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Press Briefing on the Middle East and North Africa


with
Mr. Christiaan Poortman
World Bank Vice President for MENA Region

Mr. Mustapha Nabli
MENA Chief Economist 

Mr. Joseph Saba
Iraq Country Director


Washgington, D.C. Wednesday, September 29, 2004


PROCEEDINGS

MS. RIZA:  Good afternoon.  I think we can start.

Thank you all for being here with us today for I think the third Annual Meeting where we are holding a press conference on the Middle East and North Africa.

What I'll do is just introduce Mr. Poortman and Mr. Nabli, and Mr. Nabli will start with a five-minute presentation followed by Mr. Christiaan Poortman, with again about five minutes, and then we'll open it up for questions and answers.

So to my immediate right is Mr. Christiaan Poortman, who is the Vice President for the Middle East and North Africa, and next to him is Mustapha Nabli, and he is our Chief Economist for the Middle East and North Africa.

I'll give the word to Mr. Nabli.

MR. NABLI:  Thank you, Shaha.

First, as a way of introduction, I want to say first that, as you know, most of you should know that the World Bank is generally working and interested in long-term development issues, and the work that we do as the World Bank in the Region is essentially geared and focused on long-term development issues.

As you know, these issues have been discussed at length over the Annual Meetings last year particularly, and before, and we think that, as you know, the employment challenge is one of the major issues.

Last year when we had the Annual Meetings in Dubai, we put out the report and made the report as a Bank on the employment problem and employment challenge in the Region.  The Region needs to create about 100 million jobs over the next 20 years.  The labor force will be growing at 3.5 percent per year.  It's a huge challenge, and this requires a huge reform agenda.

We also discussed the gender issue, the gender dimension of development.  We put on the table the issue of governance, which is a major issue, and as an instrument as well as an outcome of development.

We discussed trade in relation to the world economy.

There are other issues which the Bank focuses on, as water management, environmental issues.  Those are the issues that the World Bank focuses on, and I think Mr. Poortman will probably give you more in terms of what our work in the Region means in these areas.

But today I would like to focus a little bit more on the short-term to medium-term developments on the broad economic front in the MENA Region.  To do that, I would like to put this into a little bit of perspective.

When we talk about growth in MENA--and I will focus a lot on growth and economic growth--for the years, in the nineties, up to the early 2000s, growth in MENA was averaging about 3.5 percent per year.  And it has been despite reforms and some of the reforms that were taking place and so on, the growth rate was kind of stagnant and at a relatively low level.

What happened over the last two or three years is something very striking.  We have seen a major pickup in growth over the last couple of years in the MENA Region, and I would like to put this into perspective.  Essentially two main developments have shaped, really, the economic developments over the last two years.

The first is the surge in oil prices.  As you all know, since 2000, the oil prices have gone up and many of the countries of the Region have been getting a lot of oil revenue, and this oil revenue has been to a large extent, to some extent or to a large extent, depending on the countries, used to boost consumption, government consumption, government expenditures, and this has produced a kind of stimulus to the economies of the Region.

The second factor which has also shaped the outcomes is what has been happening on the security front, especially in terms of the war in Iraq and its spillover for the rest of the Region.  Actually, when the war started and before the war started, there were lots of fears that the negative impact on the Region would be very, very important because of the uncertainties, because of disruption, and so on.  And certainly this has been the case.  There has been some impact in terms of disruption, in terms of uncertainties and so on, but also there has been some positive spillover in terms of the impact on some of the countries of the Region.

In terms of trade, the huge military buildup as well as the construction in Iraq has had some spillover effects in the neighboring countries in terms of increased trade, increased exports, and so on, and this has boosted the economies in some countries of the Region.

So, broadly speaking, what we have seen essentially between 2002 and 2003, the total growth rate for the MENA Region has gone up from 2.8 percent in 2000, between 2000 and 2002, and compared to 2003, it has increased to 6 percent--so about a doubling of the growth rate from 2.8 in 2001-2002 to 6 percent in 2003.  That's a huge increase, boost, of the growth rate of the Region.

