Middle East and North Africa Region

Sustaining the Recovery and Looking Beyond

Middle East and North Africa Region
Economic Developments & Prospects, January 2011

Sustaining the Recovery and Looking Beyond Economic Developments & Prospects, January 2011

Sustaining the Recovery

and Looking Beyond

ISBN 978-0-8213-9889-0

the world bank the world bank

Middle East and North Africa Region
Economic Developments & Prospects, January 2011

Sustaining the Recovery

and Looking Beyond

the world bank

© 2011 The International Bank for Reconstruction and Development/The World Bank
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ISBN: 978-0-8213-9889-0
DOI: 10.1596/978-0-8213-9889-0
Cover photo: © Gettyimages
 Table of Contents
Acknowledgements...................................................................................................................................ix

Foreword...................................................................................................................................................xi

Abbreviations......................................................................................................................................... xiii

Executive Summary................................................................................................................................xvii

Part I: Sustaining the recovery................................................................................................................. 1

Chapter 1. MENA is recovering from the crisis, but slowly................................................................ 3

MENA’s recovery has been driven by the global rebound and,
to varying degrees, by domestic stimulus.............................................................................................4
MENA labor markets remained relatively unscathed by the crisis but
Impacts Differed between countries.......................................................................................................8
Job losses in the GCC countries were steep but affected mainly
expatriate workers..............................................................................................................................9
The impact of the crisis on oil importers’ labor markets was mild..........................................10

Chapter 2. MENA’s recovery is proceeding in an uncertain global economic Context................... 13

Financial market volatility reflects the unusually uncertain global outlook..............................14
The outlook for GCC countries is tied to the outlook for the global economy...........................17
Most developing oil exporters are vulnerable to oil price shocks and volatility........................25
Oil Importers’ Recovery Depends on Developments in Key Markets,
Notably the EU...........................................................................................................................................31

Part II. Looking Beyond the Recovery and Beyond Oil.......................................................................... 37

Chapter 3. MENA remains uncomfortably dependent on the capital-intensive .

Oil sector............................................................................................................................. 39
MENA’s non-oil exports of goods and services are below potential due
to developing oil exporters’ underperformance................................................................................44
MENA has opened up and diversified its exports.............................................................................46
Services are an area of relative strength for MENA..........................................................................49
Market access is more of an issue for oil importers than oil exporters........................................54
MENA countries are less successful than other developing economies
in penetrating foreign markets..............................................................................................................55

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  Sustaining the Recovery and Looking Beyond – A Regional Economic Developments and Prospects Report

Chapter 4. What are the major constraints to MENA’s nonoil exports?........................................... 61

Protection in developing MENA is high, largely due to NTMs.......................................................61
Tariff and nontariff protection rates vary widely across MENA....................................................62
Intra-regional trade stagnated and intra-industry trade remains limited................................65
MENA’s services sector is heavily protected......................................................................................69
Other factors hurting MENA firms’ competitiveness......................................................................75
Access to finance is limited, especially for small enterprises...................................................79
Governance issues impede reform implementation, raise uncertainty
and lead to uneven playing field....................................................................................................82
Skill shortages in the GCC states are an acute but old problem..............................................83
A focus on technology is central to MENA’s efforts to improve
competitiveness................................................................................................................................83

Chapter 5. What should countries do to improve nonoil export growth?....................................... 93

What did we learn? Summary of key findings............................................................................ 93
Are reforms implemented by countries addressing the major constraints?................................96

Statistical Annex.................................................................................................................................... 101

References.............................................................................................................................................. 117

List of Boxes
Box 1: The Dubai World debt restructuring..............................................................................................................21
Box 2: How is the overall trade restrictiveness index calculated?........................................................................55
Box 3: Nontariff measures – definitions and state of knowledge..........................................................................63
Box 4: Intra-industry trade (IIT) index......................................................................................................................68
Box 5: Measuring restrictions affecting trade in services.......................................................................................72
Box 6: Tunisia’s national innovation system: achievements, challenges and vision.........................................90

List of Tables
Table 1: Demand-side sources of growth in MENA..................................................................................................4
Table 2: MENA countries’ fiscal space in 2008.........................................................................................................6
Table 3: Debt restructurings in the GCC, 2008–2010............................................................................................24
Table 4. Impact of a wheat price hike in GCC oil exporters.................................................................................26
Table 5: MENA fiscal space in 2009..........................................................................................................................27
Table 6: Impact of a wheat price hike in developing oil exporters.....................................................................29
Table 7: Impact of a wheat price hike in oil importers..........................................................................................33
Table 8: Shares in world exports...............................................................................................................................50
Table 9: Contribution of intensive and extensive margins to nonoil merchandise growth,
1998–2008.....................................................................................................................................................51
Table 10: Decomposition of the intensive margin....................................................................................................52
Table 11: Index of export market penetration by country, 1995 and 2005 (percent).......................................58
Table 12: Bilateral index of export market penetration of EU and US markets.................................................60
Table 13: Bilateral index of export market penetration of MENA markets.........................................................64
Table 14: Technological Achievement Index.............................................................................................................84
Table 15: Index of Technological Adaptive Capacity...............................................................................................85
Table 16: Knowledge Economic Index.......................................................................................................................85
Table 17: Index of Technological Readiness.............................................................................................................85
Table 18: FDI has grown rapidly in MENA (% of GDP, net inflows)......................................................................86
Table 19: Number of resident patents filing per million people............................................................................89

iv
 Table of Contents

List of Figures
Figure 1: Growth outlook (real GDP growth rates in percent)......................................................................... 3
Figure 2: Growth accelerations in 2010 (percentage point change relative to 2009)..................................... 3
Figure 3: MENA’s annual real growth performance before, during, and after the crisis................................. 5
Figure 4: Sources of external revenue, 2008..................................................................................................... 5
Figure 5: Global unemployment and real growth.............................................................................................. 9
Figure 6: Changes in number of unemployed, 2007–09 (in millions).............................................................. 9
Figure 7: Job cuts by country and sector in GCC, 2009.................................................................................. 10
Figure 8: The crisis did not affect aggregate employment in Egypt, Arab Rep............................................. 10
Figure 9: Crisis-related decline in real earnings and wages growth in Egypt, Arab Rep.............................. 11
Figure 10: Output and employment growth in Jordan...................................................................................... 11
Figure 11: Industrial production (percent difference from pre-crisis peak to June 2010)............................. 13
Figure 12: Industrial production, seasonally adjusted year-on-year real growth rates................................... 14
Figure 13: Output growth (real GDP, % change quarter-on-quarter).............................................................. 14
Figure 14: Credit growth (YoY, in percent)........................................................................................................ 15
Figure 15: Import growth, seasonally adjusted year-on-year in volumes......................................................... 16
Figure 16: Export growth, seasonally adjusted year-on-year basis in volumes............................................... 16
Figure 17: Sovereign 5-year CDS spreads (bps)............................................................................................... 17
Figure 18: Stock market reaction to events in Europe..................................................................................... 18
Figure 19: Risk perceptions reflecting developments in Europe...................................................................... 19
Figure 20: Crude oil average spot price (current US$ per barrel)................................................................... 20
Figure 21: MENA fiscal outlook (percent of GDP)............................................................................................ 20
Figure 22: MENA current account positions (percent of GDP)....................................................................... 21
Figure 23: Credit growth in GCC........................................................................................................................ 22
Figure 24: Spreads over LIBOR on Global (SKBI) and GCC sukuk (GSKI) and
GCC conventional bonds (SKBI)...................................................................................................... 24
Figure 25: Exposure to EU markets for merchandise goods............................................................................ 25
Figure 26: US wheat prices................................................................................................................................. 26
Figure 27: Commodity volatility (standard deviations in monthly prices)...................................................... 28
Figure 28: Some potential poverty impacts of a wheat price spike.................................................................. 29
Figure 29: Non-oil merchandise exports to EU25............................................................................................. 30
Figure 30: Non-oil merchandise exports to Southern Euro Zone..................................................................... 31
Figure 31: Credit growth in oil importers.......................................................................................................... 34
Figure 32: Rodrik’s real undervaluation index for Lebanon.............................................................................. 34
Figure 33: Jordan has made a dramatic shift in export destinations................................................................ 35
Figure 34: Population and labor force growth (%, annual averages)............................................................... 40
Figure 35: Growth of per capita income by region (percent)........................................................................... 41
Figure 36: MENA’s oil dependence..................................................................................................................... 42
Figure 37: Current account surpluses and deficits (US$ billions).................................................................... 43
Figure 38: Contribution of demand components to growth in MENA.............................................................. 43
Figure 39: Export revenue by type of exports (% of GDP, 2008).................................................................... 44
Figure 40: MENA underperformed relative to its nonoil export potential in the period 1998–2007................................... 45
Figure 41: MENA countries’ nonoil export potential relative to that of other middle income
countries for the period 1998–2007.................................................................................................. 46
Figure 42: Non-oil merchandise exports as a share of GDP (percent)............................................................ 47
Figure 43: Export concentration in developing regions.................................................................................... 47
Figure 44: MENA’s export structure, 2008......................................................................................................... 48
Figure 45: MENA’s non-oil merchandise export destinations........................................................................... 48
Figure 46: Import growth in major export markets........................................................................................... 49
Figure 47: Non-oil merchandise export growth by region for the period 1998–2008 (in value terms)..................................... 50

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  Sustaining the Recovery and Looking Beyond – A Regional Economic Developments and Prospects Report

Figure 48: Nonoil merchandise export growth by market and industry, 1998–2008....................................... 53
Figure 49: Market access for MENA merchandise goods, overall trade restrictiveness index....................... 56
Figure 50: Market access for nonagricultural products, overall trade restrictiveness
index (2008).............................................................................................................................................................. 57
Figure 51: Tariff protection in China’s market (2008)...................................................................................... 59
Figure 52: Overall trade restrictiveness by market and product (2008)......................................................... 62
Figure 53: Estimated NTM-related protection rates in MENA......................................................................... 63
Figure 54: Tariff and nontariff barriers (NTBs) by MENA country.................................................................. 64
Figure 55: Protection faced by different regions and country groups in MENA............................................. 65
Figure 56: Intra-industry Trade index by region............................................................................................... 67
Figure 57: Intra-Regional, Intra-Industry Trade index by region..................................................................... 68
Figure 58: Services value-added (% of GDP).................................................................................................... 70
Figure 59: Size of service sector (% of GDP) and income per capita in MENA.............................................. 71
Figure 60: Restrictiveness of services trade policies and share of services in GDP........................................ 71
Figure 61: Global Competitiveness Index (GCI) ranking by region, 2010....................................................... 75
Figure 62: Leading constraints to export-oriented firms in MENA region (weighted average
of share of firms ranking a constraint as “major” or “severe”)........................................................ 76
Figure 63: Leading constraints to export-oriented firms in GCC oil exporting countries
(share of firms ranking a constraint as “major” or “severe”).......................................................... 76
Figure 64: Leading constraints to export-oriented firms in developing oil exporting countries
(share of firms ranking a constraint as “major” or “severe”).......................................................... 77
Figure 65: Leading constraints to export-oriented firms in oil importing countries
(share of firms ranking a constraint as “major” or “severe”).......................................................... 77
Figure 66: GCC’s Global Competitiveness Index rankings by pillar.................................................................. 78
Figure 67: Developing oil exporters’ Global Competitiveness Index rankings by pillar.................................. 78
Figure 68: Oil importers’ Global Competitiveness Index rankings by pillar..................................................... 79
Figure 69: Regional ranking of ease of getting credit........................................................................................ 80
Figure 70: Gross domestic saving, 2007............................................................................................................. 80
Figure 71: MENA countries’ FDI potential conditioned on openness, natural resources and
population for the period 1998-2007 (actual to predicted net FDI inflows
as % of GDP)...................................................................................................................................... 87
Figure 72: Structure of FDI, cumulative 2000–07 (percent of FDI)................................................................ 87
Figure 73: Technological content of exports by region..................................................................................... 88
Figure 74: Research and development expenditure (% of GDP)..................................................................... 89
Figure 75: Research and development expenditure in MENA (2005)............................................................. 90

List of Appendix Tables

Table A1: Macroeconomic outlook...........................................................................................................................102
Table A2: Trade restrictiveness in East Asia excluding China, 2008 (in percent)..........................................103
Table A3: Trade restrictiveness in India, 2008 (in percent)...............................................................................104
Table A4: Trade restrictiveness in South Asia other than India, 2008 (in percent).......................................105
Table A5: Trade restrictiveness in LAC, 2008 (in percent).................................................................................106
Table A6: Trade restrictiveness in SSA, 2008 (in percent).................................................................................107
Table A7: Trade restrictiveness in ECA, 2008 (in percent).................................................................................108
Table A8: Trade restrictiveness in MENA, 2008 (in percent).............................................................................109
Table A9: Trade restrictiveness in GCC oil exporters, 2008 (in percent).........................................................110
Table A10: Trade restrictiveness in developing oil exporters, 2008 (in percent).............................................111
Table A11: Trade restrictiveness in oil importers, 2008 (in percent).................................................................112
Table A12: Trade restrictiveness in oil importers with GCC links, 2008 (in percent).....................................113

