1. Expert Group Meeting on Transport and Trade facilitatio Expert Group Meeting on Transport and Trade facilitation Why Trade Logistics Matter in the Arab Region? Mohamed A. Chemingui, ESCWA Movenpick hotel, Dubai, 10-11 April 2013

2. 2 Regional Characteristics Economically diverse region ….. In terms of: -Size of economy; - Size of population; - Economic structures and level of economic diversification; -Geographical location and area; -Type of governance and institutions -Human capital and labor productivity -Level of integration to the world economy

3. Growth pattern has special characteristics…… -Heavy reliance on oil exports; -Weak macroeconomic policies coordination -Weak regional trade and financial integration; -High population growth rates; -High unemployment rates, particularly youth and women; -High weight of public sectors and inefficient markets -High poverty rates outside GCC countries; -Very heterogeneous fiscal space levels; -Underdeveloped institutions;

4. Country Name PopulationGDP GDP per capita % of Total population to overall ESCWA population % of GDP constant to Total ESCWA GDP GCC (Oil-Rich labor importing) Bahrain1.119.318.30.321.1 Kuwait2.5105.941.60.766.0 Libya6.262.410.11.863.5 Oman2.646.917.80.792.7 Qatar1.497.669.90.425.5 Saudi Arabia 26.2376.714.47.8621.4 UAE6.2297.648.01.8616.9 Total46.21006.422013.8757.1 Non-Oil middle income Labor exporting Egypt78.3189.02.423.5110.7 Morocco34.890.92.610.455.2 Jordan5.823.84.11.741.4 Lebanon4.234.98.41.252.0 Syrian19.653.92.75.903.1 Tunisia10.343.54.23.092.5 Total153.0436.124.545.9324.7 Others (Diversified Economies) Algeria34.8138.14.010.457.8 Djibouti1.91.00.50.570.1 Mauritania3.03.01.00.900.2 Iraq30.281.12.79.064.6 Sudan41.467.01.612.433.8 Yemen22.631.01.46.791.8  Clear discrepancy in the region;  In 2009, Oil rich labor importing countries recorded less that 14% of total Arab Pop; and more than 57% of Arab GDP  In 2009, Non- oil middle income labor exporting countries population registered more than 3 times that of oil rich countless with only 25% share to total Arab GDP.  The 3 rd group contributed 18% to total GDP and more than 40% of total Arab population. Arab Economic Performance – selected indicators (2009) No data available for Palestine, Comoros and Somalia No data available for Palestine, Comoros and Somalia. Source WB

5. Institutions & Agreements in support of regional economic integration Starting from Arab League in 1945…  1950 Treaty for Joint Defense and Economic Cooperation;  1953 Agreement on Trade Facilitation and Regulating Transit Trade;  1957 Arab Economic Unity Agreement;  1964 Arab Common Market Agreement;  1981 Agreement on Facilitation and Development of Trade;  1981 Gulf Cooperation Council;  1989 Arab Maghreb Union;  1997 Greater Arab Free Trade Area;  2003 Initiation of the Framework Agreement for Liberalizing Trade in Services;  2005 Full entry into force of Greater Arab Free Trade Area.

6. Future actions Main declarations of the third Arab Economic Summit 2013 1. Removal of remaining barriers (tariffs and non tariffs) on intra- Arab trade by end of 2013 2. Creation of Arab Custom Union by 2015 3. Accelerate the implementation of the “Aid for Trade” activities for the 22 Arab countries under the coordination of the Islamic Development Bank Challenges: Is there a room for an Arab Common Position for the Next WTO ministerial conference in December 2013 and potential agreement? What about the FTAs signed by some Arab countries with the EU and USA if an Arab Custom Union will be implemented?

7. Export Performance: Compared to other regions… Arab region is less integrated, even compared to African countries. Intraregional exports as % of total exports (2010) Source: ITC 7

8. What determines divergent trade performance What determines divergent trade performance ? Export concentration index by region index (1995,2011) Export concentration index by county and export performance (2000-2011) Arab countries has high export concentration Does high export concentration hindering export growth? –Empirical Studies.. Yes –Western Asia.. Yes (oil sector), but there are windows for diversification and improvements !

9. Understanding why intra-Arab trade is low in Arab countries?

10. A. High Concentration of Exports (or low diversification level) Most Arab countries are highly dependant on few products for exports with high concentration of markets.

