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Fragmentation and Fault Lines in the Euro-MED Space

Fragmentation and Fault Lines in the Euro-MED Space. Mustapha K. Nabli The World Bank Presentation at the 7 th AFD/EUDN Annual Conference European Development Research Network December 9, 2009; Paris, France. The landscape in the early 1990s: Europe vs. South-Med.

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Fragmentation and Fault Lines in the Euro-MED Space

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  1. Fragmentation and Fault Lines in the Euro-MED Space Mustapha K. Nabli The World Bank Presentation at the 7th AFD/EUDN Annual Conference European Development Research Network December 9, 2009; Paris, France

  2. The landscape in the early 1990s: Europe vs. South-Med • A sense of optimism in Europe despite weak economic conditions • Fall of the Berlin Wall and end of the Cold War • Prospects of a Unified Europe and larger market • A sense pessimism in the South-MED • Regional/International conflicts and wars • Declining oil revenue with heavy oil dependence and collapse in growth, most countries got into some macroeconomic crisis • Rapid growth in labor force and unemployment in part due to delayed demographic transition • Decline in poverty stalls

  3. Collapse of economic growth Poor growth performance in 1980s Falling oil prices dampen growth

  4. Surge in unemployment

  5. Decline in poverty stops by the end of the 1980s…

  6. 20 years later: non-convergence and fault lines • Non-convergence of economic and social development outcomes • Poverty reduction continues to stall • Levels of life satisfaction low.

  7. Country groupings used • EU-Med: Portugal, Spain, Greece • EU new member states: Czech Republic, Poland, Hungary; • MENA emerging: Jordan, Egypt, Morocco, Tunisia; • MENA oil-rich, labor abundant: Algeria, Syria, and Iran • MENA-GCC: Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and UAE.

  8. Divergence of economic and social outcomes EU-Med outperforms MENA with the exception of GCC Mixed picture in terms of convergence of social indicators

  9. Decline in poverty continues to stall until the early 2000s, and levels of life satisfaction low…

  10. Why such outcomes? The proximate explanations • Low global trade and capital integration? • Weak and slow domestic reforms? • Weak response of the private sector to reforms?

  11. Trade/Capital integration – North vs. South Positive effects of financial/trade liberalization in Europe and weakening trade ties between MENA and EU Declining trade/investment flows in MENA until 2000s

  12. Progress on reforms slow and weak in the South-MED

  13. Private investment’s response to almost 2 decades of reforms relatively weak Private investment as a share of GDP Reform episodes and private investment response

  14. Why such outcomes? The ultimate explanations (1) Is it political instability and heightened political tensions? • Continued Israeli-Palestinian conflict • Conflicts in Lebanon, Algeria, Iraq, Yemen • 9/11 and the aftermath • High uncertainty and risk • High cost of doing business

  15. (2) Is it lack of political reforms weakens content and credibility of economic reforms?Large gap and Non-convergence in political systems

  16. Policy uncertainty and the unequal implementation of rules are leading constraints to businesses

  17. (3) Is it about dependence on natural resources and volatility?

  18. However relationship is not a stable over the decades 1971-1980 1961-1970 1991-2000 1981-1990

  19. (4) Is it the inadequacies of the model of cooperation with the EU? • Limited success of the model can be inferred from the successive attempts to adapt and change it: • from Barcelona and Euro-Med • to EU Neighborhood Policy • to Union for the Mediterranean

  20. The institutional framework for trade has become much more fragmented Trade agreements in 1990 Trade agreements in 2008

  21. Migration: conflict between potential large economic benefits and the politics? Potential complementarities: Declining labor force in Europe vs. Increasing labor force in MENA But the “politics” are opposed

  22. Concluding Remarks • High degree of heterogeneity and fragmentation in the Euro-Med space in terms of development outcomes and levels of life satisfaction: • Between EU and South-Med/MENA • Within MENA between GCC and non-GCC • Within non-GCC between emerging and natural resource dependent countries • The institutional framework for economic exchange is highly fragmented, with major fault lines regarding: • agriculture and services trade • energy trade • migration and security

  23. Concluding remarks • The political environment both domestically and regionally remains a big handicap for progress in the South-Med • The instruments used by the EU in its relationship with the South have not been successful in creating a common area of peace and prosperity.

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