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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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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
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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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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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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
(share o rms raning a constraint as major or severe) ......................................................... 77
Figure 65: leading constraints to export-oriented rms in oi importing countries
(share o rms raning a constraint as major or severe) ......................................................... 77
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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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.
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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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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
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Chapter 1: MENA is Recovering from the Crisis, but Slowly
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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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).
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Chapter 1: MENA is Recovering from the Crisis, but Slowly
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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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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