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Daniela Gressani, Mustapha Nabli, and Carlos Silva: Launch of the MENA Economic Development and Prospects Report, April 14, 2007

Available in: العربية, Français

MR. ELSHARKAWY:  Welcome, ladies and gentlemen.  For better or worse, let's get started.  Welcome to the launch of the MENA Economic Development and Prospects Report.

The press releases and the overviews in Arabic, English, and French are outside in the press room, and the report will be shortly available‑‑actually, should be available now on the Web site.  The address of the Web site is on the press release. 

 

We will move along as fast as we can by initially introducing Daniela Gressani, the Vice President of the Middle East and North Africa Region.  We also have with us Mustapha Nabli, Chief Economist of the Middle East and North Africa Region; and Carlos Silva, the Lead Economist in the MENA Region and the principal author of the report.

I would like to invite Daniela Gressani to present her word, please.

 

MS. GRESSANI:   Thank you, Karem.

Well, welcome, everybody.  I know these are very busy days, and I'm very grateful that you could come here today.

 

I'm very happy to have the opportunity to introduce what is the third report of a series of annual publications which are entitled MENA 2007 Economic Developments and Prospects.  This is a series of reports that highlight major trends in the region and considers the region short‑ to medium‑term economic prospects while focusing on every year a different theme that we consider of particular significance to the region.

 

Last year, the report focused on the financial sector.  This year, the theme of the report is labor market and employment developments.  As you know, this is a critical area for the region.  It's a very challenging theme and very much in common to all countries in the region.

We believe that this type of report that focuses on cost‑cutting themes that are, as I said, important to all countries in the region, are very important to understand common dynamics, common characteristics, and to help us develop a dialogue with all of our partners in the region on important issues.

 

2006 has been a very good year in terms of economic growth, despite the war in Lebanon and difficult developments in the West Bank, Gaza, and Iraq.

 

At the same time we are observing high growth, we are, however, observing that employment creation remains a very big challenge.  Economic goals in MENA has generated new jobs especially in the private sector, and this is obviously very good news.  At the same time, many of these jobs have been in sectors which remain lower productivity sectors, and therefore, the distribution of new employment creation remains problematic.

 

In addition, we see that women are still significantly less successful than men in finding jobs, and youth remains very highly represented in the unemployed.

 

As in the previous year, the report looks also at how the region is advancing in such reforms that they have transformed the economies particularly in relation to trade policy, business environment, and governance.  All of these sets of issues are looked at on a yearly basis in order to find out cost‑cutting areas of progress and also challenges that remain outstanding. 

Having said that, I would like to turn to our Chief Economist, Mr. Mustapha Nabli, who has some details on our findings.

 

MR. NABLI:  Thank you very much. 

I will be very brief.  As the report includes essentially three parts:  One is the recent development on the macroeconomic front; the second is a review of progress on structural reforms; and the third, the special feature this year is about labor markets and employment growth in the region.  I will give you highlights of the reports in these three areas.

 

In terms of the economic development and prospects on the general macro front, the year 2006 has been a stellar year.  The average growth rate of GDP in the region was 6.3 percent in 2006.  This continues a trend that we have seen the last few years of growth rate in the region ratcheting up.  We have gone from 3.5 percent in the nineties to about 5 percent in the early 2000s, to 6 percent last year and the year before, and to 6.3 percent this year.  So, the trends of growth have been up in the region, and 2006 was a continuation of that trend, and stronger.

This means that the per capita GDP growth was an average of 4.2.  This per capita GDP growth is the highest since the seventies.  The region has not known such a high average growth rate of GDP per capita in the last 30 years. 

 

This growth has been underpinned by many factors.  It has been underpinned, clearly, by the oil boom which has led to facilities in terms of increased public expenditures in many regions.  It has been facilitated by the overall global environment which has been favorable, in particular Europe, which is a client for many countries of the region, has been doing better, so it's pulling up the region.  And it has been also, I think, supported by the momentum that has been building in terms of the reforms in many countries.  So, the boom and the increase is really due to these three factors together.  It's difficult to see which one is the most important, but they have been contributing differently in different countries.

