Mena

This is provides a brief of regional economic integration in middle east and north Africa region.

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PROJECT REPORT ON
MENA
(MIDDLE EAST AND NORTH AFRICA)


SUBMITTED BY:
CHHAVI DUDEJA

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INTRODUCTION

MENA is a region encompassing approximately 22 countries in the Middle East and North Africa. The
MENA region accounts for approximately 6% of the world's population, 60% of the world's oil
reserves and 45% of the world's natural gas reserves. Due to the region's substantial petroleum and
natural gas reserves, MENA is an important source of global economic stability.
Many of the 12 OPEC nations are within the MENA region. While there is no standardized list of
which countries are included in the MENA region, the term typically includes the area from Morocco
in northwest Africa to Iran in southwest Asia and down to Sudan in Africa. The following countries
are typically included in MENA: Algeria, Bahrain, Djibouti, Egypt, Iran, Iraq, Israel, Jordan, Kuwait,
Lebanon, Libya, Malta, Morocco, Oman, Qatar, Saudi Arabia, Syria, Tunisia, United Arab Emirates,
West Bank and Gaza, and Yemen. Ethiopia and Sudan are sometimes included.

PROGRESS

Between 1995 and 2007, the share of MENA’s output traded has increased from 54 to 79 percent. The
Middle East and North Africa (MENA) region is today more open to the global economy than in the
early 1990s and the region has significantly increased its participation to the global economy. In 2010,
all but 5 MENA countries became members to the WTO.
Most countries have transitioned to greater rules-based trading system with lower tariff barriers;
Progress is also underway to foster regional cooperation. Tariffs have been reduced under the Pan-
Arab Free Trade Area (PAFTA), intra-regional tourism is growing, transport connectivity is improving
and, thanks to a number of ongoing regional projects, the prospect for regional energy trade good.
Still, compared to other regions, the MENA region is less globally and regionally integrated in terms
of trade, investment and capital flows – with the exception of oil – to reap the benefits of the current
wave of globalization. While there has been tariff liberalization under the PAFTA, non-tariff barriers
continue to impede regional integration. For most Arab countries, regional trade accounts for less than
10 percent of total trade. At less than 5 percent, the Maghreb countries have the lowest share of intra-
regional non-oil merchandise trade.
The cost of MENA’s relatively limited regional and global integration is large. According to many
studies, limited regional integration means 1-2% lower GDP growth. For a region that has a stock of
20 million unemployed men and women and a labor force that grows by 3.4% annually, the forgone
opportunity for job creation is large. Regional and global integration would go a long way in increasing
productivity and economic growth through economies of scale and enhanced country specialization
and thereby create jobs of the MENA youth.

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BRIEF OVERVIEW (SECTOR WISE)

Macroeconomic and household levels
Because MENA countries are highly exposed to global food price volatility, natural disasters,
increasing water scarcity, and conflicts, macroeconomic balances and people’s welfare are at a
constant risk of being impacted by these issues. Whereas the macro-level aspect involves key elements
of macroeconomic stability, economic growth, and governance, the micro-level aspect comprises
household access to food and assets and services needed to reach a healthy individual nutritional status.
Key sectors for improving food security are trade and infrastructure, water, agriculture, health and
education.

Trade and Infrastructure
Given the region’s high dependency on food imports and projected increases in food price volatility,
functioning international and national trade is crucial for food security in MENA countries. According
to two recent IFPRI publications concerning trade liberalization in MENA and the prevention of
recurring global food crises, solutions have to be found at international and national levels, including
improving existing trade regimes, domestic programs, and by bettering the design and management of
grain reserves.

Water and agriculture
MENA is the most water-constrained region in the world, and water scarcity is likely to worsen sharply
by 2050. Decreased water availability limits agricultural potential and leads to competition between
water use in agriculture (which uses up to 90 percent of all water), industrial use, and use for human
consumption. The Nile Basin, for example, is spread over 10 countries that are fraught with poverty,
and water allocation issues may increase instability and conflict in the future.

Health, education and nutrition
Improving health and education services, reforming social security systems from subsidies to targeted
transfer systems, fostering gender equality, and reducing population growth are key challenges for
improving food security in MENA. Child malnutrition is widespread in MENA countries. IFPRI
research in Yemen has shown that 59.4 of children aged 0-59 months were stunted, suggesting
potentially grave effects for the health and productivity of future generations. Social protection and
nutrition programs targeted to the food insecure and poor, such as food aid or school feeding programs,
are thus also crucial.

Emerging challenges: climate change and conflict resolution
Predicted warming in the MENA region, combined with the high likelihood of overall declines in
precipitation, makes the region particularly vulnerable to climate change. Projections also suggest that

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climate will cause world food prices to rise with negative effects on food security. For example, a
recent IFPRI publication for Syria shows that global and local effects of climate change are also
expected to have long term effects on economy-wide growth and the incomes of both rural and urban
households. Water scarcity may also exacerbate conflicts in a region that already exhibits the highest
number and intensity of conflicts in the world. Evidence shows that countries in political transition
(such as Egypt, Tunisia, and Libya) are often at the highest risk of entering conflict.

IMPROVEMENT AREAS

MENA needs to invent its own model of integration based on its circumstances and conditions, with
due account of two major developments in global trade over the last 20 years. The first development
is the rise of global production networks in which different stages of the production of a single good
occur at different locations based on comparative advantages. In the new world shaped by this
development, being competitive requires not just been able to produce at low cost but also to establish
a competitive supply and logistics chain, including transport, customs, communications and financial
services. The Middle East and North Africa Economic Development Department (MNSED) has a rich
program of analytical work, technical assistance and investment projects on these areas and is assisting
many MENA countries (e.g. Morocco, Tunisia, Libya and Egypt) enhance their trade facilitation
systems.