11. Low complementarity of trade in the region. Could regional integration be beneficial? B. Low complementarity among Arab Countries Country20002010 Saudi Arabia10.213.3 United Arab Emirates23.832.9 Bahrain10.315.5 Qatar8.69.7 Kuwait8.39.8 Oman17.515.7 Tunisian21.526.0 Algeria6.210.3 Libya5.89.0 Morocco15.217.2 Mauritania1.94.0 Egypt21.330.1 Syria11.522.7 Iraq3.52.4 Jordan28.426.0 Lebanon25.027.9 Sudan7.64.8 Djibouti13.35.0 Somalia4.91.4 Yemen6.912.7 Palestine4.314.3

12. Trade Complementarity Indices

13. Structure of Arab Countries’ Exports

14. Trade agreements granting prefrencial market access DOES NOT eliminate problems created by NTMs. NTMs are particulary challanging in manufacturing sector. NTMs in Agriculture: Sanitary and Photosanitay measures (SPS), technical barriers to trade (TBT), and rules of origin. Share of burdensome NTMs and exports in LAS NTMs in Manufacture: Rules of origin is the main callenge followed by SPS and TBT measures. C. High Non-Tariff Measures (NTM) among Arab countries

15. The most performing Arab countries is the UAE The second Arab country appears only at the 33 rank Most of the remaining countries still poor in terms of facility of trade. Poor logistics performance index means high cost of trade. In many Arab countries, the expected impacts from tariff removal have been offset by the high logistic costs To ensure gains from trade, Arab countries must make significant efforts in reducing technical barreirs to trade through the modernization of its infrastructure and logistics related to trade. D.. High Cost of Logistics LPI is built around a survey of logistics professionals. By asking freight forwarders to rate countries on key logistics issues— such as customs clearance efficiency, infrastructure quality, and the ability to track cargo— It captures a broad set of elements that affect perceptions of the efficiency of trade logistics in practice The Logistics Performance Indicator provides a simple, global benchmark to measure logistics performance

16. High disparities in terms of macroeconomic and sectoral policies Convergence in macroeconomic and sectoral policies is found to be a key factor for the success of regional integration shemes The three pillars for a successful regional integration are: - Convergence in terms of monetary policies -Convergence in terms of fiscal policies - Convergence in sectoral policies. Macroeconomic policies are too heterogeneous in the Arab word: Monetary policies are an example, where Arab countries did not achieved the minimum level of convergence. Some of them pegged their currencies to the US Dollar while others are more flexible. The objective of monetary policies itself is not homogeneous among countries: targeting inflation, increasing domestic investment, or mobilizing savings... Sectoral policies in terms of subsidies and public support harm competition and accordingly many countries excluded a significant lists of products from their inter-Arab agreements, mainly in Agriculture and related industries E.. High disparities in terms of macroeconomic and sectoral policies

17. Impact of reduction of the cost of transport s in the Region within the context of DAFAT?

18. Scenarios definition 18 Sim 1 (FTA): A full implementation of intra- Arab FTA Sim2 (TR) =Sim1+ a 50% reduction of intra- Arab transport costs Sim3 (CU) : Sim2+ a customs union between all Arab countries. between all Arab countries. Sim4 (Migration): Sim3+the replacement of 20% of non Arab migrant stock by Arab migrants. of 20% of non Arab migrant stock by Arab migrants. sim4:sim3+ An Arab preference for migration quotas in OPC sim3: sim3+a common external tariffs (for non agriculture products sim2: sim1+ 50% reduction in transport cost sim1: A complete Free trade Area

19. Simulations results: Impacts on trade Intra Arab trade variation 19  A full implementation of the FTA supports the increase of intra-Arab trade by around 10 per cent. If 50 per cent transport cost is reduced intra- Arab trade could increase by 38.5%.  The application of common external tariff increases trade with non-Arab partners as the market access will increase in both directions. Share of the intra-Arab trade in total trade

20. Simulations results: Impacts on GDP at regional level 20 Variation of GDP Impact on GDP ranges from 0.17 % in scenario 1 to more than 3.56% in scenario 4.  Impact on GDP ranges from 0.17 % in scenario 1 to more than 3.56% in scenario 4.  This increase is shown for both oil and non-oil producing Arab economies with more increase in non oil economies.  Scenario 4 shows, in oil producing countries the GDP increases around 3% compared to 4.45% increase in non oil producing countries.

21. Simulations results: Impacts on GDP at country level  Substantially impact on GDP is shown in all Arab countries.  Egypt will in particular benefit and will enjoy a 5.49% increase in GDP.  A number of GCC countries will also benefit such as SA, UAE Bahrain, Kuwait.  The impact on GDP is low in Oman and Qatar. 21

22. How to reduce Trade Costs? ESCWA’s activities Current activities 1. Identification and costing of technical barriers to trade: A survey on trade costs in selected Arab countries and on selected commodities 2. Costing of strategies and impacts analysis: Impacts of reduction in trade costs on economic performance in the Arab region (by country) through alternative options of public-private investments and financing 3. Aid for Trade: Identification of projects to reduce trade costs (by country) Costing the identified projects (by country) Comparative financing options for trade costs related projects (by country) Economic implications (by country)

23. Conclusions Removing trade barriers is good but not enough Making countries able to take advantage from trade openness is more challenging than removing tariffs Other barriers and obstacles require specific and additional attention: - inefficient trade logistics - costly transport and financial services - low productive capacities and poor diversification - poor policy coordination and convergence

24. Thanks for your attention