UNECE-PAM-UNCTAD CONFERENCE ON “HARNESSING TRADE FOR GROWTH IN THE MEDITERRANEAN” PALAIS DES NATIONS, GENEVA, SWITZERLAND, MAY 2013 JEAN-PIERRE CHAUFFOUR LEAD ECONOMIST, WORLD BANK From Political to Economic Awakening in the Arab World: The Path of Economic Integration

Background – Deauville Partnership In wake of Arab Spring, Deauville Summit of the G8 (April 2011) establishes a Partnership between  Deauville Partners: G8, Kuwait Qatar, Saudi Arabia, Turkey, UAE, and 9 associated international and regional financial institutions  Arab countries in transition: Egypt, Jordan, Morocco, Tunisia, and later Libya and Yemen Deauville Partnership commissions an analytical report “to provide an appropriate framework to enhance trade and FDI” 2

Youth Unemployment Rates MENA has highest youth unemployment rate in the world (%) Source: Regional Economic Developments and Prospects, MENA, World Bank,

Soaring youth population 5

Insufficient economic growth to create enough jobs Source: From Privilege to Competition, World Bank,

What are the available policy instruments ? 7 Fiscal policy  Lower revenues  Higher social expenditures Monetary and exchange rate policies  Small open economies  Declining foreign exchange reserves Structural policy  Subsidies  Pension  Domestic competition

Could Trade & Investment be part of the answer? Trade. MENA could produce more if it were to export more. Excluding oil exports, the MENA region of over 400 million people exports roughly the same amount as Switzerland FDI. Excluding oil and real estate investment, FDI in manufacturing—the type of investment rich in employment—has remained marginal, accounting for just a fifth of all FDI inflows in the region 8

Flat share of global exports of goods and services Source: Regional Economic Developments and Prospects, MENA, World Bank,

Limited intra-MENA integration Measured by nonoil exports Source: World Bank (staff calculations),

FDI inflows surged Source: Regional Economic Developments and Prospects, MENA, World Bank, 2011 In percent of GDP 6

Mainly in real estate and mining Source: Regional Economic Developments and Prospects, MENA, World Bank, 2011 Share of greenfield FDI inflows by sector 7

Domestic private investment has not yet taken off Source: From Privilege to Competition, World bank,

A complex business environment (and indicators hide uneven application of rules) Source: Doing Business in a More Transparent World, Doing Business 2012, World Bank Group 14

Overall lack of competitiveness Source: Global Competitiveness Report,

Top 5 features of successful emerging economies:  committed, credible, and capable governments  maintain macroeconomic stability  exploit the world economy  let markets allocate resources  muster high rates of saving and investment Source: Growth Commission Report (2008) 16

How to do it? Leadership and Vision Leadership in both Partnership Countries and partner countries is needed to provide a credible long term vision: the 4 freedom agenda Leaders will need to promote sustained growth and job creation, in a framework of common values of peace and stability; cannot focus exclusively on short-term priorities: need to demonstrate credibility 17

The main proposal of the report 12 Objective. Expanding market opportunities while undertaking policy reforms needed to seize them, including trade facilitation measures Expected Result. Deeper integration as an anchor for “meritocratic” domestic reform, sustainable economic growth and jobs creation

Outline of the report Section 1: The new global Trade & FDI landscape—dealing with the fragmentation of production (i.e., global value chains) Section 2: Market access and rules—creating opportunities to trade and invest across borders cheaply, securely and predictably Section 3: Competitiveness and diversification— implementing complementary domestic reforms of the business climate Section 4: Trade facilitation and trade finance—oiling the Trade & FDI engine especially for SMEs Section 5: Inclusiveness, equity and sustainability—making economic integration a sustainable and inclusive long term political economy proposition 19

What could Deauville Partners do? The EU could deepen its trade relationships with Egypt, Jordan, Morocco, and Tunisia with the effective implementation of the proposed deep and comprehensive FTAs (DCFTAs). In a coordinated and coherent approach, and on the basis of its growing political and economic influence in the region, Turkey could similarly deepen its existing Association Agreements. The GCC could strengthen its relationship with Egypt and Tunisia (Jordan and Morocco have been officially invited to join the GCC), in the framework of a deepened cooperation with the Agadir agreement. The USA could (a) increase the value of its existing agreements with Jordan and Morocco, and (b) invite Tunisia and, once the appropriate circumstances are in place, Egypt to enter into FTAs. 31

What must Deauville Partnership countries (Egypt, Jordan, Tunisia, Morocco, Libya) do? Parallel implementation of complementary domestic policies as part of a comprehensive reform agenda to improve competitiveness – critical to take advantage from enhanced market access Put in place institutional mechanisms to negotiate, implement, and evaluate the process of regulatory and policy convergence 33

Political economy challenges 22 Past political legacy with Arab authoritarian regimes Lack of credibility and trust among partners EU in economic and financial turmoil Little room for financial support Unclear policy direction and vision in Arab countries Populist policies and shortermism Pressing political issues dwarfing all economic priorities

Emulating Turkey Since anchoring domestic reforms in a comprehensive integration process with the EU, Turkey has created 3 million new jobs 35

Thank you Available at /10986/ /10986/12221