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 Table of Contents

Table A13: Trade restrictiveness in oil importers with EU links, 2008 (in percent)........................................114
Table A14: Trade restrictiveness in HICs, 2008 (in percent)................................................................................115
Table A15: Trade restrictiveness in China, 2008 (in percent)..............................................................................116

vii
 Acknowledgements
The Middle East and North Africa Economic De-
velopments and Prospects report was prepared
by Elena Ianchovichina (principal author) and
a team comprising Lili Mottaghi, Kevin Carey,
Julien Gourdon, Christina Wood, Hiau Looi Kee,
Daniela Marotta, Ndiame Diop, Leonardo Gar-
rido, Caroline Freund, Maros Ivanic, Alberto Be-
har, Julian Lampietti, Cosimo Pancaro, Subika
Farazi, Komlan Kounetsron, Augusto Clavijo,
Michelle Battat, and Yasmine Rouai. Country-
specific data were provided by country econo-
mists and analysts working in the World Bank’s
Middle East and North Africa Region. The report
was prepared under the guidance of Shamshad
Akhtar (Regional Vice President, Middle East
and North Africa Region). Valuable comments
were provided by Farrukh Iqbal (Country Di-
rector, Middle East and North Africa), Ritva
Reinikka (former Sector Director, Social and
Economic Development Group, Middle East
and North Africa Region) and three peer re-
viewers: Bernard Hoekman (Sector Director,
International Trade Department, Poverty Re-
duction and Economic Management Network),
Juan Zalduendo (Lead Economist, Office of the
Chief Economist, Europe and Central Asia) and
Punam Chuhan (Lead Economist, Office of the
Chief Economist, Sub-Saharan Africa). We also
appreciate useful comments on various topics
from Ingo Borchert, Elliot Riordan, Andrew
Burns, Najy Benhanssine, Andrew Stone, and
Jamus Lim. Excellent assistance with adminis-
trative arrangements was provided by Isabelle
Chaal-Dabi.
ix

The impact of the global financial and economic
crisis on the Middle East and North Africa region
was relatively mild. Lack of integration and a
large public sector helped insulate the region
to some extent, but now these and other factors
are slowing down the speed of its economic
recovery. The report Middle East and North
Africa: Sustaining the Recovery and Looking
Beyond examines the major factors threatening
the recovery and those that obstruct long-term
growth—especially non-oil export growth. The re-
port focuses on non-oil export growth as despite
some progress in the past decade net exports
contributed little to regional growth, and nonoil
exports of goods and services remain below po-
tential for the region as a whole.
The post-crisis period provides an oppor-
tunity for the countries in the Middle East and
North Africa to re-evaluate their trade and growth
strategies in an attempt to increase possibilities
for accelerated development and employment cre-
ation. The region is already undergoing multiple
transformations as countries launched spadework
to catalyze industry diversification by innovating
and adopting new technologies; energy diversifi-
cation by embracing aggressive renewable energy
exploitation plans; and export diversification by
expanding markets and the range of exported
products and services. The shift towards the fast-
growing markets of Asia has been particularly
remarkable, and the services sector has emerged
as an area of relative strength and a key source
of export revenue and future potential growth.
Notwithstanding these trends, the growth
response in developing MENA since 2000 has
Foreword
been modest in per capita terms compared to
other developing regions, and the region has not
been able to make substantial progress in reduc-
ing persistently high unemployment rates—espe-
cially among youth. The report underscores that
while there are risks to the short-term economic
growth outlook, including those stemming from
debt problems and fiscal austerity measures in
key markets such as the EU; weak credit recovery
in the GCC; and oil price volatility, the region
faces much more serious long-term growth chal-
lenges.
MENA continues to depend on the capital-
intensive oil sector which has been and remains
the primary vehicle for revenue and wealth
creation in the region. Oil dependence however
brings a number of challenges, and the labor-
abundant developing oil exporters have been far
less successful than the GCC economies in deal-
ing with the pitfalls of oil dependence. Develop-
ing oil exporters have been suffering from weak
institutions, conflicts, macroeconomic volatility,
and Dutch disease which has spread beyond
the oil exporters and become a threat to some
oil importers receiving large remittances and
finance from the GCC markets. While the outlook
for oil remains promising in the medium-term
due to strong demand for oil in Asia and other
fast-growing markets, counting on oil will not
generate inclusive growth in the region. Thus,
the report pays special attention to issues related
to competitiveness and nonoil sources of growth.
Although the report takes a differentiated
look at the problems facing MENA countries,
common messages can be distilled for the region
xi
  Sustaining the Recovery and Looking Beyond – A Regional Economic Developments and Prospects Report
as a whole. The report emphasizes three major
areas in need of policy makers’ attention. First,
it underscores the problems related to restric-
tive trade policies, particularly those affecting
trade in services. Such policies distort incen-
tives, discourage foreign direct investment, and
limit MENA’s integration within the region and
with the rest of the world. Second, the report
confirms that governance issues linked to dis-
cretion in applying rules and regulations are a
serious obstacle to firms’ growth, including the
growth of export-oriented companies. These is-
sues have led to stagnation, inefficiencies and
privileged access for some, but limited access
to services and information for micro and small
firms. Third, the report finds that inefficient and
inflexible labor markets and scarcity of skills,
innovation and technological capabilities hurt
firms’ productivity, limit employment creation
and the technological content of MENA’s exports.
MENA governments are implementing re-
forms addressing some of the constraints identi-
fied in this report, but in many countries in the
region a lot more needs to be accomplished as
wide policy gaps remain in some areas. In the
GCC, more needs to be done to address the issue
xii
of skill shortages in a comprehensive way, and
to understand the nature and extent to which
regulations restrict trade and FDI in the services
sector. In developing MENA, countries need to
intensify efforts to strengthen institutions, im-
prove information gathering and dissemination
and reform implementation. A priority should
be to understand better the nature and extent to
which nontariff barriers and regulations restrict
trade in non-oil goods and services. Developing
MENA countries should press on with financial
market development—especially improving
financial infrastructure, while further strength-
ening macroeconomic management, addressing
inefficiencies in labor and goods markets, and
facilitating innovation activities, knowledge and
technological acquisition. Addressing the issues
identified in this report would require resources,
expertise and a sustained government effort. The
World Bank is supporting MENA client counties
as they press on with reforms to remove the
major roadblocks to inclusive growth.
Shamshad Akhtar
Regional Vice President
MENA Region
 Abbreviations and Acronyms
AVE Ad-valorem Equivalent
Bbl Barrels
BOP Balance of Payments
BP/BPS Basis points
BRICs Brazil, Russia, India, and China
CAB Current Account Balance
CDS Credit Default Swaps
CPI Consumer Price Index
DECPG Development Economics Prospects Group
DEV Developing Countries
DFSF Dubai Financial Support Fund
DIFC Dubai International Financial Center
DW Dubai World
EAS/EAP East Asia and Pacific
ECA Europe and Central Asia
EMBI Emerging Market Bond Index
EU European Union
FDI Foreign Direct Investment
FTA Free Trade Agreement
G3 US, EU and Japan
GCC Gulf Cooperation Council
GCI Global Competitiveness Index
GDP Gross Domestic Product
GEM Brazil, China, India and Indonesia
HIC High Income Countries
HS6 Harmonized Commodity Description and Coding System, 6-digit level
ICT Information and Communication Technologies

xiii
  Sustaining the Recovery and Looking Beyond – A Regional Economic Developments and Prospects Report

IIT Intra-industry Trade

ILO International Labor Organization
IMF International Monetary Fund
KEI Knowledge Economic Index
LAC Latin America and the Caribbean
LNG Liquefied Natural Gas
LPI Logistic Performance Index
MDGs Millennium Development Goals
MENA/MNA Middle East and North Africa
MFN Most Favored Nation
MIC Middle Income Countries
NTB Non-tariff Barrier
NTM Non-tariff Measure
OPEC Organization of the Petroleum Exporting Countries
PAFTA Pan-Arab Free Trade Area
PIP Public Investment Plan
PPP Public Private Partnership
PTA Preferential Trading Arrangement
R&D Research and Development
RoW Rest of World
SA South Asia
SAAR Seasonally Adjusted Annual Rate
SEZ Southern Euro Zone
SME Small Medium Enterprises
SPS Sanitary and Phyto-sanitary measures
SSA Sub-Saharan Africa
STRI Services Trade Restrictiveness Indices
SWF Sovereign Wealth Funds
TAC Technological Adaptive Capacity
TAI Technological Achievement Index
US United States of America
UAE United Arab Emirates
UK United Kingdom
UNCTAD United Nations Conference on Trade and Development
UNDP United Nations Development Programme
UNIDO United Nations Industrial Development Organization
USDA United States Department of Agriculture

xiv
 Abbreviations and Acronyms

VAT Value-Added Tax

WDI World Development Indicators
WEF World Economic Forum
WIPO World Intellectual Property Organization
WLD World
WTO World Trade Organization
YoY Year on Year

xv
 Executive Summary
Economic activity has rebounded in most
countries of the Middle East and North Africa
(MENA). Growth is expected to average 4 percent
in 2010 and to reach 4.8 percent in 2011 and
2012. The recovery has been driven by the global
economic rebound and, to varying degrees, by
domestic stimulus. Industrial production, which
in MENA is dominated by oil, has nearly reached
its pre-crisis peak, largely due to the strong
recovery in emerging markets, especially Asia.
However, the upturn weakened in the summer
of 2010 as global growth slowed down, and seri-
ous concerns emerged about the sustainability
of the global recovery. In response, many MENA
governments have continued to stimulate their
economies in 2010, and even those that did not
use any type of fiscal stimulus in 2009 have
started implementing fiscal measures in 2010.
MENA’s economic recovery has not been
spectacular. With the exception of the Gulf
Cooperation Council (GCC) economies, the
region was affected much less than other
regions by the global financial and economic
crisis. Lack of integration and a large public
sector helped soften the impact of the crisis,
but now these and other factors are limiting
the pace of expansion on the upside, though
these factors are present to a different extent in
the three major MENA groups of countries—the
GCC oil exporters, the developing oil export-
ers and the oil importers. Part I of the report
examines the short-term growth prospects of
the MENA countries and the risks to the out-
look. Part II discusses long-term development
obstacles—particularly those related to non-oil
export growth.
Composition of country groupings
GCC oil exporters: Bahrain, Kuwait, Oman, Qatar,
Saudi Arabia, and United Arab Emirates (UAE)
Developing oil exporters: Algeria, Islamic Repub-
lic of Iran, Iraq, Libya, Syrian Arab Republic, and
Yemen
Oil importers include countries with strong GCC
links (Djibouti, Jordan, and Lebanon) and those
with strong EU links (the Arab Republic of Egypt,
Morocco and Tunisia).
For ease of exposition and analysis, this country
classification is used consistently throughout the
report. Developing MENA is used to refer to the
group of developing oil exporters and oil importers.
Part I: Sustaining the recovery
The well-integrated GCC countries were hardest
hit by the global economic and financial crisis,
but they recovered quickly as demand for oil
picked up driven by the rapid recovery in emerg-
ing markets, and their financial sectors stabi-
lized. In 2010, economic growth of the GCC group
is projected to reach 4.2 percent—compared to
half a percent growth in 2009, and the expecta-
tion is that growth will reach 5 percent in 2011
before declining to 4.8 percent in 2012. The oil
price rebound from the lows in 2009 has allowed
GCC governments to maintain expansionary fis-
cal policies in 2010, while avoiding deterioration
in their fiscal and current account positions. All
GCC governments continued to stimulate their
xvii
  Sustaining the Recovery and Looking Beyond – A Regional Economic Developments and Prospects Report
economies as the global economy started slowing
down in the second quarter of 2010. The stimu-
lus has supported private consumption, and
because of its large capital spending component
is expected to have facilitated these countries’
economic diversification activities.
The short-term growth outlook for the GCC
economies depends on developments in the rest
of the world, and on the extent to which they
affect oil markets. Global growth is expected to
weaken somewhat in 2011, before picking up a
bit in 2012. Oil prices moved above $85 per barrel
on a depreciating dollar, rising seasonal demand
and a tight global distillate market. Support for
price increases based on demand and supply
factors however is expected to be weak due to
robust non-OPEC production, high inventories
in the US, and ample spare capacity—most of it
concentrated in Saudi Arabia. However, unantici-
pated shocks to supply and other factors includ-
ing price speculation might lead to price spikes.
Tight credit conditions, particularly in
interbank markets, pose another threat to the
economic recovery in the GCC countries. With
the exception of Qatar, credit growth to the
private sector remains anemic due to the uncer-
tainty arising from ongoing debt restructuring,
and the effect of the Dubai World (DW) events.
Significant government support has enabled the
market for large project and corporate finance
to continue functioning, despite heightened
risk aversion and uncertainty. When the GCC
governments have not been directly present in
bond markets, yields have been high.
Given the small export exposure to the EU,
the debt problems in Europe are unlikely to alter
significantly the growth prospects of the GCC
countries unless these problems spread beyond
Europe and affect global demand for oil. The
spike in wheat prices—which nearly doubled in
August 2010 from their lows in June 2010—has
caught the GCC countries in the early stages of
implementing food security strategies, but the
impact of the price spike is expected to be small,
as all GCC countries have fiscal space to respond
to increases in the food import bill. Nevertheless,
the recent food price increases coupled with a
xviii
weakening dollar might stoke inflationary pres-
sures and be a cause for concern.
The GCC countries have fiscal space to
cushion the impact of a potential negative terms-
of-trade shock but the systematic reliance on
government spending poses a medium to long-
term challenge. Some of the fiscal expansion will
be self-terminating when projects get completed,
although the medium-term burden of continued
public spending growth could increase the cost
of capital for the private sector as public saving
declines. It is also unclear to what extent private
sector growth would pick up when public sector
spending declines. In the United Arab Emirates,
there is a huge overhang of partly completed
property developments, and the property price
slump shows no signs of easing. In Qatar, the
outlook is clouded by the oversupplied real estate
market and weak LNG market.
Developing oil exporters such as Algeria,
the Islamic Republic of Iran, Iraq, Libya, Syria,
and the Republic of Yemen felt the impact of the
crisis, and later the recovery largely through the
oil channel as their financial sectors are mostly
state-dominated, and not linked to global finan-
cial markets. Real growth of the developing oil
exporters is projected to average 2.9 percent in
2010—up by less than a percentage point from
growth in 2009, and is expected to reach 4.2
percent in 2011 and 3.9 percent in 2012. While
stimulus has helped the recovery, the rebound has
been weak as quite a few developing oil exporters
faced production-related problems limiting their
oil output. In addition, Algeria backtracked in its
reform efforts by passing laws that increased pro-
tection and the discriminatory treatment of firms.
Developing oil exporters, especially Iraq and
the Republic of Yemen, are vulnerable to a sharp
decline in oil prices as they have much more
limited fiscal space than the GCC oil exporters.
Signaling the increasing use of oil as a main-
stream asset and OPEC’s difficulties with supply
management, oil price volatility has grown over
time and is now much higher than volatility of
other commodity prices. This implies that pru-
dent macroeconomic and oil revenue manage-
ment have become more challenging and more

