under the guidance o shamhad

Akhtar (egional vice preident, Middle Eat

and North Arica egion). valuable comment

were roided by Farrukh Iqbal (ountry i-

rector, Middle Eat and North Arica), ita

einikka (ormer sector irector, social and

Economic eeloment rou, Middle Eat

and North Arica egion) and three eer re-

iewer: ernard oekman (sector irector,

International Trade eartment, poerty e-

duction and Economic Management Network),

Juan Zalduendo (ead Economit, ce o the

hie Economit, Euroe and entral Aia) and

punam huhan (ead Economit, ce o the

hie Economit, sub-saharan Arica). e alo

areciate ueul comment on ariou toic

rom Ingo orchert, Elliot iordan, Andrew

urn, Najy enhanine, Andrew stone, and

Jamu im. Excellent aitance with admini-

tratie arrangement wa roided by Iabelle

haal-abi.

Acknowledgements


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xi

The imact o the global nancial and economic

crii on the Middle Eat and North Arica region

wa relatiely mild. ack o integration and a

large ublic ector heled inulate the region

to ome extent, but now thee and other actor

are lowing down the eed o it economic

recoery. The reort Middle East and North

Africa: Sustaining the Recovery and Looking

Beyond examine the major actor threatening

the recoery and thoe that obtruct long-term

growtheecially non-oil exort growth. The re-

ort ocue on non-oil exort growth a deite

ome rogre in the at decade net exort

contributed little to regional growth, and nonoil

exort o good and erice remain below o-

tential or the region a a whole.

The ot-crii eriod roide an oor-

tunity or the countrie in the Middle Eat and

North Arica to re-ealuate their trade and growth

trategie in an attemt to increae oibilitie

or accelerated deeloment and emloyment cre-

ation. The region i already undergoing multile

tranormation a countrie launched adework

to catalyze indutry dierication by innoating

and adoting new technologie; energy dieri-

cation by embracing aggreie renewable energy

exloitation lan; and exort dierication by

exanding market and the range o exortedroduct and erice. The hit toward the at-

growing market o Aia ha been articularly

remarkable, and the erice ector ha emerged

a an area o relatie trength and a key ource

o exort reenue and uture otential growth.

Notwithtanding thee trend, the growth

reone in deeloing MENA ince 2000 ha

been modet in er caita term comared to

other deeloing region, and the region ha not

been able to make ubtantial rogre in reduc-

ing eritently high unemloyment rateee-

cially among youth. The reort undercore that

while there are rik to the hort-term economic

growth outlook, including thoe temming rom

debt roblem and cal auterity meaure in

key market uch a the E; weak credit recoery

in the ; and oil rice olatility, the region

ace much more eriou long-term growth chal-

lenge.

MENA continue to deend on the caital-

intenie oil ector which ha been and remain

the rimary ehicle or reenue and wealth

creation in the region. il deendence howeerbring a number o challenge, and the labor-

abundant deeloing oil exorter hae been ar

le ucceul than the economie in deal-

ing with the itall o oil deendence. eelo-

ing oil exorter hae been uering rom weak

intitution, confict, macroeconomic olatility,

and utch dieae which ha read beyond

the oil exorter and become a threat to ome

oil imorter receiing large remittance and

nance rom the market. hile the outlook

or oil remain romiing in the medium-term

due to trong demand or oil in Aia and otherat-growing market, counting on oil will not

generate incluie growth in the region. Thu,

the reort ay ecial attention to iue related

to cometitiene and nonoil ource o growth.

Although the reort take a dierentiated

look at the roblem acing MENA countrie,

common meage can be ditilled or the region

Foreword


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xii

a a whole. The reort emhaize three major

area in need o olicy maker attention. Firt,

it undercore the roblem related to retric-

tie trade olicie, articularly thoe aecting

trade in erice. such olicie ditort incen-

tie, dicourage oreign direct inetment, and

limit MENA integration within the region andwith the ret o the world. second, the reort

conrm that goernance iue linked to di-

cretion in alying rule and regulation are a

eriou obtacle to rm growth, including the

growth o exort-oriented comanie. Thee i-

ue hae led to tagnation, ineciencie and

riileged acce or ome, but limited acce

to erice and inormation or micro and mall

rm. Third, the reort nd that inecient and

infexible labor market and carcity o kill,

innoation and technological caabilitie hurt

rm roductiity, limit emloyment creation

and the technological content o MENA exort.

MENA goernment are imlementing re-

orm addreing ome o the contraint identi-

ed in thi reort, but in many countrie in the

region a lot more need to be accomlihed a

wide olicy ga remain in ome area. In the

, more need to be done to addre the iue

o kill hortage in a comrehenie way, and

to undertand the nature and extent to which

regulation retrict trade and FI in the erice

ector. In deeloing MENA, countrie need to

inteniy eort to trengthen intitution, im-

roe inormation gathering and diemination

and reorm imlementation. A riority houldbe to undertand better the nature and extent to

which nontari barrier and regulation retrict

trade in non-oil good and erice. eeloing

MENA countrie hould re on with nancial

market deelomenteecially imroing

nancial inratructure, while urther trength-

ening macroeconomic management, addreing

ineciencie in labor and good market, and

acilitating innoation actiitie, knowledge and

technological acquiition. Addreing the iue

identied in thi reort would require reource,

exertie and a utained goernment eort. The

orld ank i uorting MENA client countie

a they re on with reorm to remoe the

major roadblock to incluie growth.

