Regional Brief

Context

2011 was a year of dramatic political upheaval in the Middle East and North Africa (MENA.) All of the 20 countries where the World Bank Group is engaged were affected in one way or another by the mass demonstrations across the region known as the ‘Arab Spring.’ In some instances the mass demonstrations led to revolution, such as in Egypt and Tunisia, where long established regimes were overthrown, and in others, such as Jordan and Morocco, it was the catalyst for ambitious and extensive reforms.  Not all of the crises are fully resolved, and the various transitions are at different stages, with their end results far from certain. With notable exceptions, however, the struggle to redefine the relationship between citizens and their leaders is now more focused on the ballot box and the shaping of new constitutions.
 
The demands of the demonstrators for more economic and political inclusion forced the region as a whole to consider important questions about public accountability, shared growth, and the rights of ordinary people to have a say in their country’s future. The dialogue around these issues has been as varied as the consequences of the ‘Arab Spring,’ but now that it has started, the region is on a path toward profound social and political changes. 

MENA has a population of 355 million, with 85 percent living in middle-income countries, 8 percent in high-income countries and 7 percent in low-income countries. In the years leading up to the uprisings, the region had made significant progress on key social indicators. Average life expectancy had risen steadily to  70 years (male and female), primary education completion rate to 90 percent and the under-5 mortality rate down to 38/1,000. The MENA region came into the Arab Spring with many strengths: a young and educated population; a strong resource base and an economic resilience that helped it weather the 2008/9 global financial crisis. Economies across the region were rebounding. Tunisia and Egypt had strong reserve cushions and had benefitted from tourism and foreign flows. Absolute poverty was low with approximately 4 percent of the population living under $1.25 a day.

With the disruption to daily commerce and the uncertainty surrounding their ultimate outcomes, the uprisings have had an economic impact, but it will be manageable and confined to the short term if the current transition process can be maintained.

Economic growth in MENA is expected to rebound and reach 5 percent in 2012, surpassing the 3 percent growth achieved in 2011. This upgrade in growth is due mostly to rising oil prices, and economic recovery in countries affected by political turmoil in 2011. Growth in oil exporters is expected to reach 5.7 percent in 2012, an increase of more than 2 percentage points relative to growth in 2011.

Growth in oil importers is expected to rebound relative to 2011 and average 3 percent in 2012, but the fiscal situation will remain tenuous . In Tunisia, the fiscal deficit is expected to worsen as a result of the expected increase in expenditures envisaged in the new supplementary budget law, expanding social spending and public investment. In Egypt, the fiscal deficit in 2012 is unlikely to be higher than the one recorded in 2011, but it is expected to exceed the budgeted target for fiscal year 2012 due to increased public spending, especially on wages and social benefits, and a revenue shortfall as a result of economic weakness.

Overall, fiscal vulnerabilities have increased, reflecting sustained, high public spending in the region in response to the global food, financial and economic crises in the late 2000s, and more recently, in response to political upheavals. In the longer term, MENA countries will continue to face the structural problems that existed before the Arab Spring and indeed drove much of the discontent.  Development will be needed to tackle inequitable growth and a regional unemployment rate that exceeds 25 percent, the highest in the world. Of particular concern for all MENA policy makers is the high rate of youth employment, which is over 25 percent, with especially high levels among university graduates and women.  Poverty is low at the $1.25 level but the rate in Egypt, for example, doubles at the $2.50 mark with millions of Egyptians experiencing the vulnerability and uncertainty of crossing in and out of this threshold.

The region’s main challenge, loudly proclaimed now, is to create sustainable growth that delivers the quantity and quality of jobs needed. An inclusive and competitive private sector has proven to be one of the most effective and long term solutions for unemployment, and would be a critical component to tackling the scale of the problem in MENA. The key to this is improving the enabling environment for private sector players, both big and small. Key too is fair competition and a reduction of the privilege which has characterized the business environment to date, benefitting the elites only. Countries must also deal with long-standing issues such as low and depleting water resources (the region has the least renewable resources in the world, apart from its vast solar resources which are now being tapped into), and the challenge of food insecurity coupled with high social subsidies.

Strategy

In response to the changing political climate in the region, the World Bank has developed a new framework for engagement. Along with listening to new governments, to fashion programs of support that meet their specific development goals, the Bank has also expanded its consultations to include a broad range of stakeholders.  This has been a process of deepening relationships with the full cross-section of society as integral partners in the Bank’s regional work.