important than ever before. Strategies aimed at
diversifying the economic base and scaling up
non-oil sources of growth will also help reduce
the vulnerability of these countries to excessive
terms-of-trade volatility.
Some developing oil exporters, most notably
the Republic of Yemen, are also vulnerable to a
food price shock. The cuts in estimated wheat
global production between May and August are
projected to have raised domestic wheat prices
in the Republic of Yemen by 26 percent. This
price increase is likely to have raised poverty
in the Republic of Yemen by slightly more than
0.3 percentage points, which represents an in-
crease in the number of the poor by an estimated
80,000 people. Iraq also appears to be vulnerable
although slightly less than the Republic of Yemen
due to sourcing a smaller share of its wheat con-
sumption from abroad.
Oil importers such as Egypt, Morocco, Tu-
nisia, Lebanon, Jordan and Djibouti weathered
the effects of the global economic and financial
crisis better than other MENA countries, but
developments in Europe are expected to have
dampened growth in 2010, especially of oil
importers with strong EU links. In 2010, real
economic growth of oil importers is expected to
average 4.9 percent and is unlikely to surpass
growth in 2009. Assuming steady progress with
structural reforms, oil importers’ growth after
2010 is expected to surpass pre-crisis levels in
the 2000s, and average 5.3 percent in 2011 and
5.7 percent in 2012.
Oil importers with EU links are likely to face
some repercussions of the expected significant
fiscal contraction in the heavily-indebted, high-
income European countries (EU-5), and more
broadly, the Euro zone. The effects would come
through the balance of payments, reflecting the
impacts on trade, remittances, and FDI flows. Oil
importers with EU links have the greatest trade
exposure to the highly-indebted countries in
the Southern Euro Zone (SEZ), and the second
highest trade exposure to the EU25, after ECA. In
addition, two of the oil importers with EU links—
Morocco and Tunisia—are much more dependent
on the EU for their remittance flows than Egypt
Executive Summary
and the rest of the oil importers. How hard these
countries are hit depends on the extent of the fis-
cal contraction in the EU, and how quickly MENA
countries can shift sales to markets outside the
EU. The impact on the oil importers with GCC
links is expected to be marginal.
With the recent developments in agricultural
markets, the risk of a food price hike has become
a threat to all oil importers. Egypt and Morocco
have the largest estimated monthly imports of
wheat, and therefore face the largest increases
in the import bill as a percent of monthly foreign
reserves. Stimulus has helped oil importers
weather the crisis and support the recovery,
but many of them are now squeezed for fiscal
space which represents a key source of long-term
vulnerability.
Part II. Looking beyond the
recovery and beyond oil
In the last ten years MENA’s growth accelerated
relative to the previous decade in response to
intensified efforts in many countries to bolster
their private sectors and diversify their sources of
growth. The growth response in developing MENA
since 2000 however has been modest in per capita
terms compared to other developing regions. The
capital-intensive oil sector has been and remains
the primary vehicle for revenue and wealth cre-
ation for the oil exporters in MENA, while the
spillover effects to the oil importing countries in
the region and beyond have been significant.
With the benefits from oil, however, come
serious risks as MENA remains uncomfortably
dependent on oil. Some of the risks of this
dependence are well-understood and include
macroeconomic volatility, Dutch disease, envi-
ronmental degradation, political instability and
conflict, and institutional weakness and cor-
ruption. Other risks are less obvious and have
to do with a mismatch between the economy’s
endowment base and its endowment use, and in
the future, the threat of viable alternatives to oil.
Some MENA oil exporters have been taking
steps to minimize the potential risks and enhance
the potential benefits of oil-driven growth. The GCC
xix
  Sustaining the Recovery and Looking Beyond – A Regional Economic Developments and Prospects Report
countries, in particular, have followed prudent
macroeconomic policies, opened up their markets
for goods and labor, saved their oil revenues and
used them strategically to manage volatility and
finance infrastructure, technology and education
investments. However, the labor-abundant devel-
oping oil exporters have been far less successful
than the GCC countries in dealing with some of the
pitfalls of oil dependence. These countries suffer
from weak institutions, conflicts, macroeconomic
volatility, and Dutch disease. The latter has led to
increases in the prices of nontradeables relative
to tradeables, making the nonoil tradeable sector
less competitive internationally, and exacerbating
the dependence on capital-intensive oil exports.
Dutch disease has also become a threat to some oil
importers receiving large remittances and finance
from the GCC markets.
And while the outlook for oil remains prom-
ising in the medium term due to strong demand
for oil in Asia and other fast-growing markets,
counting on oil will not solve the problem of
fueling inclusive growth in the region in coming
years. As the oil industry is capital-intensive,
continued reliance on oil will not address devel-
oping countries’ major issue—employment cre-
ation, and will only worsen the current situation.
MENA needs to expand exports of nonoil goods
and services in order to spur job creation for the
fastest-growing labor force in the middle-income
group of countries. Despite some progress, in
the past decade net exports contributed little
to regional growth, and nonoil exports of goods
and services remain below potential. However,
the situation differs significantly for the GCC oil
exporters and the MENA oil importers whose
nonoil exports of goods and services are at po-
tential, and the developing oil exporters whose
nonoil exports are only slightly more than a fifth
of expected levels.
How did nonoil exports evolve during the
past decade? Do MENA countries face special
market access issues? What are the major ob-
stacles to MENA’s nonoil export growth? Are
reforms implemented by countries addressing
the major constraints? The answers to these
questions vary by country, although common
messages emerge for the region as a whole.
xx
• Restrictive trade policies—especially those
in services—distort incentives, discourage
foreign direct investment, and limit MENA’s
integration within the region and with the
world economy.
• Governance issues linked to discretion in
applying rules and regulations have led to
stagnation, inefficiencies, and privileged ac-
cess for some, but limited access to services,
including finance, resources and information
for micro and small enterprises.
• Inefficient and inflexible labor markets
and scarcity of skills, innovation and
technological capabilities hurt firms’ pro-
ductivity, limit employment creation and the
technological content of MENA’s exports.
How did nonoil exports evolve during
the past decade?
To its credit, pre-crisis MENA has made progress
in achieving greater openness, diversifying its
exports and export destinations. Countries ad-
opted new technologies and aggressive renewable
energy exploitation plans to catalyze industry and
energy diversification. Importantly, MENA made
a major shift in the destinations for its nonoil
goods towards fast-growing Asia and away from
slow-growing EU—a move that has been a lot less
dramatic, but nevertheless substantial for the oil
importers. The shift towards Asia and fast-growing
BRICs is good news for MENA as South-South
trade is expected to play a much more prominent
role in the new post-crisis world trade order.
Nonetheless, the importance of various mar-
kets differs by country group. Europe remains
the most important export destination for ME-
NA’s nonoil products and services. This reflects
largely the fact that the EU receives around half
of oil importers’ exports. Nonoil exports destined
to other MENA countries represents the largest
share of GCC’s total nonoil exports, while for
developing oil exporters Asia has become the
most important nonoil export destination.
The services sector appears to be an area
of relative strength for MENA and a key source
of export revenue and future potential growth.
MENA expanded its share in the global nonoil

