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World Bank Group Assistance
World Bank Support Programs and Priority Interventions in the MENA Region
- Reducing Infrastructure Bottlenecks
- Improving Private Sector Development, Competitiveness, and Governance
- Educating Young People
- Supporting Sustainable Development and Natural Resource Management
- Assisting People in Conflict-Affected
- Scaling up and Mainstreaming Women
- Expanding Fee-Based Programs
- Increasing Trade Financing and Guaranteeing Foreign Direct Investment
Looking Ahead
Overview With the high oil prices and strong interest of the global investors in the region, the Middle East and North Africa (MENA) region grew by 5.1 percent on average during 2000-2008, exceeding levels reached in the 1980s and 1990s. A wide range of economic and structural reforms were adopted in the region while public and private investment projects were launched to pursue economic diversification and human capital development as well as investment in oil and gas, infrastructure, and other economic sectors. However, the sharp decrease in oil prices in the second half of 2008, the food crisis and the global financial crisis have created some concerns for the countries of the region. GDP growth is expected to be as low as 2.2 percent in 2009. The region’s growth advances have had some spillovers for job creation, but unemployment remains the greatest development challenges facing the MENA region. MENA countries are at the absolute crest of a labor force growth surge, with labor force growth averaging 3.4 percent a year. And most of the region’s new jobs have come from the private sector, an important development for a region in which job creation, especially for an increasingly educated population, has become the litmus test for economic performance. Many of the MENA countries have demonstrated long-awaited progress on reforms to improve the overall environment for economic growth. Almost all of the countries in the region have taken significant steps to reduce impediments to trade. Tariffs have been reduced throughout the region, from a simple average of 20 percent in 2000 to 13 percent by 2007, resulting in the strongest regional progress in trade reform during the period. Notwithstanding continued growth and reform performance, high food prices represent a growing vulnerability risk for the MENA region, especially in the context of poorly targeted safety nets. And the sharp rise in both oil and food prices have spotlighted the region’s heavy subsidization of prices within the domestic market, which particularly threatens fiscal positions for resource-poor economies. The degree of poverty vulnerability is very high in MENA, with large numbers of people living close to (but above) the poverty line. Overall, although less than 2 percent of MENA’s population lives on less than US$1 a day, some 20 percent of the regional population lives on less than US$2 a day (the respective figures are 3 percent and 43 percent for Egypt and 10 percent and 45 percent for Yemen). With such deep clustering of large proportions of the population around the poverty line, the high global food prices represent a serious risk to wider-scale poverty in MENA. Although much of the economic landscape of the MENA region has changed positively, developments in the global environment call for some caution. The global financial (and other) markets have entered a phase of heightened uncertainty. In 2008, contrary to other developing regions, the MENA region held up well in terms of impacts of the crisis on the real economy. The region as a whole saw a slight increase in GDP growth to 6.1 percent in 2008 compared with 5.6 percent in 2007. But, with the persistence of the crisis and the lackluster global economic environment going into 2009 and 2010, MENA faces prospects of a high impact of the global crisis on its real economy due to adverse developments or uncertainty in international trade, oil prices, tourism, remittances, and international financing conditions. Even though MENA has performed very well as a region, there are discrepancies across countries. Countries in MENA are categorized in four groups with respect to their resources, their integration into global economy, and their macroeconomic environment. The first group, the Cooperation Council for the Arab States of the Gulf (GCC), is characterized by high hydrocarbon revenue per capita, sufficient fiscal space, and strong institutional capacity to implement macroeconomic and structural policies. The GCC countries will be highly affected by the crisis, but with their significant financial reserves, they will be able to maintain countercyclical fiscal stances in 2009 and possibly in 2010. The second group includes other oil exporters with relatively less hydrocarbon revenue per capita, large population, limited fiscal space, and limited institutional capacity to implement