 

Now, we see one of the features of this growth has been the private investment.  The private investment in particular has been really increasing, and we have seen the average rate of private investment to GDP ratio reach about 14.5 percent, or 14.4 percent, which is really much higher than we had seen a few years ago which was about 11 to 10 percent.  So, there has been a significant increase in private investment throughout in almost every region, which is the big contributor of this growth in terms of dynamics.  So, that's good news.

 

Now, the less good news is that we have lots of variation.  This is the average for the region, but the region is not marginal, as you know, so there is good and less good.  The best performing has been, in 2006, some countries in the Gulf‑‑Qatar, United Arab Emirates in particular‑‑and the worst performance which actually had negative growth rates was, as you could expect, Lebanon and West Bank/Gaza, for the reasons that you could guess. 

 

In between, we see lots of variation.  The highest growth we continue to see is in the GCC, in the Gulf countries.  The next group which is doing better is what we called the "resource‑poor countries," the countries that do not have much oil:  It's Morocco, it's‑‑Egypt has been doing very well, high growth rates, higher than 7 percent in growth Morocco and Egypt, but also some of the other countries, like Jordan, have also been doing well in 2006, as well as Tunisia.

The two countries which are doing less well in general are what we call the "resource‑rich" and "resource‑ and labor‑rich" also.  It's Algeria, where the growth rate has slowed down.  It's Iran.  It's Syria.  In these countries, the average growth rate has come down compared to the others this year.

 

One other feature that we have noticed this time is the decline in industrial production, and industrial production has been declining clearly given by many countries by decline in oil outputs and related hydrocarbon production, but the resource‑poor country it has increased, actually.  Now, I don't spend too much time with improvements in the macro balances in the current account balances, improvement in the fiscal balances in most of the countries of the region.

Now, let me go to the second part, which is the reform agenda.  One of the things that we have been trying in establishing is to try to monitor the progress in terms of reform, and we have been focusing on three areas of reform:  One is the trade policy reform, the second is the business environment, and the third is the governance agenda.  And very broadly, we see continued progress in terms of the lifting of the restrictions on trade throughout the region, when we compare essentially our benchmark is the year 2000.  From 2000 to 2006, significant progress.  The region has been liberalizing much faster than anywhere else, but you have to remember it's liberalizing from a high base of protection.  The region has had, and continues to have, relatively high protection rates, whether it's in terms of tariffs, nontariff barriers, but it has been making progress in many countries.  The most significant progress has been in Egypt, but other countries are doing the same, whether it's Morocco or it's Jordan, but other countries are doing better in terms of improving the trade policy agenda.

 

The second, the business environment, I don't spend too much time on this.  It's reflected in the Doing Business Report.  The region has been improving also, but less than the average of the world.  It has not been moving as fast as it would need in terms of the doing business‑‑improving the business environment in the region.  So, lots remains to be done on this.

And lastly, in terms of the governance, here, as you know, the starting point is very weak.  The region overall in terms of governance indicators ranks in the twentieth percentile‑‑means the lowest percentile of the world‑‑but there has been progress in terms of improvement in public administration, less progress in terms of public accountability, but we still see progress, but still very low in terms of level.

 

Now, this allows me to go directly to the feature, the main theme or the specific theme of this report, which is the employment and labor markets, and this‑‑as you might recall, some of you might recall that, in 2003, the World Bank published a major report which was called "About Employment."  We called it "Unlocking the Potential for Employment in the Middle East and North Africa Region," and we had a summary and diagnostic of the situation and policy analysis, and we described the main challenge of employment and the region had to increase its employment potential dramatically.  So, we wanted to see since then growth has picked up and increased, so what happened to the labor markets, what happened to employment?

 

And here we have lots of good news, actually, very, very important things to note.  Employment growth has been taking place at high rates.  I give you two or three numbers which are very important.  The number of jobs being created compared to the numbers of jobs that exist has been on average, for the last five years, between 2000 and 2005, was 4.5 percent.  So, every year, the region was creating 4.5 percent jobs than the previous year.  This is a significant increase.

 

This, as compared to the increase in the labor force, means people who want to get jobs, the number of people who want to get jobs has been growing at 3.7 percent.  So, the number of jobs being created is at a faster rate than the number of jobs that people want to have or are demanding, which means that employment rates have been declining, and that's a major event.  Unemployment rates, which were in the order of 14 to 15 percent in 2000, are down to 10 to 11 percent now.  So, we have gained about 3 percentage points of unemployment in the last five years.  That's significant.  That's big news.  That's very important.