export market largely due to an increase in ex-
ports of services. Only one other region in the
world—South Asia—generates a higher share of
output than MENA by exporting services. And
the importance of services as a source of export
growth is much greater for MENA’s oil importing
countries than any other region in the world.
By contrast, merchandise exports of other
developing countries grew much faster than
MENA’s suggesting that MENA firms producing
nonoil merchandise goods are not as competitive
as some of their foreign counterparts. Regional
nonoil merchandise export growth was driven
more by an expansion of existing products to new
markets and new products to existing markets
than by an increase of existing exports to existing
markets. The latter is also indicative of substan-
tial pressures from competition with other emerg-
ing countries’ exports. Oil exporters expanded
exports of industrial products, notably in Asia,
while oil importers were much more successful
than oil exporters in expanding exports of parts
and components to the EU and Asia, and capital
goods to the EU. However, export growth linked
to global production sharing arrangements was
weak relative to export growth of industrial, con-
sumer and food products—especially to the EU.
Growth at the extensive margin is evidence
of the shift toward rapidly growing product and
market segments in Asia and the EU, and also of
the growing importance of exports of industrial
products, and to some extent, global production
sharing arrangements in the electrical and mo-
tor vehicle industries in the oil importers with
strong EU links. However, intra-industry trade
(IIT) remains limited within MENA and with the
rest of the world, and manufacturing activities
in MENA appear to be mostly assembly-type op-
erations directed at domestic markets. The only
country in the region with a significant share of
components in its total exports is Tunisia.
Do MENA countries face special market
access issues?
MENA countries have relatively good market
access for nonagricultural goods in high income
countries, but overall agricultural protection in
Executive Summary
developed markets is high mainly due to non-
tariff barriers (NTBs), especially constraining
oil importers with EU links. MENA countries
have more restricted market access in China
than in advanced markets, and oil importers
with EU links encountered much higher overall
protection than others because of high tariffs on
specific products exported to China.
All regions face higher protection in India
than elsewhere, and MENA region is not an excep-
tion. Furthermore, the region encounters higher
protection on its nonoil exports to India than
most other regions, largely because of high bar-
riers on GCC’s nonoil exports. However, overall
protection on oil importers’ exports was generally
lower in India than in China, reflecting a product
composition effect. Notably, there is no evidence
that in general protection has increased substan-
tially since 2008 when the global crisis erupted.
Despite good market access developing MENA
countries do not exploit well existing opportu-
nities for nonoil export growth. Developing oil
exporters such as the Republic of Yemen, Algeria,
the Islamic Republic of Iran, and Syria exported
their products to less than 5 percent of markets
in 2005. Oil importers were more successful
than them, but still most exported products to
less than 7 percent of markets, and compared
poorly to other countries, including Turkey which
reached 27 percent of markets for its products.
Furthermore, success in penetrating foreign
markets varies greatly across MENA countries
and cannot be explained just with differences in
protection across markets, but rather reflects lack
of information about markets—an area of special
concern to export-oriented firms in MENA—and
other constraints limiting firms’ competitiveness.
What are the major obstacles to
MENA’s nonoil export growth?
A range of factors impede MENA’s nonoil export
growth, discourage investment, and hurt firms’
competitiveness, and labor and total factor pro-
ductivity levels vary substantially within the re-
gion. Firms from GCC countries are much more
productive than firms from developing MENA,
while developing oil exporters’ firms are least
xxi
  Sustaining the Recovery and Looking Beyond – A Regional Economic Developments and Prospects Report
productive. Accordingly, the three major groups
of countries face different constraints to nonoil
export growth.
In the GCC countries, limited access to fi-
nance for small and medium enterprises (SMEs),
distortions in labor markets that discourage
skill acquisition and entry into the private sec-
tor, and discriminatory policies that discourage
FDI inflows into some of the services sectors
are major problems. Innovation and technologi-
cal readiness also appear to be areas in need of
special attention as these countries are behind
their peers in the developed world.
In developing oil exporters, nonoil tariff
and nontariff protection is highest in the world,
taxes and corruption are the most frequently-
mentioned major complaints by exporting
firms, but due to the dominance of the state,
other issues, especially inefficiencies in labor
and goods markets, and poor financial market
development, present even bigger problems for
the competitiveness and growth prospects of the
export-oriented sector.
In oil importing countries—especially those
with EU links—protection is still high largely
due to nontariff barriers. Wide dispersion of
tariffs across countries implies that industries in
these countries benefit to varying degrees from
policy-generated transfers, making the opening
of markets among regional partners difficult de-
spite PAFTA. Protection in services also remains
high and beyond the scope of regional agreement
such as PAFTA and the bilateral FTAs with the
EU. Limited fiscal space in quite a few of the
oil importers implies that macroeconomic un-
certainty remains a top-most concern for firms,
while the inefficient and inflexible labor market
is another weakness. Furthermore, to be able to
compete effectively in global markets, firms in
oil importing countries must catch up with East
Asian firms in terms of innovation efforts.
Are reforms implemented by countries
addressing the major constraints?
MENA countries are implementing reforms ad-
dressing some of the constraints to nonoil export
xxii
growth identified in the report, but in many coun-
tries a lot more needs to be accomplished as wide
policy gaps remain in some areas. The average
number of reforms in MENA steadily increased
during the last 5 years. Between June 2009 and
May 2010, 11 of 18 economies in MENA adopted
a total of 22 business regulation reforms to im-
prove the climate for doing business according
to the latest Doing Business report (2011). The
top reformers in the region were Saudi Arabia
and Egypt which were among the 15 most active
reformers in the last 5 years.
MENA governments improved macroeconomic
management, simplified business regulations,
reduced tariffs, and started gradual opening of
their financial sectors. In an effort to increase ac-
cess to finance, the Islamic Republic of Iran, Syria,
the United Arab Emirates, Jordan and Lebanon
made improvements of their credit information
systems. Many of the reforms involved the applica-
tion of new information technologies which would
increase information flow and the efficiency and
transparency of operations. Improvements were
made to trade facilitation in some GCC countries
including Saudi Arabia, the United Arab Emir-
ates, and Bahrain, as well as in the oil importers
with EU links. The Republic of Yemen approved
an amendment to its Customs law to meet WTO
membership requirements and standards, with the
aim of completing WTO accession by end of 2010.
In the GCC, Qatar is easing restrictions on
majority foreign ownership of local companies,
while some GCC countries are preparing or al-
ready implementing reforms addressing issues
related to their major competitiveness issue—skill
shortages and labor market regulations. Devel-
oping oil exporters are planning to improve the
functioning of their financial, inputs and goods
markets. As part of its ongoing financial system
reform program, Syria has initiated a new compe-
tition and anti-trust law for the financial sector.
Iraq has adopted an action plan to modernize
its banking sector.
Several developing MENA countries with lim-
ited fiscal space are planning reforms to address
macroeconomic imbalances and uncertainty.
Tunisia is preparing a law to ensure financial

viability of pension schemes over the next 20
years without additional tax increases or budget
financing. Jordan is making a shift away from
publicly funded investments towards PPP ar-
rangements. Some developing oil exporters are
preparing improvements to their tax code and
removals of costly distortions. A number of oil
importers are planning measures to strengthen
financial stability, improve access to finance for
SMEs and remove limits on FDI in certain sectors.
Wide policy gaps, however, remain in a num-
ber of areas where governments should step up
reform efforts. In the GCC, more needs to be done
to address the issue of skill shortages in a com-
prehensive way. GCC governments should con-
tinue to invest in skills, facilitate the matching
of labor supply and demand through improved
data collection, information and intermediation
services. It would be critical to coordinate migra-
Executive Summary
tion reform and reforms required to transition
to technology-intensive production. A lot more
needs to be done to understand the nature and
extent to which regulations restrict trade and
FDI in the GCC services.
In developing MENA, countries need to
intensify efforts to strengthen institutions, im-
prove information gathering and dissemination,
and reform implementation. Countries should
press on with financial market development—
especially improving financial infrastructure,
while further strengthening macroeconomic
management, addressing inefficiencies in labor
and goods markets, and facilitating innovation
activities, knowledge and technological acquisi-
tion. Finally, it should be a priority to understand
better the nature and extent to which nontariff
barriers and regulations restrict trade in non-oil
goods and services.
xxiii
Part I. Sustaining the Recovery
 Chapter 1
MENA is recovering from
the crisis, but slowly
The Middle East and North Africa (MENA) re- Figure 1: Growth outlook (real GDP growth
gion is recovering from the global financial and rates in percent)
economic crisis along with the global economy
and with all the attendant uncertainties. MENA World Developing countries ECA
Developed countries MENA LAC
was affected by the financial and economic crisis 8
but to a much smaller extent than developed
6
economies and developing regions outside Asia.
The economic recovery in MENA has also been 4
much less vigorous than the recovery in coun- 2
tries that suffered sharp output contractions 0
(Figure 1). The factors that helped MENA avoid
–2
severe recession—a large public sector and lack
of integration with the global economy—now –4
seem to be constraining the growth recovery. –6
2008 2009e 2010f 2011f 2012f
Growth in MENA is expected to average 4 per-
cent in 2010, an increase of slightly less than Source: World Bank, Global Economic Prospects 2010 and
2 percentage points over growth in 2009, and MENA Social and Economic Development Group.

weak compared to increases of 5.6 percentage

points in advanced economies and 4.5 percent-
age points in developing nations on average
Figure 2: Growth accelerations in 2010
(Figure 2). MENA’s output growth in 2011 and (percentage point change relative to 2009)
2012 is expected to return to the average growth 10
rates observed in the 2000s, prior to the eco- 9
nomic and financial crisis. 8
7
In the near term growth would be driven by 6
consumption and investment expansion, and 5
a recovery in exports (Table 1). Government 4
consumption is expected to remain an impor- 3
tant driver of growth in MENA although the 2
extent to which individual governments will be 1
0
able to stimulate their economies will depend
World

Developed
countries

Developing
countries

MENA

ECA

LAC

on the degree of fiscal space available. Given

the uncertainty about the economic prospects
of the global economy, it is difficult to forecast
the extent to which exports would contribute to Source: World Bank, Global Economic Prospects 2010 and
growth in MENA going forward and the extent MENA Social and Economic Development Group.

3
  Sustaining the Recovery and Looking Beyond – A Regional Economic Developments and Prospects Report
Table 1: Demand-side sources of growth in MENA
Private Government
GDP growth, % Consumption Consumption
2007 5.6 4.4 2.5
2008 5.3 3.2 2.1
2009 2.0 1.4 2.0
2010f 4.0 2.4 1.8
2011f 4.8 3.1 1.9
Source: Staff calculations based on World Bank data. Data for 2010 and 2011 are forecasts.
to which private consumption and investment
will pick up pace. It is important to recognize
that the outlook by country will differ depend-
ing on initial conditions and the linkages to the
global economy through the financial, oil, and
the balance-of-payments channels.
MENA’s recovery has been driven by
the global rebound and, to varying
degrees, by domestic stimulus
In MENA, the well-integrated GCC countries
were hardest hit by the global economic and
financial crisis, but they recovered quickly as
demand for oil picked up, driven by the rapid
recovery in emerging markets, most notably Asia,
and the GCC financial sector stabilized. In 2010
growth is projected at 4.2 percent—a strong come-
back from near zero growth in 2009 (Figure 3),
and the expectation is that growth will acceler-
ate to 5 percent in 2011 before declining to 4.8
percent in 2012.
GCC governments responded quickly with
monetary and fiscal stimuli, and their accumu-
lated reserves and other assets enabled them
to prevent a deeper deceleration in growth, and
support a rebound in growth. However, economic
growth has been constrained by anemic credit
growth, which has started inching higher only
recently, and by the fact that the four GCC mem-
bers of OPEC have restrained output of crude oil
to support oil prices, in the face of large stock
overhang and rising non-OPEC supply. At present,
nearly two thirds of OPEC ample spare capacity of
6 million barrels per day has been in Saudi Arabia.
4
Exports of Imports of
Gross Domestic Goods and Goods and
Investment Services Services
4.3 2.2 –7.8
2.8 2.7 –5.5
0.6 –1.1 –1.0
1.7 1.2 –3.1
1.7 1.8 –3.7
Governments facilitated the recovery and
the return to stability by using monetary easing,
including lower reserve requirements of banks,
liquidity support from central banks or govern-
ments, government guarantees on deposits and
debt, capital injections and, in Qatar, asset pur-
chases.1 The fiscal stimulus aimed to help the
recovery, but also to enhance long-term growth
prospects, mainly through capital expenditures
concentrated on infrastructure investments. For
example, ongoing large fiscal spending by Abu
Dhabi has supported its long-term diversification
strategy.
The GCC recovery has had a positive impact
on other MENA countries, and more broadly, on
the global economy, mainly through increased
outflows of remittances and capital flows. 2
Remittance outflows from GCC countries re-
mained resilient during the crisis and continued
to grow in 2009, albeit at a smaller pace than
the one registered during the pre-crisis period.
The investment programs part of the GCC gov-
ernments’ fiscal stimulus tended to be labor in-
tensive, although most entailed use of imported
labor, and therefore stimulated the economies
of countries supplying migrants, e.g. those in
developing MENA and South Asia.
1
These share common elements with the support measures
introduced in the US, EU and Eastern Europe.
2
The GCC states are an important source of remittances, and
increasingly foreign investments. These countries generate more
than 10 percent of global annual remittance flows, while their
estimated accumulated reserves and assets in sovereign wealth
funds exceed US$1.5 trillion.
 Chapter 1: MENA is Recovering from the Crisis, but Slowly

Developing oil exporters such as Algeria, the Figure 3: MENA’s annual real growth
Islamic Republic of Iran, Iraq, Libya, Syria and performance before, during, and after
the Republic of Yemen also felt the impact of the the crisis
crisis, and later the recovery largely through the
oil channel as their financial sectors are mostly MENA region Developing oil exporters
GCC oil exporters Oil importers
state-dominated, and not linked to global financial 8
markets. The strong rebound in oil prices during
7
the past 12 months improved the fiscal and growth
6
outlooks (Figure 21 and Figure 3) for this highly
5
dependent on oil country group (Figure 4). Real

Percent
4
growth is projected to be 2.9 percent in 2010, up
from 2.1 percent in 2009, and accelerate to 4.2 3

percent in 2011, and 3.9 percent in 2012. Public 2

spending of developing oil exporters is typically
pro-cyclical, but during the recent crisis govern-
ments in a number of these countries responded
with counter-cyclical fiscal policies, in addition
to monetary easing and financial sector support
measures. Monetary easing measures included
lower reserve requirements in Algeria, the Is-
lamic Republic of Iran, and Syria, interest rate
reductions in Syria and drawdown of reserves in
Algeria, while financial sector measures covered
government guarantees on deposits, liquidity
support and asset purchases. Debt relief measures
were adopted in Algeria, where they benefited
mostly farmers and SOEs, and in Syria.
Unlike other governments which eased
liquidity constraints in 2009, Algeria’s gov-
1
0
2006 2007 2008 2009 2010e 2011p 2012p
Source: National agencies and World Bank staff estimates (e)
for 2010, and projections (p) for 2011 and 2012.
ernment passed a supplementary budget law
which banned credit to consumers, except for
mortgages, as well as supplier credits to finance
imports—only letters of credit may now be used.
The law aims to protect consumers from exces-
sive debt and restrain importation of durable
consumer goods. The measures form part of a
package of regulatory reform measures passed
in 2009 in favor of domestic over foreign opera-
tors, including minimum local ownership of 51

Figure 4: Sources of external revenue, 20081

Goods exports (non oil) Oil exports Services exports Remittances

70%

60%

50%
Share of GDP

40%

30%

20%

10%

0%
SSA EAP ECA LAC SAS MENA Oil Other Oil GCC
Importer Exporters

Source: COMTRADE data and IMF.

