Economic Commission for Africa Office for North Africa Twenty Third Meeting of the Intergovernmental Committee of Experts (ICE) - Rabat, Morocco March CAPITAL MOBILITY IN NORTH AFRICA

Economic Commission for Africa Office for North Africa Twenty Third Meeting of the Intergovernmental Committee of Experts (ICE) - Rabat, Morocco March CAPITAL MOBILITY IN NORTH AFRICA

Economic Commission for Africa Office for North Africa Twenty Third Meeting of the Intergovernmental Committee of Experts (ICE) - Rabat, Morocco March Introduction Importance of capital flows liberalization in the region – Addressing the development challenges of the region means looking at all components of economic growth, investment/FDI is one of these components – Moving towards regional integration is recognized as a necessary process in today’s increasingly globalized world, intra-regional flows of capital are a component of regional integration Challenges –Put in place a favorable environment for intra regional trade and investment and a minimum of harmonization –Understanding the reasons of low capital mobility

Economic Commission for Africa Office for North Africa Twenty Third Meeting of the Intergovernmental Committee of Experts (ICE) - Rabat, Morocco March Capital flows evaluation Low intraregional flows: US$900 million in 2005, less than 6% of total FDI in NA, 0,1% of GDP, ¼ portfolio vs ¾ green Stock exchanges in Egypt and to a lesser extend Morocco are major channels Major sectors Energy Banks Telecommunications Construction and civil works Tourism Data limitations and need of data harmonization and adaptation

Economic Commission for Africa Office for North Africa Twenty Third Meeting of the Intergovernmental Committee of Experts (ICE) - Rabat, Morocco March Environment Fiscal exonerations in the 7 countries are different and depend on the fiscal classification Similar kind of advantages in all countries No preferences for the north African countries in the investment codes Some blocking elements in the investment codes weakness in infrastructure Public and corporate governance not yet generalized Inadequate employment/training relationship Persistence of red tape Resistance to the one desk concept A posteriori controls not yet fully accepted

Economic Commission for Africa Office for North Africa Twenty Third Meeting of the Intergovernmental Committee of Experts (ICE) - Rabat, Morocco March Financial system Different levels of financial systems development More banking activity than financial market The Stock exchanges in Egypt and Morocco are major channels: Capitalization in Egypt is twice more important than in Morocco and about 20 times more important than in Tunisia or in Sudan Rapid growth of stock exchanges in the region Importance of the role of Investment financing Banks (IFB)

Economic Commission for Africa Office for North Africa Twenty Third Meeting of the Intergovernmental Committee of Experts (ICE) - Rabat, Morocco March Advantages and risks of capital flows liberalization Risks Intra-regional capital mobility is not an end in itself, it must serve clear and coherent development objectives If managed properly it can promote growth, if no capital mobility may increase risks of macroeconomic volatility

Economic Commission for Africa Office for North Africa Twenty Third Meeting of the Intergovernmental Committee of Experts (ICE) - Rabat, Morocco March Advantages and risks of capital flows liberalization Advantages Main theoretical Arguments for Capital Mobility –Lifts the constraints on domestic investment imposed by low national savings –Provides access to Technological know-how –Allows countries to smooth consumption over time –Permits domestic residents to diversify risks through holding diversified international portfolios The composition of capital flows as well as domestic economic conditions are important in determining whether or not capital mobility has a positive impact on an economy

Economic Commission for Africa Office for North Africa Twenty Third Meeting of the Intergovernmental Committee of Experts (ICE) - Rabat, Morocco March Capital mobility experiences UEMOA: interesting achievements but results are not at the level of the expectations Causes: a difficult sociopolitical environment, the non-realization of the privatization programs, the weakness of the stock- exchange culture and the lack of harmonization of the assets tax system Turkey: opening to the international competition without having considered the lack of adequate financial structures engendered a financial crisis

Economic Commission for Africa Office for North Africa Twenty Third Meeting of the Intergovernmental Committee of Experts (ICE) - Rabat, Morocco March ECA Activities on the theme The theme of ERA Economic Report for Africa in 2007 was FDI A number of meetings were organized by ECA and by SRO-NA One regional study and 5 country studies were prepared by SRO-NA A publication about capital mobility in North Africa in the final step A meeting of experts was organized by SRO-NA to review the publication draft and to add reflections