 

Now, this has been happening almost throughout the region, with one or two exceptions:  This decline in unemployment, we have seen it in the countries for which we have data.  We have about 12 countries for which we have data.  In eight of them, the unemployment rate has declined.  In one of them it has not changed‑‑Jordan, it did not change‑‑and we have a couple of countries which has actually increased, which is Kuwait and the United Arab Emirates.

Now, the question that we asked ourselves was:  Where do these jobs come from?  It's not only that the number of jobs is increasing, but where are these jobs being created?  And here we have also interesting news:  Most of the jobs are being created by the private sector.  This is in complete difference to what we had seen in the seventies and eighties, where the jobs were being created in the public sector.  It is the private sector that is creating the new jobs. 

So, there is a new engine of job creation which is starting to work.  It was not there in the nineties.  It was not there until the middle of the 2000s.  So, now, over the last few years, we have been seeing this new engine of job creation coming on board and trying to produce these jobs.  So, that's the good news part of it.  So, it's private sector in different activities, it's in services, it's in agriculture, it's in industry.  It depends on the countries‑‑the relative importance varies from country to country.

 

The less good news is the other part of the story, that these jobs are not high-quality jobs.  They tend‑‑they have tended to be created in activities where productivity is relatively low and productivity growth is relatively low.  So, it's a lot of these jobs in self‑employment, it's lots of jobs in the informal sector, lots of jobs in agriculture where productivity is relatively low, or in services‑‑some of the services are particularly low.

 

It's not uniform.  Also, it's not only that.  There are countries where we see jobs being created in new dynamic activities, new dynamic sectors with high productivity and high productivity growth.  So, this picture is mixed, if you like.  We see lots of jobs being created in activities with low productivity, but others with higher productivity.

 

Now, the challenge of job creation is going to continue.  We have revised the numbers, and as we look over the next 20 years, the need to create jobs is going to be there, it's going to ease in 10 or 15 years' time, but in the last 10 or 15 years it's a period where the challenge is going to be the biggest and the highest, which means that the progress on structural reforms that we talked about needs to be strengthened, deepened, and the growth that we have seen and against the growth we have seen over the last three years have to be sustained and deepened over the coming period.

I will stop here.

 

MR. ELSHARKAWY:  Thank you. 

We are open to taking questions from the floor, so if there are any, please be a little emboldened to ask them.  We will do our best to answer.  Anybody care to ask?

 

QUESTION:   My name is Vivian Artata [ph.] from Al Jazeera. 

I'm asking about the Wolfowitz controversy, and if you can tell us how it is that this controversy is going to impact how it is that programs are funded for poor countries, particularly big donors who have expressed concern.  I would be interested to know what the countries you've had contact with in the region are feeling about this. 

Thank you.

 

MR. ELSHARKAWY:   Within the current context, I'm not sure that we can fully answer that question, but I will offer the opportunity to most definitely maybe to answer a variation on that question, which is whether the Bank has a role to play that is maybe beyond just the focus of employment growth, but I don't think we could actually, in the current context of this report, respond directly to that question.  I don't know‑‑is there something you would care to add to that?

 

MS. GRESSANI:   Actually, as Karem said, I don't think we are in a position to answer your question.  I think it's an important question, but I think our colleagues in the corporate part of the Bank may be in a better position to answer it.

Obviously, we are concerned that the Bank maintains a strong role, a credible role, in all of our client countries, whether they are low‑income countries, middle‑income countries.  As you know, in the Middle East and North Africa, there are many middle‑income countries that are important partners for us.

 

And in all of these countries, I think the Bank has played, and we certainly plan to continue to play, a constructive role in assisting governments committed to economic reforms that create the jobs that empower their people, and that leads to better governance and greater integration in the world economy.  I think in all of these countries we plan to continue to play a constructive role.

And the impression that I have had from the early meetings with the delegation of a number of visiting countries‑‑although by no means we haven't completed our consultation‑‑is that there is a strong demand for World Bank advice in these middle‑income countries that constitute the bulk of the region.

