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Early 1960s till mid 1980s: Nationalization of private assets, state planning, and industrial development by protecting local markets through overvaulting exchange rates that harmed the growth of tradable goods sector. Weak private sector that “living off the state.” often supplying protected domestic products, Also, wealth redistribution policies reduced demand for accountable public institutions, so nepotism or patronage determining who gets public services or access to business opportunities and who does not. 2. Mid 1980s till early 2000s: Start of social hardships, as oil prices collapsed in mid-1980s, Gov. Revenues felt, as a result Gov. Expenditures on social systems and physical capital accumulation shrank, and guaranteed employment in the public sector was no longer possible, also labor migration opportunities diminished. Lack of growth and budget deficit prompted undertaking macroeconomic stabilization, structural reform programs to encourage private sector as an engine for growth and employment creation. Reforms include tax reforms, privatization, exchange rate liberalization, trade and financial liberalization. The reform avoided most governance reform or opening of the political space. As a result, the reform effort didn’t improve investment climate, and the recovery in growth over the 1990s was weak. AC missed out the trends of global trade integration; Arab trade is marked by both a high degree of product as well as geographic concentration. Although the share of fuels in total exports has fallen, fuels still constitute the most significant exports for the region. 3. Early 2000s till now: Back on track for growth, several exogenous shocks including food, financial, Arab spring shocks. Similarities and Differences between Arab Countries: Differences: size, geography, level of income, natural and human resources, economic and social structures, economic policies and institutions. Similarities: Language, religion, water problem, climate, Oil provided the basis for rapid economic development throughout the region – not only for oil-producing economies but also for resource-poor economies, through labor remittances, aid flows. Almost all AC adopted since the 1960s models of development based upon state-led planning, with social policies designed for redistribution and equity. The development challenges facing the Arab countries today are also similar: a) stagnant growth since the decline in oil prices, all have been affected by regional conflicts and instability, either directly or through association through deterring investment. B) Increasing unemployment as a result of shrinking labor migration and public sector employment and a rapidly expanding labor force.
Job creation and labor markets in the Arab region Labor market in Arab labor exporting countries can be classified into: a) Rural sector (consists of a sizable portion of labor force); b) Formal urban sector (public & private); Civil service employment as a proportion of total employment is the highest in the world (17.5% in mid 1990s), concentrated in administration not health and education c) A large informal urban sector (mostly self-employment, high degree of wage flexibility, low employment security, no enforcement of labor regulations), it accounts for a large fraction of labor force ranging from 42% of non-agricultural employment in Syria to 55% in Egypt. Unemployment: Reasons: With the unemployment rate increasing since the mid-1980s, unemployment now averages over 15% of the labor force, by official figures; actual unemployment is probably much higher. Demographic curse or gift: 2/3 of the population is under the age of 30 (1/3 in Europe), making it the second youngest region of the world behind Sub-Saharan Africa. The Arab youth is increasingly educated, with higher expectations than the generation before, as average level of education of increasing from less than a year in 1960 to more than 3 years in 1985. High population growth due to high fertility rates led to extremely high growth rates of labor force which exceeded the equivalent in all other regions (remains above 3% compared to 2.4% in East Asia), by 2020, the labor force in the AC will have expanded by 75%, i.e., 75 million new jobs will need to be created, just to absorb the growing labor force. First-time job seekers comprise 90% of all unemployed in Egypt, and 50% in Jordan and Morocco. While Arab women have the lowest labor force participation rates in the world, their engagement in the labor force has grown considerably. Unemployment rates average 30% higher for women than their male counterparts. This gender gap is great in Bahrain, Syria, and Saudi Arabia. Worker productivity, the basis for real wage growth, has increased marginally remaining far below that in East Asia and Latin America. Also, Real wages based on TFP in most AC have correlated with the oil boom/bust cycle, generally downward, particularly in Egypt, Jordan, and Algeria. Open and disguised unemployment is pervasive ranging from 25 to 60% in some countries, because of rigidities in educational systems, wage setting, and regulatory regimes due to public sector dominance. In general, the rates of return to education in the region range from a high of almost 15 % for primary school completion among females in the private sector in Jordan, to a low of -11% for lower secondary school completion among females in private sector in Egypt. In some countries the problem is structural in nature, acquiring more education increases the probability of unemployment, In Egypt, those with secondary education or higher make up for 40% of labor force and account for 80% of unemployed.
Good governance mechanisms are first steps in improving economic policies that are themselves instruments for improving the climate and incentives for efficient growth. and capacities for more accountable and inclusive public institutions while fostering a larger role for civil society. The relationship between openness and TFP is positive. their importation increases the wage premium paid to skilled labor in the trade-related activities Weak institutional framework and governance infrastructure: Governance challenge is to strengthen the incentives. thus low productivity. Third. Second. a slow rate of industrialization rigid labor regulations. and promotion based on seniority rather than performance Reasons behind the failure to realize high returns include: emphasis on access and not quality. Education qualitative deficiencies have resulted from overly centralized management. to ensure effective functioning in the public interest. traded goods are usually of higher skill content than those produced and consumed at home. weak private sector development (doing business barriers and focus on nonproductive services). Organizational Quality 144. through increasing the capacity and independence of the legislative and judicial branches. particularly for women. Administration Efficiency 132. Accountability is creating mechanisms and incentives within Gov. public employment strategies. Inclusiveness is to adopt laws and regulations that secure access to social services and access to basic rights and freedoms. since they must compete with foreign suppliers. as outward-oriented economies experience higher TFP. Governance Indicators 96-08: (Accountability Participation 176/220. the contact of trade—the trading technology itself—is skill-intensive. major in humanities and literature rather than math and science. and low returns to education lead to low investment in education. mechanisms. Pol. weak SMEs development.Education trap: Low productivity leads to low returns to education. Stability 144. lack of openness. failure to acquire knowledge. due to: First. and so on. the exposure to the foreign markets brings superior technologies. including participation and equality. Rule of Law 126) . little assessment of performance. Anticorruption Policies 128.
