Transcript Trade, Foreign Investment and Development in the

Trade, Foreign Investment and
Development in the Middle East and
North Africa
Presentation by
Dipak Dagupta
Sector Manager, MNSED
MENA Region
The World Bank
June 2004
MENA’s Development Challenge: Slow
Growth and Rising Unemployment
During 1980-2000,
Per capita growth averaged only 0%,
Unemployment rose to over 14%,
Nonoil exports stagnated at 7% of GDP, and
Foreign investment stayed under 0.5% of (PPP) GDP
These trends are linked: higher trade and investment is
needed for higher growth and employment
-2
Year
1998
1999
2000
1993
1994
1995
1996
1997
1987
1988
1989
1990
1991
1992
1982
1983
1984
1985
1986
1977
1978
1979
1980
1981
1971
1972
1973
1974
1975
1976
1966
1967
1968
1969
1970
1963
1964
1965
percent
Growth rates have been low….
GDP Growth Rate, MENA 1963-2000
(Algeria, Egypt, Kuwait, Oman, Morocco, Saudi Arabia, Syria,Tunisia)
16
14
12
10
8
6
4
2
0
Unemployment has risen…
Unemployment rates are rising rapidly in MENA, 1980-2000
16
percent of labor force
14
12
10
High-income countries
Middle-income countries
8
MENA
6
4
2
0
1980
1990
2000
MENA refers to data where available for 12 countries : Algeria, Egypt, Iran, Jordan, Lebanon, Morocco, Syria,
Tunisia, Yemen, Oman, Bahrain and Saudi Arabia.
Africa
South Asia
MENA
Latin America
Europe/Central
Asia
East Asia
Poverty incidence ($2 criterion)
Poverty, while comparatively low, has risen
slightly during 1990-2000
100
80
60
40
20
0
1990
2000
And exports have stagnated…
Exports (as percent of GDP)
Middle East and North Africa (all countries)
47
42
32
27
22
17
12
7
Year
Non-oil Exports
Total Merchandise Exports
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
2
1980
percent
37
Labo r abundant reso urce po o r
Labo r abundant reso urce rich
M ENA
Labo r-impo rting scarce reso urce rich
Source: Staff estimates.
1999
1997
1995
1993
1991
1989
1987
1985
1983
1981
1979
140.0
120.0
100.0
80.0
60.0
40.0
20.0
0.0
1977
Trade to GDP ratio, constant
prices
Overall trade patterns have been similar despite
diversity among MENA countries
Needed: A new engine of growth based on trade
and private investment

The experience of the last two decades suggests that the
old model, driven by the public sector and supported by oil,
aid and remittances, is failing. A new model, based on
trade and private investment, is needed.

MENA has a huge potential for expanding trade. Exports
are one-third of potential. Foreign direct investment could
be five times larger than it is.