And this involved almost all countries of the Region, both the oil-exporting as well as the non-oil-exporting.  Clearly the biggest boost was in the oil-exporting countries.  In some of the countries, the growth reached 6.5, 7 percent.  In some countries like Algeria, Iran, even some of the Gulf countries, the growth rates were higher than 7 percent.  But even in the non-oil countries, there has been some pickup in the growth rate.  And our expectation is that this growth rate of 6 percent will be probably maintained in 2004, maybe a little bit less than 6 percent, but it will be broadly maintained.

So a huge increase, a doubling essentially, of the growth rate of the economies of the Region over the last two years, driven to a large extent, most of it driven by the oil revenue and so on.

So this clearly has also been accompanied by improvements in terms of employment.  The latest numbers show, for instance, that the average unemployment rate for the Region, which was about 15 percent in the nineties, has fallen to about 13.5 percent in 2003.  So there have been some gains.  This growth has created some jobs in the Region, so it has helped reduce the unemployment in many of the countries--in Iran, in Algeria, in some of the other countries of the Region.

So we are seeing some impact in terms of employment and so on.

The fiscal balances have improved--I won't burden you with too much detail on this--the current account balances have improved, and so on.

But my main message and really what I would like to say on this, and I will stop, is that while this pickup is welcome of growth, this improvement is certainly a positive development and so on, we should be very careful not to draw the conclusion that the MENA Region as a whole is on the new path for long-term higher growth rates.  We do not think that these growth rates are sustainable in the long term.

This is certainly a temporary boost to growth due to the surge in oil price and oil revenue, but it is unlikely to be sustainable, and the most sustainable way to keep this growth rate really on track is to deepen the reform agenda that has not been moving very much.

Actually, we are concerned that maybe this increase in oil revenue might lead to some slackening in the pace of reforms, and we are seeing some of it happening in some countries of the Region.  Actually, the fact that the financial situation is better, growth is better, stock markets are doing better--this might give some sense of prosperity which we know is not going to be sustainable in the long run.  So this should be a chance, an opportunity, for the countries of the Region to deepen the reform agenda, which will create the sustainable growth that is needed, which is the 6 and 7 percent growth that is needed in the long term to deal with the employment challenge that I talked about at the beginning.  And we hope that the Annual Meetings this time will help discuss this issue, and we will certainly take this opportunity of the Annual Meetings to discuss with the various policymakers who are coming to Washington this issue and try to deepen the dialogue on this matter.

I'll stop here.  Thank you.

MR. POORTMAN:  Let me also keep it short and brief, because I'm sure there are a number of questions that you would like to ask about the World Bank's activities in the Region.

In terms of our overall program in the Region, again, the fiscal year that we closed off at the end of June of this year has shown a further increase in the total amount of resources that we have committed in the Region.  This is now around about $2.3, $2.4 billion mark which again is a quite considerable increase over what it was the year before.  And that's only one part of what we have been doing.

The other part is basically twofold.  One is what is usually one of the roles that the World Bank plays vis-a-vis our clients is a significant amount of attention being given to policy advice, passing on lessons of experience, working with governments in setting up their various development programs and policies, but also increasingly important, providing of technical guidance and straightforward technical assistance, which is over time for a Region like the Middle East and North Africa, where on average, capital is less of a constraining  factor than in many other regions of the world, this request for not only policy advice but also very straightforward technical guidance and assistance has been strong, and we have tried to start--well, not start, but to continue--to provide assistance in these areas.

In terms of the countries, we have in the MENA Region two IDA countries, those that are eligible to receive funding from our soft loan window, and these are Yemen and Djibouti, and they obviously have a very specific set of issues and problems that we try to deal with, both on the growth side and employment side but also in the social sectors.  But the majority of countries in the Region are what we call middle-income countries, a group of countries in which the World Bank more generally has been spending a lot of its time and attention to see how we can design our assistance programs for middle-income countries better and make them more appropriate for the kinds of issues that middle-income countries face.  And again, we have tried to step up our assistance to middle-income countries. Particularly in the area of infrastructure provision, we did a number of important projects in the past year, and we will continue to expand that in addition to the other things, particularly, as I said, the technical assistance work.