when a large share of population is non-working. economically dependent. . Cultural. increasing savings and investment. and industrial development by protecting local markets. aid flows. and increase GDP per capita growth (Asian case in 1970s and 1980s). state planning. social. Conversely. urban crowding. under the age of 15 or above 65. and West Bank and Gaza being major emigrating countries whereas Tunisia. economy carries demographic burden that lowers labor input per capita. The oil boom: Oil provided the basis for rapid economic development throughout the region – not only for oil-producing economies but also for resource-poor economies. Are demographic changes a gift or a curse? Depends on the age structure: what matters for economic growth is not the population growth rate per se. and Lebanon see transition to an aging labor force.” wealth redistribution policies reduced demand for accountable public institutions. Spending. and can be transformed to immigrating countries) Food self-sufficiency decreased Main causes behind Demographic change: The old development model: Nationalization of private assets.Demographic changes in Arab region Main features and consequences of demographic change: High population growth (highest in the world after Sub Saharan Africa) (increasing by 80% between 2005 and 2050) Increasing rate of labor force (doubling between 2005 and 2050) Urbanization & Rural-urban migration: as Shultz warn that “rapid population growth will affect negatively future development in low income countries including AC through: Gov. Weak private sector that “living off the state. and promote working for the Government ()إن ﻓﺎﺗﻚ اﻟﻤﯿﺮي اﺗﻤﺮﻣﻎ ﻓﻲ ﺗﺮاﺑﮫ Potential migration opportunities: either to Gulf countries after the oil boom working in construction sector or to Europe and US and Canada. and religious reasons that prohibit (birth control). countries are endowed by demographic gift when a large share of population is economically active between 15/65. but rather the changing age structure of population as countries pass through demographic transition (the process of moving from pre-industrial conditions of high fertility and high mortality to the postindustrial conditions of low fertility and low mortality: the case of high performing Asian countries) Thus. Yemen. better education. and agricultural productivity” Outside migration (situation can differ with countries as Iraq. through labor remittances. thereby raising labor input per capita. reduce savings and investment. Algeria. and reduces GDP per capita growth (Asian case in 1950s and 1960s).
A potential problem of aging population in the future. but unfortunately the general trend of Agriculture sector in most AC is declining (Agriculture share of GDP and Agriculture share of employment) and although construction sector produces jobs but mainly for low skill workers and it is very vulnerable to shocks. the rising working-age population in the 1990s compounded the problem of high unemployment rates. however the dependent population grow by 2. The Current situation: In absence of well-functioning labor markets and steady output growth. with low (0.9% in the period of 1965/1990.4%.05%) net demographic impact.MENA’s economically active population grow by 2. Depends on policies adopted: the famous economist Thomas sowell argues that “unemployment and poverty are caused by bad Gov. Depends on labor market policies: End of public sector employment/ weak private sector growth and the mismatch between the educational system supply and labor market demand/ few emigration opportunities to Gulf or to Europe/ absence or weak regional labor mobility. Depends on expansion of specific economic sectors and related employment opportunities: most AC are not diversified as most of them are oil or/and gas dominated and this sector is capital intensive meaning that its’ expansion generates lower employment opportunities. Policies not by overpopulation”. . where sectors like construction and agriculture are labor intensive. but even if we disagree with his point of view and see population growth as a curse in we’ll find that most AC failed to have a unified continuous program for reproductive health and family planning so that they can control the high levels of fertility although the mortality levels have declined sharply due to the advancement of medicine.
but the non-binding character of the instrument don’t provide actual free labor mobility. substitution of other non-Arab nationalities.g.Migration in Arab countries Causes behind migration: Supply related factors: high population pressure. some villages migrate as a whole to Gulf or Europe. friends. network effects (family. economic. low returns on education. there is no single regime governing labor mobility in AC as there are agreements on the regional. Bilateral agreements recognized the existence of large labor movements and the need to regulate them. political. colonial relationships (Marcela is an Arab city inside France). only provides free mutual treatment for merchandise goods. and no mention for factors of production. For example GAFTA as a regional agreement. political relations) . subject to political tensions. Scandinavian countries. Most of them are not binding. cultural ties (e. and Algerians migrate to France). geographical proximity which lower transaction costs (Egyptians migrate either to Libya or to Italy. Conventions under Arab Labor Organization ALO. What are the factors that have promoted and what are the causes that have hindered labor mobility from the Arab region to both EU and Gulf (education. scarcity of job opportunities. e. but don’t provide for the complete freedom or liberalization. some Muslims prefer to migrate to Gulf rather than Europe just to be in A Muslim country to bring their children on Islam values. services not included. as it is just concerned with migrant contracts their social security rights and old age benefits related to pension payments. after that they return they invest their money in real-state and other activities raising inflation rate) and political reasons (the case of Egypt and Tunisia) Demand related factors: Generosity of social protection could affect choice of destination countries.g. GCC as a sub-regional arrangement. facilitate the movement of national labor between member countries. give the priority to nationals and then the preference to Arab workers through gradually substitute Arab for foreign labor when qualifications are equal. but the clear shortage of labor supply of GCC as a whole reduce the effectiveness of this decision. and neighbors) Models of migration in AC: Arab region is one of the most active regions in terms of migration (in terms of sending and receiving) South-North (highly educated personals mainly to Europe on a permanent base) South-South (low and intermediate skilled workers mainly to Gulf and on a temporarily base) Status of labor mobility in the Arab region: In contrast to EU. cultural) Factors affecting the future of migration policies (nationalization policies of Gulf. high poverty levels. and bilateral levels. demonstration effect (in rural Egypt. sub-regional.
Slow Arab out-migration if the demand is less than the supply of the nationals and if the required skills are not matched by national workers but is matched by Arabs and Asians. namely. Demographically. large no of nationals entering the labor market each year. c) lower national savings. rather than Asians. it is not difficult to replace nationals by Arabs and Asians. Supply of nationals: This includes wages. b) higher Gov. GCC have biased structure toward non-traded goods sectors compared to the traded goods sectors. This is Similar to the present stage. the lack of international exposure. ii) rise in education levels.. High open Unemployment of Nationals in GCC. These two factors combined reveal a fundamental weakness. so. the lesser the demand for foreigners. GCC governments induces private sector to increase nationals’ employment using positive financial incentives. both Arabs and non-Arabs alike. . the greater the no of nationals entrants in the LF. 2. Economy’s capacity to generate jobs: Not only is the overall growth. Moderate Arab in-migration will take place if the demand is greater than the supply of national manpower and the required skills are better matched by Asian workers. Female participation is expected to rise due to: i) reduced fertility rates.Determinants of Future Arab Labor Migration Trends 1. the share of the national labor force in the population will increase. Greater Arab in-migration will occur if the demand is greater than the supply of national manpower and if Arab workers. Asians would do likewise because they are less expensive and more skilled in maintenance and high-tech occupations. as the GCC region has greatly improved educational efficiency. the growth of the manufacturing sector has been quite modest. d) higher military spending. Nationals can replace Arab workers in jobs where language requirements are readily met (e. wages bills. iv) greater social recognition. teachers.g. causing frequent budget deficits which rendered the policy of hiring all nationals in the governmental sector The private sector could not act as a ‘swing’ employer by picking up the slack because a) nationals were reluctant to join it. productivity and degree of commitment. and b) employers were reluctant to hire them (higher wages and inadequate skills) A substitution strategy of foreigners with nationals is more feasible now. clerks and management). if they seek employment they will also crowd out male Arab workers since there are very few female Arabs working in the GCC. The wage differential between Arabs and Asians is marginalized due to the language/experience requirement. iii)uncertainty and need to additional incomes. spending on development projects versus goods and services. training and re-tooling programs. but also the pattern of growth. match the required skills. Oil price instability. Moderate to substantial Arab out-migration if the demand is less than the supply of nationals and if national workers rather than Arabs match the required skills. journalists. Indicators for negative growth trends: a) lower Gov.