shamhad Akhtar

egional vice preident

MENA egion


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xiii

Abbreviations and Acronyms

AvE Ad-alorem Equialent

bl arrel

p alance o payment

p/ps ai oint

I razil, uia, India, and hina

A urrent Account alance

s redit eault swa

pI onumer price Index

Ep eeloment Economic proect rou

Ev eeloing ountrie

FsF ubai Financial suort Fund

IF ubai International Financial enter

ubai orldEAs/EAp Eat Aia and pacic

EA Euroe and entral Aia

EMI Emerging Market ond Index

E Euroean nion

FI Foreign irect Inetment

FTA Free Trade Agreement

3 s, E and Jaan

ul ooeration ouncil

I lobal ometitiene Index

p ro ometic product

EM razil, hina, India and Indoneia

I igh Income ountrie

s6 armonized ommodity ecrition and oding sytem, 6-digit leel

IT Inormation and ommunication Technologie


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xiv

IIT Intra-indutry Trade

I International abor rganization

IMF International Monetary Fund

KEI Knowledge Economic Index

A atin America and the aribbean

N iqueed Natural a

pI ogitic perormance Index

M Millennium eeloment oal

MENA/MNA Middle Eat and North Arica

MFN Mot Faored Nation

MI Middle Income ountrie

NT Non-tari arrier

NTM Non-tari Meaure

pE rganization o the petroleum Exorting ountriepAFTA pan-Arab Free Trade Area

pIp public Inetment plan

ppp public priate partnerhi

pTA preerential Trading Arrangement

& eearch and eeloment

o et o orld

sA south Aia

sAA seaonally Adjuted Annual ate

sEZ southern Euro Zone

sME small Medium Enterrie

sps sanitary and phyto-anitary meaure

ssA sub-saharan Arica

sTI serice Trade etrictiene Indice

sF soereign ealth Fund

TA Technological Adatie aacity

TAI Technological Achieement Index

s nited state o America

AE nited Arab Emirate

K nited Kingdom

NTA nited Nation onerence on Trade and eeloment

Np nited Nation eeloment programme

NI nited Nation Indutrial eeloment rganization

sA nited state eartment o Agriculture


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xv

Abbreviations and Acronyms

vAT value-Added Tax

I orld eeloment Indicator

EF orld Economic Forum

Ip orld Intellectual proerty rganization

orld

T orld Trade rganization

YoY Year on Year


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xvii

Executive Summary

Economic actiity ha rebounded in mot

countrie o the Middle Eat and North Arica

(MENA). rowth i exected to aerage 4 ercent

in 2010 and to reach 4.8 ercent in 2011 and

2012. The recoery ha been drien by the global

economic rebound and, to arying degree, by

dometic timulu. Indutrial roduction, which

in MENA i dominated by oil, ha nearly reached

it re-crii eak, largely due to the trong

recoery in emerging market, eecially Aia.

oweer, the uturn weakened in the ummer

o 2010 a global growth lowed down, and eri-

ou concern emerged about the utainability

o the global recoery. In reone, many MENA

goernment hae continued to timulate their

economie in 2010, and een thoe that did not

ue any tye o cal timulu in 2009 haetarted imlementing cal meaure in 2010.

MENA economic recoery ha not been

ectacular. ith the excetion o the ul

ooeration ouncil () economie, the

region wa aected much le than other

region by the global nancial and economic

crii. ack o integration and a large ublic

ector heled oten the imact o the crii,

but now thee and other actor are limiting

the ace o exanion on the uide, though

thee actor are reent to a dierent extent inthe three major MENA grou o countriethe

oil exorter, the deeloing oil exort-

er and the oil imorter. part I o the reort

examine the hort-term growth roect o

the MENA countrie and the rik to the out-

look. part II dicue long-term deeloment

obtaclearticularly thoe related to non-oil

exort growth.

Part I: Sustaining the Recoery

The well-integrated countrie were hardet

hit by the global economic and nancial crii,

but they recoered quickly a demand or oil

icked u drien by the raid recoery in emerg-

ing market, and their nancial ector tabi-

lized. In 2010, economic growth o the grou

i rojected to reach 4.2 ercentcomared tohal a ercent growth in 2009, and the execta-

tion i that growth will reach 5 ercent in 2011

beore declining to 4.8 ercent in 2012. The oil

rice rebound rom the low in 2009 ha allowed

goernment to maintain exanionary -

cal olicie in 2010, while aoiding deterioration

in their cal and current account oition. All

goernment continued to timulate their

Composition of country groupings

GCC oil exporters: Bahrain, Kuwait, Oman, Qatar,

Saudi Arabia, and United Arab Emirates (UAE)

Deeloping oil exporters: Algeria, Islamic Repub-lic o Iran, Iraq, Libya, Syrian Arab Republic, and

Yemen

Oil importers include countries with strong GCC

links (Djibouti, Jordan, and Lebanon) and those

with strong EU links (the Arab Republic o Egypt,

Morocco and Tunisia).

For ease o exposition and analysis, this country

classication is used consistently throughout the

report. Deeloping MENA is used to reer to the

group o developing oil exporters and oil importers.


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xviii

economie a the global economy tarted lowing

down in the econd quarter o 2010. The timu-

lu ha uorted riate conumtion, and

becaue o it large caital ending comonent

i exected to hae acilitated thee countrie

economic dierication actiitie.

The hort-term growth outlook or the

economie deend on deeloment in the ret

o the world, and on the extent to which they

aect oil market. lobal growth i exected to

weaken omewhat in 2011, beore icking u a

bit in 2012. il rice moed aboe $85 er barrel

on a dereciating dollar, riing eaonal demand

and a tight global ditillate market. suort or

rice increae baed on demand and uly

actor howeer i exected to be weak due to

robut non-pE roduction, high inentorie

in the s, and amle are caacitymot o it

concentrated in saudi Arabia. oweer, unantici-

ated hock to uly and other actor includ-

ing rice eculation might lead to rice ike.

Tight credit condition, articularly in

interbank market, oe another threat to the

economic recoery in the countrie. ith

the excetion o Qatar, credit growth to the

riate ector remain anemic due to the uncer-

tainty ariing rom ongoing debt retructuring,

and the eect o the ubai orld () eent.signicant goernment uort ha enabled the

market or large roject and cororate nance

to continue unctioning, deite heightened

rik aerion and uncertainty. hen the

goernment hae not been directly reent in

bond market, yield hae been high.

ien the mall exort exoure to the E,

the debt roblem in Euroe are unlikely to alter

ignicantly the growth roect o the

countrie unle thee roblem read beyond

Euroe and aect global demand or oil. Theike in wheat ricewhich nearly doubled in

Augut 2010 rom their low in June 2010ha

caught the countrie in the early tage o

imlementing ood ecurity trategie, but the

imact o the rice ike i exected to be mall,

a all countrie hae cal ace to reond

to increae in the ood imort bill. Neerthele,

the recent ood rice increae couled with a

weakening dollar might toke infationary re-

ure and be a caue or concern.

