Diery Seck & Amie Gaye, CREPOL 4 th July 2012

 1) Were there distinct impacts of the crisis on Arab Region and Sub-Saharan Africa (SSA)?  2) What are the benefits from collaboration between the two regions?  3) How to optimize global risk-management investment that benefits both regions?

 S&P Global Equity Indices of Selected Arab Countries

 Evolution of S&P Global Equity Indices of African Stock Market Indices

 Both regions’ stock markets declined heavily in 2008  They recovered in 09 but dropped again in 10  Have not reached in 2010 levels of 2007

 Growth of Domestic Credit provided by the Banking System (Excl. Government Claims) Country Average Algeria Bahrain n/a 0.19 Djibouti n/a 0.11 Egypt, Arab Rep Iran, Islamic Rep n/a Iraq Jordan Kuwait n/a 0.12 Lebanon Libya n/a 0.11 Morocco Oman n/a 0.15 Qatar n/a 0.24 Saudi Arabia Syrian Arab Republic Tunisia United Arab Emirates Yemen, Rep n/a0.40 Average

 Steady annual decline for Arab region  Arab countries that are open suffered the most: Correlation credit vs openness=  Arab countries have no risk-management strategies: individual (counter-cyclical) or region-wide (pooled recovery funds)  No change for SSA

 Current Account Balance as % of GDP of Selected Arab Countries

Growth in Exports of Goods and Services (%) of Selected Arab Countries Year Average Algeria n.a Egypt, Arab Rep Jordan Lebanon Morocco Syrian Arab Republic Tunisia Average

 Current account balance and growth of exports declined during the crisis  Exports seem to be the main channel of transmission of the crisis to both regions  Recovery started in 2010 only, but modestly

Foreign Direct Investment Net Inflows (% of GDP) Country Average Algeria Bahrain n/a1.2 Djibouti n/a9.2 Egypt, Arab Rep Iraq Jordan Kuwait n/a1.0 Lebanon Libya n/a2.7 Mauritania Morocco Oman n/a3.2 Qatar n/a8.3 Saudi Arabia Sudan Syrian Arab Republic Tunisia United Arab Emirates n/a1.7 Yemen, Rep n/a0.5 Average

 FDI net inflows %

Annual GDP per Capita Growth of Selected Arab Countries (in %) Average Algeria Djibouti n/a3.0 Egypt, Arab Rep Iraq Jordan Lebanon Libya n/a0.3 Mauritania Morocco Oman n/a-1.7 Qatar n/a-5.1 Saudi Arabia Sudan Syrian Arab Republic Tunisia United Arab Emirates n/a-11.2 Yemen, Rep n/a0.6 Average

 GDP per Capita Annual % Growth

 Foreign direct investment declined in both regions but faster in Arab countries  Real GDP per capita also declined with slight recovery in 2010 for Arabs  Real sector mirrors export revenues

 Impact on Arab Countries: SectorVariable Year of Initial Impact Impact Financial - Stock market index - Volume of transactions Adverse Money supply - M2/GDP Adverse Domestic credit - Credit to private sector - Credit to public sector Adverse - Persistent downward trend Trade and reserves - Net foreign assets (minus gold) - Current account balance - Degree of openness - Oil revenues as % of GDP - Number of tourist arrivals Adverse - Reduced - Adverse Real sector - FDI net inflow - Growth of GDP per capita Adverse

 Impact on African Countries: SectorVariable Year of Initial Impact Impact Financial - Stock market index - Volume of transactions None - Adverse - No impact Money supply - M2/GDP - None - No impact Domestic credit - Credit to private sector - Credit to public sector - None - No impact Trade and reserves - Net foreign assets (minus gold) - Current account balance - Degree of openness - Annual growth of exports - Number of tourist arrivals None Adverse - No impact - Adverse Real sector - FDI net inflow - Growth of GDP per capita Adverse

 For SSA: 1) Increase FDI, 2) Increase Exports, 3) Reduce vulnerability to global shocks  For Arab region: 1) Increase openness while minimizing global risk, 2) Benefit from SSA’s growth potential, 3) secure commodity sourcing   How to achieve global risk minimization?

 Optimization Model: X i,t = rate of growth of export of individual country i for period t, X t = rate of growth of global exports for investor country for period t. X i is the column vector of rates of growth of exports of the S countries w i is the weight of individual country i in country K’s world-wide exports W is a vector of all w i ’s

 Arab countries gain from overseas investment in export sectors  SSA is a good investment destination because its exports have low correlation with Arab exports  By investing significantly in SSA instead of its traditional foreign destinations, Arab region increases its openness while minimizing its exposure to global risk  SSA increases its FDI, exports more and is more integrated into world economy.