Flexibility is built into all current Bank strategies, so that they can be adapted to meet changing circumstances. Building on the demands of the  ‘Arab Spring’ and the reform efforts underway, the new framework is based on four main pillars:

• Strengthening Governance through transparency and accountability measures to help create responsive states that are held accountable for their actions
• Increasing Social and Economic Inclusion of disadvantaged groups through economic measures and enhanced voice and participation (e.g. women and minority groups)
• Creating Jobs, including for youth and women, by providing an enabling environment for opportunity,  competition, innovation and entrepreneurship
• Accelerating Sustainable Growth through short and long-term policy actions promoting climate-friendly growth in recognition of the stresses on the region’s natural resources
• These are complemented with a focus on the cross-cutting themes of Gender, Regional Integration, and fostering a Competitive Private Sector.

The World Bank Group stepped up its program in the region following the global financial crisis. IBRD/IDA lending increased from $1.8 billion in fiscal year 2009 to $3.8 billion in FY10 then declined to $2 billion in FY11, and now stands at $1.79 billion in FY12. The International Development Association (IDA), the Bank’s fund for the poorest countries, channeled support to Djibouti of $5.8 million in 2011 – very close to the level in 2010. IDA support to Yemen was at $117 million in FY11. After an eight month suspension of all activities due to the deterioration of the security conditions, the World Bank returned to Yemen in January, 2012, with a renewed commitment to provide all the necessary assistance to the country during these challenging times. High-value knowledge services to MENA increased from $8 million in 2010 to nearly $11 million in 2011. The number of non-lending economic analytic and advisory products increased from approximately 120 in 2010 to more than 140 in 2011. The World Bank prepared reports on regional trade and private sector development, access to finance, export diversification, the informal economy, and the role of development in mitigating conflict, gender, climate change, and food security. 

The individual strategies and programs developed for the region were each designed to meet the specific needs of World Bank clients:

• Supporting Oil Importers: The World Bank conducted significant analytical work on Egypt, Morocco, and Tunisia in 2011, particularly on economic governance, social safety and social accountability issues. World Bank’s technical assistance and financial support to Egypt to assist in the transition period is ongoing. Projects in fiscal 2012 include the $240 million Giza North Additional Financing energy project and a planned $240 million to support an Emergency Labor Intensive project.  In Jordan, the first programmatic development policy loan was approved for $250 million this fiscal year. The Bank is also supporting technical assistance to strengthen legal aid services and community based initiatives. In Tunisia a $50 million Micro and Small and Medium Enterprises project (MSME) was approved in fiscal 2012 as was the $5 million participatory Service Delivery for Reintegration project. Small projects in health ($5.5 million) and community Public Works ($3 million) are expected to be delivered before the end of the fiscal year. In Lebanon, a project on cultural heritage for $27 million is planned for fiscal 2012 and a TA on capacity building in statistical capabilities started in this fiscal year. Bank lending in Morocco includes the $160 million Economic Competitiveness DPL, the $100 million First Skills and Employment DPL, the $200 million Ouarzazate Concentrated Solar Power project, the $300 million National Initiative for Human Development DPL, the Micro and Small and Medium Enterprises project (MSME) for $50 million, and $16 million Judicial Performance project. In Djibouti, operations planned for fiscal 2012 include the $6 million Institutional Strengthening project, the $ 5 million Crisis response Social Safety Net , the $5.2 million Power Access and Diversification project and the $3 million Rural Community Driven Development and Water project.
  
  
• Supporting West Bank and Gaza: Competent economic management and significant donor support allowed the economy of the West Bank and Gaza to continue to grow although the sustainability of growth dependent on aid continues to be a major concern. Security restrictions that limit travel and the free flow of goods and services need to be eased for the private sector to have any chance of growing. The focus will remain on humanitarian support, the provision of basic social services and basic infrastructure services. The $40 million Palestinian Reconstruction and Development Plan Support program was approved for $40 million in fiscal 2012. The $3.7 million Wadi Fukin Water and Wastewater Technical assistance program and the $8 million Gaza electricity project were also approved in fiscal 2012. Other planned projects for fiscal 2012 include the West Bank and Gaza education project for $6.5 million, and a $43 million Second Land Administration project. 
  
  
• Supporting Non-GCC Oil Exporters:  Algeria’s non-oil and gas sectors and related revenues continued to grow in 2012. The World Bank provides technical assistance to Algeria, largely through fee-based-services. These are focused on economic diversification, assessment of public expenditures, and social and economic policies. Work is also ongoing to address faster development in disadvantaged regions. In Iraq the World Bank provided key analytic pieces while the Bank’s technical assistance in Syria is now suspended.  The Republic of Yemen was granted $171 million in IDA funds, however, operations have only recently resumed and this fiscal year is expected to deliver a Labor Intensive Works project of $61 million. 
  