If only one-half of trade and FDI potential were realized, this
would be sufficient to raise GDP per capita growth to 4%
per annum from the present level of 1% or so. This could
generate 4 million additional jobs over the next five years.
Countries that trade more grow faster
Increase in Trade/GDP: 1970s to
1990s
Fast-integrating countries grow
faster, 1990s
6
Percentage change
10 0
80
60
40
20
0
-20
-40
NonIntegrators
Rich
Countries
Fast
Integrators
Per capita GDP growth (PPP)
12 0
5
4
3
2
1
0
-1
-2
Nonintegrators
Rich countries
Source: Dollar (2002)
Fast
integrators
Trade and industrial jobs go hand-in-hand:
Morocco earlier and Mexico post-NAFTA
Persons (OOO)
Employment in manufacturing and manufacturing exports/GDP
3.3
2.7
1.8
Employment in
manufacturing
(Left axis)
3.1
2.9
4200
Percent
(% of Working age population)
1.6
1.2
1996
1995
1994
1993
0
1992
1.5
1991
0.2
1990
1.7
1989
0.4
1988
1.9
1987
0.6
1986
2.1
1985
0.8
1984
2.3
1983
1
1982
2.5
1981
4000
600000
Exports of goods
(right axis)
500000
1.4
Exports in
manufacturing
(% of GDP) (Right axis)
1980
Millions Constant pesos (1995)
Source: Employment data are from Unido. Manufacturing exports are from WITS-UN. Working age population data are from WDI
World Bank.
3800
400000
3600
300000
3400
Employment
(left axis)
200000
3200
100000
3000
0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
Malaysia
Philippines
Thailand
Hungary
Mexico
Korea, Rep.
Costa Rica
PCNOXs = -134.3+ 0.19*GDPPPPPC - 0.54*PCNatRes - 74.7*Log(Pop)
Adj R2=0.60 Sample Size 42
Czech Republic
3.0
Slovak Republic
Ecuador
Jamaica
Chile
Bolivia
Mauritius
El Salvador
Bulgaria
Poland
Guatemala
Turkey
South Africa
Russian Federation
Brazil
Argentina
1.0
Colombia
Morocco
Jordan
Saudi Arabia
Tunisia
MNA10
Syrian Arab Republic
Lebanon
Egypt, Arab Rep.
2.5
Iran, Islamic Rep.
Algeria
Actual to predicted non-oil merchandise exports, per capita
US$
MENA under-trades:
non-oil exports are below the potential based on per
capita incomes, natural resources and population
3.5
High-performing
countries
2.0
1.5
Under-performing
countries
0.5
0.0
MENA under-trades:
non-oil exports ($34 billion) are far below those of other
country groupings of similar size.
Million US Dollars
250
200
150
100
50
0
MENA10
ECA5
EASIA3
LAC4
ECA-5: Czech Republic, Hungary, Poland, Russia,Turkey; EASIA-3: Indonesia,
Malaysia, Thailand; LAC-4: Bolivia, Chile, Mexico and Brazil; MENA10: Algeria, Egypt,
Iran, Jordan,Lebanon, Morocco, Syria, Tunisia, Yemen and Saudi Arabia.
Percentage of PPP GDP
Foreign investment is negligible compared to flows going to
other regions..
3
2.5
2
1.5
1
0.5
0
1981–85
1986–90
LAC4
ECA4
1991–95
ASE5
MENA
1996–00
5
Hig h- p er f o r mer s
4
F D I P C = 7 6 + 0 . 0 7 * N OXP C + 0 . 0 4 * N R XP C - 10 . 9 * L OG( P OP )
A d j R 2 =0 . 2 7 ; S a m p l e S i z e 4 2
3
2
1
U nd er - achiever s
Cameroon
Bangladesh
Ghana
Pakistan
Turkey
Cote d'Ivoire
Malaysia
South Africa
Russian Federation
Philippines
Guatemala
Mauritius
Korea, Rep.
India
Ecuador
Hungary
Costa Rica
Slovak Republic
Thailand
El Salvador
Colombia
Mexico
Bulgaria
Jamaica
Bolivia
Czech Republic
Poland
Chile
China
Brazil
Argentina
0
Algeria
Morocco
Iran, Islamic Rep.
Syrian Arab
Egypt, Arab Rep.
MNA10
Tunisia
Jordan
Lebanon
Saudi Arabia
Actual to predicted net FDI, per capita US$AAA
Foreign direct investment is below potential based
on openness, natural resources and population
Source: World Development Indicators.
Note: Regression is based on 42 countries; values for 2 low-income countries (Indonesia and Yemen) are not reported
because of negative values.
MENA in the global production chain:
parts and components production is a small fraction of
manufactured exports
Share of Parts and Compnents in All Manufactures
25
20
Percent
15
1988
2000
10
5
0
Egypt
Morocco
Tunisia
MENA
China
Malaysia
Korea
Impediments to greater trade and investment:

Some non-economic constraints are important: for
example, internal and external conflict