The countrie hae ical ace to

cuhion the imact o a otential negatie term-

o-trade hock but the ytematic reliance on

goernment ending oe a medium to long-term challenge. some o the cal exanion will

be el-terminating when roject get comleted,

although the medium-term burden o continued

ublic ending growth could increae the cot

o caital or the riate ector a ublic aing

decline. It i alo unclear to what extent riate

ector growth would ick u when ublic ector

ending decline. In the nited Arab Emirate,

there i a huge oerhang o artly comleted

roerty deeloment, and the roerty rice

lum how no ign o eaing. In Qatar, the

outlook i clouded by the oerulied real etate

market and weak N market.

eeloing oil exorter uch a Algeria,

the Ilamic eublic o Iran, Iraq, ibya, syria,

and the eublic o Yemen elt the imact o the

crii, and later the recoery largely through the

oil channel a their nancial ector are motly

tate-dominated, and not linked to global nan-

cial market. eal growth o the deeloing oil

exorter i rojected to aerage 2.9 ercent in

2010u by le than a ercentage oint romgrowth in 2009, and i exected to reach 4.2

ercent in 2011 and 3.9 ercent in 2012. hile

timulu ha heled the recoery, the rebound ha

been weak a quite a ew deeloing oil exorter

aced roduction-related roblem limiting their

oil outut. In addition, Algeria backtracked in it

reorm eort by aing law that increaed ro-

tection and the dicriminatory treatment o rm.

eeloing oil exorter, eecially Iraq and

the eublic o Yemen, are ulnerable to a har

decline in oil rice a they hae much morelimited cal ace than the oil exorter.

signaling the increaing ue o oil a a main-

tream aet and pE dicultie with uly

management, oil rice olatility ha grown oer

time and i now much higher than olatility o

other commodity rice. Thi imlie that ru-

dent macroeconomic and oil reenue manage-

ment hae become more challenging and more


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xix

Executive Summary

imortant than eer beore. strategie aimed at

dieriying the economic bae and caling u

non-oil ource o growth will alo hel reduce

the ulnerability o thee countrie to exceie

term-o-trade olatility.

some deeloing oil exorter, mot notablythe eublic o Yemen, are alo ulnerable to a

ood rice hock. The cut in etimated wheat

global roduction between May and Augut are

rojected to hae raied dometic wheat rice

in the eublic o Yemen by 26 ercent. Thi

rice increae i likely to hae raied oerty

in the eublic o Yemen by lightly more than

0.3 ercentage oint, which rereent an in-

creae in the number o the oor by an etimated

80,000 eole. Iraq alo aear to be ulnerable

although lightly le than the eublic o Yemen

due to ourcing a maller hare o it wheat con-

umtion rom abroad.

il imorter uch a Egyt, Morocco, Tu-

niia, ebanon, Jordan and jibouti weathered

the eect o the global economic and nancial

crii better than other MENA countrie, but

deeloment in Euroe are exected to hae

damened growth in 2010, eecially o oil

imorter with trong E link. In 2010, real

economic growth o oil imorter i exected to

aerage 4.9 ercent and i unlikely to uragrowth in 2009. Auming teady rogre with

tructural reorm, oil imorter growth ater

2010 i exected to ura re-crii leel in

the 2000, and aerage 5.3 ercent in 2011 and

5.7 ercent in 2012.

il imorter with E link are likely to ace

ome reercuion o the exected ignicant

cal contraction in the heaily-indebted, high-

income Euroean countrie (E-5), and more

broadly, the Euro zone. The eect would come

through the balance o ayment, refecting theimact on trade, remittance, and FI fow. il

imorter with E link hae the greatet trade

exoure to the highly-indebted countrie in

the southern Euro Zone (sEZ), and the econd

highet trade exoure to the E25, ater EA. In

addition, two o the oil imorter with E link

Morocco and Tuniiaare much more deendent

on the E or their remittance fow than Egyt

and the ret o the oil imorter. ow hard thee

countrie are hit deend on the extent o the -

cal contraction in the E, and how quickly MENA

countrie can hit ale to market outide the

E. The imact on the oil imorter with

link i exected to be marginal.

ith the recent deeloment in agricultural

market, the rik o a ood rice hike ha become

a threat to all oil imorter. Egyt and Morocco

hae the larget etimated monthly imort o

wheat, and thereore ace the larget increae

in the imort bill a a ercent o monthly oreign

reere. stimulu ha heled oil imorter

weather the crii and uort the recoery,

but many o them are now queezed or cal

ace which rereent a key ource o long-term

ulnerability.

Part II. Looking Beyond theRecoery and Beyond Oil

In the lat ten year MENA growth accelerated

relatie to the reiou decade in reone to

intenied eort in many countrie to bolter

their riate ector and dieriy their ource o

growth. The growth reone in deeloing MENA

ince 2000 howeer ha been modet in er caita

term comared to other deeloing region. The

caital-intenie oil ector ha been and remainthe rimary ehicle or reenue and wealth cre-

ation or the oil exorter in MENA, while the

illoer eect to the oil imorting countrie in

the region and beyond hae been ignicant.

ith the benet rom oil, howeer, come

eriou rik a MENA remain uncomortably

deendent on oil. some o the rik o thi

deendence are well-undertood and include

macroeconomic olatility, utch dieae, eni-

ronmental degradation, olitical intability and

confict, and intitutional weakne and cor-rution. ther rik are le obiou and hae

to do with a mimatch between the economy

endowment bae and it endowment ue, and in

the uture, the threat o iable alternatie to oil.

some MENA oil exorter hae been taking

te to minimize the otential rik and enhance

the otential benet o oil-drien growth. The


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xx

countrie, in articular, hae ollowed rudent

macroeconomic olicie, oened u their market

or good and labor, aed their oil reenue and

ued them trategically to manage olatility and

nance inratructure, technology and education

inetment. oweer, the labor-abundant deel-

oing oil exorter hae been ar le ucceulthan the countrie in dealing with ome o the

itall o oil deendence. Thee countrie uer

rom weak intitution, confict, macroeconomic

olatility, and utch dieae. The latter ha led to

increae in the rice o nontradeable relatie

to tradeable, making the nonoil tradeable ector

le cometitie internationally, and exacerbating

the deendence on caital-intenie oil exort.

utch dieae ha alo become a threat to ome oil

imorter receiing large remittance and nance

rom the market.

And while the outlook or oil remain rom-

iing in the medium term due to trong demand

or oil in Aia and other at-growing market,

counting on oil will not ole the roblem o

ueling incluie growth in the region in coming

year. A the oil indutry i caital-intenie,

continued reliance on oil will not addre deel-

oing countrie major iueemloyment cre-

ation, and will only woren the current ituation.