MED non-mineral exports as share of GDP have remained stagnant. provide a mere 1% of total EU non-mineral imports. CEE have a higher per capita income than the MED countries and. meaning higher transition costs of trade liberalization. opening the borders for workers outside the EU will put upward pressure on the already high unemployment rates or/and reduce real wages. FDI has fluctuated significantly over time and has concentrated on infrastructure sectors. then more convergence in real wages. following improved living conditions at home are likely to dampen the tendency to migration. Labor mobility at present is neither included in the partnership. continued flows of illegal migrants. Spain) and Turkey (Germany). 5. Demographic developments in the EU (more aging population and possible decrease in worker/tax payer ratio) would imply that increased migration would be highly desirable. Revenues in most of AC. and among whom unemployment rates are higher. . high fertility rates. the agreement is a mean for gradually allowing EU manufacturing products to enter the MED markets for free. Italy. will accommodate workers from the accession countries in the CEE. nor on the agenda for negotiations. 2.The Partnership between the EU and the Southern Mediterranean countries The Partnership between the EU and the Southern Mediterranean countries was launched with the Barcelona Conference in 1995. From the perspective of replacement migration. The Partnership doesn’t support growth enhancing structural reforms that are complementary to trade liberalization. GDP/worker and GDP/capita. In the same time the agreement offers financial and technical assistance which may reduce the transaction costs if it is well utilized. Since manufactured products from MED already have access to EU market. if opening up. Advantages & Disadvantages of EU-MED Partnership: 1. the CEE countries have already its lion share of migration in the start 1990s. under the prevailing pay-as-yougo social security system. 4. 3. especially from Maghreb region (to France. to gradually establish a free trade area for industrial goods. rather than non-member countries. Can the Barcelona framework be modified to count for migration? Defenders against establishing program of managed migration between MED to EU: From the EU perspective. Also. the EU. that means loss of customs revenues which represent a large proportion of Gov. Poor reputation of Arab migrants: previous large waves of migrants. Defenders for establishing program of managed migration between MED to EU: Migration serves to take off pressure on the labor markets in MED and provide much needed work force in the EU countries.
as well as (remittances). The propensity to invest is larger than for non-migrant households. the lack of opportunities is pushing highly skilled labor to other regions such as US. thereby reducing the incentives for migration in the rich countries. . Absence of crisis.While the geographical proximity to the EU area will induce out migration it will also facilitate return migration. However. and inflation rates. it would relieve socio-economic-political pressures in MED countries (especially in labor markets). Canada. Return migration is ruled by “push” factors . and often worsened poverty levels has rendered a tense social climate. may instead delay them by financing an inefficient economic structure. a study of the use of international remittances by households in rural Egypt showed that. The scope and speed of structural reforms (tariff rates. tax rates. 4. PPP distortions and privatization revenues) were limited. 1.worsening labor market climate in host countries – but also by “pull” factors –increasing attractiveness of the home country investment climate Reasons behind lack of reform in Arab countries: While MED countries have succeeded in maintaining macroeconomic stability that comprises fiscal and current account balances. if production is polarized and if migration previously has been repressed by financial constraints. Such remittances (savings) used for investment which translated directly into growth since they tend to be used for productive investment. or Australia. Political Uncertainty. the combination of low growth. It would create an immediate constituency which benefits from the partnership now. In the same time. . circular migration. Political and social environment. Managed migration to the EU (e. readmission and other agreements signed between Morocco and Italy and Egypt and Italy). including labor. network connections. Also. increasing unemployment rates. 1. A substantial share of migrant incomes is spent on investment. Theoretically. as well as the up-front financial assistance which was intended to ease the implementation of reforms. For example. has a negative impact on investment decisions in AC.g.availability of oil revenues and foreign aid “easy money” reduced the incentive to foster economic reforms. economic convergence. 2. Although it is limited in size. Return migrants often bring back skills. 2. factor endowment theory suggests that trade in goods is indirectly trade in factors. increased trade is expected to lead to higher growth in poorer countries. exchange rate black market premium. trade liberalization between rich and poor countries may initially result in increased pressures for migration. so this would smooth the impact of the transition costs of trade liberalization (a double smoothing mechanism) 3.
less hospitable investment environments. However it is believed that trade in services among AC has flourished because it was left deregulated and that any attempts that would have been undertaken to regulate such type of trade would have impeded it. lack of compensation mechanisms to losers from trade reform. high tariff protection (EU diversified tariff structures converged and moved to a common structure whereas the tariff structures in AC have diverted from each other over time). however in EU differences confined to a maximum). higher transaction costs. both use economic cooperation as a mechanism for integration. and firms have access to the latest technologies.Trade policy practices in Arab countries Shallow integration (involves only policy reforms applied at national borders) deep integration (involves “behind the border” reforms). resulting in limited intraregional trade compared with that of other regions. and lack of consensus on choosing one or more states to act as regional leader. ideology of import substitution. vague regulations related to rules of origin. which includes: abuse of technical barriers to trade (TBT) and of sanitary and phytosanitary measures. On the political front. High similarity in production and exports structure. concerns over distribution of gains from integration across and within countries. and it eliminates needless transaction costs. Gains are highest if both reform agendas are pursued. income disparities (UAE GDP per capita is 100 that of Sudan and Yemen. GAFTA is a shallow preferential trade agreement as it didn’t remove nontariff barriers. mismatch between exports and imports of AC (lack of complementarity). and customs procedures. national sovereignty. On the institutional front. materials are obtained from the least costly suppliers. Status of Arab trade integration: Intraregional exports fluctuated around less than 10% of total Arab world exports (18% without oil exports) whereas in the EU it reached 60%. also it’s limited to trade in merchandise while services and investment are excluded. rather than as a series of separate steps. On the economic front. reforming the service sector affects the economy as a whole. vagueness of rules governing trade at the borders. and were never fully implemented. But. and restrictive barriers to entry limited intraregional investment. Trade liberalization aligns domestic and world prices. proximity was another common factor. There was strong political backing for integration and a central executive body (European Commission) to manage the process and push it forward. Both the EU and AEI experiments were politically motivated. Some advocates that absence of the right institutions is the main impediment to intra-regional trade. and price alignment ensures that investments are allocated efficiently. the lack of adequate transport means arising from lack of demand on transport modes.Inability to attain a positive net cost-benefit balance between political gains & economic costs. Why Past Attempts at Arab Economic Integration AEI Failed? . . that decrease transport means (a vicious circle of weak transport policy). EU project was seen as a whole and as a process. it removes high barriers to entry for both domestic and foreign firms.Most of Arab regional trade agreements have not been effective. shortage of commitment institutions. not just the external sector. there are 2 scheduled flights per week from Cairo to Casablanca whereas there exist at least 2 scheduled flights per day between Cairo and different parts of Germany. .