 

In the region, however, there are‑‑at least in the region we call it at the World Bank, which is a little bit of a political construct, there are two poor countries:  One is Yemen and the other is Djibouti.  Of course, we also are very determined, I should say, to remain engaged in this country to play as constructive a role as we can, including by providing concessional funds, providing assistance on difficult global issues such as HIV/AIDS, such as avian influenza and the like.

 

MR. ELSHARKAWY:   Thank you.

 

QUESTION:   Sirjata Ralf [ph.] from Reuters.

 

I had a question about the GCC currency union.  I was just wondering if you care to comment on how realistic a plan this looks to you as it stands now, and when do you think that this can be achieved?  Is it a 2010 deadline these countries have talked about?  Is it viable?

And the second question is:  What do you think about the currencies in the region?  Do you see them as undervalued?  That's the question. 

Thanks.

 

MR. NABLI:   In this report, we did not address very specifically those issues because they are usually part of the IMF agenda, and the IMF would focus on those issues.

On the currency union‑‑but just to give you a quick reaction, on the currency union, as you know, it has been planned to 2010.  It seems unlikely to be met as a deadline because there are still some differences between the countries where this is going to be feasible and so on.  I cannot speculate on what would be the exact time this is going to happen.  It's a process that is ongoing.

On the overvaluation question, it's clear there is a debate about this, whether the currencies in view of the increase on revenue, the increase in reserves and so on, naturally, if it were left to the markets, the currencies would have revalued, clearly. 

 

Now, clearly, as policy makers, the Gulf countries in particular have decided for a long time to pursue a peg to the dollar and, for reasons that are very understandable, have a good basis.  And they have kept to this peg in the downturn, and they have kept it in the upturn, and I think my own view is that the overvaluation or not depends on how you look at things, and there are two factors very specific to the Gulf countries you have to keep in mind.  One is the openness to labor import, the labor market is open, and therefore the tendency to real exchange appreciation is much less likely to happen in such a case because, even though we have seen some inflation in some countries, especially the United Arab Emirates, inflation has been subdued, despite the increase in growth in other countries.  So, there are some issues in the United Arab Emirates‑‑Dubai, in particular‑‑but in the rest of the Gulf GCC, it is not an issue.

 

The second issue is how the revenue is being managed, what is it being used for.  If a significant part of this revenue is being saved and being invested abroad, this should not have‑‑should not mitigate the need to appreciate, if you like, the currency.

 

The debate is continuous, but I think there is no clear answer to it, in summary.

 

QUESTION:   Kevin Rafferty from Plain Words Media.

 

How do you characterize the situation in Iraq?  How much work is the Bank able to do in Iraq, if you put it into the context of Mr. Wolfowitz's prediction before he came to the Bank, before the invasion, that the oil revenues of Iraq would pay for its reconstruction?

 

MS. GRESSANI:   The Bank is engaged in Iraq, as you know, as part of‑‑both as an institution with our own financial resources, and we have approved recently four loans to Iraq, but I think more importantly there was part of an effort of the international community to support the transaction covered in Iraq.  Together with the United Nations, we have been administering a trust fund, which it has, to date, implemented or has under implementation 15 different projects.

Your question is really about how much these projects have been achieving, and I think some of them have been quite successful, and some of them instead being significantly less successful.  I think this is‑‑and this is true of the experience of other donors as well that are engaged in similar activities in Iraq.  To a large extent, we are still learning what are the best ways of engaging in a country that's obviously in a very difficult situation, but we are also, I think, learning lessons that we can use to make sure in a sense the next generation of projects will be more successful.

Let me just quote two projects that I think have been quite promising.  One is a project involving the provision of supplies for schools in Iraq, and the other one is a project that is in the process of supporting community‑level development intervention, including small infrastructure and employment‑generation activities.  I think in our sector project, this has been quite promising, and we have been trying to learn lessons from them that we can apply to the implementation of other initiatives.

 

Regarding the situation in the oil sector, obviously the Iraq oil sector has very, very large potential.  Whether or not it can fully pay and how quickly it can fully pay for the construction of Iraq, I don't think that we are really in a position to respond; but, as part of our assistance to Iraq, we consider improving the efficiency and effectiveness with which the own resources of Iraq are used as one of our top priorities.  I think that the World Bank can make an important contribution in this area to improving the management of the public sector precisely because Iraq has such large resources and because there is a great scope to use them more efficiently.