MENA need to exand exort o nonoil good

and erice in order to ur job creation or theatet-growing labor orce in the middle-income

grou o countrie. eite ome rogre, in

the at decade net exort contributed little

to regional growth, and nonoil exort o good

and erice remain below otential. oweer,

the ituation dier ignicantly or the oil

exorter and the MENA oil imorter whoe

nonoil exort o good and erice are at o-

tential, and the deeloing oil exorter whoe

nonoil exort are only lightly more than a th

o exected leel.

ow did nonoil exort eole during the

at decade? o MENA countrie ace ecial

market acce iue? hat are the major ob-

tacle to MENA nonoil exort growth? Are

reorm imlemented by countrie addreing

the major contraint? The anwer to thee

quetion ary by country, although common

meage emerge or the region a a whole.

restictivetadepolicieseecially thoe

in ericeditort incentie, dicourage

oreign direct inetment,and limit MENA

integration within the region and with the

world economy.

ovenanceissues linked to dicretion in

alying rule and regulationhae led totagnation, ineciencie, and riileged ac-

ce or ome, but limited acce to erice,

including nance, reource and inormation

or micro and mall enterrie.

Inefcient andinexible labo makets

andscacityo skills, innovation and

technologicalcapabilitieshurt rm ro-

ductiity, limit emloyment creation and the

technological content o MENA exort.

How did nonoil exports evolve duringthe past decade?

To it credit, re-crii MENA ha made rogre

in achieing greater oenne, dieriying it

exort and exort detination. ountrie ad-

oted new technologie and aggreie renewable

energy exloitation lan to catalyze indutry and

energy dierication. Imortantly, MENA made

a major hit in the detination or it nonoil

good toward at-growing Aia and away rom

low-growing Ea moe that ha been a lot le

dramatic, but neerthele ubtantial or the oilimorter. The hit toward Aia and at-growing

I i good new or MENA a south-south

trade i exected to lay a much more rominent

role in the new ot-crii world trade order.

Nonethele, the imortance o ariou mar-

ket dier by country grou. Euroe remain

the mot imortant exort detination or ME-

NA nonoil roduct and erice. Thi refect

largely the act that the E receie around hal

o oil imorter exort. Nonoil exort detined

to other MENA countrie rereent the largethare o total nonoil exort, while or

deeloing oil exorter Aia ha become the

mot imortant nonoil exort detination.

The erice ector aear to be an area

o relatie trength or MENA and a key ource

o exort reenue and uture otential growth.

MENA exanded it hare in the global nonoil


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xxi

Executive Summary

exort market largely due to an increae in ex-

ort o erice. nly one other region in the

worldsouth Aiagenerate a higher hare o

outut than MENA by exorting erice. And

the imortance o erice a a ource o exort

growth i much greater or MENA oil imorting

countrie than any other region in the world.

y contrat, merchandie exort o other

deeloing countrie grew much ater than

MENA uggeting that MENA rm roducing

nonoil merchandie good are not a cometitie

a ome o their oreign counterart. egional

nonoil merchandie exort growth wa drien

more by an exanion o exiting roduct to new

market and new roduct to exiting market

than by an increae o exiting exort to exiting

market. The latter i alo indicatie o ubtan-

tial reure rom cometition with other emerg-

ing countrie exort. il exorter exanded

exort o indutrial roduct, notably in Aia,

while oil imorter were much more ucceul

than oil exorter in exanding exort o art

and comonent to the E and Aia, and caital

good to the E. oweer, exort growth linked

to global roduction haring arrangement wa

weak relatie to exort growth o indutrial, con-

umer and ood roducteecially to the E.

rowth at the extenie margin i eidenceo the hit toward raidly growing roduct and

market egment in Aia and the E, and alo o

the growing imortance o exort o indutrial

roduct, and to ome extent, global roduction

haring arrangement in the electrical and mo-

tor ehicle indutrie in the oil imorter with

trong E link. oweer, intra-indutry trade

(IIT) remain limited within MENA and with the

ret o the world, and manuacturing actiitie

in MENA aear to be motly aembly-tye o-

eration directed at dometic market. The only

country in the region with a ignicant hare ocomonent in it total exort i Tuniia.

Do MENA countries ace special marketaccess issues?

MENA countrie hae relatiely good market

acce or nonagricultural good in high income

countrie, but oerall agricultural rotection in

deeloed market i high mainly due to non-

tari barrier (NT), eecially contraining

oil imorter with E link. MENA countrie

hae more retricted market acce in hina

than in adanced market, and oil imorter

with E link encountered much higher oerall

rotection than other becaue o high tari onecic roduct exorted to hina.

All region ace higher rotection in India

than elewhere, and MENA region i not an exce-

tion. Furthermore, the region encounter higher

rotection on it nonoil exort to India than

mot other region, largely becaue o high bar-

rier on nonoil exort. oweer, oerall

rotection on oil imorter exort wa generally

lower in India than in hina, refecting a roduct

comoition eect. Notably, there i no eidence

that in general rotection ha increaed ubtan-

tially ince 2008 when the global crii eruted.

eite good market acce deeloing MENA

countrie do not exloit well exiting oortu-

nitie or nonoil exort growth. eeloing oil

exorter uch a the eublic o Yemen, Algeria,

the Ilamic eublic o Iran, and syria exorted

their roduct to le than 5 ercent o market

in 2005. il imorter were more ucceul

than them, but till mot exorted roduct to

le than 7 ercent o market, and comaredoorly to other countrie, including Turkey which

reached 27 ercent o market or it roduct.

Furthermore, ucce in enetrating oreign

market arie greatly acro MENA countrie

and cannot be exlained jut with dierence in

rotection acro market, but rather refect lack

o inormation about marketan area o ecial

concern to exort-oriented rm in MENAand

other contraint limiting rm cometitiene.

What are the major obstacles to

MENAs nonoil export growth?

A range o actor imede MENA nonoil exort

growth, dicourage inetment, and hurt rm

cometitiene, and labor and total actor ro-

ductiity leel ary ubtantially within the re-

gion. Firm rom countrie are much more

roductie than rm rom deeloing MENA,

while deeloing oil exorter rm are leat


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xxii

roductie. Accordingly, the three major grou

o countrie ace dierent contraint to nonoil

exort growth.