. Moreover. using economic tools. Hence. On the other hand. Churchill also Conrad Adenaur promoted to the idea of “United States of Europe” in the 1940s. like European Commission and the European Court of Justice. 1) The existence of supranational strong institutions which are able to secure well-functioning agreement is a necessary condition for the success of integration. Moreover. backed by strong commitment. 3) The pragmatic approach handling the different positions of the advocates of federalism and those of inter-governmentalism. of the Court of Justice. for example. An Arab organization similar to the European Commission should be established where it enjoys this supranational authority and has the power to impose its decisions on the governments. but also a political vision supported by a group of public figures. There was a balance between economic losses and political benefits at all stages of European integration. Management of the integration process” requires not only competent human capacity at the administrative level. At the end EU experience is not unique. The start of both EU and AEI was a reaction to a political threat. 2) The adoption of political aims. where in the case of the AC it was a reaction to a threat from outside (Israel) while in the case of the EU it was a reaction to a threat from inside (avoiding another Nazi Germany and wars between France and Germany) AC continued adopting intergovernmental approach whereas EU shifted to the federal track by creating supranational authorities. whereas the EU focused on political aims using trade as a means rather than as an end. AC concentrated on trade integration as an end. at least at this stage of integration because of the lack of professionals and judges. we advocate the necessity of establishing an Arab Parliament (even if some Arab countries do not have one) as long as the members represent themselves and not their countries (the same as the European Parliament). they further strengthen the autonomy of national governments vis-à-vis domestic groups by relating the reasons for reforms to having to adopt common policies. we do not advocate the adoption.Lessons to be learned from EU: The intended political goal largely contributed to the success of the EU. federal institutions have the advantages of collective bargaining vis-à-vis third countries.
The flexible nature of the GATS which does not impose the necessity of binding commitments even though sectors are liberalized. The date of making commitments which date back to 1994 (with the exception of telecommunications and financial services) where a number of countries have liberalized their services sectors on unilateral basis which was not necessarily reflected in their GATS commitments.Challenges of Services Liberalization in the Arab Countries On the macro level. As developed countries lost comparative advantage in traditional goods (e. trade in goods has so far failed to play the role as an engine for growth and integration among AC. commercial services) has surpassed its’ counterpart of merchandise exports. 2.g. Also growth rate of services exports (e. During the Uruguay Round. textiles. . this approach has been adopted in North America Free Trade Area. when compared to agriculture and manufacturing to be the largest employer and contributor to GDP. Saudi Arabia. Moreover. as intra-regional trade remained at a low 11% in 2007 and rising to 17% after excluding oil. like travel and transport services in Egypt. Positive list ensures additional flexibility whereas negative list ensure more transparency and wider inclusion of sectors. Approaches for liberalizing services in PTAs. Mapping of Services Liberalization in the Arab World: On the one hand. Change in the belief about the role of liberalization of trade in services: 1. services constitute a large share of GDP in almost all AC where the regional average has surpassed the 50%. agriculture and processed food) they were pushed to investigate the possibility of new (services and intellectual property rights areas) where they can exercise their comparative advantage. as services count on average for 10-20 of the total production costs.g. to include a larger no of commitments. which means that export led strategy has failed to achieve its expected developmental goals. not faced by original GATT members. Positive list (bottom-up) approach implies that countries liberalize all sectors and list only the sectors or sub sectors that are not liberalized. The case of newly acceding countries is different where the accession process to WTO had placed pressure on them. services share as % of GDP has been increasing in developing and developed countries where on average it has reached 70% in developed countries and 35% in developing ones. Indirect channels: its’ role in enhancing the efficiency of production in manufacturing and agriculture. Bahrain and Yemen. On the other hand. Positive list (bottom-up) approach is the GATS style approach where countries list only the sectors or sub sectors in which they have made commitments. ACs enjoy a revealed comparative advantage RCA in a wide array of services. developed countries agreed to liberalize further their agriculture and textiles markets with a payoff in the form of opening up the services sector and strengthening the intellectual property protection systems. That is why efficient service sector is becoming a cornerstone of any developmental process through: Direct channels: its’ ability.
Challenges Associated with Services Liberalization (vip) 1. PTAs have been successful in facilitating highly skilled and those affiliated with intra-corporate transferees’ movements and it was not much successful in facilitating temporary movement of less skilled workers.g. On the other hand.g. but they have suffered from this aspect from their trading partners. Regarding services commitments in the context of GATS. The government procurement: AC should open up their Gov. with Jordan and KSA in the top rank.g. Finally. investment chapters). weak or ineffective regulation. sectorial exemptions or adoption of negative list) Prerequisites for services liberalization: The design of PTAs is necessarily to achieve the expected results. Bahrain. Regional trade in services should act as the engine for growth and integration among AC. within context of Doha round there was significant liberalization in some countries. independent professionals. whereas others have provided some regulated mobility with detailed special procedures. .g. However. and Oman. and contractual service suppliers) None of the ACs have included GATS minus commitments in their PTAs. Opening up government procurement could result in displacement of national service providers which could have a negative impact on employment. that the existing economic and cultural conditions (prior to undertaking liberalization) affect the impact of liberalization. and that the reforms undertaken need to be accompanied by other regulatory reforms (not necessarily trade related). Even in the most sensitive sectors. Because of EXTERNAL PRESSURE liberalization can occur without yielding benefits due to factors like hinder-ness of competition. they do not add much to the framework governing rules in the GATS (e. AC engaged with the US in PTAs have undertaken commitments. and energy services. Morocco in its PTA with the US included new categories (e. they could have had different approaches in terms of scheduling modalities and specific commitments (e. while preserving specific thresholds to protect small domestic enterprises. subsidies or safeguard rules). by including new sub-sectors or deepening the extent of liberalization in the already liberalized sectors. Yet.That is why. and finally others have provided for facilitating existing mobility only. especially that capital and labor movements (the two main devices of services trade) are more mobile and integrated. in such PTAs those are GATS plus there was scheduling flexibility available such as (reservations for existing nonconforming measures and for future measures) MODE 4: labor mobility in PTAs: Some have provided a high degree of free movement with few specific procedures. it could result in more efficient ways and cost reduction impacts. Arab PTAs features: they are usually incorporated in comprehensive PTAs involving many aspects besides trade in goods (e. But taking into account the “depth of liberalization measured by no of restrictions on market access and national treatment” countries like Egypt and Morocco will hold the top positions. like US PTAs with Morocco. audiovisual. AC varied significantly in terms of the no of commitments made. and absence of meaningful access policy. Procurement sectors for each other at least in the promising sectors as construction. as well as the differences in the RCA in services enjoyed by AC. In general. mainly due to their late accession process. which has not been the general case in WTO. as air transport.
