Expanding trade for a young and growing population in the Middle East, By Mustapha Kamel Nabli

Opinion, June 2003, Al-Jazeerah.info

Expanding trade for a young and growing population in the Middle East

By Mustapha Kamel Nabli

Jordan Times, 6/30/03

THE MIDDLE East straddles the trading routes of three continents, and for centuries, the peoples of the region harnessed this great geographic fortune to create flourishing cultures, economies and societies.
Today, though, the region has fallen behind its past glories by closing its doors to trade and investment opportunities with the rest of the world. The 1990s were especially disappointing. While other regions, such as East Asia, witnessed a boom in trade during the last decade, the Middle East and North Africa was the only region in the world to experience a reversal.

From Morocco to Iran, the countries of the Middle East and North Africa region are today under pressure like never before to launch sweeping reforms that will allow them to expand their trade and multiply investment opportunities in order to address their critical growth and employment challenges, poverty, unemployment and social crises in the coming decade.

A new World Bank report out last week says that shifting attention to the key challenges of the economic agenda in the region is urgent. Unemployment rates in the region, which average 15 per cent today, have doubled in the past two decades and are now among the highest in the world. Unemployment rates for the young, educated, women and first-time job seekers are even greater.

The challenge will only grow in coming years. The region is overwhelmingly young, with 60 per cent of its population under the age of 24. During the next 10 years, the labour force will grow at an average of over 3.1 per cent per year, creating the need for 42 million new jobs in the region just to absorb the incoming labour force.

To meet these challenges, the WB is urging countries of the region to make the transition from the old model of economic organisation and activity to a new one. The old model — driven by the public sector, focus on domestic markets and supported by oil, aid and workers' remittances — cannot any longer generate faster growth or jobs, as the performance of the past two decades attests. Queueing for government jobs clearly no longer presents a realistic option. Instead, a new model, which is much more reliant on trade and private investment, promises to support faster growth and jobs needed in the region.

If only half of the region's trade expansion potential — with the associated revival in private investment — were realised over the next ten years, per capita GDP growth would jump from 1 per cent to about 4 per cent a year — half from more private investment and half from the greater productivity that openness would encourage. More importantly, this will create the jobs needed to absorb the new entrants into the labour force, fight the unemployment trend in the region and improve the quality of people's lives.

Most governments in the region have already started to undertake this shift. Early reformers include Jordan and Tunisia, which have opened to trade and created a more hospitable investment climate, with encouraging outcomes. Egypt and Morocco have also been taking greater steps at trade and investment reform. Among the resource-based economies, Algeria and Iran have started to reopen their trade regimes and encourage private investment. In the Gulf, smaller countries have accelerated reforms. The United Arab Emirates, especially Dubai, are following an impressive outward-oriented strategy with large gains. Yet, compared to the rest of the world, trade and investment climate reforms in the region have been decidedly weak.

Faster growth of output, productivity and jobs are available if countries in the region tackle deep-seated barriers to trade and improve the investment climate. Reforms need to go beyond the shallow at-the-border trade policy reforms and the signing of numerous trade agreements — the staples of the 1990s — to much deeper domestic policy reforms.

To meet its challenges, the region needs to deepen and boost the reforms many have already started. In particular, they will need to make three fundamental shifts in their sources of growth: from oil to non-oil sectors, from state-dominated to market-driven activities, and from protected import-substitution to competitive export-oriented activities.

Intensifying trade and creating a more hospitable investment climate lie at the heart of the prescribed reforms. Many countries are seeking to strengthen their trade partnerships with Europe, their largest trading partner, through the Euro-Med trade agreements, while intra-regional trade is being promoted through the Pan Arab Free Trade Area (PAFTA) and the newly established Gulf Cooperation Council (GCC) customs union. Several other smaller regional trade groupings have also been established. A number of countries is seeking membership in the World Trade Organisation (WTO). Jordan and the United States have signed a free trade agreement, and more such agreements may be forthcoming.

In order for the region to realise the potential gains, however, trading partners like the EU need to reciprocate by providing expanded access to agriculture — the sector most likely to bear the brunt of job losses in the reform process. The EU could also lend support by increasing temporary migration for workers and providing funds for managing the cost of transition.

There are clear steps in the right direction. But the region needs to do more. Countries like China, Ireland, Korea and Indonesia have seen impressive growth in employment in the 1990s, and the countries in the Middle East and North Africa should draw lessons from their experience. But the countries of the region need also look back to their proud history when the region's traders were models to the rest of the world and bring that prosperity and hope to its burgeoning dynamic young generation.

The writer is chief economist for Middle East and North Africa at the World Bank. He contributed this article to The Jordan Times.

Earth, a planet hungry for peace

The Israeli apartheid (security) wall around Palestinian population centers (Ran Cohen, pmc, 5/24/03).

The Israeli apartheid (security) wall around Palestinian population centers in the West Bank (Ran Cohen, pmc, 5/24/03).