In the countrie, limited acce to -

nance or mall and medium enterrie (sME),

ditortion in labor market that dicouragekill acquiition and entry into the riate ec-

tor, and dicriminatory olicie that dicourage

FI infow into ome o the erice ector

are major roblem. Innoation and technologi-

cal readine alo aear to be area in need o

ecial attention a thee countrie are behind

their eer in the deeloed world.

In deeloing oil exorter, nonoil tari

and nontari rotection i highet in the world,

taxe and corrution are the mot requently-

mentioned major comlaint by exorting

rm, but due to the dominance o the tate,

other iue, eecially ineciencie in labor

and good market, and oor nancial market

deeloment, reent een bigger roblem or

the cometitiene and growth roect o the

exort-oriented ector.

In oil imorting countrieeecially thoe

with E linkrotection i till high largely

due to nontari barrier. ide dierion o

tari acro countrie imlie that indutrie inthee countrie benet to arying degree rom

olicy-generated traner, making the oening

o market among regional artner dicult de-

ite pAFTA. protection in erice alo remain

high and beyond the coe o regional agreement

uch a pAFTA and the bilateral FTA with the

E. imited cal ace in quite a ew o the

oil imorter imlie that macroeconomic un-

certainty remain a to-mot concern or rm,

while the inecient and infexible labor market

i another weakne. Furthermore, to be able to

comete eectiely in global market, rm inoil imorting countrie mut catch u with Eat

Aian rm in term o innoation eort.

Are reorms implemented by countriesaddressing the major constraints?

MENA countrie are imlementing reorm ad-

dreing ome o the contraint to nonoil exort

growth identied in the reort, but in many coun-

trie a lot more need to be accomlihed a wide

olicy ga remain in ome area. The aerage

number o reorm in MENA teadily increaed

during the lat 5 year. etween June 2009 and

May 2010, 11 o 18 economie in MENA adoted

a total o 22 buine regulation reorm to im-roe the climate or doing buine according

to the latet oing uine reort (2011). The

to reormer in the region were saudi Arabia

and Egyt which were among the 15 mot actie

reormer in the lat 5 year.

MENA goernment imroed macroeconomic

management, imliied buine regulation,

reduced tari, and tarted gradual oening o

their nancial ector. In an eort to increae ac-

ce to nance, the Ilamic eublic o Iran, syria,

the nited Arab Emirate, Jordan and ebanon

made imroement o their credit inormation

ytem. Many o the reorm inoled the alica-

tion o new inormation technologie which would

increae inormation fow and the eciency and

tranarency o oeration. Imroement were

made to trade acilitation in ome countrie

including saudi Arabia, the nited Arab Emir-

ate, and ahrain, a well a in the oil imorter

with E link. The eublic o Yemen aroed

an amendment to it utom law to meet T

memberhi requirement and tandard, with theaim o comleting T acceion by end o 2010.

In the , Qatar i eaing retriction on

majority oreign ownerhi o local comanie,

while ome countrie are rearing or al-

ready imlementing reorm addreing iue

related to their major cometitiene iuekill

hortage and labor market regulation. eel-

oing oil exorter are lanning to imroe the

unctioning o their nancial, inut and good

market. A art o it ongoing nancial ytem

reorm rogram, syria ha initiated a new come-tition and anti-trut law or the nancial ector.

Iraq ha adoted an action lan to modernize

it banking ector.

seeral deeloing MENA countrie with lim-

ited cal ace are lanning reorm to addre

macroeconomic imbalance and uncertainty.

Tuniia i rearing a law to enure nancial


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xxiii

Executive Summary

iability o enion cheme oer the next 20

year without additional tax increae or budget

nancing. Jordan i making a hit away rom

ublicly unded inetment toward ppp ar-

rangement. some deeloing oil exorter are

rearing imroement to their tax code and

remoal o cotly ditortion..A number o oilimorter are lanning meaure to trengthen

nancial tability, imroe acce to nance or

sME and remoe limit on FI in certain ector.

ide olicy ga, howeer, remain in a num-

ber o area where goernment hould te u

reorm eort. In the , more need to be done

to addre the iue o kill hortage in a com-

rehenie way. goernment hould con-

tinue to inet in kill, acilitate the matching

o labor uly and demand through imroed

data collection, inormation and intermediation

erice. It would be critical to coordinate migra-

tion reorm and reorm required to tranition

to technology-intenie roduction. A lot more

need to be done to undertand the nature and

extent to which regulation retrict trade and

FI in the erice.

In deeloing MENA, countrie need tointeniy eort to trengthen intitution, im-

roe inormation gathering and diemination,

and reorm imlementation. ountrie hould

re on with nancial market deeloment

eecially imroing nancial inratructure,

while urther trengthening macroeconomic

management, addreing ineciencie in labor

and good market, and acilitating innoation

actiitie, knowledge and technological acquii-

tion. Finally, it hould be a riority to undertand

better the nature and extent to which nontari

barrier and regulation retrict trade in non-oil

good and erice.


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27/146

Part I. Sustaining the Recovery


28/146


29/146

3

The Middle Eat and North Arica (MENA) re-

gion i recoering rom the global nancial and

economic crii along with the global economy

and with all the attendant uncertaintie. MENA

wa aected by the nancial and economic crii

but to a much maller extent than deeloed

economie and deeloing region outide Aia.

The economic recoery in MENA ha alo been

much le igorou than the recoery in coun-

trie that uered har outut contraction

(Figure 1). The actor that heled MENA aoid

eere receiona large ublic ector and lack

o integration with the global economynow

eem to be contraining the growth recoery.

rowth in MENA i exected to aerage 4 er-

cent in 2010, an increae o lightly le than

2 ercentage oint oer growth in 2009, andweak comared to increae o 5.6 ercentage

oint in adanced economie and 4.5 ercent-

age oint in deeloing nation on aerage

(Figure 2). MENA outut growth in 2011 and

2012 i exected to return to the aerage growth

rate obered in the 2000, rior to the eco-

nomic and nancial crii.

In the near term growth would be drien by

conumtion and inetment exanion, and

a recoery in exort (Table 1). oernment

conumtion i exected to remain an imor-tant drier o growth in MENA although the

extent to which indiidual goernment will be

able to timulate their economie will deend

on the degree o cal ace aailable. ien

the uncertainty about the economic roect

o the global economy, it i dicult to orecat

the extent to which exort would contribute to

growth in MENA going orward and the extent

MENA is Recovering fromthe Crisis, but Slowly

Chapter 1

Figure 1: Growth outlook (real GDP growthrates in percent)

Source: World Bank, Global Economic Prospects 2010 andMENA Social and Economic Development Group.