Note: Other oil exporters are developing oil exporters in MENA. Oil importers are MENA’s oil importing countries.
1
See statistical appendix for country-specific macroeconomic information.

5
  Sustaining the Recovery and Looking Beyond – A Regional Economic Developments and Prospects Report

Table 2: MENA countries’ fiscal space in 2008

Reserves
Current (including
account Government Reserves in SWF) in
Fiscal balance balance as % debt as % of months of months of
as % of GDP of GDP GDP imports imports
Oil exporters
GCC
Bahrain 4.9 10.6 15.2 2.9 13.6
Kuwait 19.9 40.7 5.3 6.3 86.6
Oman 13.9 9.1 5.0 5.5 6.4
Qatar 10.9 33.0 15.0 3.8 23.1
Saudi Arabia 32.5 27.8 13.3 27.4 45.4
United Arab Emirates 20.4 8.5 15.1 1.8 16.7
Developing oil exporters
Algeria 7.7 20.2 8.2 34.5 45.1
Iran, Islamic Republic of 0.0 7.2 16.1 8.0 9.2
Iraq –3.3 12.8 108.5 14.6
Libya 24.6 40.7 0.0 42.6 65.7
Syrian Arab Republic –2.8 –1.9 30.2 9.4 —
Yemen, Rep. –4.5 –4.6 36.4 7.5 —
Oil importers
Oil importers with GCC links
Djibouti 1.3 –27.6 60.2 3.0 —
Jordan –8.8 –9.6 62.3 5.6 —
Lebanon –8.8 –19.8 157.1 18.7 —
Oil importers with EU links
Egypt, Arab Rep. –6.8 0.5 76.6 6.6 —
Morocco 0.4 –5.2 47.2 6.3 —
Tunisia –1.0 –3.8 47.5 4.0 —
Source: World Bank data, Government debt and SWF data are from IMF

Fiscal balance Larger than 2% of GDP –2% to +2% of GDP Less than –2% of GDP
Current account balance Larger than 3% of GDP –3% to +3% of GDP Less than –3% of GDP
Government debt 0 to 30% of GDP 30% to 80% of GDP Larger than 80% of GDP
International reserves in months of imports More than 6 months Between 3–6 months Less than 3 months

percent on foreign investment, and policies to (Table 2). Unlike the GCC countries, developing
restrict imports to encourage domestic produc- oil exporters implemented their stimulus mainly
tion. The law included a 400% increase in the through increases in current expenditures, 3
cap on government guarantees for SME loans.

The extent to which governments were able to 3

Indeed, only one of the 6 developing oil exporters (Syria)
use fiscal stimulus depended on their fiscal space increased capital spending by 40% in 2009 relative to 2008.

6

especially subsidies and transfers, but also public
wages, and therefore could hurt, not enhance
their long-term growth prospects. In Algeria, the
fiscal stimulus involved increases of 25 percent
in transfers and social subsidies, including milk
and wheat subsidies, and housing support. While
a portion of this spending, such as aid to students
from poor families or those living in remote areas,
targeted the poor, some of it supported special
groups. For example, a new public investment
fund was created to invest in SMEs created by
young Algerian entrepreneurs, subsidies for
down payment and interest were extended to
low-income households and tax exemptions were
granted to homeowners renting housing to low-
income families, but also mortgages were granted
to public servants at a subsidized interest rate of
one percent.
In Syria, the stimulus was a mix of spending
measures and tax cuts. The government increased
wages by 23 percent, investment by 40 percent,
and implemented measures to compensate for ris-
ing fuel prices and mitigate the impacts of drought.
Tax incentives included tax breaks for farmers
and tax incentives to encourage companies to
contribute to strategic objectives such as locating
production in remote areas, creating jobs and par-
ticipating in initial public offerings. The Republic
of Yemen had limited fiscal space and provided few
interventions. Social security interventions for the
most vulnerable were implemented with financing
from the Crisis Response Facility provided by the
World Bank. In Iraq, where the fall in oil prices
severely affected public finances, the World Bank
provided financial support through a development
policy loan, working closely with the IMF.
Oil importers such as Egypt, Morocco, Tu-
nisia, Lebanon, Jordan and Djibouti, were least
affected by the global economic and financial
crisis, but growth in 2010 is expected to average
4.9 percent and is unlikely to surpass growth in
2009 (Figure 3), largely due to the weak growth
expected in developed markets, and the fact
that growth will moderate from relatively high
levels in Lebanon and Djibouti. Assuming steady
progress with structural reforms, oil importers’
growth in 2010 is expected to surpass pre-crisis
levels in the 2000s, and average 5.3 percent
Chapter 1: MENA is Recovering from the Crisis, but Slowly
in 2011 and 5.7 percent in 2012. Despite the
challenges brought by the global economic and
financial crisis, with a few exceptions,4 reforms
have broadly remained on track, while in some
cases countries have steamed ahead with reforms
started before the crisis. Examples of such re-
forms include pension and social welfare reform
in Egypt and trade liberalization and economic
integration in Tunisia.
Fiscal policy of oil importers with EU links
has been expansionary, as countries launched
various measures to stimulate demand, and in
some cases the private sector. This expansionary
stance will make it harder for these countries to
improve fiscal space and reduce macroeconomic
vulnerabilities. In addition to easing liquid-
ity constraints on banks and firms,5 so far the
response has focused on mitigating the short-
term impact of the crisis on the real economy,
although some measures including tax cuts
and investment expenditure would promote
sustained growth. In Tunisia and Morocco, fis-
cal stimulus through increased current expen-
ditures included measures to support private
consumption, in the form of public sector wage
increases, and measures to help SMEs cope
with the decline of external demand, includ-
ing guarantees of working capital loans, easing
of regulation, and debt rescheduling facilities.
Assistance to firms, irrespective of size, was
provided in Egypt through transfers supporting
exporters, industrial zones in the Delta region,
and logistic areas for internal trade.
Stimulus through capital expenditure in-
creases went into job-creating infrastructure
investments in Egypt and Tunisia. In addition,
Egypt increased investments in rural and
social sectors. A range of tax measures were
4
For example, Egypt halted the energy subsidy reform. It ad-
opted a one-year freeze of the energy subsidy phase-out plan
for non-intensive industrial users, and extended the freeze for
another six months to June 2010.
5
Liquidity support was pursued in Tunisia and Morocco, while
government deposits in the banking sector were increased in
Egypt. Monetary easing, particularly reduction in reserve re-
quirements, was employed in all three countries. Interest rates
were lowered in Tunisia and Egypt, and international reserves
declined in Egypt.
7
  Sustaining the Recovery and Looking Beyond – A Regional Economic Developments and Prospects Report
introduced in Egypt, including cuts in customs
duties on selected industrial inputs and capi-
tal goods, temporary suspension of the sales
tax on selected capital goods, introduction of
import tariffs on steel, and imposition of anti-
dumping duties on sugar to protect domestic
production.
The economies of oil importers with strong
GCC links such as Lebanon, Jordan and Djibouti
were relatively unaffected by the crisis and man-
aged to grow at a robust pace of 6.5 percent per
year in 2009. Growth slowed down substantially
only in Jordan, where it fell from 7.6 percent in
2008 to 2.3 percent in 2009. This sharp slow-
down prompted authorities to respond with a
combination of financial, monetary and fiscal
measures, the latter reflecting a mix of tax cuts
and spending increases. Financial measures
included full guarantees provided on all bank
deposits, initially through the end of 2009, and
subsequently extended through the end of 2010;
the provision of guarantees for private sector
borrowing, targeting listed industrial and real
estate companies with sound credit record facing
temporary difficulties obtaining financing;6 and
a scale back of operations to soak up liquidity
by the Central Bank of Jordan. Monetary mea-
sures included lower reserve requirements and
interest rates, and an increase in international
reserves.
To mitigate the impact of the crisis on the
poor, the government of Jordan used largely a
combination of tax cuts and exemptions, and capi-
tal spending increases that are likely to enhance
the country’s growth prospects. Jordan increased
public investment by 52 percent between 2008 and
2009 in order to tackle infrastructure bottlenecks
in the road and water sectors, and granted tax re-
lief for a number of sectors. The government grant-
ed tax exemptions to the tourism sector, extended
tax exemptions on some imported construction
materials in response to signs of contraction in key
sectors, full exemptions from income taxes in the
agriculture sector and for households with income
up to a certain level, corporate tax exemptions or
reductions in a number of sectors.7 Jordan used
subsidies sparingly extending a subsidy only on
gas cylinders used for cooking.
8
Djibouti and Lebanon registered only minor
declines in growth during the same period, with
both economies growing at 5 and 9 percent,
respectively, in 2009. Lebanon grew at a much
faster pace than other oil importers with GCC
links, reflecting a post-conflict recovery boom
aided by strength in certain sectors—tourism
and real estate—and vibrant private investment.
Policy interventions in Lebanon helped fuel
the post-conflict recovery boom, but strained
further the fiscal outlook. Public sector wages
increased, and a daily compensation fee was in-
troduced for low-income public school students.
Other policies were introduced to ensure access
to finance, including subsidized interest rates
extended to all sectors, except construction and
trade, and strengthen macroeconomic funda-
mentals such as an increase in international
reserves.
MENA labor markets remained
relatively unscathed by the crisis
but impacts differed between
countries
Even though economic recovery has been under
way, global unemployment has been lagging
behind and the specter of a jobless recovery
has been observed in many countries. Globally,
unemployment is estimated to have risen in
2010 with an increase of more than 30 million
since 2007 (Figure 5). Three-quarters of this
increase has occurred in the advanced econo-
mies and the remainder among developing
economies. Within the advanced countries, the
problem is particularly severe in Spain, where
the unemployment rate increased by nearly 10
percentage points, and the United States which
6
The proposed scheme covers 35 percent of the value of the
loan, requires security of at least 125 percent of the financ-
ing value and targets projects that are more than 25 percent
complete.
7
These included full exemption from income taxes of income
arising from the agriculture sector, as well as for households
with income up to JD24,000; full exemption from corporate
tax for agribusinesses, for the first JD75,000 in income; and
corporate tax reduction for industrial companies (from 15 to
14 percent), for trade and tourism companies (from 25 to 14
percent), and for financial and telecommunications companies
(from 35 to 30 percent).
 Chapter 1: MENA is Recovering from the Crisis, but Slowly

Figure 5: Global unemployment and real growth

Unemployment GDP growth (right axis)

215 5

205 4
3
195
2
Millions

Percent
185
1
175
0
165
–1
155 –2
145 –3
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Source: World Bank data and ILO.

Note: Data for 2010 is a forecast.

has seen the highest increase in the number of Figure 6: Changes in number of
unemployed. Among developing economies, unemployed, 2007–09 (in millions)
China and the Russian Federation had the
largest increases in the number of unemployed Total number of unemployed in Developing countries:
(Figure 6). The export sectors were hardest 8 millions
hit in terms of jobs, and informal employment
expanded implying that the number of workers
with little or no social protection increased. Russian
Federation, 1.9
China, 3
The economic crisis triggered dramatic re-
ductions in activity in sectors that had expanded Other
substantially during the upswing and were at the developing
countries,
center of the crisis—such as financial services, 1.2
Turkey,
real estate and construction. In response, many Mexico, 1.1
advanced economies put in place mechanisms 0.9
to stimulate labor demand including direct job
subsidies, wage subsidies or reductions in payroll
taxes targeting specific groups in the labor force Source: IMF, World Economic Outlook.
that are most vulnerable to joblessness such as
the long-term unemployed and the youth.

Job losses in the GCC countries were
steep but affected mainly expatriate
workers
Job losses in the GCC countries were steep be-
cause of their high exposure to credit financing
and global markets. Labor markets were hardest
hit in the United Arab Emirates (Figure 7), most
notably Dubai, where the labor-intensive real
estate sector contracted sharply. Recent analysis
based on labor surveys of professionals shows
that a total of 10% of professional jobs in the Gulf
were cut down over the 12-month period up to
August 2009. Small firms registered steeper job
losses (14 percent) than larger firms (8 percent).
Moves by some GCC governments to restrict
termination of Gulf nationals have helped se-
cure their jobs in the short run. However, with
termination not an option, some employers have
become more cautious in hiring nationals.

