Last week's Mediterranean Development Forum stressed the region's need to make up for lost development opportunities. Niveen Wahish was there As the threat of a US attack on Iraq looms large and the situation in Palestine continues to deteriorate, the Mediterranean Development Forum (MDF) held its fourth meeting in Amman last week. The meeting brought together think-tanks from around the region, as well as World Bank and United Nations Development Programme (UNDP) experts. Addressing the conference, Jean-Louis Sarbib, World Bank vice-president for the Middle East and North Africa (MENA), said the region is in dire need of development. "The Israeli-Palestinian conflict which has plagued this region for 50 years is a real problem, but is sometimes an excuse for not moving forward." He pointed to other dangerous threats to regional development, such as mounting unemployment and exclusion from global markets. However, he did stress that the region's development spans a wide range of issues. One key issue has been slow economic growth and high unemployment in the MENA region. Indeed, the facts surrounding these issues are staggering. Abdel-Latif Al-Hamad, head of the Kuwaiti Arab Development Fund, showed that 20 per cent of the Arab world's labour was unemployed in 2000. This is equivalent to 19 million individuals. Additionally, 50 million new jobs will be needed over the next 10 years. Sarbib added that 30 per cent of people in the region live on under $2 per day. While painting a bleak picture of MENA's predicament, participants also attempted to offer solutions. They argued that countries of the region should continue the reform path that many of them had already begun. However, Mustafa Nabli, chief economist for the MENA region at the World Bank, pointed out that in a lot of MENA countries, reforms often falter. "Reforms are not always completed and often they are too slow. This has resulted in per capita GDP growth that averaged a mere 1.5 per cent annually during the 90's. Although this is higher than during the 80's (less than 0.1 per cent annually), it is hardly the rebound required following a decade of stagnation," said Nabli in a paper jointly prepared with Jennifer Keller, an economist at the World Bank. "After almost two decades of poor economic performance, the MENA region now faces unemployment rates that are higher than in every other region of the world with the exception, perhaps of Sub-Saharan Africa," Nabli said. In an exclusive interview with Al-Ahram Weekly he stressed the effect of external factors, such as political tension, on the region's economic prospects. However, he called on Arabs to work on improving their economies despite this. "When the international environment is unhelpful, then you need to work twice as hard as others," Nabli said. Nabli stressed a number of important requirements for growth. First, investments are needed to create jobs. This requires a stable economic environment, intellectual property rights protection, less corruption and bureaucracy and strong labour market institutions. Figures cited by Sarbib revealed that over the last half of the 1990s, MENA foreign direct investment (FDI) as a share GDP was one per cent, among the lowest in the world. The region also needs to improve productivity and use the resources that it has more wisely, said Nabli. "Productivity has to do with better management techniques, better technology and better research." According to a paper presented by Nabli and Keller "the growth of GDP per worker was lower in the MENA region than any other region of the world, averaging only 0.8 per cent per year." The importance of trade for regional growth was also highlighted. Nabli said that regional trade remains highly restrictive, with a low level and speed of integration into the world economy. Tariffs remain high and the extent of non-tariff barriers is large. "High and sustainable growth simply does not occur without a substantial outward orientation," said Nabli. However, he pointed out that a number of initiatives across the region, such as the various associations signed with the EU will probably lead to greater trade openness. Dipak Dasgupta, the World Bank's sector manager for the MENA region at the World Bank, also pointed out the importance of trade for job creation. He said that previous engines for job creation, such as the public sector, migrant labour or agriculture, have run their course and stressed that trade policy reform has been weak. "It's not just a matter of liberalisation. Certain preconditions must exist such as improved logistics, low transport costs, better communications, provision of better financial services, streamlining customs procedures and removing non-tariff barriers." Highlighting the potential of trade in the region, Gobind Nankani, World Bank vice-president for poverty reduction and economic management, said that if MENA countries gain market access in developed countries by 2015, MENA GDP could potentially increase to $500 billion, 10 times what developing countries presently receive in the form of aid. However, the present reality is that MENA trade growth has been only two per cent, compared with a global average of eight per cent. The more things change... WITHIN the framework of the forum, Egypt was often cited as a country where economic reforms might succeed. Samir Radwan, advisor to the director general of the International Labour Organisation, described the status of the Egyptian economy: "Growth is slowing down, but monetary and fiscal policies are leading to further contraction." In light of the fact that inflation now stands at a low of five per cent, the budget deficit at a manageable 1.9 per cent of GDP and reserves are no longer a major cause for concern, he said an expansionary policy could regenerate growth. Rather than keeping inflation as the target of macroeconomic policies, Radwan said employment generation should be the main objective, along with improving living standards and growth. If this causes inflation to get out of hand, it could be controlled again. In a paper presented to MDF4, Radwan refers to a World Bank report that estimates that Egypt needs growth rates of at least six per cent for unemployment to decline. Among the obstacles Egypt faces in its quest for a higher growth level, which now stands at a mere three per cent, is the low level of domestic savings and investment and the lack of efficiency and competition in the domestic economy. Egypt also needs to improve export performance and rely less on external resources that are vulnerable to shocks, such as remittances, oil and gas exports and foreign aid, Radwan cited the report as saying. In addition, if Egypt can attract increased levels of FDI, "it will facilitate the country's integration into global trade patterns and technology transfer." To overcome these factors, there is a need for a second wave of reforms to complement those of the early 1990s. "Reform is required to redress issues in both fiscal and monetary policies that enable the Egyptian economy to be competitive in the global economy," Radwan said, adding that macroeconomic reform has to be complemented by reform at the microeconomic level. On a similar note, Bernard Hoeckman, policy and research manager at the World Bank told Al-Ahram Weekly that there is a perception of Egypt as a place where it is too difficult to do business. "Tariffs have come down, but effective protection has not," he said. He pointed out that the factors that affect Egypt's export competitiveness are the same factors that increase the cost of trade, such as customs, transport costs, port logistics and services. "In the last year, a lot of effort has been made, but what is interesting is that the types of issues we were dealing with in the 1990s are the same as the ones we're dealing with now," he said. Hoeckman argued that trade liberalisation -- properly implemented -- will propel other parts of the economy towards change. "As you liberalise trade, domestic firms are going to come under pressure to improve their efficiency," he said.