0

2

4

6

8

2008 2009e 2010f 2011f 2012f

WorldDeveloped countries

Developing countriesMENA

ECALAC

6

4

2

Figure 2:Growth accelerations in 2010(percentage point change relative to 2009)

Source: World Bank, Global Economic Prospects 2010 andMENA Social and Economic Development Group.

0

1

23

4

5

6

7

8

9

10

World

Developed

countries

Developing

countries

MENA

ECA

LAC


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4

to which riate conumtion and inetment

will ick u ace. It i imortant to recognize

that the outlook by country will dier deend-

ing on initial condition and the linkage to the

global economy through the nancial, oil, and

the balance-o-ayment channel.

MENAs Recoery has been Drien bythe Global Rebound and, to varyingDegrees, by Domestic Stimulus

In MENA, the well-integrated countrie

were hardet hit by the global economic and

nancial crii, but they recoered quickly a

demand or oil icked u, drien by the raid

recoery in emerging market, mot notably Aia,

and the nancial ector tabilized. In 2010

growth i rojected at 4.2 ercenta trong come-

back rom near zero growth in 2009 (Figure 3),

and the exectation i that growth will acceler-

ate to 5 ercent in 2011 beore declining to 4.8

ercent in 2012.

goernment reonded quickly with

monetary and cal timuli, and their accumu-

lated reere and other aet enabled them

to reent a deeer deceleration in growth, and

uort a rebound in growth. oweer, economicgrowth ha been contrained by anemic credit

growth, which ha tarted inching higher only

recently, and by the act that the our mem-

ber o pE hae retrained outut o crude oil

to uort oil rice, in the ace o large tock

oerhang and riing non-pE uly. At reent,

nearly two third o pE amle are caacity o

6 million barrel er day ha been in saudi Arabia.

oernment acilitated the recoery and

the return to tability by uing monetary eaing,

including lower reere requirement o bank,

liquidity uort rom central bank or goern-

ment, goernment guarantee on deoit and

debt, caital injection and, in Qatar, aet ur-

chae.1 The cal timulu aimed to hel the

recoery, but alo to enhance long-term growth

roect, mainly through caital exenditure

concentrated on inratructure inetment. For

examle, ongoing large cal ending by Abu

habi ha uorted it long-term dierication

trategy.

The recoery ha had a oitie imact

on other MENA countrie, and more broadly, on

the global economy, mainly through increaed

outlow o remittance and caital low.2

emittance outfow rom countrie re-

mained reilient during the crii and continued

to grow in 2009, albeit at a maller ace than

the one regitered during the re-crii eriod.

The inetment rogram art o the go-

ernment cal timulu tended to be labor in-

tenie, although mot entailed ue o imorted

labor, and thereore timulated the economie

o countrie ulying migrant, e.g. thoe in

deeloing MENA and south Aia.

1 Thee hare common element with the uort meaure

introduced in the s, E and Eatern Euroe.2 The tate are an imortant ource o remittance, and

increaingly oreign inetment. Thee countrie generate more

than 10 ercent o global annual remittance fow, while their

etimated accumulated reere and aet in oereign wealth

und exceed s$1.5 trillion.

Table 1: Demand-side sources o growth in MENA

GDP growth, %Private

ConsumptionGovernmentConsumption

Gross DomesticInvestment

Exports oGoods andServices

Imports oGoods andServices

2007 5.6 4.4 2.5 4.3 2.2 7.8

2008 5.3 3.2 2.1 2.8 2.7 5.52009 2.0 1.4 2.0 0.6 1.1 1.0

2010 4.0 2.4 1.8 1.7 1.2 3.1

2011 4.8 3.1 1.9 1.7 1.8 3.7

Source: Sta calculations based on World Bank data. Data or 2010 and 2011 are orecasts.


31/146

Chapter 1: MENA is Recovering from the Crisis, but Slowly

5

ernment aed a ulementary budget law

which banned credit to conumer, excet or

mortgage, a well a ulier credit to nance

imortonly letter o credit may now be ued.

The law aim to rotect conumer rom exce-

ie debt and retrain imortation o durable

conumer good. The meaure orm art o a

ackage o regulatory reorm meaure aed

in 2009 in aor o dometic oer oreign oera-

tor, including minimum local ownerhi o 51

eeloing oil exorter uch a Algeria, the

Ilamic eublic o Iran, Iraq, ibya, syria and

the eublic o Yemen alo elt the imact o the

crii, and later the recoery largely through the

oil channel a their nancial ector are motly

tate-dominated, and not linked to global nancial

market. The trong rebound in oil rice duringthe at 12 month imroed the cal and growth

outlook (Figure 21 and Figure 3) or thi highly

deendent on oil country grou (Figure 4). eal

growth i rojected to be 2.9 ercent in 2010, u

rom 2.1 ercent in 2009, and accelerate to 4.2

ercent in 2011, and 3.9 ercent in 2012. public

ending o deeloing oil exorter i tyically

ro-cyclical, but during the recent crii goern-

ment in a number o thee countrie reonded

with counter-cyclical cal olicie, in addition

to monetary eaing and nancial ector uort

meaure. Monetary eaing meaure included

lower reere requirement in Algeria, the I-

lamic eublic o Iran, and syria, interet rate

reduction in syria and drawdown o reere in

Algeria, while nancial ector meaure coered

goernment guarantee on deoit, liquidity

uort and aet urchae. ebt relie meaure

were adoted in Algeria, where they beneted

motly armer and sE, and in syria.

nlike other goernment which eaed

liquidity contraint in 2009, Algeria go-

Figure 3:MENAs annual real growthperormance beore, during, and aterthe crisis

Source: National agencies and World Bank sta estimates (e)or 2010, and projections (p) or 2011 and 2012.

0

1

2

3

4

5

6

7

8

2006 2007 2008 2009 2010e 2011p 2012p

ercent

GCC oil exporters Oil importersMENA region Developing oil exporters

Figure 4:Sources o external revenue, 20081

Source: COMTRADE data and IMF.Note: Other oil exporters are developing oil exporters in MENA. Oil importers are MENAs oil importing countries.1 See statistical appendix or country-specic macroeconomic inormation.