But domestic policies are important as well

These include: standard trade policies and sound
management of the exchange rate

But the key lesson that is emerging is that trade and
investment outcomes are critically determined by
investment climate considerations ….
MENA has experienced a relatively high frequency
of violent conflicts
Frequency of Conflict across Regions, 1945-99
NonViolent
Number of Conflicts
Violent
140
120
100
80
60
40
20
0
ECA
SAR
LAC
EAP
MENA
SSA
No t e: Dat a availab le b y co nf lict were map p ed t o st and ard Wo rld B ank reg io nal classif icat io n. EA P=East A sia
and Pacif ic; ECA = Euro p e and Cent ral A sia; LA C = Lat in A merica and t he Carib b ean; M ENA = M id d le East and
No rt h A f rica; SA R = So ut h A ria; SSA = Sub -Saharan A f rica. Fo r d ef init io n o f vio lent and no nvio lent co nf lict s
ref er t o ht t p :/ / www/ hiik.d e/ en/ ind ex_ e.ht m.
So urce: Heid elb erg Inst it ut e o f Int ernat io nal Co nf lict Research 2 0 0 3 .
Tariff and non-tariff barriers:
MENA is higher than many competitors
18
16
14
12
10
Tariff (simple average)
NTB Coverage
8
6
4
2
0
MENA
LMIC
EAP5
ECA4
Exchange rate policies have
constrained competitiveness
Mis-alignment in MENA was 22% in 1985-99,
compared to 10% for LAC, and 5% for East Asia
80.0
60.0
50.0
40.0
30.0
20.0
10.0
Bahrain
Kuwa it
Moroc co
Tunis ia
Jorda n
Algeria
-20.0
Egypt
-10.0
Iran
0.0
Sy ria
Misalignment, percent
70.0
Investment climate considerations
It is critical to go beyond trade reforms to improving the
investment climate because:
-employment gains come largely when export oriented
investment increases
-investment and exports are higher when
(a) the quality of services (e.g., transport, finance, power,
telecommunications) is better, and
(b) transactions costs (for customs, freight, business
registration etc.) are lower
Industrial employment and exports relationship in
countries with high foreign direct investment
Employment in industry after controling for factors other than non-oil merchandise
exports (as a ratio of total working-age population; in logarithm)
1.2
2
R = 0.4639
1
0.8
0.6
0.4
Developing countries
Large FDI recipients
0.2
0
0
10
20
30
40
50
Non-oil merchandise exports; in per cent of GDP
60
70
Industrial employment and exports relationship in
countries with low foreign direct investment
Employment in industry after controling for factors other than non-oil merchandise
exports (as a ratio of total working-age population; in logarithm)
0.4
0.3
Developing countries
Low FDI recipients
0.2
0.1
0
-0.1
2
R = 0.0044
-0.2
-0.3
-0.4
-0.5
0
5
10
15
20
25
30
Non-oil merchandise exports; in per cent of GDP
35
40
45
Where MENA stands in services liberalization
Telecommunications
Liberalisation index (average for each country group)
9
8
7
6
5
4
3
2
1
0
HIC
LAC
SA
EAP
ECA
SSA
MENA
Where MENA stands in services reforms:
Power sector
Regulatory reform indicator as of 1998 (maximum score - 6)
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
Latin America
and Caribbean
Source: World Bank staff.
South Asia
Eastern Europe
and Central Asia
East Asia and
Pacific
MENA
Sub Saharan
Africa
Selected transactions costs:
Business registration costs
Costs of Entry
80
70
Percent of GDP per capita
60
50
40
30
20
10
0
MENA
EAP5
ECA4
LAC4
MENA can raise its per capita growth to nearly 4% per
annum with higher trade, investment and productivity
Potential for faster GDP growth, accumulation and productivity from
trade and investment climate reforms in MENA, 2003–13 (percentage per
annum per worker, except when noted)
Physical Capital
MENA
EAST ASIA
SOUTH ASIA
OECD
WORLD
Human capital
Total factor
productivity
Growth of GDP
per labor (labor Growth of GDP
force weighted)
per capita
1990s
2003-13
1990s
2003-13
1990s
2003-13
1990s
-0.3
8.4
3.3
2.0
4.8
2.4
1.2
0.7
0.9
0.6
0.7
1.2
-0.2
3.2
0.9
0.4
1.6
1.4
0.7
7.0
2.7
1.6
3.9
2003-13 1990s 2003-13
3.0
1.4
7.1
3.2
2.1
4.7
Source: Staff Estimates
Note: All growth estimates by regions and world are labor force weighted.
1. GDP per-capita growth rates differ from GDP per labor growth rates because of differences between labor force and
population growth rates.
2. “..” means not projected.
4.3