 

QUESTION:   Joe Macarune [ph.] from the Kuwaiti News Agency.

My first question is:  For a large population in the Middle East, they could be skeptical about reading the findings of this report regarding the creation of opportunities, so how you can defend this or talk about this gap between the findings and for the large performance‑‑bad performance of many of the societies?

 

My second question is regarding the average growth of the Iraq economy for the last five years, how you can elaborate about this.

And my final question is regarding the policy and Finance Ministers of Iraq is in Washington now, and trying to break through the blockade regarding the aid.  How is the stance of the World Bank regarding the particular issue?

 

MR. NABLI:  Let me take this. 

Clearly, the first question I know it has been, it's always asked and, you know, does it really mean anything, these numbers are big numbers and we don't trust them.  When the numbers were bad, if you like, we said they are bad, and nobody seems to complain when they are bad, and so when the numbers improved, they're numbers, that's where they come from, and I tend to have confidence in it.

 

Now, I know when we talk about employment numbers, it's always a big debate, it's always questioned, you know, how reliable, and there are always questions in employment data.  But, when you look at the numbers and see they are bad and when they improve, you have to accept, if you like, and if you have confidence in the statistical offices and the agencies who do these numbers, you have got to accept that.

 

Now, I made a comment, though, that you should not kind of ignore.  I said maybe in terms of quantity we have made progress, there is growth in terms of numbers of jobs been created, but the quality is not always of what meets the expectations of the youth that you are talking about, so maybe these youth are finding jobs, but they're not the jobs they like to have, aspire to.  These youth have high education, high aspirations, and maybe they're not finding the kind of jobs they are supposed to have.  Maybe they are frustrated and they don't believe the numbers, but they are accepting the jobs maybe because of lack of alternatives and things, but that's understandable.  That's why the numbers show and with all of the caveats that I mentioned.

On Iraq, very quickly, as you know, the Iraq economy knew of very high growth rates in 2004, as you remember, because coming out of 2003, you know, when the invasion took place and the economy just collapsed, there was a big recovery in 2004.  But then in 2005, the growth rate slowed quite dramatically to 3.7, and 2006 is 4 percent.  And there was a big recovery in 2004, but then the recovery did not continue as strongly had the security situation had improved, so the kind of growth recovery that would have been expected to continue and to be stronger remained very weak, and so the growth performance has been weak in Iraq over the last two years, and continues to be so.

 

What were the other questions?

 

MR. ELSHARKAWY:  About Dr. Payed [ph.] and the West Bank delegation in Washington.

 

MR. NABLI:   Maybe one of my colleagues will be able to answer the question?

 

MS. GRESSANI:   I will try to answer this question.

By the way, we have among our colleagues here Joe Saba, who is responsible for our program in the Middle East, and I suggest you may want to direct any more specific questions to him; as well as David Craig, who is our Director for West Bank and Gaza, and I fully encourage you to direct any specific questions on our programs there to him. 

 

If I understood your question correctly, you're essentially asking what is the World Bank doing in West Bank/Gaza now that there is a new government, a new Minister of Finance.  As I think you know, the World Bank has continued to be engaged during the previous government as well, is now engaged with the present government.  We have a portfolio of projects under implementation in a number of different sectors, and the implementation has continued.  At the end of last year, we also approved three new projects for West Bank and Gaza as well as the replenishment of the task fund that is the main vehicle for the World Bank to provide financial assistance there.

The three projects that were approved in December focused on community development, interventions, and strengthening of the municipal sector, and lastly on also strengthening the NGO sector there.  The real objective of the projects was to help develop‑‑and this is very much related to our report today‑‑to help develop job opportunities in the short run in a situation where the unemployment rate is very high and where the economy has been performing very badly because of the external environment.

At the same time, we have begun engaging with the new government, which is very, very recently being performed.  We have not personally met with the delegation that is in town.  We will meet later in the next few days.