70%

0%

10%

20%

30%

40%

50%

60%

S

hare

ofGDP

SSA EAP ECA LAC SAS MENA OilImporter

Other OilExporters

GCC

Goods exports (non oil Oil exports Services exports Remittances


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6

ercent on oreign inetment, and olicie to

retrict imort to encourage dometic roduc-

tion. The law included a 400% increae in the

ca on goernment guarantee or sME loan.

The extent to which goernment were able to

ue cal timulu deended on their cal ace

(Table 2). nlike the countrie, deeloing

oil exorter imlemented their timulu mainly

through increae in current exenditure,3

3 Indeed, only one o the 6 deeloing oil exorter (syria)

increaed caital ending by 40% in 2009 relatie to 2008.

Fiscal balance Larger than 2% o GDP 2% to +2% o GDP Less than 2% o GDP

Current account balance Larger than 3% o GDP 3% to +3% o GDP Less than 3% o GDP

Government debt 0 to 30% o GDP 30% to 80% o GDP Larger than 80% o GDP

International reserves in months o imports More than 6 months Between 36 months Less than 3 months

Table 2: MENA countries scal space in 2008

Fiscal balanceas % o GDP

Currentaccount

balance as %o GDP

Governmentdebt as % o

GDP

Reserves inmonths oimports

Reserves(includingSWF) in

months oimports

Oil exporters

GCC

Bahrain 4.9 10.6 15.2 2.9 13.6

Kuwait 19.9 40.7 5.3 6.3 86.6

Oman 13.9 9.1 5.0 5.5 6.4

Qatar 10.9 33.0 15.0 3.8 23.1

Saudi Arabia 32.5 27.8 13.3 27.4 45.4

United Arab Emirates 20.4 8.5 15.1 1.8 16.7

Deeloping oil exporters

Algeria 7.7 20.2 8.2 34.5 45.1

Iran, Islamic Republic o 0.0 7.2 16.1 8.0 9.2

Iraq 3.3 12.8 108.5 14.6

Libya 24.6 40.7 0.0 42.6 65.7

Syrian Arab Republic 2.8 1.9 30.2 9.4

Yemen, Rep. 4.5 4.6 36.4 7.5

Oil importers

Oil importers with GCC links

Djibouti 1.3 27.6 60.2 3.0

Jordan 8.8 9.6 62.3 5.6

Lebanon 8.8 19.8 157.1 18.7

Oil importers with EU links

Egypt, Arab Rep. 6.8 0.5 76.6 6.6

Morocco 0.4 5.2 47.2 6.3

Tunisia 1.0 3.8 47.5 4.0

Source: World Bank data, Government debt and SWF data are rom IMF


33/146


7

eecially ubidie and traner, but alo ublic

wage, and thereore could hurt, not enhance

their long-term growth roect. In Algeria, the

cal timulu inoled increae o 25 ercent

in traner and ocial ubidie, including milk

and wheat ubidie, and houing uort. hile

a ortion o thi ending, uch a aid to tudentrom oor amilie or thoe liing in remote area,

targeted the oor, ome o it uorted ecial

grou. For examle, a new ublic inetment

und wa created to inet in sME created by

young Algerian entrereneur, ubidie or

down ayment and interet were extended to

low-income houehold and tax exemtion were

granted to homeowner renting houing to low-

income amilie, but alo mortgage were granted

to ublic erant at a ubidized interet rate o

one ercent.

In syria, the timulu wa a mix o ending

meaure and tax cut. The goernment increaed

wage by 23 ercent, inetment by 40 ercent,

and imlemented meaure to comenate or ri-

ing uel rice and mitigate the imact o drought.

Tax incentie included tax break or armer

and tax incentie to encourage comanie to

contribute to trategic objectie uch a locating

roduction in remote area, creating job and ar-

ticiating in initial ublic oering. The eublic

o Yemen had limited cal ace and roided ewinterention. social ecurity interention or the

mot ulnerable were imlemented with nancing

rom the rii eone Facility roided by the

orld ank. In Iraq, where the all in oil rice

eerely aected ublic nance, the orld ank

roided nancial uort through a deeloment

olicy loan, working cloely with the IMF.

il imorter uch a Egyt, Morocco, Tu-

niia, ebanon, Jordan and jibouti, were leat

aected by the global economic and nancial

crii, but growth in 2010 i exected to aerage4.9 ercent and i unlikely to ura growth in

2009 (Figure 3), largely due to the weak growth

exected in deeloed market, and the act

that growth will moderate rom relatiely high

leel in ebanon and jibouti. Auming teady

rogre with tructural reorm, oil imorter

growth in 2010 i exected to ura re-crii

leel in the 2000, and aerage 5.3 ercent

in 2011 and 5.7 ercent in 2012. eite the

challenge brought by the global economic and

nancial crii, with a ew excetion,4 reorm

hae broadly remained on track, while in ome

cae countrie hae teamed ahead with reorm

tarted beore the crii. Examle o uch re-

orm include enion and ocial welare reormin Egyt and trade liberalization and economic

integration in Tuniia.

Fical olicy o oil imorter with E link

ha been exanionary, a countrie launched

ariou meaure to timulate demand, and in

ome cae the riate ector. Thi exanionary

tance will make it harder or thee countrie to

imroe cal ace and reduce macroeconomic

ulnerabilitie. In addition to eaing liquid-

ity contraint on bank and rm,5 o ar the

reone ha ocued on mitigating the hort-

term imact o the crii on the real economy,

although ome meaure including tax cut

and inetment exenditure would romote

utained growth. In Tuniia and Morocco, -

cal timulu through increaed current exen-

diture included meaure to uort riate

conumtion, in the orm o ublic ector wage

increae, and meaure to hel sME coe

with the decline o external demand, includ-

ing guarantee o working caital loan, eaing

o regulation, and debt recheduling acilitie.Aitance to rm, irreectie o ize, wa

roided in Egyt through traner uorting

exorter, indutrial zone in the elta region,

and logitic area or internal trade.

stimulu through caital exenditure in-

creae went into job-creating inratructure

inetment in Egyt and Tuniia. In addition,

Egyt increaed inetment in rural and

ocial ector. A range o tax meaure were

4 For examle, Egyt halted the energy ubidy reorm. It ad-

oted a one-year reeze o the energy ubidy hae-out lan

or non-intenie indutrial uer, and extended the reeze or

another ix month to June 2010.5 iquidity uort wa urued in Tuniia and Morocco, while

goernment deoit in the banking ector were increaed in

Egyt. Monetary eaing, articularly reduction in reere re-

quirement, wa emloyed in all three countrie. Interet rate

were lowered in Tuniia and Egyt, and international reere

declined in Egyt.