while it follows positive list approach in the Arab Regional Services Agreement and the Association Agreements with the EU. financial sector). The benefit arising from regulatory reform and cooperation depends on how standards and regulations are set (responding to the degree of development). and Syria) which are likely to face extra demands from WTO members to open up their service sectors regardless of their level of development and the status of their service sectors. the US PTA with Jordan. Morocco. governments may encourage at least recognition of each other regulatory practices. Regulatory and Administrative Reform: The differences in regulatory measures across countries imply a de facto discrimination even though services are liberalized. To minimize this risk. Yemen. Yet. also have a significant administrative cost. 2.g. Arab regional liberalization is a fact. The second is related to the pressures exerted by large trading partners when negotiating PTAs with the AC (e. Sudan. AC might not be aware when signing BITs that such preferences should be extended to all trading partners as depicted by the GATS. and Bahrain) where the same type of demands for opening up several new sectors/commitments which far exceeded their commitments in the GATS. .This is likely to be the case with AC in two contexts: the first is related to countries in accession (e. Federal and provincial tensions may further compound. Specific Issues Related to Services Liberalization due to PTAs: a) There is no tariff revenue loss. not only lacks negotiators. This is reflected in the nature of services trade policy which is often led by the ministry of trade whereas actual implementation lies with sectorial ministries (telecommunications. not option.. Lack of coordination can entail regulatory problems. and the general regulatory environment. Lack of Government Capacity Capable of Dealing with Services Issues: AC.g. 3. Investment and Labor Agreements: the existence of several bilateral and regional agreements like Bilateral Investment Treaties (BITs) and bilateral labor agreement (between Egypt and Italy for example) that deal with Modes 3 and 4 often entail commitments that overlap with GATS or PTAs’. i. Morocco’s case: as it follows negative list approach with the US PTA. Oman. Different Rules under Different PTAs: the overlapping membership can result in a complex web of rules for the purposes of administering and enforcing provisions which can raise barriers to trade against third countries or even against members of other PTAs. regulatory reforms follows liberalization can result in price increases or prevalence of anti-competitive behavior.e. inclusion of non-party MFN) could result in a spaghetti bowl if rules and regulations are not coordinated and managed in a proper manner by the concerned government. and add additional coordination problems. Thus. but also lacks of government officials and tools able to allow Arab governments to understand the dynamics and interaction of services. with few exceptions. overlapping regulations arising from the different approaches applied in PTAs (negative versus positive lists. 4. and hence no related trade diversion expected from liberalization of trade in services that is why any move towards services liberalization (even if on regional basis) will be welfare improving. b) Large no of AC are already engaged in regional liberalization of services either at the negotiating phase with EU or at the implementation phase with the US. enforced. 5.
as South-South PTAs. h) PTAs could encourage liberalization at the multilateral level (since the pain was already undertaken). Second. services providers prefer to operate on regional and not on domestic or multilateral level. this explains part of the reluctance of AC to negotiate PTAs. First. Exposure to competition first in a sheltered regional market may help firms prepare for global competition.g. subsidies and safe guard mechanisms) and the uncertainty caused by such incomplete structure forces countries to adopt a regional more cautious approach in terms of liberalization. f) Regional liberalization of trade in services has positive spill-over effects on regional liberalization in merchandise trade. perhaps even more than for goods. in particular. "services liberalization.c) Arab PTAs covering services can be looked at as infant-industry argument. with including services. infeasibility due to the prolongation of negotiations.g. and it could create vested interests that resist multilateral or other regional liberalization. Challenges associated with liberalization of trade in services on a regional level: a) The need to make PTAs commitments consistent with domestic policy. g) The incompleteness of the GATS structure (e. electricity. is less about trade negotiations and more about good domestic policy reforms" . the give and take process is widened and prospects for gaining from services even if there are losses on the goods side are better. d) Optimal degree of regulation: due to the economies of scale. on average 30% of goods production is related to services. as well as a number of production services (e. a large component of goods is services. This is evident in some infrastructure related services (e. water). domestic regulations.g. telecommunications). can be seen as a form of gradual liberalization. which is not the case of regional liberalization. e) As the case in goods. liberalization at the multilateral level involves the presence of free riders and.
As horizontal policies are applied across the board. for this reason. Coordination problems of either upstream or downstream investments: may hinder development of otherwise competitive industries. making industrial policies complex. 2. most countries maintain something of a “halfway house” between free-market and vertical interventions. providing greater benefits to energy-intensive (or energy-inefficient) firms. and then they can attain production efficiency. This argument has been used in the development of export promotion agencies in the Tunisian and Moroccan textile sectors. there is a potential for interest groups to sway policy in their direction and utilize it for personal gain. In addition to possibly “getting it wrong. Horizontal policies: interventions that are applied across all sectors of the economy include promoting education. vocational training. they can promote efficiency and competition among all firms. Over time. because of collective action and interest groups. horizontal policies reduce the problem of state capture and government failure. makes selective interventions of one sector or firm. In Egypt. Political Economy of Industrial Policy: Despite criticism to the selective policy interventions. rather than giving a privilege to some groups. protection is warranted for newly-established firms and industries with higher production costs than competitors. Evident example is the orchid industry in Taiwan. Vertical policies: Interventions that are differentially applied across sectors of the economy by targeting the economic output of specific industries and even firms. 3. however. . the domestic industry will never take off. Incentives and policies can also be used to compensate and correct government failures. new domestic producers can reduce costs by learning by doing. in Iran). and R&D. building efficient public infrastructure. Without the initial protection. Attempting to deal with these government failures yields more selective policies. the argument has been used to support investments in water/irrigation sector to support agriculture. technology transfers.” vertical policy is subject to two damaging side effects: rent seeking and corruption. 1. Also. Information externalities: that may restrict a country’s capacity to determine which activities have costs low enough to be profitable. Infant industry argument: based on comparative advantage claims. it adjusts more easily to changing market conditions since its benefits are not captured by special groups. provides across-the-board energy subsidies (e. it impacts firms differently. However. where orchid growers asked investment in greenhouses which had high fixed costs and were unlikely to be undertaken by the private sector. Vertical versus horizontal policies: (countries primarily adopt vertical rather than horizontal policies) Industrial policy is justified by market failures that generate sub-optimal outcomes in resource allocation. industries and sectors in the economy..g. it is a “horizontal” policy. Wherever the Gov.Political Economy of Industrial Policy in Arab countries Industrial policies: Are any policies or interventions which influence how industries expand. selective government interventions may be required as a mean of determining a country’s areas of cost advantage. Finally. If Gov. They also tend to reduce rent-seeking incentives as well as limit corruption opportunities and increase transparency by eliminating the need for backroom politics and promote social participation.