macroeconomic and structural policies. For these countries, the crisis will be manifested by a decline in oil GDP—but non-oil GDP will keep economic growth in positive territories. The next group is the non-oil exporters with significant financial flows with the GCC economic area or dependent on foreign development assistance. The countries in this group are seeing a stagnation of financial flows from GCC and face the challenge of mobilizing aid at a time when source countries are affected by the crisis. The last group is the non-oil exporters with diversified economies and strong trade with the Euro area. Even though their fiscal space is limited, they have good institutional capacity to implement macroeconomic and structural policies. Initially, they saw limited impact of the crisis on their financial systems but are now seeing a significant impact on their real economy as recession deepens in their major export markets in Europe. World Bank Group Assistance All four institutions comprising the World Bank Group coordinate their support to MENA’s growth and development priorities: the International Bank for Reconstruction and Development (IBRD), provides project financing, risk management products, and other financial services to middle income countries in the region; the International Development Association (IDA), provides interest-free loans and grants to the two low-income countries in MENA (Republic of Yemen and Djibouti); the International Finance Corporation (IFC), expanded its portfolio in MENA to include equity investments, loans, guarantees, and advisory services to private-sector business; and the World Bank Group’s political risk insurance agency, the Multilateral Investment Guarantee Investment Agency (MIGA), has active projects in a number of countries. During FY 2009, which ended June 30, the World Bank Group approved US$1.85 billion in financing for the Middle East and North Africa region: US$1.5 billion in loans from IBRD and US$172 million in IDA commitments, including US$129 million in grants. The increase in lending was partly in response to the food, fuel, and financial crises. During FY09, the World Bank Group provided technical and financial support for reforms, as well as for emergency and reconstruction efforts in the MENA region. The World Bank’s strategy identifies cross-cutting challenges whose impact is taken into account with each intervention the Bank supports at the country level. The Bank also delivered 37 economic and sector work activities and 75 non-lending technical assistance activities. These included the publication of a regional flagship report on private sector development and a regional report on migration; public expenditure reviews for Libya and the Republic of Yemen; and several governance-related reports. Several reports were also initiated in the context of the Arab World Initiative, in areas ranging from regional infrastructure to education and knowledge sharing. The recipients are using these funds in more than 16 projects designed to build the climate for investment and empower the poor while mitigating the risks associated with global challenges. IBRD and IDA commitments in FY09 totaled US$1.7 billion with a breakdown of lending as follows: US$675 million in energy and mining, US$390 million in transportation, US$200 million in industry and trade, US$197 million in water, sanitation, and flood protection, US$75.7 million in law and justice and public administration, US$68 million in education, US$60 million in agriculture, fishing, and forestry, US$50 million in finance, and US$6.3 million in health and other social services. West Bank and Gaza received nine grants totaling US$88.5 million and Iraq received three grants for a total commitment of US$38 million. In support of private sector–led growth in the region, IFC continues to pursue new investment opportunities and expand advisory services to improve the business-enabling environment. IFC’s investments in MENA increased to US$1.4 billion, covering 50 projects in 12 countries during FY08. In advisory services, IFC’s total expenditure reached US$22 million, up substantially from US$5.7 million three years ago. With guarantees totaling US$430.7 million, MIGA’s gross exposure in the region rose significantly to 11 percent this year, in keeping with the World Bank Group’s strategy for greater involvement in MENA. This year, a project in Djibouti gave MIGA the opportunity to adapt its traditional business tools to provide a guarantee in support of Shariah-compliant project financing. Bank programs address the following priority areas: - Infrastructure development,
- Private sector development, competitiveness, and governance,
- Education of young people,
- Sustainable development and natural resource management,
- Assistance to people in conflict-affected countries,
- Gender,
- Fee-based programs, and
- Trade financing and foreign direct investment.