9
  Sustaining the Recovery and Looking Beyond – A Regional Economic Developments and Prospects Report

Figure 7: Job cuts by country and sector in GCC, 2009

Retail 7% Oman 6%
Health care 8%
Saudi Arabia 7%
Oil & gas 10%

Construction 10% Qatar 9%

Education 11%
Kuwait 10%
Advertising 12%

Telecom & IT 12% Bahrain 12%

Banking 13%
United Arab
Emirates 18%
Real estate 15%

Source: Survey based on Gulftalent.com

The job cuts have disrupted the lives of Figure 8: The crisis did not affect aggregate
many expatriates as they typically lack social employment in Egypt, Arab Rep.
security or unemployment benefits, and most
are required by local immigration laws to depart Labor force Linear (Labor force
participation participation)
within 30 days of termination. With new vacan- Unemployment Linear (Unemployment
cies few and extremely competitive, many have rate (RHS) rate (RHS))
relocated from Dubai to Abu Dhabi,8 and other 53 14
GCC countries or have returned home. Across 52 12
the region, some firms took advantage of the 51 10
greater supply of candidates to get rid of under-
50
performing employees, and to replace them with 8
49
higher-skilled professionals who had previously 6
been either unavailable or unaffordable. It is 48
4
estimated that in 2010 further job cuts are likely, 47
albeit at a slower pace than the one witnessed 46 2
over the past 12 months. 45 0
2006Q1
2006Q2
2006Q3
2006Q4
2007Q1
2007Q2
2007Q3
2007Q4
2008Q1
2008Q2
2008Q3
2008Q4
2009Q1
2009Q2
2009Q3
2009Q4
The impact of the crisis on oil
importers’ labor markets was mild
Source: Population Council (2010).
Note: RHS stands for right-hand side.
The impact of the crisis on the labor markets in
Egypt and Jordan was mild, according to recent
analyses, based on a unique set of labor force sur-
veys conducted in the two countries before and of the crisis on hours worked, informality of
after the crisis.9 In Egypt, opposite to expecta- employment and sectoral labor shifts have been
tions, there was a mild decline in unemployment
(Figure 8), combined with a slight increase in 8
Survey data show that, among expatriates living in Dubai, the
both labor force participation and employment- percentage who work in Abu Dhabi has tripled over the last year
to-population ratios during the period from 2006 from 1% to 3%. Most of those who relocated from Dubai to Abu
to 2009. This decline in unemployment was Dhabi are high-income professionals.
observed in rural and urban areas, and affected
9
The report presents analysis of the impact of the crisis on labor
markets only for Egypt and Jordan as data are not available for
both men and women. Additionally, the effects any other developing MENA country.

10
 Chapter 1: MENA is Recovering from the Crisis, but Slowly

minimal. However, the crisis-related decline in Figure 9: Crisis-related decline in real

real earnings growth and, hence in the wage bill earnings and wages growth in Egypt, Arab Rep.
growth have been substantial (Figure 9).10 The
young, old, unskilled and female workers were Wagebill growth Employment growth
Monthly real earnings growth
more likely to be vulnerable than other groups
40
in the workforce.
30
The crisis slowed down employment growth

Percentage change
20
in Jordan (Figure 10), but changes in labor-force
10
participation, employment and unemployment
were small in magnitude. Unlike Egypt, the 0
segments of the labor force hit hardest by the –10
crisis included those with tertiary levels of
–20
education or above. Indeed, men with tertiary
degrees were the only group that experienced –30

Q1Yr07
Q2Yr07
Q3Yr07
Q4Yr07
Q1Yr08
Q2Yr08
Q3Yr08
Q4Yr08
Q1Yr09
Q2Yr09
Q3Yr09
Q4Yr09
increases in unemployment rates following the
crisis. People in urban areas suffered more from
the crisis than those in rural areas. Among men, Source: Population Council (2010).
older workers tended to be somewhat more
negatively affected than younger ones, whereas
among women, the middle-aged group was the
Figure 10: Output and employment growth in
worst affected.
Jordan
Unemployment remains on an upward trend Employment growth GDP growth
in Tunisia, although the measures adopted by 16%
the government during the crisis to support dis- 14%
tressed firms helped contain the impact of the 12%
economic slowdown on employment. To achieve 10%
Tunisia’s medium-term objectives of boosting 8%
employment-generating growth and lowering 6%
unemployment, the authorities are developing an 4%
export promotion strategy that seeks to diversify 2%
target markets and products.11 The authorities 0%
–2%
have also identified a number of reforms of la-
–4%
bor market policies, the education system, and
Q1Yr07
Q2Yr07
Q3Yr07
Q4Yr07
Q1Yr08
Q2Yr08
Q3Yr08
Q4Yr08
Q1Yr09
Q2Yr09
Q3Yr09
Q4Yr09

public employment services that will serve to

Source: Population Council (2010).

10
The real wage bill is defined as the product of total employ-
ment and median real earnings.
11
The government of Tunisia signed a preferential trade agree-
ment with the West African Economic and Monetary Union, and facilitate labor mobility and reduce mismatches
is currently negotiating free trade agreements with the Central between demand and supply in the labor market.
African Economic and Monetary Community. Bilateral negotia- The implementation of these reforms will be
tions with the European Union are also under way to extend
the FTA beyond industrial products to services, agricultural supported by several World Bank Development
products, and processed food. Policy Loans.

11
 Chapter 2
MENA’s recovery is
Proceeding in an uncertain
Global economic context

The Middle East and North Africa (MENA) region
is recovering in an uncertain global environ-
ment. Industrial production, which in MENA
is dominated by oil, has nearly returned to its
pre-crisis peak (Figure 11), largely due to the
strong recovery in emerging markets, especially
Asia (Figure 12). However, the upturn weakened
in the summer of 2010 as global growth slowed
down (Figure 13) and serious concerns emerged
about the sustainability of the global recovery.
The pace of recovery decelerated as the impact of
rebound factors, including inventory restocking
and government stimuli, faded. Industrial pro-
duction growth rates declined, with almost all of
the decrease occurring in developing countries.
But latest information suggests that industrial
production in emerging economies is beginning
to pick up, while deceleration continues in high
income countries.
Persistently high unemployment rates, weak
housing data, anemic credit growth, especially to
SMEs in the US, and a deceleration of growth in
developing countries (Figure 12), notably China,
have added to concerns about the sustainability
of the global recovery. Credit growth in China

Figure 11: Industrial production (percent difference from pre-crisis peak to June 2010)

35
30
25
20
15
10
5
0
–5
–10
–15
High income

Russian
Federation

LAC x Brazil

Brazil

ECA x Russian
Federation

MENA

World

Dev x China

EAP x China

SAS x India

India

China

Source: World Bank based on data from Datastream.

13
  Sustaining the Recovery and Looking Beyond – A Regional Economic Developments and Prospects Report

Figure 12: Industrial production, seasonally has slowed down but the rates at which credit is
adjusted year-on-year real growth rates expanding remain higher than in other emerging
markets. However, GCC countries other than fast-
DEV WLD HIY MENA growing Qatar are exceptions. Credit growth in
EAP ECA LAC SAS
these countries slowed down rapidly in response
25
to the crisis and has started inching higher only
20
recently (Figure 14).
15
10
5
Growth in global trade volumes has decelerat-
0 ed (Figure 15, Figure 16) as developing countries,
–5 adjusted the pace of importing goods from the
–10 rest of the world, likely in response to the end to
–15 inventory re-stocking. However, import demand
–20 of high income countries appears to be reviving
–25 after recent lows, in line with the increase in do-
Jan–08
Mar–08
May–08
Jul–08
Sep–08
Nov–08
Jan–09
Mar–09
May–09
Jul–09
Sep–09
Nov–09
Jan–10
Mar–10
May–12
mestic demand in the US and EU. The persistent
lack of jobs growth in the US constrains consumer
spending, which is a major driver of US output
Source: World Bank based on data from Datastream.
growth on the expenditure side.

Figure 13: Output growth (real GDP, % Strong external demand for European, and
change quarter-on-quarter) especially German capital goods and motor ve-
World Advanced economies
hicles, has been supported by the depreciation of
Emerging and developing economies the euro against the dollar and other currencies
15 since the start of the year. The surge in exports
strengthened considerably the growth outlook
10 in the EU in the second quarter of 2010, while
the opposite was the case in the US, where im-
5 ports surged in response to strong domestic final
demand.12 In Japan, the strong contribution of
0 exports to growth in the first quarter of this year
is likely to have moderated substantially in the
–5
second quarter due to the appreciation of the
yen against the dollar and the weakened import
–10
demand in China and elsewhere.
2006Q1
2006Q2
2006Q3
2006Q4
2007Q1
2007Q2
2007Q3
2007Q4
2008Q1
2008Q2
2008Q3
2008Q4
2009Q1
2009Q2
2009Q3
2009Q4
2010Q1
2010Q2

Financial market volatility reflects

Source: IMF. the unusually uncertain global
outlook
continues to moderate and is approaching pre- Financial markets have been unsettled since
crisis rates, but credit growth in other emerging the end of April when equity markets reached
markets is picking up pace (Figure 14). It in- their peak during the last 12-month period.
creased steadily in Latin America and Caribbean Sentiments changed often based on news about
(LAC) since end-2009, and it turned positive the global recovery, Europe’s debt problems, the
even in Eastern Europe and Central Asia (ECA) passage of new financial reform legislation and
in the second quarter of 2010. In developed
countries, large firms have had good access to
corporate debt markets but credit growth re- 12
In July, however, the US trade deficit contracted sharply as
mains anemic in the US. Credit growth in MENA export of airplanes surged and imports fell across the board.

14
 Chapter 2: MENA’s Recovery is Proceeding in an Uncertain Global Economic Context

Figure 14: Credit growth (YoY, in percent)

Credit Growth (YoY, in percent) – Emerging Regions

Asia excl. China ECA LAC China

45

35

25

15

–5
Jan–06
Mar–06
May–06
Jul–06
Sep–06
Nov–06
Jan–07
Mar–07
May–07
Jul–07
Sep–07
Nov–07
Jan–08
Mar–08
May–08
Jul–08
Sep–08
Nov–08
Jan–09
Mar–09
May–09
Jul–09
Sep–09
Nov–09
Jan–10
Mar–10
May–10
Credit Growth (YoY, in percent) – MENA

GCC Non-GCC Emerging Non-GCC State-dominated

60

50

40

30

20

10

0
Jan–06
Mar–06
May–06
Jul–06
Sep–06
Nov–06
Jan–07
Mar–07
May–07
Jul–07
Sep–07
Nov–07
Jan–08
Mar–08
May–08
Jul–08
Sep–08
Nov–08
Jan–09
Mar–09
May–09
Jul–09
Sep–09
Nov–09
Jan–10
Mar–10
May–10

Source: Datastream.

fiscal austerity measures in a number of devel- refinancing of 1.6 trillion euro-denominated debt
oped economies. The move of many European by 2012.
governments toward fiscal austerity, combined
with well-publicized outcomes of stress tests on Financial markets reflected the debt dif-
the largest European banks, appeared to have ficulties in Europe with a pullback in equity
increased confidence13 and is expected to be
helpful to medium-term growth in the euro area.
Indeed, EU confidence surveys were sharply 13
The EU stress test covered 91 European banks and focused
up in July. But the shift in market sentiment on how they would cope with another economic downturn
and losses on trading portfolios of government bonds. Results
has not been dramatic and sovereign default revealed that seven EU banks, including a group of five Spanish
remains a concern in Europe as the real test for unlisted savings banks, Germany‘s Hypo Real Estate and the
the European banking sector will be the expected Agricultural Bank of Greece, failed the test.

15
  Sustaining the Recovery and Looking Beyond – A Regional Economic Developments and Prospects Report

Figure 15: Import growth, seasonally adjusted year-on-year in volumes

EAP DEV HIY ECA LAC SAS WLD MENA

100
80
60
40
20
0
–20
–40
–60
Jan–08
Feb–08
Mar–08
Apr–08
May–08
Jun–08
Jul–08
Aug–08
Sep–08
Oct–08
Nov–08
Dec–08
Jan–09
Feb–09
Mar–09
Apr–09
May–09
Jun–09
Jul–09
Aug–09
Sep–09
Oct–09
Nov–09
Dec–09
Jan–10
Feb–10
Mar–10
Apr–10
May–10
Jun–10
Source: World Bank, DECPG.