usually covered directly from the budget or from the banking system. 4. The role of oil wealth—in both oil-producing and oil-related revenues economies— underwrote the public sector as a vehicle for redistribution through employment.” Do Arab countries enjoy a "policy space" for shaping an effective industrial policy? The use of vertical industrial policy diminished in AC (due to adopting macroeconomic stabilization and structural reform programs. these mechanisms led to an industrial policy that was bound to be sectorial/vertical and highly preferential. But. which lobby for horizontal policies. the competitive industrial export sector. The lack of power among interest groups. due to: The results of industrial policy have not been “bad enough. for example. thus creating an environment of “winners” and “losers.1. Resources of the banking system were directly allocated to selected activities with quota allocations by sectors and preferential access by public enterprises. as a result. that may decrease the crowding out effect. trade and agriculture in the early 1960s increased the scale of public sector and reduced the role of the private sector. private sector activity is concentrated in a small no of large firms that have benefited from protective policies. liberalizing financial institutions. but with less extent compared with other regions. because of protection. The choice of price controls and subsidies as a predominant mode of regulation based on the need to protect the poor and pursue a social agenda of redistribution. Trade unions. In the area of trade protection. who perpetuated the use of more vertical industrial policies. after the increasing budget deficit and the macroeconomic stability). 3. has permitted the damaging effects of such policies. 2. In most AC. Egypt. Additionally. through liberalization of interest rate.generated pressure for both political and economic change. the financial system has experienced the biggest reduction in gov.” As substantial oil revenues. the relationship between state-owned enterprises and decision-makers allows them to influence policies more effectively. were tightly controlled by the political system. giving independence to central banks. these state owned enterprises incurred losses. tariffs and non-tariff measures have been declined slowly compared to the rapid decrease observed in regions. Transition from “bad” vertical industrial policies toward more horizontal is proceeding slowly in AC in comparison to other regions. the levels of subsidies remain high. industries cash subsidies in particular were reduced by almost 50 percent. along with foreign aid and strategic rents. The capture (either wholly or predominantly) of the banking and insurance sectors by the state. . Sweeping nationalizations of industry. and even privatizing them. Crises elsewhere Europe and Central Asia in the late 1980s. Subsidies were greatly reduced as part of macroeconomic stabilization program. created industrial development banks to provide foreign exchange loans for imported capital goods necessary for investment. they moved from command to market economies with less state intervention. the abundance of oil revenues has given rise to interest groups. is scattered among diverse product groups. these administered prices damaged the link between prices and production costs. intervention. Within the predominant role of the state.
East Asia Experience: Vision and coordination. both in terms of inclusiveness. institutional capability of the government. In addition. public accountability. and strength of civil society. AC is facing socio-political pressures to improve inclusiveness and accountability. AC are members of a number of international organizations and have signed agreements that limit the countries’ capacity to use distortionary policies to promote particular sectors. and more from technical innovations and the competitive use of knowledge. Comparative advantages are coming less from abundant natural resources or cheaper labor. managing integration in the world economy. as well as to increase the transparency and contestability of public policy. managing internal conflicts . Internal forces of growth and employment challenges in the light of the region’s demographic transition are putting pressure to change old industrial policies. enhancing capability of private sector.AC suffers from fundamental weaknesses in governance.
has been higher in AC than in other developing countries. Insufficient Policy Reforms Macroeconomic stabilization indicators: annual inflation rates. and average years of schooling. The growth performance of the AC has been weak by developing country standards. openness to FDI is measured by FDI inflows and inward FDI stocks. Expenditure to GDP. Evidence suggests that the economic policies pursued by AC have been in accordance with Washington Consensus at least in some respects: low to medium inflation rates compared to developing countries. government consumption. Although the terms of trade of various AC obviously depend on the development of oil prices which are very volatile. However. All AC taken together only 5% of outstanding World Bank loans extended to all developing countries. some elements of the Washington Consensus have been less effective than widely expected in promoting growth. % gross fixed capital formation to GDP. domestic resource mobilization appears to be more important than attracting FDI. Moreover. in the same time that human capital formation has improved. FDI in some AC is rather unlikely to increase per capita income growth. both related to host country’s GDP. as a share of GDP. AC five top growth performers belong to the clients of international financial institutions. the evidence on factor accumulation is mixed. if only because the leverage of international financial institutions has remained limited in the region. % Gov. as the share of gross fixed capital formation to GDP has declined. As in AC with low per capita income. By contrast. Trade-related indicators Import tariff revenues have dropped below 10% of import value for AC. it is difficult for remote economies to benefit from international trade and FDI. Exogenous factors relation to the weak growth performance of Arab countries: According to gravity model. to the contrary. the relation between terms-of-trade and growth turns out to be extremely weak. Country-specific shocks played a role. . Even in more advanced countries such as Egypt and Tunisia. notably for relatively high growth in Sudan after discovery of oil and the poor performance of Jordan because of embargo ( )ﻣﻘﺎطﻌﺔon neighboring Iraq. continued efforts towards human capital formation are key to sustainable growth.Growth perspectives Why Economic Growth Has Been Weak in Arab Countries? The gap between per capita income of most AC and that of industrial countries has widened since the early 1990s. for instance Tunisia might have been benefited by its favorable location. For example. and the share of imports to GDP has increased and share of exports to GDP have declined. because most of oil-exporting AC are members of OPEC whose output decisions affect oil prices significantly. the IMF and the WB are hardly to blame for imposing ineffective policy conditionality on AC. Trade policy related variables include the share of imports and exports in GDP and import tariff revenues as a percent of import value. measured by their outstanding debt to the IMF and WB. monitoring and transportation between the center and remote economies. Finally. because of high transactions costs related to information. but the same advantage did not prevent Algeria from falling back. However this is not the case in AC.