Reducing Infrastructure Bottlenecks While addressing the immediate needs associated with the global recession, the Bank’s FY09 program reflects its ongoing focus on long-term growth. Major infrastructure projects were approved for Egypt, Jordan, Lebanon, and Morocco. The Board approved two large loans to Egypt: a US$600 million loan for the Ain Sokhna power project and a US$270 million loan for restructuring Egyptian Railways. Egypt also received a US$300 million loan for affordable housing. The US$70 million Urban Transport Development Project for Lebanon and the US$33 million Amman Development Corridor Project for Jordan focus on removing transport bottlenecks and paving the way for future sustained growth Improving Private Sector Development, Competitiveness, and Governance The MENA region faces the challenge of dealing with both the social difficulties brought on by globalization and the challenge of greater competitiveness. The Bank provided Tunisia with a US$250 million loan to increase integration into global markets. An additional US$10 million in financing for private sector development supports Iraq’s focus on private sector growth. In Morocco, the Bank is supporting work that is enabling environment for stability and sustained growth. Doing business is becoming easier in the region. By the end of FY09, two-thirds of the region’s economies had introduced an impressive total of 27 reforms. For the third time in four years, Egypt, last year’s top regional performer, was among the top 10 global reformers. Other reformers in the region included Djibouti, Jordan, Lebanon, Morocco, Oman, Saudi Arabia, Syria, Tunisia, the United Arab Emirates, West Bank and Gaza, and the Republic of Yemen. The regional flagship report on private sector development presents research findings and evidence from years of experience advising governments and the private sector on competitiveness and private sector development. It focuses on the relationship between governance, accountability, and private sector development. The objectives and intended impacts of this report are threefold: informing policymakers and other stakeholders, proposing a new angle on private sector policies, and provoking a debate. Also, the Bank has a comprehensive program of advisory services and technical assistance across the region (from the Maghreb to the Gulf countries) to strengthen legal, regulatory, and administrative performance. Moreover, it is supporting and encouraging private-public partnerships for the development of infrastructure. The World Bank Group partners with other international and bilateral donors (IMF, Organisation for Economic Co-operation and Development, the European Union, European Investment Bank, U.S. Agency for International Development and the United Kingdom’s Department for International Development) on many of these activities. Educating Young People Education is central to the future of MENA. Various stakeholders in the region regard education as their most important development challenge, and education reform is at the top of the reform agenda of many governments in the region. Reforms in the education sector must target the region’s ability to provide quality education that prepares the region’s young people to compete in the global economy. In 2008, MENA launched a regional education report: “The Road Not Traveled”. The report aims to support policymakers in the region in developing more effective education strategies that are based on global and regional experiences in the sector. The report is grounded in a new paradigm that is expected to increase the effectiveness of reform efforts by emphasizing the central role of incentives and public accountability to meet sector goals. The report reveals that although MENA countries invest a higher proportion of their GDPs in education than other regions in the world, they continue to face challenges in developing high-quality education systems at all levels, as well as promoting lifelong learning and training that respond to the needs of the labor market. Having succeeded in expanding education systems to include most eligible children—boys and girls—the MENA region is now ready to travel a new road. Although the exact configuration of this new direction will not be the same for each country, all countries, irrespective of their initial conditions, will require a shift from "engineering inputs" to "engineering for results," along with a combination of incentives and public accountability measures, as well as measures to improve labor market outcomes. The report also urges governments to implement labor market reforms along with those for the education system proper. In MENA, labor market relevance extends much farther than the confines of any one country or even the region itself because of migration trends and employment opportunities abroad. Improving education systems, therefore, is an important component of the World Bank’s strategy to promote knowledge-based economic development and to facilitate the economic transition of countries in MENA. In particular, the Bank works with MENA countries to ensure equitable school access and retention; improve the quality and relevance of all levels of education and training; build capacity in education governance in both the public sector and in local communities; increase the efficiency with which education services are delivered; and improve the fiscal sustainability of public investment in the education sector. Furthermore, the Bank has been paying increasing attention to disadvantaged children and youth (dropouts, working children, the disabled), encouraging MENA countries to develop cross-sector responses to ensure that this population also has access to quality education. The Bank has responded to diverse and changing needs through knowledge transfer and lending. For instance, the US$25 million Higher Education Reform for Knowledge Economy Project in Jordan focuses on quality and governance issues, and the US$60 million Higher Education Reform for Knowledge Economy II Project in Jordan builds on these issues and emphasizes the need to provide students enrolled in pre-tertiary education institutions with increased levels of skills to participate in the knowledge economy. Supporting Sustainable Development and Natural Resource Management Climate change, water stress, and natural resource management are key challenges in thMENA. To deal with them, the Bank provided the Republic of Yemen with US$90 million in support of a water sector program and US$25 million to aid a rural energy project focused on