Then, we have--and I guess there will be a fair bit of attention on this--we have two very important what we call post-conflict situations that we try to assist in.  One is the Palestinian Territories, West Bank and Gaza, where we have a longstanding program of assistance which we have continued to execute, and in particular, we have set up a special trust fund at the request of the donor community and the Palestinian Authority, a special trust fund last year that was going to help in attracting more financing for particularly the day-to-day budgetary requirements of the Palestinian Authority, and that has been put into place rather successfully, I think.  In addition to that, as you may have learned, we are engaged like many others in the current plan for disengagement of the Gaza Strip.

The other part clearly is Iraq, where we have right from the beginning started a program of assistance which initially, because of a variety of circumstances, initially, obviously, the security situation but also issues of change in government and getting started, we have been involved in preparation of a number of projects which are now coming to fruition.  I can give you the numbers on that if you are interested.  But in addition to that, very importantly, we have engaged right from a very early stage in extensive training programs for Iraqis, and we have been mounting and discussing with policymakers in Baghdad various issues as they relate to sectoral policies, activities, priorities, and what-have-you.  So we have a very strong and intense working relationship with the Iraqi authorities and moving now toward the fullblown execution of a number of projects.

Finally, we have a number of activities in the Gulf, the Gulf countries, a specific program focused on the provision of technical assistance on a reimbursable basis, but nevertheless, the ultimate of--these are countries that are no longer eligible to receive financial assistance from the World Bank Group, or at least not the World Bank, IBRD, but where we do provide and continue to provide--and this has again been expanded this last year--technical assistance in areas where the demand is, which as I said is an increasingly important part of our activities in the Region.

So we have a full engagement in the Region, an engagement that has been growing over the last three to four years in particular, and one that we will focus on and the Bank is focusing on and continuing to expand in the years ahead.

I'd like to leave it at that.  I'm sure there are questions.  Please, shall we move to that?

MS. RIZA:  Before I start taking questions, I want to let you all know that we do actually have with us here the country directors from the Region.  We have Joe Saba, who is the Country Director for Lebanon, Jordan, Syria, Iran, and Iraq; and Mahmood Ayub, who is the Country Director for Egypt, Yemen, and Djibouti; and Ted Ahlers, Country Director for Algeria, Morocco, Tunisia, Libya--that's it--sorry--

MR. AHLERS:  And Malta.

MS. RIZA:  --Malta. 

And we also have with us Markus Kostner, who is sitting in for Nigel Roberts on West Bank and Gaza.

So, any questions?  Yes, please.  And could you please introduce yourself?

QUESTION:  Yes.  [Inaudible].

Do you expect any announcements on 100 percent debt writeoff for Iraq this weekend?

MR. POORTMAN:  I do not know whether there is going to be an announcement.  I know, I think as you do, that this is an issue that is currently being discussed.  I know the Paris Club meeting discussion is set for I think next month.  I would expect that there is going to be discussion of this in the margins of the meeting, but I don't expect any major announcement at this point in time.

QUESTION:  Leslie Wilton [phonetic] from Reuters.

Have the Iraqis asked you for any additional assistance or direct lending since the interim government came in?

MR. POORTMAN:  Just to clarify the position--I guess that's what you're pointing at--we are currently operating on the funds that have been made available through a trust fund, and we have until now not tapped into IBRD or IDA resources for that matter.

This was initially related to the fact of the permanent or the interim government being confirmed or being put into office.  But more importantly, we have not yet received any request from the authorities.  I think that they are quite happy with the kind of assistance that we currently provide through the trust fund, and they said they will come to this issue as they move along.  But we are fully prepared to provide this assistance the moment that it is officially requested.

QUESTION:  Could I just have a follow-up?

The other question is that Iraq cleared their debt to the IMF; has it done the same to the Bank?