 

I think that the kind of issues that we would want to engage with them are especially the medium‑term forums that are needed for West Bank and Gaza to recover on a sustainable basis, and I would like to highlight mostly two directions:  One is the need to improve movement and access, which is fundamental for private sector development, without the ability of transporting goods and people moving within West Bank as well as between West Bank and Gaza and the rest of the world.  It's going to be very difficult for the sector to input what they need, to export what they produce.  So, this is a fundamental area of World Bank involvement.

 

The other area which I would like to highlight is the fiscal crisis in West Bank and Gaza, and this is something that needs to be addressed, I think, quite urgently to put the administration on a sound, sustainable basis.  It's not possible to provide the basic social services to the people unless you have essentially your fiscal house, and this is a discussion that we have had with previous governments that we will continue to have with the current government.

 

MR. ELSHARKAWY:   I think we have time to take a couple more questions.  There's a gentleman here that had a question.

[Question in French without interpretation.]

 

MR. NABLI:  That's a very good question.  The question, for those who don't speak French, is what could be the sources of growth in countries that have done significantly worse for the last three years to create jobs and grow at high rates such as Morocco, Egypt, and Tunisia?

The answer to that, I think, is actually addressed in the 2003 report, and if you go back you will see that we have addressed this question, and really the answer lies in the deepening of the former agenda in order to go in two directions, essentially:  One is to allow the market economy in the private sector to create the jobs; and, second, to leverage this in the international markets through exports and dynamism of exports.  So, the real source of growth that are sustainable are growth which is based on exports, diversification of exports, new products, new markets, and high volume of exports.

 

Despite the gains that have been achieved by these countries over the last few years, they remain very, very far below the potential in terms of using the international markets as a platform to create jobs and to benefit from the globalization.

 

So, that's where these sources‑‑I could not tell you which sector because I don't want to bet it's the private sector that has to find out which sectors.  The government has to provide the environment, give in some cases where it needs to resolve some of the constraints and the limitations has to do it.  And you know, in Morocco, you know there have been activities that the government never planned then to develop, when they developed and become indications of growth.  Aeronautics production components has evolved in Morocco.  I don't think the government has ever planned it or guessed it or planned it.  It's the private sector that has done it, and the government can then come and support and see if there are any constraints and so on, and this applies everywhere. 

 

So, I say private sector, exports, and diversification of these exports, that's the sources of growth and job creation.

 

MR. ELSHARKAWY:  Last question.

QUESTION:  My name is Mohammed Sayed [ph.], and I'm with Arab TV network.

I will co‑share with my compatriot from Morocco that, I will be touching on Iraq and Iran, the developing crisis between Iran and the West, and the situation in Iraq does certainly affect the oil prices around the world.  How would the World Bank deal with those countries who do not produce oil and fuel?

 

MR. NABLI:   It's a very interesting question, and as I mentioned‑‑actually, in the recent boom, the main‑‑I mean, one of the important features that growth has been high in the oil‑producing countries in the GCC and so on, but surprising‑‑it's not surprising, actually, but interestingly it has been strong in the nonoil‑exporting countries.  We had very high growth rates in Morocco, high growth rates in Jordan, high growth rates in Egypt, higher growth in Tunisia in 2006 than in 2005.  Clearly, Lebanon is an exemption.

 

So, even in those countries that do not have oil have been doing well, and this is for two reasons:  First, clearly, they have done something well in terms of managing their economy which has led to a higher private investment, and we see higher private investment for many of those, not all of them, actually, but those in Morocco we see significant shift, and Egypt we see significant shift, and Jordan significant shift.  So, we see progress taking a stronger road, and actually we see exports gaining some dynamism again in all of these countries, so there is no doubt on that.

Clearly, the international environment has been supportive.  As I said, especially for these countries, the European market has been doing better over the last year, and this is having a good impact.  Sure, they had to deal with the increased oil price, Morocco had to deal with imports in all of its energy and had to deal with the oil price, clearly, and this has been difficult on the budget, difficult on the consumers and so on.  But, interestingly, despite that, Morocco has been able to do that.  Why?  Because it has done what it needs to do, and working very hard over the last few years to improve its environment. 

 

MR. ELSHARKAWY:  Thank you. 

And thank you, ladies and gentlemen, for attending.  As I said earlier, the press release and summaries in Arabic, English, and French are available in the press room.  And the report, the full report, is available on the Web site.  Thank you for your attendance.

 





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