It may prove difficult for these countries to overcome the natural resource curse. However. While the discovery of oil may result in higher growth for some time. Institutional Deficiencies: “bad policies are only symptoms of longer-run institutional factors. growth in Egypt may not sustain. Even though the region has partly fallen into line with the Washington Consensus. with regard to import protection and export performance. The relation between macroeconomic conditions. The call for institutional reforms mainly applies to resource-rich countries such as Algeria. factor accumulation. various AC lag behind other developing countries when it comes to trimming ( )ﺗﮭﺬﯾﺐthe interventionist role of the state and integrating themselves into the global division of labor through trade and foreign direct investment (FDI). Egypt has succeeded to reduce inflation and government spending. . as in Sudan. Economic policy failure in AC appears to be a more important reason for poor growth. Furthermore. but the successful transformation of a country like Mexico from an oil dependent to a highly diversified economy with more advanced institutions may show AC the way. Institutional development varies greatly across AC.” Policy-related variables and economic growth depend deeply on institutional factors shaping the incentive structure of economic agents. Saudi Arabia and Sudan. trade and FDI liberalization on the one hand and growth on the other hand remains elusive. and has more than doubled average years of schooling since 1980. the median of this ratio for AC has remained below the median for other developing countries. the experience of several oil exporters in the region supports that the abundance of oil encourages rent-seeking and exerts a negative impact on growth via its negative impact on institutional development. This may be because reforms have not gone far enough and have remained fragmentary even in AC with a relatively favorable growth performance. and correcting the policies without correcting the institutions will bring little long-run benefit. considering that the country’s position with regard to gross fixed capital formation and FDI inflows has deteriorated in recent years. but is less advanced than the level of per capita income would suggest. FDI flows were small with high degree of sectorial concentration. It ranks poorly. notwithstanding their different growth performance in the past. even by Arab standards.The ratio of inward FDI stocks to GDP has soared which is consistent with the worldwide trend towards the liberalization of FDI regulations.
Several GCC countries have taken steps to boost domestic demand by applying expansionary fiscal policies. oil revenues and losses incurred by the sovereign wealth funds (SWF). growth is expected to reach lower levels. crisis has shaken confidence in the international financial system. intraregional FDI. the Arab Monetary Fund index for stock markets dropped by 50%. lower profits and disruption in the boom in the housing sector. expected drops in both Official Development Assistant ODA and FDI and the expected drop in tourism revenues. The stock markets with the worst performance were those with a high proportion of banks and real estate firms. the private sector which is highly dependent on public sector spending. lead to a prolonged recession and eliminate the progress made in the trade liberalization. weather the financial storm. The construction sector. particularly in banks and insurance companies. hence transferring the global economic expansion into the deepest global economic recession since the 1930s.FINANCIAL CRISIS The financial crisis. But it is expected to remain positive. precipitated by factors such as lower export earnings. a sharp drop in stock market. In other AC. particularly the real estate has been hit badly by the financial crisis. On the other hand. figures indicate that non-performing loans to total loans remain below 5%. Fears are growing over the introduction of protectionist policies. like Dubai and Abu Dhabi. especially those funds that invested heavily in US stock markets. SWF suffered great losses (US$ 200 billion in 2008). it is expected that this may lead to a decline in oil investments and may delay plans to boost oil production capacity. may also be negatively affected by the crisis and wait to see how Gov. particularly those with less exposure to sophisticated financial products. thanks to the accumulated huge surpluses during the boom of oil prices. reducing their investments in paper assets and investing more in the real economy. underperforming banking sectors. that severely affect global financial markets moved quickly to the real economy. which began as a liquidity crunch. In the GCC countries. because of the sharp drop in oil revenues. which could disrupt the trade flows. .5 trillion as a result of falling market capitalization. Arab stock markets went through a major correction in 2008. which has been around 25 % of total FDI inflows. GCC Banks still well capitalized. the poor performance of stock markets. The expected drop in FDI inflows to the region is due to. Egypt announced a fall in FDI inflows of about US$ 4 billion in the second half of 2008. directing more funds and investments into their own economies. the sharp correction in the housing sector. could increase as a result of the repatriation of investments abroad back to the region. Moreover. the slowdown in economic activity and financial problems of multinational corporations which represent the major source of the FDI inflows. The overall picture of the impact of the crisis on AC is relatively mixed. while the capitalization rate dropped by 40%. growth is estimated to be either low or negative. bank assets. This has resulted in the return of thousands of migrant workers and has reduced the income of many families who lost part of their savings following the sharp correction in the real estate market. falling oil prices. with few exceptions. This expected to lead to a shift in the investment strategy of these funds by. AC are expected to have lost at least about US$ 2. Furthermore.
GCC registered the highest trade openness indices. Several GCC countries have also taken steps to ease credit conditions through cutting discount rate. Recommended policy options include the need to: 1. like Lebanon the picture is expected to be better. in order to stop the recent slowdown and increase economic activity levels. because of the freezing of huge housing projects in the GCC will lead to the return of thousands of foreign workers and to falling remittance levels. for example. 3. will therefore have a significant impact on Arab countries. Several countries. Workers’ remittances are also expected to drop. and Yemen. announced a drop in reservations of about 15 % in December 2008. The tourism outlook in the region is mixed. Decreasing remittances in Egypt. including investments to add to their oil production capacity. Monitor mergers between financial institutions and ease Government regulations to encourage private sector to play a more active role during the crisis. respectively. 5. thus restoring confidence in the banking and financial sector. intraregional trade could also benefit as some of the exports that used to be directed to Europe and the US could be directed to other AC. particularly Japan. Jordan. The expected drop in demand from European Union and Asian countries. is expected to place pressure on the exchange rates of the currencies of the non-GCC countries. 2. in infrastructural projects. Morocco and Tunisia. Continue to apply expansionary fiscal policies to boost domestic demand. Inject liquidity to the banking sector through rescue packages. also declared their readiness to guarantee bank deposits to restore confidence in the banking sector. Oil revenues in the GCC countries are expected to drop dramatically in 2009. Asia and the United States to AC. Moreover. . The geographical distribution of Arab exports indicates that 50 and 30 per cent are exported to Asian and EU countries. are expected to be hit by the crisis. or/and lowering the repo rate or/and reducing RRR. The financial crisis is expected to have a negative impact on international trade. have adopted expansionary fiscal policies to boost domestic demand. which may complicate the economic conditions faced by these countries. Egypt. which represents an important source of economic growth in some countries. AC. 4. Those countries which rely on international tourism receipts from outside the region. Develop initiatives to ease the problems and minimize speculative activities in the real estate sector. as many Arab tourists may change their destinations from Europe.The decline in external sources of development finance. together with the drop in both exports and tourism. This will have a huge impact on those countries which depend on remittances as a source of foreign exchange. This will have a severe impact on their investment. Arab oilimporting countries will benefit from the drop in oil prices which will alleviate the pressure on their current accounts. are highly open to world. Formulate and implement regulatory measures to be adopted by the banking sector in the long term. including Egypt. will increase in both unemployment and poverty. KSA and the UAE. owing to the high share of oil in their exports. that may enhance intraregional trade. For those countries that depend mainly on intraregional tourism. such as Egypt.