Economic Commission for Africa Office for North Africa Twenty Third Meeting of the Intergovernmental Committee of Experts (ICE) - Rabat, Morocco March Organisation of last meeting Casablanca (Morocco) January 2008 in partnership with « Bourse de Casablanca » WAEMU and Turkish experiences in the field of capital flows liberalization were presented 46 participants – 7 State members of SRO-NA: Algeria, Egypt, Libya, Morocco, Mauritania, Sudan and Tunisia –Organizations and agencies of UN system, international and regional organizations 5 work sessions, a round table and a synthesis session

Economic Commission for Africa Office for North Africa Twenty Third Meeting of the Intergovernmental Committee of Experts (ICE) - Rabat, Morocco March Recommendations 1- Collection, publication and harmonization of data and analyses 2- Sequenced and careful programming of capital lows liberalization 3- Continuation of the re-energisation of stock markets and banking systems of the region 4- Intensification of the training of the specific labor force needed for the capital mobility development 5- Implementation of financial policies which take into account every country specific needs and harmonization of these policies at the regional level 6- Grant a particular place to SMEs in the national and regional liberalisation strategies

Economic Commission for Africa Office for North Africa Twenty Third Meeting of the Intergovernmental Committee of Experts (ICE) - Rabat, Morocco March Recommendations 1- Collection, publication and harmonization of data and analyses Data bases, information systems (we’re not starting from scratch: build on national initiatives and ECA-NA’s ORI) Networking/knowledge management Private sector human resources needs Sectors to be encouraged: growth and employment Potential Highlight barriers to intra-regional investments and propose ways to remove them Better understand islamic banking and its implications Portals, web sites Watch tools and early warning systems

Economic Commission for Africa Office for North Africa Twenty Third Meeting of the Intergovernmental Committee of Experts (ICE) - Rabat, Morocco March Recommendations 2- Sequenced and careful programming of capital lows liberalization Monitoring and evaluation Involve and convince all stakeholders Watch systems More studies on the impact of existing intra-regional flows Explore and propose the conditions for liberalizing capital accounts for intra-regional flows

Economic Commission for Africa Office for North Africa Twenty Third Meeting of the Intergovernmental Committee of Experts (ICE) - Rabat, Morocco March Recommendations… 3- Continuation of the re-energisation of stock markets and banking systems of the region Banks –Harmonize rules and legislations –Encourage investment banks (BFI) –Support and encourage UMAs trade and investment bank Stock exchanges –Harmonize rules and legislations –Encourage bilateral cooperation, exchange of experiences –Encourage firms to raise capital in other countries

Economic Commission for Africa Office for North Africa Twenty Third Meeting of the Intergovernmental Committee of Experts (ICE) - Rabat, Morocco March Recommendations 4- Intensification of the training of the specific labor force needed for the capital mobility development Responding to human resources needs of the private sector Strengthening governments institutional and governance capabilities Continuous training of all stakeholders (governments, private sector, especially SMEs, etc.) There is technical expertise but need for NA-specific know- how, particularly in terms of management and risk analysis

Economic Commission for Africa Office for North Africa Twenty Third Meeting of the Intergovernmental Committee of Experts (ICE) - Rabat, Morocco March Recommendations… 5- Implementation of financial policies which take into account every country specific needs and harmonization of these policies at the regional level No standard approach Need for progressive approaches: quality>quantity Cooperation and exchanges within NA and with others (Africa, GCC, EU) Harmonization and convergence There is a minimum common set of recommendations for all countries but we can start with sub-regional groups for some types of cooperation Address the needs of special groups (SMEs, migrants) Monitoring and evaluation tools Accountability Accelerate all aspects of regional integration, only way to benefit from globalization Remove barriers, reduce processing time of requests Provide judicial safeguards aimed at resolving conflicts that can arise from capital mobility

Economic Commission for Africa Office for North Africa Twenty Third Meeting of the Intergovernmental Committee of Experts (ICE) - Rabat, Morocco March Recommendations 6- Grant a particular place to SMEs in the national and regional liberalisation strategies of intra regional capital flows Promote SME- oriented venture capital tools Policies encouraging trans-border investments Financial tools addressing the specific needs Listing rules encouraging participation in stock exchanges Studies for better understanding challenges and identifying solutions (follow-up UME’s study) Capacity building and continuous training

Economic Commission for Africa Office for North Africa Twenty Third Meeting of the Intergovernmental Committee of Experts (ICE) - Rabat, Morocco March Thank you Abdelilah Ouaqouaq