Figure 16: Export growth, seasonally adjusted year-on-year basis in volumes

EAP DEV HIY ECA LAC SAS WLD MENA

80

60

40

20

–20

–40

–60
Jan–08
Feb–08
Mar–08
Apr–08
May–08
Jun–08
Jul–08
Aug–08
Sep–08
Oct–08
Nov–08
Dec–08
Jan–09
Feb–09
Mar–09
Apr–09
May–09
Jun–09
Jul–09
Aug–09
Sep–09
Oct–09
Nov–09
Dec–09
Jan–10
Feb–10
Mar–10
Apr–10
May–10
Jun–10

Source: World Bank, DECPG.

markets worldwide, a widening of sovereign ceived as safe havens. Since then equity mar-
CDS and bond spreads for some countries kets have recovered some of the recent losses
(Figure 17), and corporate bond and CDS (Figure 18), but in most regions they remain
spreads in Europe. European interbank lend- below levels prevailing in the first quarter of
ing rates diverged to their highest levels since 2010 and volatility remains high.
their inception as stress built up in the Euro
zone banking system. Investors reduced their GCC stock markets, which are more globally
tolerance for risk and channeled funds into US integrated than markets in other MENA coun-
treasuries and gold—assets traditionally per- tries, have followed global trends, while non-

16
 Chapter 2: MENA’s Recovery is Proceeding in an Uncertain Global Economic Context

Figure 17: Sovereign 5-year CDS spreads ity for further declines in the short term, serious
(bps) concerns remain about the ability of companies,
especially those in Europe, to refinance a large
Greece Portugal Ireland stock of leveraged loans due for repayment in
Spain Italy
the next few years.
1200

1000 The outlook for GCC countries is

tied to the outlook for the global
800 economy
600
The sustainability of the recovery in GCC econo-
400 mies (Figure 3) depends on developments in the
rest of the world, and on the extent to which
200
they affect oil markets. In September, oil prices
0 were around $80 per barrel and the average for
the year up to beginning of September stood at
11/2/2009

12/2/2009

1/2/2010

2/2/2010

3/2/2010

4/2/2010

5/2/2010

6/2/2010

7/2/2010

8/2/2010
around $77 per barrel—an increase of 24 percent
over the 2009 average price of $62 per barrel
Source: Bloomberg and DECPG, World Bank. (Figure 20). Since then oil prices moved above
$85 per barrel on a depreciating dollar, rising
seasonal demand and a tight global distillate mar-
ket. China has been a key driver of oil demand,
GCC stock markets reacted less to these global accounting for 30–40 percent of the projected
developments (Figure 18). Tunisia’s stock index incremental increase in oil consumption. China’s
continued its climb, proving for yet another time crude oil imports grew at a fast pace reflecting
its resilience during difficult times. This perfor- overall rapid economic growth, plans to add 280
mance, attributed to good fundamentals and million barrels of strategic petroleum reserves by
strong demand for equity by domestic investors, 2011 and a sizable refining expansion program.
is less impressive when compared with other
non-MENA emerging countries. While OPEC expanded its previous “ideal”
price band of $70–80 per barrel to $70–90 per
MENA’s risk premiums and CDS spreads barrel, support for further price increases based
have declined somewhat and are below those on demand and supply factors is expected to
for ECA, but remain higher than those in East be weak. Following production cuts to support
Asia and Latin America, even when Iraq is prices, OPEC’s space capacity has nearly reached
excluded (Figure 19). This is because many 2002 levels when oil prices were $25 per barrel,
countries in the region, especially oil import- inventories in the US remain high, and oil de-
ers with EU links, are dependent on European mand is expected to grow in the medium term
markets where uncertainty about future growth only slowly, while non-OPEC output continues
prospects remains high. In addition, a few coun- to rise modestly.
tries—most notably Lebanon—have limited fiscal
space, and remain sensitive to negative shocks The positive terms-of-trade shock from the
which push their credit spreads higher than oil price rebound has allowed GCC governments
those of their peers. to keep their expansionary fiscal policies while
maintaining or improving fiscal and current ac-
Further movements in the markets will count positions14 (Figure 21 and Figure 22). All
depend on evidence that private sector growth GCC governments continued to stimulate their
in consumption and investment has started
to pick up globally. Despite a sharp decline in 14
See statistical annex for a complete set of macroeconomic
global corporate default rates, and the possibil- indicators by country in MENA region.

17
  Sustaining the Recovery and Looking Beyond – A Regional Economic Developments and Prospects Report

Figure 18: Stock market reaction to events in Europe

Stock Market Indices – Global

BRIC High Income GCC Non-GCC

180

160

140

120

100

80

60

40
Jan–07

Mar–07

May–07

Jul–07

Sep–07

Nov–07

Jan–08

Mar–08

May–08

Jul–08

Sep–08

Nov–08

Jan–09

Mar–09

May–09

Jul–09

Sep–09

Nov–09

Jan–10

Mar–10

May–10

Jul–10
Stock Market Indices – Non-GCC

Egypt, Arab Rep. Jordan Lebanon Morocco Tunisia

220
200
180
160
140
120
100
80
60
40
Jan–07

Mar–07

May–07

Jul–07

Sep–07

Nov–07

Jan–08

Mar–08

May–08

Jul–08

Sep–08

Nov–08

Jan–09

Mar–09

May–09

Jul–09

Sep–09

Nov–09

Jan–10

Mar–10

May–10

Jul–10
Source: Datastream.

economies as the global economy started slow- ment stimulus through direct capital spending,
ing down in the second quarter of 2010. Even and in some cases through guarantees on private
Kuwait, which was the only GCC country without financing. The stimulus supports these coun-
a fiscal stimulus in 2009 and suffered the worst tries’ economic diversification strategies, and
recession in the region, started implementing a in the meantime is helping the revival of non-oil
fiscal stimulus in the summer of this year. economic activities. Saudi Arabia continued to
implement its $400 billion public investment
Private consumption in all GCC countries stimulus program. Abu Dhabi stimulus spending
was stimulated by increases in current spending has encouraged investment and consumption.
and freezes on cuts of public sector employment Despite rapid growth in Qatar, the government
and subsidies. All GCC governments kept invest- kept spending on projects and revived private

18
 Chapter 2: MENA’s Recovery is Proceeding in an Uncertain Global Economic Context

Figure 19: Risk perceptions reflecting developments in Europe

EMBI Global – Spread (bp)

LAC ECA East Asia MENA MENA excl. Iraq

800
700
600
500
400
300
200
100
0
Jan–07

Mar–07

May–07

Jul–07

Sep–07

Nov–07

Jan–08

Mar–08

May–08

Jul–08

Sep–08

Nov–08

Jan–09

Mar–09

May–09

Jul–09

Sep–09

Nov–09

Jan–10

Mar–10

May–10

Jul–10
Sovereign 1 yr Credit Default Swap

LAC ECA East Asia GCC Non-GCC

600

500

400

300

200

100

0
Jan–07

Mar–07

May–07

Jul–07

Sep–07

Nov–07

Jan–08

Mar–08

May–08

Jul–08

Sep–08

Nov–08

Jan–09

Mar–09

May–09

Jul–09

Sep–09

Nov–09

Jan–10

Mar–10

May–10

Jul–10

Source: Datastream.

investment by extending large-scale government tion and Iraq-related logistics fared considerably
financing or implicit guarantees. better. Steady export-led recovery in Bahrain’s
downstream energy-related sectors, including
Saudi Arabia’s stimulus spending supported aluminum and petrochemicals, and government-
domestic non-oil growth, and more broadly the driven construction have been the major sources
global recovery because of its large size and high of economic growth. In Qatar, LNG has been the
import content.15 In the United Arab Emirates, key driver of growth, while in Oman the main
re-export trade held up much better than ex-
pected due to steady regional growth and strong
growth in Asia. Growth in most non-oil sectors in 15
Saudi Arabia‘s fiscal package is the largest as a share of GDP
Kuwait remained depressed although consump- of any G-20 country.

19
  Sustaining the Recovery and Looking Beyond – A Regional Economic Developments and Prospects Report

Figure 20: Crude oil average spot price (current US$ per barrel)

140

120

100

80

60

40

20

0
1194M07
1995M02
1995M09
1996M04
1996M11
1997M06
1998M01
1998M08
1999M03
1999M10
2000M05
2000M12
2001M07
2002M02
2002M09
2003M04
2003M11
2004M06
2005M01
2005M08
2006M03
2006M10
2007M05
2007M12
2008M07
2009M02
2009M09
2010M04
2010M11
Source: World Bank, DECPG.

non-oil source of growth has been construction
which benefitted from government spending.
A number of risks cloud GCC countries’
growth prospects. The outlook for the global
economy remains uncertain, although the risk
of a negative terms-of-trade shock remains
remote. The GCC countries have fiscal space
to cushion the impact of an unlikely negative
oil price shock but the systematic reliance on
government spending poses a long-term chal-
Figure 21: MENA fiscal outlook (percent of
GDP)
2009
8.0
6.0
4.0
2.0
0.0
–2.0
–4.0
–6.0
–8.0
Oil Exporters
Source: National agencies and World Bank staff estimates (e)
for 2010, and projections (p) for 2011 and 2012.
lenge. Some of the fiscal expansion will be self-
terminating when projects get completed, but
the medium-term burden of continued public
spending growth could increase the cost of
capital for the private sector as public saving
declines. Furthermore, in some countries, it
would be difficult to cut public spending due to
political considerations.
It is also unclear to what extent private sector
growth would pick up when public sector spend-
ing declines. In the United Arab Emirates, there
is a huge overhang of partly completed property
developments, some stalled for two years and
the property price slump shows no sign of eas-
ing. In order to revive the construction sector,
2010e 2011p 2012p the emirate of Dubai put substantial new funds
into Nakheel—its flagship property developer,
and paid trade creditors. It is too soon to say
whether these measures have had the desired ef-
fect. Furthermore, Abu Dhabi’s property market
has not remained immune to the effects of the
crisis and has entered a downturn with a lag. In
Qatar, where the property market, especially for
commercial real estate, is oversupplied, and the
banking sector has had significant exposure to
domestic property loans, the construction sector
Developing Oil Importers is expected to grow at a slow pace in the coming
Oil Exporters years. More importantly, the outlook for the LNG
market has been weakened significantly given
developments in the US and EU LNG markets.

20
 Chapter 2: MENA’s Recovery is Proceeding in an Uncertain Global Economic Context
Figure 22: MENA current account positions
(percent of GDP)
2009 2010e 2011p 2012p
15.0
10.0
5.0
0.0
–5.0
–10.0
GCC Oil Developing Oil Importers
Exporters Oil Exporters
Source: National agencies and World Bank staff estimates for
2010, and projections for 2011 and 2012.
Tight credit conditions, particularly in in-
terbank markets, pose another threat to the eco-
Box 1: The Dubai World debt restructuring
The Dubai World (DW) restructuring is close to comple-
tion on terms very similar to those outlined in the April
2010 Regional Economic Update. A formal offer was
made to creditors in July 2010, with the terms outlined
by the companies in March 2010 providing the basis
for negotiations. As was clear when the terms were
announced, DW’s property development subsidiary
Nakheel has been separated from the rest of the DW
restructuring and is proceeding on a parallel track.
Nakheel has indicated that it is close to final agree-
ment with its bank creditors on a 5-year extension of its
loans. The extension would be at an interest rate that is
4 percentage points above the relevant interbank rate.
This rate is significantly better than the one DW is offer-
ing its creditors. Nevertheless, Nakheel’s bonds coming
due in future years are yielding around 15 percent, well
above the rate on the restructured bank facilities.
From the perspective of the Dubai government,
Nakheel is essential to restarting stalled construction
activity in the emirate, and so funds have been provided
to enable it to redeem sukuk as it comes due and to
Source: Compiled by World Bank, MNSED.
nomic recovery in the GCC countries. With the
exception of Qatar, credit growth to the private
sector remains anemic (Figure 23) due to the
uncertainty arising from ongoing debt restructur-
ing, and the spillovers from Dubai World (DW)
events (see Box 1). The DW case has highlighted
the complexity of out-of-court debt restructurings
in the context of GCC countries’ lack of experi-
ence with modern insolvency procedures, the
central role of government-related enterprises,
and the complicated financing mix of many com-
panies, including Islamic finance and working
capital funded from purchaser deposits.
Nonetheless, DW would be a relatively quick
restructuring by GCC standards, where some
cases have taken 2 years to resolve. The direct
engagement of the emirate’s government via
the Dubai Financial Support Fund has been a
major reason for the relatively quick progress
made with this restructuring (Table 3). The
government has been able to use a mixture of
re-engage with its trade creditors. The latter group is
receiving cash payments (totaling US$680 million so far)
equal to 40 percent of outstanding obligations, with the
remaining 60 percent to be settled by a sukuk whose
terms will be finalized shortly. Notably, Nakheel has
been making these payments without having final agree-
ment on its restructuring package, indicating an objec-
tive of keeping activity flowing as smoothly as possible.
As for DW, virtually all creditors accepted its propos-
al by the deadline of September 10, 2010. Although the
terms of the DW offer are not as severe as some initial
predictions, due to the extension of maturities at below
commercial interest rates they represent a substantial
haircut in net present value terms (on the order of 25
percent). There were indications during the summer
that some creditors were balking at these terms, lead-
ing the company to reiterate its option to force a deal
via the special insolvency tribunal established in Dubai
International Financial Center (DIFC) last year. As the
creditors became convinced that no better deal was
possible, DW’s offer was able to go through.
21
  Sustaining the Recovery and Looking Beyond – A Regional Economic Developments and Prospects Report