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8

introduced in Egyt, including cut in cutom

dutie on elected indutrial inut and cai-

tal good, temorary uenion o the ale

tax on elected caital good, introduction o

imort tari on teel, and imoition o anti-

duming dutie on ugar to rotect dometic

roduction.

The economie o oil imorter with trong

link uch a ebanon, Jordan and jibouti

were relatiely unaected by the crii and man-

aged to grow at a robut ace o 6.5 ercent er

year in 2009. rowth lowed down ubtantially

only in Jordan, where it ell rom 7.6 ercent in

2008 to 2.3 ercent in 2009. Thi har low-

down romted authoritie to reond with a

combination o nancial, monetary and cal

meaure, the latter refecting a mix o tax cut

and ending increae. Financial meaure

included ull guarantee roided on all bank

deoit, initially through the end o 2009, and

ubequently extended through the end o 2010;

the roiion o guarantee or riate ector

borrowing, targeting lited indutrial and real

etate comanie with ound credit record acing

temorary dicultie obtaining nancing;6 and

a cale back o oeration to oak u liquidity

by the entral ank o Jordan. Monetary mea-

ure included lower reere requirement and

interet rate, and an increae in internationalreere.

To mitigate the imact o the crii on the

oor, the goernment o Jordan ued largely a

combination o tax cut and exemtion, and cai-

tal ending increae that are likely to enhance

the country growth roect. Jordan increaed

ublic inetment by 52 ercent between 2008 and

2009 in order to tackle inratructure bottleneck

in the road and water ector, and granted tax re-

lie or a number o ector. The goernment grant-

ed tax exemtion to the tourim ector, extendedtax exemtion on ome imorted contruction

material in reone to ign o contraction in key

ector, ull exemtion rom income taxe in the

agriculture ector and or houehold with income

u to a certain leel, cororate tax exemtion or

reduction in a number o ector.7 Jordan ued

ubidie aringly extending a ubidy only on

ga cylinder ued or cooking.

jibouti and ebanon regitered only minor

decline in growth during the ame eriod, with

both economie growing at 5 and 9 ercent,

reectiely, in 2009. ebanon grew at a much

ater ace than other oil imorter with

link, refecting a ot-confict recoery boom

aided by trength in certain ectortourimand real etateand ibrant riate inetment.

policy interention in ebanon heled uel

the ot-confict recoery boom, but trained

urther the cal outlook. public ector wage

increaed, and a daily comenation ee wa in-

troduced or low-income ublic chool tudent.

ther olicie were introduced to enure acce

to nance, including ubidized interet rate

extended to all ector, excet contruction and

trade, and trengthen macroeconomic unda-

mental uch a an increae in international

reere.

MENA Labor Markets RemainedRelatiely Unscathed by the Crisisbut Impacts Diered betweenCountries

Een though economic recoery ha been under

way, global unemloyment ha been lagging

behind and the ecter o a jobless recovery

ha been obered in many countrie. lobally,

unemloyment i etimated to hae rien in2010 with an increae o more than 30 million

ince 2007 (Figure 5). Three-quarter o thi

increae ha occurred in the adanced econo-

mie and the remainder among deeloing

economie. ithin the adanced countrie, the

roblem i articularly eere in sain, where

the unemloyment rate increaed by nearly 10

ercentage oint, and the nited state which

6 The proposed scheme covers 35 percent o the vaue o the

oan, requires security o at east 125 percent o the nanc-

ing vaue and targets projects that are more than 25 percent

compete.7 These incuded u exemption rom income taxes o income

arising rom the agricuture sector, as we as or househods

with income up to JD24,000; u exemption rom corporate

tax or agribusinesses, or the rst JD75,000 in income; and

corporate tax reduction or industria companies (rom 15 to

14 percent), or trade and tourism companies (rom 25 to 14

percent), and or nancia and teecommunications companies

(rom 35 to 30 percent).


35/146


9

ha een the highet increae in the number o

unemloyed. Among deeloing economie,

hina and the uian Federation had the

larget increae in the number o unemloyed

(Figure 6). The exort ector were hardet

hit in term o job, and inormal emloyment

exanded imlying that the number o worker

with little or no ocial rotection increaed.

The economic crii triggered dramatic re-

duction in actiity in ector that had exanded

ubtantially during the uwing and were at the

center o the criiuch a nancial erice,

real etate and contruction. In reone, many

adanced economie ut in lace mechanim

to timulate labor demand including direct job

ubidie, wage ubidie or reduction in ayroll

taxe targeting ecic grou in the labor orce

that are mot ulnerable to joblene uch a

the long-term unemloyed and the youth.

Job losses in the GCC countries were

steep but aected mainly expatriateworkers

Job loe in the countrie were tee be-

caue o their high exoure to credit nancing

and global market. abor market were hardet

hit in the nited Arab Emirate (Figure 7), mot

notably ubai, where the labor-intenie real

etate ector contracted harly. ecent analyi

baed on labor urey o roeional how

that a total o 10% o roeional job in the ulwere cut down oer the 12-month eriod u to

Augut 2009. small rm regitered teeer job

loe (14 ercent) than larger rm (8 ercent).

Moe by ome goernment to retrict

termination o ul national hae heled e-

cure their job in the hort run. oweer, with

termination not an otion, ome emloyer hae

become more cautiou in hiring national.

Figure 5:Global unemployment and real growth

Source: World Bank data and ILO.Note: Data or 2010 is a orecast.

Millions

Percent

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20103

2

1

0

1

2

3

4

5

145

155

165

175

185

195

205

215Unemployment GDP growth (right axis)

Figure 6:Changes in number ounemployed, 200709 (in millions)

Source: IMF, World Economic Outlook.

China, 3

Turkey,1.1Mexico,

0.9

Otherdevelopingcountries,

1.2

RussianFederation, 1.9

Total number of unemployed in Developing countries:8 millions


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10

The job cut hae diruted the lie omany exatriate a they tyically lack ocial

ecurity or unemloyment benet, and mot

are required by local immigrat

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