  
• The World Bank’s program in the GCC has been focused on delivering knowledge and expertise to the governments of the Gulf and is also responding to new demands. The World Bank’s Reimbursable Technical Assistance program expanded in 2011 as Kuwait and Saudi Arabia programs grew and new programs emerged.  In 2010, the World Bank signed a framework agreement on social safety nets with Bahrain. In the United Arab Emirates, the World Bank is working on macro and fiscal capacity and labor markets in the United Arab Emirates. The World Bank’s program in Oman reflects a growing emphasis on education. In Qatar, it is working on a portfolio including enhancing macro and fiscal management capacity and a significant program on business and trade facilitation

Results

• A New Social Contract: From March 12 to 15, 2012, in Rabat, the Bank drew on its convening power, in partnership with CARE International, to bring together civil society groups for the launch of the Arab World Affiliated Networks for Social Accountability (ANSA) Arab World.  ANSA Arab World is a regional network promoting active citizen participation in policy formulation, implementation and the monitoring of how public resources are spent
  
• Exchanging Ideas, Searching for Solutions: Building on a dialogue launched in March 2011 with the Bank-hosted Arab Voices and Views conference, the conversation has broadened through the  MENA Blog, the use of the live webchat platform with regional audiences and a Facebook presence.

Building Partnerships: The Islamic Development Bank is a strong partner in the World Bank’s Arab Financing Facility for Infrastructure, and the African Development Bank supported the regional Concentrated Solar Power Initiative. The World Bank also worked in cooperation with the Arab Monetary Fund in preparing the region’s flagship report on the financial sector. European nations are consulting on a range of issues focused on creating economic opportunities. Japanese partners are helping the region address youth issues in Egypt, Tunisia, and other countries. The World Bank has managed a diverse loan portfolio and a range of projects across the region that has delivered some of the following results:

• MSE Finance: 4,000 micro and small enterprises in Egypt benefitted from expanded access to credit, and 1,000 rural women now have access to finance to develop their businesses.
  
• Water & Sanitation: 52,500 Moroccans now have subsidized access to water and sanitation.
  
• CSP: With initial World Bank financing, one of the world’s largest Concentrated Solar Power projects has been launched in Morocco, which aims to aims to generate 2000 MW by 2020.
  
• Rural Roads: 11,500 km of rural roads have been constructed or rehabilitated in Morocco, where a lack of access to all-weather roads has left the rural poor physically cut-off from economic opportunities and key social services such as health and education
  
• GODPL: A US$ 500 million Development Policy Loan provided budget support to the new government I the immediate aftermath of the revolution, and supported the enactment of reforms aimed at lifting restrictions on information and promoting increased transparency and accountability. 130,000unemployed graduates now receive monthly financial support, there has been a %33 percent increase in web sites registered in Tunisia, and the government has published previously unavailable data on public finances and economic and social statistics.
  
• Youth: A program in Jordan focused on at-risk youth has helped 100,000 school dropouts complete an Alternative Education Curriculum and obtain a 10th grade equivalent certification, while a mentoring program has mentored over 12,000 at risk youth and trained 2,500 volunteers and 100 staff in 20 government and nongovernmental organizations (NGO) and four universities.
• Urban Transport: The Greater Beirut Area has developed an effective traffic control system, reduced congestion on major corridors, and put in place an on-street parking management system, alleviating the lost productivity and deteriorating air quality due to severe traffic for the city’s 1.3 million residents.

Partners 

The World Bank Group stepped up its partnership with bilateral and multilateral donors, regional development banks, Islamic financial institutions and emerging country donors. The partners worked to support countries in the region as well as to develop a number of regional level initiatives such as the five-country $5.5 billion Concentrated Solar Power program ($750 million from the Clean Technology Fund) under the Bank’s Arab World Initiative. It has supported governments and regional organizations with conferences and workshops.

One of the sharp lessons of the recent political awakening has been the urgent need to reach out more consistently to civil society, including academics, NGOs and the private sector. The development of MENA countries cannot be successful without good governance and the participation of citizens; development in which everyone feels they have a say and a stake.  

 
All dollar figures are in US dollar equivalents. Updated April, 2012

For more information, please contact:

In Washington
Lara Saade; lsaade@worldbank.org