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Preferential Trade Agreements and Regional Integration in the Arab World,

Libya – Tunisia : A priviledged axis for economic integration. Emanuele Santi ( AfDB ), Mohamed Chemingui (UN ESCWA) . Preferential Trade Agreements and Regional Integration in the Arab World, Tunis , December 5th 2012. Outline of the presentation. Introduction

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Preferential Trade Agreements and Regional Integration in the Arab World,

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  1. Libya – Tunisia : A priviledged axis for economic integration Emanuele Santi (AfDB), Mohamed Chemingui(UN ESCWA) Preferential Trade Agreements and Regional Integration in the Arab World, Tunis , December 5th 2012

  2. Outline of the presentation • Introduction • Main Opportunities • GEM Model simulations – Preliminary Findings • Policy recommendations

  3. Overview • Geographic proximity • Language • Similarities and historical relations between the two populations • Complementarity (oil and capital rich vs energy and capital hungry private sector) • The support and help provided by Tunisians to the Libyan refugees during their revolution

  4. Overview (cont): Key data • Libya is the 1st non European Export Market, 5th overall • Libya: fourth largest Arab investor in Tunisia. Over 30 Libyan companies have invested in industry and services (e.g. tourism) in Tunisia generating over 3.000 jobs • 95,000 Tunisian workers in Libya prior to conflict • Over 1,000 Tunisiancompaniesin Libya before the revolution, with contracts and investments amounting to TND 3.5 billion • Growth differential in 2012/13: Libya 14% vs Tunisia 3% • The Libyan conflict led to estimated .7 GDP decline in 2011

  5. Overview (cont): Linkages Unemployment Balance of Payment GDP Growth

  6. Opportunities: Trade • High complementarities persist • Tunisian exports on the rise, ….yet illicit trade • Yet much of it was re-export from Europe • High potential for sustained growth of agriculture product, cement

  7. Opportunities :HumanResources and Labor • Libya can absorb around 300,000 new jobs (IOM/ADB study: 40% returnees have gone back to Libya, 70% of Returnees want to go back): -Skilled labor (25,4% unemployed) -Unskilled labor • Tunisia’s specialized skills and Technical Cooperation (Urbanization: Utilities, Architects, Ingeneers) • Services - Health: 70% of Libyans come to Tunisia seeking for health care -Education : Experience of technicalcooperationwith the GCC countries -ICT: Technicalcooperationexperience in Africa and Tunisiancompaniesprovidenear shore services to the European countries

  8. Opportunities: Investment • Libyan Investments and Aid to Tunisia (200 Million USD grant + line of credit) • Tunisia Investments 150 Billion Euro Market by 2020

  9. Towards a path of economic integration Deeper economic integration • Phase 1: Reconstruction • Phase 2: Economic Transition • Phase 3: Deeper integration: towards a single market/ common economic space From trust building to reaching mutual benefits

  10. Alternative scenarios for a deeper economic integration with Libya • Various integration options might be envisaged as part of a stepping up of the partnership between Tunisia and Libya. • Here, five scenarios are designed and evaluated in a cumulative way in an endeavor to evaluate and define their intrinsic impact on the Tunisian economy. • The scenarios carefully assess the impact of the elimination of Tunisia’s tariffs and approximate the impact that similar measures by Libya will have on Tunisia. • The third simulation just adds the implementation of a custom union between both countries to the provisions of the second scenario. • The fourth simulation assumes a reduction in technical barriers to trade on bilateral trade between Tunisia and Libya in addition to the provisions of the three previous scenarios.. • The last scenario assumes that a FTA between Libya and the EU will be concluded and its likely implications for Tunisia.

  11. The impacts of deepening economic integration between Tunisia and Libya: a dynamic CGE model • For the specific purpose of this study, a regional-global dynamic CGE model has been used rather than a country or bi-national model. • A modified version of the MIRAGE model has been used. • The model has been first calibrated using the latest global dataset: GTAP version 8 to which a new SAM for Tunisia (built for the purpose of this study) replaced the one in the initial database. • The SAM for Libya has been also built specially by the team and integrated to the GTAP database. • The version used here considers four countries or regions: Tunisia, Libya, USA, EU, and the Rest of the World.

  12. The impacts • The model has been run for the period 2013-2015 • Results are presented in average percentage change over the period 2013-2015 • Results are provided for the baseline scenario, where no changes are expected to occur in terms of economic relation between Tunisia and Libya, compared to the set of scenarios for fostering economic integration between both countries • Results presented here reflects impacts on the Tunisian economy only.

  13. The impacts on GDP and household’s income

  14. The impacts on trade

  15. Impacts on labor market

  16. Summary of findings • Integration with Libya is expected to provide major economic opportunities for Tunisia in terms of exports, investments, and reduction of unemployment and poverty. • The results suggest that Tunisia could not expect major economic benefits with a simple implementation of a free trade area. • In fact, when the very small tariffs are removed, almost no changes in sectoral production and employment is expected to occur. • However, when integration will go beyond a simple removal of the existing tariffs, the impacts become clearly positives in terms of macroeconomic variables and employment. • The results confirm that both countries, and more specifically Tunisia, are required to undertake additional reforms to make the process of integration more beneficial.

  17. Summary of findings (Cont.) • However, the magnitudes of the impacts are small compared with other initiatives taken by Tunisia such as its integration with the EU. • Two major factors explain the small magnitudes of the gains. • First is related to the high weight of informal activities in both trade and migration, which is not considered in the present paper for data limitations • Second is the low level of initial protection imposed by both countries on their bilateral trade. • The simulations confirm that both countries should go ahead with their integration through a complete macroeconomic convergence that will boost benefits ahead from the simple formation of the FTA or a custom union.

  18. Policy recommendations • Develop a comprehensive roadmap integrating removal of tariffs, implementation of custom-union, improvement of the logistics for trade, and macroeconomic and sectoral policies convergence • Review and develop of new systems for managed migration • Tailored support to Tunisian companies (UTICA) to improve their trade relationships with Libya • Improve Access to financing • Strengthening regulatory framework to ease access to investors, right of establishment, etc,

  19. Some caveats • Libya is not the panacea to all Tunisian problems • Tunisia needs to improve logistics performance (61st out of 150th LPI) to be “gateway” to Libya • Need to be realistic vs competition

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