Promote intraregional investments in sectors in which many AC have a comparative advantage. Sudan. both in terms of sectors and geographical distribution. Ensure full implementation of the Greater Arab Free Trade Area (GAFTA). The latter would contribute to long term growth prospects. facilitation of cross-border transit. including service liberalization and investment flows. and services such as tourism and research and training centers. The fundamental characteristics of the Arab economies and the degree of financial sector liberalization and development constitute major elements in terms of their respond to any external or internal shock. computerization of customs services. Impact of oil price fluctuations differs significantly in terms of affecting MENA countries. Non-oil diversified economies including Morocco. 9. Continue efforts to improve the “doing business” environment. streamlining of inspection/control methods. clothing. 11. Tunisia. Financial sectors and related issues continue to be liberalized and developed. and Yemen. . 7. in terms of harmonization of production standards. notably in Africa. 8. such as the Arab Trade Financing Program. in order to further facilitate trade credit. Asia and Latin America South-South ties. 10. Diversify the investments of SWFs.6. Lebanon. and Libya. yet at different paces. Iraq. migration and remittances constitute a common cure to all problems. textile fibers. Enhance governance standards related to good governance. in particular by enhancing good governance and combating inconsistency in the implementation of laws. and Syria. chemical products. Although labor markets are facing different types of problems. Enhance the role of some regional institutions. and move towards greater specialization in products with higher added-value and a large number of trading partners. transparency and accountability of SWFs. More diversified oil and/or natural gas dominated countries including Egypt. Pursue more efforts to diversify Arab exports away from oil. Oil and/or natural gas heavily dependent Countries yet have experienced domestic conflicts and/or have low GDP per capita such as Algeria. and Jordan. such as agriculture. 12. Impact of the current flux in the region on Arab economies MENA economies can be classified into four groups: Oil and/or natural gas dominated countries including the six GCC countries. by investing more in the real economy and targeting developing regions.
underdeveloped financial sector (low market capitalization ratios. Jordan. and secondly the burst of real estate prices which followed the financial crisis (e. and negatively affected stock markets. at least Yemen and Libya. the ability of MENA countries to respond to the crisis hinges on a number of factors including the risk of fiscal un-sustainability (the case of Sudan and Yemen) . also the increase in Gov. real estate prices lost 20-40% in the Dubai and Abu Dhabi).g. The credit squeeze is a result of two main factors. low wages. their economies are likely to be drastically affected.g. and the amount of industrial production being negatively affected. What have been common among oil and non-oil Arab exporters are the problems associated with their financial sectors: Credit squeeze. the amount of devastation of infrastructure (especially in Yemen and Libya). Does the current flux in the region have the same impact as former crises/shocks? What are distinguishing in the case of the current turmoil in the region are the transmission mechanisms where the real and financial sides of the economy are likely to affected and in the same direction. Other countries in the region including Morocco. relatively weak private sectors and inflexible labor market conditions (a common factor in all AC) . Syria and Libya. In the case of the first group of MENA countries. so far will need some sort of Marshal Plan to build their economies including their financial systems. The negative implications in the case of Tunisia are expected to be similar. Impact of the current events on MENA economies Regarding the set of countries which experiencing some sort of revolutions including Yemen. with the exception of Libya and Algeria. whereas the first and the fourth group were mainly affected through the financial and oil prices means.5 billion LE.The transmission channels of the crisis on the second and third groups of MENA countries have been mainly through the real economy. The reasons for this judgment include the length of status of flux which has surpassed those experienced in Egypt and Tunisia. namely the relative decline in capital of some of the banks (mainly in the Gulf) due to the losses incurred in SWFs. For example. limited employment and social security benefits). weak corporate bonds market). GCC countries are expected to face favorable conditions on the real and financial aspects. which have been fragile even before the revolutions started. Yet. it is estimated that Egyptians working in Libya remittances contribute 1. whereas the other MENA countries are likely to face negative conditions regarding the real and financial aspects of their economies. it is estimated that economic losses are likely to be much higher than those experienced by Egypt and Tunisia during their revolutions. Clear analysis of the size of losses cannot be estimated due to the deepening of conflict happening in those countries. though with less extent. and Lebanon have been negatively affected due to the increase in oil prices and since they are net oil importers. In general . Social spending . high unemployment rates associated with weak automatic stabilizers (e. a relatively shallow. The relatively better ability of major oil exporters to respond to different shocks is mainly due to their enjoyment of better position in the aforementioned issues. Hence.
Social aspects are likely to override the governments’ policies in all MENA countries for the coming years. also relate labor market needs with the output of educational system. Remittances should be devoted a specific policy in the case of remittances receiving countries The development paradigm in MENA countries needs to be revisited where productive employment should be at its core. MENA countries lack institutions.to achieve social goals and create jobs. the negative impact is not significant. However. if any. To lessen such costs. Governments should start serious programs aiming at targeting the poor and vulnerable groups Financial sectors should be subject to a strong reform measures with focus on better risk management techniques. or the institutions that exist do not function well. If one overrides the other. and enhancement of credit to non-large corporations. Moreover. 3. there is a need for effective coordination of economic policies and lowering of expectations of how the economy will respond due to the huge uncertainty prevailing. that is why they are in severe need of enhancing good governance mechanisms Lessons learnt from other countries which faced similar experience: 1. the probability of sustaining growth becomes low. and paying attention more to the quality of growth rather than the rate of growth. . and mainly unemployment need to be carefully considered. Gulf countries have been slightly affected. the return of migrants from those countries that have been working in Libya will have negative repercussions on the balance of payments and unemployment levels. diversification of risks. There is a need to balance social and economic aspects during transition periods. From an economic point of view this implies larger public spending on social related aspects with the consequences of widening budget deficits. The MENA region though dealt with as one entity should be looked differently identifying the specific characteristics of each sub-region and country alone. 2. all this led to increasing the budget deficit. The urgent and indispensable need for effective institutions and governance mechanisms that should accompany the transition to a market economy. given the relatively limited number of migrants from those countries in Libya. In the case of MENA countries it should be understood that adjustment will be associated with economic costs to serve the social interests and overcome the political obstacles.