MR. POORTMAN:  Not yet, but there are provisions already in the current budget to do that at the moment that it is required, which will I think happen in the near future.

MS. RIZA:  Go ahead.

QUESTION:  [Inaudible], Magazine, Beirut.  I have two questions.

Dr. Nabli, how do you think the rise of oil prices will affect the economic reforms in the Arab countries?  I would like to know more about that--and what should be done to avoid this?

My other question is how do you see the investment climate in Lebanon in light of the new Resolution 1559 and the complicated political situation?

Thank you.

MR. NABLI:  On the issue of oil prices and economic reform, I think the increase in oil price and oil revenue is a double-edged sword, if you like, in terms of economic reform.  In one sense, it might create a sense, as I said, of prosperity, which may be felt, but we don't really need to do the reforms, things are going well, and so on.

On the other hand, it is an opportunity also, because having this oil revenue might be a way to finance and be able to support the cost of some of the reforms that you need to do, because reforms sometimes are costly.  Let me say why.

If you are going to do financial sector reform, for instance, you are going to recapitalize your banks because you have problems.  Then, you need money to do that.  And if you have oil revenue, you can use your oil revenue to recapitalize your banks, to reform your banks and financial system.  The same thing on the industrial sector.  The same thing in terms of pension system.  The same thing before civil service reform.

There are lots of reforms which require resources, which lack money, and then, when you have oil revenue, exceptional oil revenue, it is a good idea to use it to finance reforms which will produce long-term, lasting impact.

So there is this tension on the one hand that it might discourage reform, but on the other hand, it might also support reform.  And I think the trick is that the policymakers and societies as a whole have to make sure that, really, it is the reform which really prevails rather than trying to consume it and then face the consequences tomorrow.

So that would be my comment on the first question.

On the investment climate in Lebanon, I think there is this whole issue about the political insecurities and uncertainties in the Region are affecting all of the countries of the Region--they are affecting Lebanon, they are affecting Jordan, they are affecting Syria, they are affecting Iraq and everybody else.  This remains a major issue in the Region, and clearly, this has not improved in terms of Lebanon, this uncertainty with the recent political developments, and it is not supportive, it is not helpful in terms of the economic reforms that need to be done to deal with deep-rooted issues, to improve the investment climate.

But on the other hand, I would like to say that improving the investment climate proper and dealing with the concrete issues on investment climate, the Lebanese can do it today if they want to do it.  So there is nothing that prevents the Lebanese today from improving customs clearance; there is nothing that prevents the Lebanese today from simplifying registration of firms; there is nothing that prevents improvement of the court systems.  So there are lots of things even within that uncertainty, even within those constraints of the overall environment, there is a lot that can be done.

QUESTION:  I am Shaherka Gerter [phonetic] at UPI.

Could you expand a little bit more on the investment climate but for the entire Region, specifically, private capital flows from foreign countries?  Of course, oil is a double-edged sword.  It could attract a lot of oil refineries, mining companies, to invest in the Region, but at the same time, we are seeing increasing geopolitical risks.

Do you have any data on how that trend has been over the last year?

MR. NABLI:  We don't have yet hard data.  We'll have that in the next six months.  When the Bank does the Annual Report on Global Development Finance, we compile the data on the foreign direct investment and so on.

But clearly, what is likely to show is that in terms of foreign direct investment for the hydrocarbon sector, we will probably see a pickup in that, and this is happening in the countries where--whether it is Algeria, soon to be Libya, as well as the Gulf countries--certainly we see some increase in FDI.

Now, on the rest, in the non-hydrocarbon sectors, we are not sure that we see a significant change in terms of the trends in FDI, because fundamentally, the investment climate has not changed that much, whether from the political security angle or from the fundamental--the things I was talking about in terms of the practical internal dimensions of the investment climate.

We have not seen--I don't know if you have looked at the World Bank report that was released a few weeks ago on Doing Business 2005.  If you have a chance, it is an excellent report that you might want to look at.  We don't see MENA countries making great progress in terms of the indicators of the business climate.  There are very few--there are some reforms here and there--but overall, it's not in the top 20 of those who have been reforming their investment climate, if you like; we don't see any countries in the top 20.