solar energy. To improve solid waste management, the Bank lent US$133 million to Morocco and US$25 million to Jordan. In the aftermath of floods in the Republic of Yemen in October 2008, the Bank helped carry out a needs assessment and stepped up its monitoring programs and policy dialogue to improve the country’s preparedness for future crises. In March 2009, the Bank approved US$35 million in additional financing for flood protection and emergency reconstruction. Earlier in FY09, the Board approved US$15 million in additional financing to promote groundwater and soil conservation in the Republic of Yemen. Water supply and sanitation services have expanded considerably in the region, but utilities are plagued by problems of deteriorating infrastructure, poor service quality, and, in many cases, inadequate supply. Services are subsidized in all but two countries, putting extra pressure on public budgets. Irrigation takes up more than 80 percent of the region’s water and is often used to grow low-value crops. The drivers for water reform lie outside the traditional water sub-sectors, and these are changing in ways that might provide opportunities for reforms that have so far been elusive, provided that good governance mechanisms are in place. Developing such a flexible management system will involve addressing technical considerations, building adaptable institutions and developing transparent, inclusive accountability structures. The Bank focuses its efforts in the MENA region on expanding and improving water services and water management by engaging and scaling up activities (e.g., in Morocco, Egypt, West Bank and Gaza, Iraq, Republic of Yemen, and Djibouti) and by building on sector policy dialogue in countries where the Bank has had long partnerships (e.g., Morocco, West Bank and Gaza, and Republic of Yemen). The Bank financed new water projects totaling US$229.5 million in FY08 and US$123 million in FY09. Assisting People in Conflict-Affected countries The Bank responded quickly to the conflict in Gaza in FY09, dispatching an assessment team less than a week after hostilities ceased. A central recommendation emerging from the assessment team’s efforts was that the recovery and reconstruction effort be closely linked to ongoing development efforts in Gaza. In practice, this meant continued funding and scaling up of a range of successful donor-financed projects in several key areas, including water and sanitation, electricity, social safety nets, municipal development, and support from nongovernmental organizations. In April 2009, a Bank Group delegation visited Iraq to discuss its investments potential and to support the creation of healthy business climate. Scaling up and Mainstreaming Women Arab countries in MENA have made considerable progress in bridging gender disparities in the social sectors. Women’s access to health and education has improved markedly. Yet, gender gaps in economic and political participation remain wide. The Bank initiated or delivered a variety of gender studies and programs in the region over the course of FY09. In Egypt, it undertook an assessment of the gender dimensions of labor market access and constraints. In Jordan, the Bank is developing a program to promote labor market access for young female graduates of community colleges. In Saudi Arabia, it is providing assistance to “urban observatories’ in Jeddah and Medinah, which are studying female-headed households. In the Republic of Yemen, it is preparing a gender analysis of public expenditures in the health and education sectors. Through an Institutional Development Fund grant, the Bank is supporting a program measuring the impact of national policies and strategies on gender equality. The Bank delivered a gender assessment of Lebanon, organized a capacity-building workshop on gender budgeting in Morocco, and released the biennial Status and Progress of Women in the Middle East and North Africa, which examines progress in economic participation, access to education, access to health care, public participation and representation, and legal rights. Expanding Fee-Based Programs The list of MENA countries requesting fee-based programs expanded to 11 in FY09. Total revenue from these programs was about US$11 million, and demand is expected to remain steady in FY10. The strategic Cooperation Program with Gulf countries includes programs and services in Bahrain, the Gulf Cooperation Council Secretariat, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates. The programs have become more strategic and multiyear; their volume was close to US$6 million in FY09and is expected to remain comparable in FY10. Increasing Trade Financing and Guaranteeing Foreign Direct Investment During FY09, IFC scaled up its trade finance program and expanded its technical assistance and advisory services to private investors. For its part, MIGA plans to use its guarantee facility to help secure foreign direct investment in client countries in MENA. The Bank also strengthened its partnership with Arab and Islamic development institutions in FY09. It exchanges experiences on how to design and implement sector-wide approaches in the water and human development sectors; held joint technical workshops and dialogue on project identification, appraisal, supervision, and monitoring and evaluation; and conducted joint missions to identify, appraise, and supervise projects. Looking Ahead The long-term challenges facing MENA, combined with the different crisis affecting the region, call for an increase of Bank support to the region requiring pro-activity and constant dialogue with all stakeholders. Within the context of the Bank’s six strategic themes, the MENA region will intensify its efforts toward defining priorities and areas where Bank support offers a comparative advantage. In early 2008, in the context of the Arab World Initiative, consultations were launched with Arab organizations including the Arab League, regional development banks, and other key stakeholders to identify opportunities for advancing human and economic development while reducing poverty. Going forward, the Arab World Initiative will support regional economic integration and help enhance the interface between country programs and regional projects. The Bank is also seeking ways to strengthen its engagement with civil society organizations and the private sector as key stakeholders in the process. - # - For more information, please contact:
In Washington: Najat Yamouri, nyamouri@worldbank.org
Updated September 2009
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