The emergence of China and India as major international trading powers is another global development
that has major implications for the MENA region. A World Bank regional report published in 2009
shows that these large and rapidly growing countries now represent important markets for MENA
exporters of fuels and commodities as well as for producers of specialty food products. At the same
time, low cost imports from Asia represent a challenge for import competing manufacturers, while
MENA consumers enjoy the benefit of enhanced purchasing power. And finally, the emergence of low
cost products and services from China and India raises the intensity of competition in third country
markets, forcing MENA exporters to reassess their strategies. The extent to which MENA countries
can cope with the challenges, and take advantage of the opportunities will have a significant impact
on their recovery from the global financial and economic crisis and, more generally, their development
prospects.
MNSED’s current trade program consists of analytical products, technical assistance and lending
projects. A large number of country-level studies cover the areas of tariff reform, trade facilitation and
export promotion. MNSED also provides technical assistance to strengthen capacity for trade policy
analysis and formulation such as its assistance to Morocco’s Ministry of Trade in building a
computable general equilibrium model for trade policy analysis. Regional trade activities focus on
regional studies to identify barriers to investment, collaboration with PAFTA Secretariat to identify
and remove non-tariff barriers and support regional integration, and regional offshoring opportunities.
Finally, the lending portfolio includes a comprehensive development policy loan and an export
development project for Tunisia and a possible competitiveness Development Policy Loan (DPL) for
Morocco.

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CURRENT SITUATION AND STATISTICS (LAST UPDATE)

The Middle East and North Africa (MENA) region is in turmoil. Syria, Iraq, Libya and Yemen are in
conflict, causing untold damage to human lives and physical infrastructure. Fifteen million people
have fled their homes, many to fragile or economically strapped countries such as Jordan, Lebanon,
Djibouti and Tunisia, giving rise to the biggest refugee crisis since World War II. The current turmoil
in Yemen has set that country’s development back several years. Blockades and repeated cycles of
violence have made Gaza’s unemployment rate the highest in the world and with Gross Domestic
Product at only 40 percent of its potential. Countries undergoing political transitions, such as Egypt,
Tunisia, Morocco and Jordan, are having to address security concerns over growth-promoting policies.
The relatively peaceful oil exporters, such as Algeria, Iran and the GCC, are grappling with low oil
prices alongside chronic youth unemployment and undiversified economies. On a positive note, the
political consensus around the constitution in Tunisia, and constitutions and legislation in Morocco,
Jordan and Egypt that give greater rights to women and protect freedom of expression and information,
indicate that citizens are increasingly engaging in policymaking.

Economic Outlook
Alongside disappointing global growth in the first two quarters of 2015 and the possibility that the
June forecast of 2.8 percent growth for the year may have to be revised downwards, economic
prospects in the Middle East and North Africa (MENA) region remain mixed. Growth in MENA is
expected to be about 2.9 percent in 2015, slightly higher than last year’s 2.6 percent, but considerably
below the 4-5 percent growth the region enjoyed from 2000-2010. The main reasons for the continued,
sluggish growth are: prolonged conflict and political instability in Syria, Iraq, Libya and Yemen;
terrorist incidents in places like Tunisia that hurt tourism; low oil prices that are dragging down growth
in oil exporters; and the slow pace of reforms that is standing in the way of a resumption of investment.
The continuation of sluggish growth will hurt the overall unemployment rate, now standing at 12
percent, and household earnings in the region. The group of oil exporters are estimated to grow by
around 2.7 percent in 2015 with growth stagnating in developing oil exporters, at 1.4 percent. The Gulf
countries could lose about US$215 billion in oil revenues, equivalent to 14% of their combined GDP,
in 2015. Growth for this sub-group is estimated at 3.2 in 2015, about half a percentage point lower
than last year. Fiscal deficits continue to mount, leaving the region with a deficit of 8.8 percent of
GDP in 2015, higher than last year, and following three years of surpluses.
The group of oil exporters are estimated to grow by around 2.7 percent in 2015 with growth stagnating
in developing oil exporters, at 1.4 percent. The Gulf countries could lose about US$215 billion in oil
revenues, equivalent to 14% of their combined GDP, in 2015. Growth for this sub-group is estimated
at 3.2 in 2015, about half a percentage point lower than last year. Fiscal deficits continue to mount,
leaving the region with a deficit of 8.8 percent of GDP in 2015, higher than last year, and following
three years of surpluses.
Growth in developing MENA countries will be about 2.3 percent in 2015. While low, this figure is a
full percentage point higher than the previous year, owing to better-than-expected growth in oil
importers-- estimated at 3.7 in 2015 and 2016.

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Among developing oil exporters, Iran’s economic prospects could improve following the nuclear deal
signed on July 14, 2015 and the potential lifting of sanctions. The eventual increase in Iran’s oil
exports could boost economic activity and accelerate growth to an estimated 5.8% in 2016.
For those countries already in conflict, Iraq, Libya, Yemen, and Syria, economic prospects are grim.
The ISIS insurgency and large military expenditures, not to mention low oil prices, have hit the Iraqi
economy hard. Growth is expected to be about 0.5 percent in 2015, following a contraction of 2.4
percent in 2014 due mainly to the decline in economic activity in the areas occupied by ISIS. Libya
may see a slight rebound of 2.9 percent growth in 2015, following a major contraction of the economy
over the last two years, as severe disruptions in the oil sector have interrupted oil exports, a major
source of government and external revenues, in addition to the impact of cheap oil.