So that's my cut on this.

QUESTION:  Leslie Wilton again from Reuters.

How is your reconstruction plan going in Iraq?  Are you still doing it via videoconference, and how far are you with the projects themselves?

MR. POORTMAN:  Well, as you already hinted, we have a number of ways in which we work with the Iraqi authorities.  You are aware of the fact that since the unfortunate bombing of the UN building last year in which we lost one of our staff, and a number of staff were pretty badly hurt, the UN System and ourselves have not had international staff back in Iraq.  The security situation at this point in time doesn't really allow that to happen.

But we have right from the beginning--initially, as you know, we did do work in Iraq to help, together with the UN, put together this assessment of the needs.  We have since that time done a number of other things.  We have opened up a special office in Jordan to work from Jordan.  We work, as you have already indicated, with the videoconferencing facilities.

We have had a large number of Iraqis come out and be trained both in the Region as well as here in Washington.  So there are a lot of activities that have taken place, as I indicated.

The funding that we are using is the trust fund funding, and the actual amounts of that and the paid-in was a process that took a certain amount of time after the Madrid Conference, and we took, obviously, some time to get these projects going.

We have at this point in time one project that is completed which is a training project which I made reference to at the beginning, another project which is under implementation, which is a textbook provision project, and then we have seven other projects for a total amount of--I look at it here--just over $300 million, of which--I'm looking at the timetable--each one of them--and we expect all of them to be signed and ready for implementation between now and the end of this calendar year.  Some of them are going to be ready as soon as later this month; others, as I said, will take place between now and the end of the calendar year.

So we have by the end of this year $400 million plus in projects ongoing and implemented.

I must add that in addition to the staff that we have working on Iraq from outside the country, we also have a number of Iraqi consultants that work for us in an office in Baghdad, and they are also very critical in terms of liaising on a day-to-day basis with the policymakers.  But we feel--and as you know, Prime Minister Allawi was just here in Washington and was in the United States; he met with Mr. Wolfensohn--and I think the general feedback was that the Government is quite happy with the support that it is receiving, and we are looking forward to continue to prepare additional operations, but first of all to finalize the preparation on these outstanding ones and then continue the implementation.

QUESTION:  If I might have a follow-up, what are your hopes and wishes for the next meeting coming up now in Tokyo?

MR. POORTMAN:  It is very much a stock-taking exercise.  It is an opportunity for, first of all, the Iraqi authorities to prepare and to--not only prepare, sorry--to present their new development strategy, which is something that they have put into place and which we are very excited about, because it is an excellent piece of work that really gives the views of the new Government in terms of where it would like to go, the overall financial requirements fitted into a budgetary framework, so something that I think the donor community has been looking for for some time--although up until now, it was obviously difficult, because there was not a new transitional government in place.

It is an opportunity for the donors amongst themselves to see how they are doing vis-a-vis the trust fund, how the implementation is taking place, what are the potential bottlenecks.  It is not a pledging conference.  Pledging took place in Madrid.  It is perhaps an opportunity to firm up some of these pledges as we discuss, but it is very much an opportunity to stock-take, as I said, and the authorities to once again indicate how their program is now shaping up now that they have had some time to look at this over the last couple of weeks.

MS. RIZA:  Okay--all right.

QUESTION:  Hi.  Suzanne Presta [phonetic] with VOA.

I was wondering about the projects that you are talking about in Iraq.  Are any of them specifically to benefit women or working with Iraqi women?

Thank you.

MR. POORTMAN:  They don't have that in the title, but if I give you the various sectors that they are looking at, obviously, women are going to be very much, together with men, beneficiaries of this.

In particular, I would like to draw your attention to things like community, community development projects, questions related to water and sanitation, health, all these areas in which, by tradition, our projects and the one that we helped design are very much focused on the role of women.  We see that in other similar projects in the Region.

So, whereas it is not specifically, there are other ways in which we try to support women and women's organizations, but it has been so far to a large extent in terms of providing guidance, working with them, looking at them in a broader context.  But these projects do obviously have relevance for women as much as for men.

QUESTION:  Joe Revollo [phonetic] with Dow Jones.

Mr. Nabli, I wonder if you could tell us in percentage terms how much of the acceleration in the economic growth in MENA countries is due to oil prices and how much due to the military and reconstruction efforts in Iraq?

MR. NABLI:  I don't think I can answer that question, really, because it is very difficult, but I can give you my sense on the issue.

The greatest acceleration in growth that we have seen, for instance, is in Algeria and Iran, for instance.  I don't think the reconstruction in Iraq or the military expenditures in Iraq have that much to do with that acceleration of growth in Algeria, for instance, or in Iran, which tells me that probably the biggest stimulus to this growth comes from the oil dimension rather than from the construction.

Now, on the other hand, there are certainly some countries which are benefitting from this.  I think certainly the acceleration of growth in Jordan is not due to the oil factor, because there is no oil.  It is certainly due to a large extent to the reform program that Jordan has undertaken over the nineties, in which we start to see the acceleration in growth in Jordan since 2000, 2001, essentially.  But it has continued to accelerate, and I think it is benefitting from the regional reconstruction in Iraq and so on.

It is certain that in some other countries, there are some benefits from these military expenditures in some of the Gulf countries where some of these expenditures are taking place and so on--certainly.  But I would think that if I take the 2.8 to 6 percent, I'm not sure I can put what fraction is due to that--I don't have that information--but I would say that most of it is probably coming from the oil factor.

MS. RIZA:  Mahmood, you wanted to say something?

MR. AYUB:  Yes.  I think in the case of Egypt, if I can just add, that the growth rate this past year has increased compared to the last two or three years, where it was roughly averaging 3 percent or so; now it is averaging more like 4, 4.5 percent.

The main reason in that case is the fact that the currency was floated, as you know, in January of 2003, and it took a little while for it to settle down, but now the tourism, for example, this year, and this last fiscal year ending June 30 increased by 44 percent in U.S. dollar terms, which is just phenomenal.

You also had an increase in export earnings which have gone up considerably.  So the growth rate is essentially driven by the export sector, by the external sector, which wasn't the case for a long time.  And we are hopeful that the new measures which have been taken in the last two or three weeks--it's still to early to see the impact, but hopefully, that will also lead to a further increase.

QUESTION:  My question, I'm sorry to harp on Iraq, but while you're in front of us, I figure I might as well ask all those questions.  Are you seeing any kind of impact that is coming from their little bit of reconstruction in the economy?  Do you see any impact on the economy from this reconstruction efforts by the U.S. and institutions such as yours?

MR. POORTMAN:  I will, and I'll ask Mustapha.  Maybe he knows more on the economic data side.

I think it's going to be very difficult.  I mean, there's no question about the fact that the economy is growing at a very high clip.  But that is nothing out of the ordinary.  I mean, we see this in every post-conflict situation is that after a period of conflict in which, obviously, GDP has lost a fair bit of its value, quite significantly so, that any reintroduction of sort of normal economic activities leads to a very rapid increase in growth.  And I think that's undeniable.

The important part, I think, is, and that's very difficult to establish at this point in time, as we know from other post-conflict situations, how much of this is a one-off effect, and how much of this is actually a structural base building that will allow sustained development and growth to take place.

I think, frankly speaking, the situation is just very difficult in terms of making any good, clear economic assessments.  I mean, I don't think the data is there to make this possible.  But there is no question about the fact that the reconstruction does generate growth, jobs and what have you.  But, then, the base from which this happens is very low, so we have a long way to go to get back to the original situation, which I said is not particular to Iraq.  I mean, we see this in all other places where a conflict has been taking place.

Do you have anything else?

MS. RIZA:  Okay; if there are no more questions, we'll - I just want to thank you all for being over here.  And there's going to be a transcript on our Web in about two or three hours at www.worldbank.org/mna.  It should be out there in two or three hours.  And thank you again for being here with us this afternoon.





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