Figure 23: Credit growth in GCC

Credit Growth (YoY, in percent) – GCC

Bahrain Kuwait Oman Qatar Saudi Arabia United Arab Emirates

80
70
60
50
40
30
20
10
0
–10
Jan–06
Mar–06
May–06
Jul–06
Sep–06
Nov–06
Jan–07
Mar–07
May–07
Jul–07
Sep–07
Nov–07
Jan–08
Mar–08
May–08
Jul–08
Sep–08
Nov–08
Jan–09
Mar–09
May–09
Jul–09
Sep–09
Nov–09
Jan–10
Mar–10
May–10
Source: Datastream.

persuasion and authority to move things along. creditors of the latter are thus forced to pursue
It has promised new funds for viable entities and cross-border claims. The experience of purchas-
the prospect for financial institutions’ continued ers of off-plan Dubai property has made clear
engagement with the Dubai business model, but their lack of recourse when things go wrong.
has reserved the right to move the restructuring These investors have been faced with the conun-
to a special insolvency tribunal in the Dubai drum of whether to provide further funds into a
International Financial Center16 if a consensual distressed entity in order to get its developments
restructuring could not be reached. closer to completion. On the other hand, secured
lenders and asset-based financiers (as in Islamic
Not all parties to the GCC debt restructuring finance) have been in a somewhat stronger posi-
have been satisfied. Some creditors have found tion, although the unraveling of various claims
themselves in particularly weak positions as a on specific assets could also pose difficulties.
result of this process. Creditor bargaining power
has varied with the type of obligation. The credi- Significant government support has enabled
tors in the weakest position vis-à-vis distressed the market for large project and corporate
debtors have been lenders at the holding com- finance to continue functioning, despite height-
pany level and purchasers of yet-to-be-delivered ened risk aversion and uncertainty. Although
assets. Lenders to the holding company level of private sector bank credit availability remains
a corporate entity have been vulnerable to the tight throughout the GCC, GCC firms have been
problem of co-mingled finances and lack of clar- able to conduct large funding operations. In
ity about which assets they could pursue in the Saudi Arabia, major financing has been carried
event of default, whereas subsidiary companies out by key government-related enterprises such
typically offer clearer outcomes in both respects. as the petrochemicals giant Sabic and the electric

A further complication is evident in the

16
The DIFC tribunal was created specifically for DW and there
case of the Saad and al-Gosaibi groups in Saudi
has been no indication that the government intends broadening
Arabia, where the holding companies were its scope to other “Dubai Inc.” debt distress situations, such as
managing financial operations in Bahrain and that of Dubai Holding.

22
 Chapter 2: MENA’s Recovery is Proceeding in an Uncertain Global Economic Context

Table 3: Debt restructurings in the GCC, 2008–2010

Involves
Company Country Initiated Amount Current status sukuk (Y/N)
Kuwait Finance & Kuwait 2008 (early) $0.5 bn Concluded June 2010 N
Investment Co.
Global Investment Kuwait Dec-08 $1.7 bn Creditor agreement obtained Dec 2009 Y
House
Investment Dar Kuwait Jan-09 $3.5 bn Creditor agreement (tentative) obtained Dec Y
2009. Some litigation continues. Restructur-
ing terms will have to be approved by court
since the company is in court protection.
Gulf Invest Kuwait Apr-10 $0.05 bn Loan guarantee called from United Arab N
Emirates’ bank.
International In- Kuwait Apr-10$ 0.2 bn Ongoing “business review”; sukuk being Y
vestment Group dissolved; 2nd missed payment in July.
Saad & al-Gosaibi Saudi Arabia/ May-09 $15-20bn Partial local settlement in Saudi Arabia. Y
groups Bahrain Ongoing negotiation and legal actions
elsewhere.
Dubai Holding plus United Arab May-10$ 1-3 bn Loan extensions sought at holding company ?
subsidiaries Emirates and subsidiary level. No formal default.
National Central United Arab Apr-10 $1 bn Ongoing Y
Cooling Emirates
Dubai World United Arab Nov-09 $26 bn Virtually all creditors accepted offer in Sep- N
Emirates tember 2010. Finalization expected shortly.
Nakheel United Arab Nov-09 $10 bn On parallel track to the above but with Y
Emirates larger sukuk and trade credit elements.
Blue City Oman NA $0.6 bn Project not viable as originally conceived; N
bonds bought at 33% discount by an Abu
Dhabi fund (June 2010)
Gulf Finance Bahrain/Ku- Feb-10 $0.3 bn + Rollover granted but strains continue. No Y
House wait formal restructuring request.
Source: Staff compilation from media reports.

utility Saudi Electric, while the government has
also been a direct lender to both of these compa-
nies and to other large projects with mixed public
and private participation. In Qatar, the central
government and a unit of the sovereign wealth
fund have raised billions of dollars through bond
issues. The bonds provide a safe asset for risk-
averse banks, and the funds allow the govern-
ment to play a more direct role as a financier of
major projects, especially in real estate, at a time
when other players withdrew. The government
of Bahrain has also used bond sales to support
macroeconomic stimulus efforts.
When the government has not been directly
present in bond markets, yields have been high.
Three significant bond issues without a govern-
ment guarantee have seen near double-digit
yields, and other potential issues have been
postponed in the wake of market uncertainties
which were particularly pronounced during the
height of concerns about Greece’s debt crisis.
Nevertheless, two United Arab Emirates’ banks
have successfully tapped the Malaysian sukuk
market at attractive yields, but these banks
benefit from their implicit government backing.
For many other borrowers, all indications are
that conditions are very tight.
DW restructuring has had a long-lasting ef-
fect on the market for GCC sukuk. The amount
of GCC sukuk issuance has declined from 2009

23
  Sustaining the Recovery and Looking Beyond – A Regional Economic Developments and Prospects Report

Figure 24: Spreads over LIBOR on Global (SKBI) and GCC sukuk (GSKI) and GCC conventional
bonds (SKBI)
GSKI GCBI SKBI

700

600

500

400

300

200

100

0
24-Nov-09

8-Dec-09

22-Dec-09

5-Jan-10

19-Jan-10

2-Feb-10

16-Feb-10

2-Mar-10

16-Mar-10

30-Mar-10

13-Apr-10

27-Apr-10

11-May-10

25-May-10

8-Jun-10

22-Jun-10

6-Jul-10

20-Jul-10

3-Aug-10

17-Aug-10

31-Aug-10
Source: HSBC/Nasdaq Dubai Indices.

levels. Furthermore, yields on new issues have cial sectors came through the crisis relatively
been high, at around 10 percent, and yield spreads well. GCC banks were well positioned in terms of
on existing securities over the LIBOR benchmark liquidity and capital adequacy in the run-up to
have not returned to their November 2009 levels the crisis. Nevertheless, central banks are placing
prior to the first DW announcement, and are increased emphasis on stability in sources of fund-
higher than East Asian sukuk spreads. GCC sukuk ing. For example, the Central Bank of the United
spreads are about 120 basis points above their No- Arab Emirates is placing heightened emphasis
vember level, while GCC conventional spreads are on a long-standing prudential rule requiring that,
about 30 basis points lower than their November for each bank, the ratio of loans and advances to
level, and global sukuk spreads are about 30 basis stable resources equals one.17 The Central Bank of
points above their November level (Figure 24). Kuwait, which had taken a relatively hands-off ap-
proach to investment companies prior to the crisis,
The state of the sukuk market is not surpris- is now directly monitoring their leverage, liquidity,
ing because the DW debt standstill crystallized and external borrowing. And the Central Bank of
concerns about two aspects of sukuk financing in Bahrain has imposed limits on real estate lending
the GCC: (i) the lack of clarity about procedures as a proportion of banks’ total lending portfolio.
in the event of a default, and (ii) the use of real
estate as the underlying asset in sukuk transac- Other than through financial markets, the
tions. Sukuk markets have been illiquid prior to debt problems in Europe are unlikely to alter sig-
the defaults and became more illiquid since then nificantly economic growth prospects of the GCC
as spreads widened. Clarity on asset recovery in countries. A very small share of GCC exports goes
the event of default could boost activity in sukuk
trading and lower yields.

As is to be expected, tighter supervision of

17
Stable resources consist of free capital and reserves, interbank
deposits with a remaining maturity of more than six months and
banks and other financial institutions is a key 85 percent of customer deposits. This rule is currently binding
outgrowth of the crisis, even though GCC finan- for several UAE banks.

24
 Chapter 2: MENA’s Recovery is Proceeding in an Uncertain Global Economic Context
to EU25 (Figure 25). Given the dominance of hy-
drocarbon exports in total merchandise exports
and gross domestic product (GDP), growth in
the GCC economies will depend mostly on how
the debt problem in Europe evolves, whether
it spreads beyond Europe and slows down the
global recovery and global demand for oil. Recent
developments suggest that the possibility of con-
tagion has become a much less likely scenario.
The recent spike in wheat prices—which
nearly doubled in August 2010 from their lows
in June 2010—has caught the GCC countries in
the early stages of implementing food security
strategies. Wheat reserve levels in all GCC coun-
tries except Saudi Arabia are low, at less than one
month of consumption, and these countries are
highly dependent on wheat imports (Table 4).
According to recent data, the GCC countries
import 87 percent of their wheat consumption
with all but Saudi Arabia producing no wheat
domestically and relying 100 percent on imports.
The impact of the price spike on the GCC
countries however is expected to be negligible
(Table 4). An increase of 50 percent in the price
of wheat is estimated to increase the import bill
Figure 25: Exposure to EU markets for merchandise goods
Total Exports over GDP Exports to EU 25 over Total Exports
70
60
50
40
30
20
10
0
EAP
ECA
LAC
SA
SSA
Source: Data source: WDI, World Bank and Comtrade.
by just 0.05 percent of GDP in the GCC coun-
tries. And although wheat price increases might
transmit to other products, at the macro-level all
GCC countries still have fiscal space to respond
to increases in the food import bill (Table 5).
However, food price increases coupled with a
weakening dollar, might stoke inflationary pres-
sures, and be a cause for concern in countries
like Saudi Arabia where inflationary pressures
are a special problem. In 2007–08 rises in wheat
prices led to a rise in overall food inflation, which
outpaced overall inflation.
Most developing oil exporters are
vulnerable to oil price shocks and
volatility
Developing oil exporters are expected to have
benefited from increases in oil exports and oil
prices in 2010 (Figure 3). Fiscal and current ac-
count balances are expected to have improved
(Figure 21 and Figure 22) due to an increase in
oil revenue in 2010 compared to 2009. Developing
oil exporters however are vulnerable to a sharp
decline in oil prices as they are dependent on oil
and have much more limited fiscal space than
GCC oil exporters to respond to terms-of-trade
Exports to EU 25 over GDP
MENA
GCC
Developing
Oil Exporters
Oil Importers
with GCC links
Oil Importers
with EU links
25
  Sustaining the Recovery and Looking Beyond – A Regional Economic Developments and Prospects Report

Table 4. Impact of a wheat price hike in GCC oil exporters

Change in import bill
Net Imports Wheat Change in import bill due to increase due to a 50%
(% of reserves a 50% in wheat prices increase in wheat prices
consumption) (months) (% of GDP) (% of foreign reserves)
Bahrain 100 0 0.05 n/a
Kuwait 100 0 0.02 1.12
Oman 100 0 0.06 1.41
Saudi Arabia 81 11 0.06 1.68
United Arab Emirates 100 0 0.05 n/a
GCC oil exporters 87 8 0.05 n/a
Source: Staff calculations based on USDA and World Bank data for 2009 GDP in ‘000s and 2008 monthly foreign reserves data.

Figure 26: US wheat prices

450
400
350
300
US$/mt

250
200
150
100
50
0
Jan-94

Dec-94

Nov-95

Oct-96

Sep-97

Aug-98

Jul-99

Jun-00

May-01

Apr-02

Mar-03

Feb-04

Jan-05

Dec-05

Nov-06

Oct-07

Sep-08

Aug-09

Jul-10
Source: World Bank.

shocks. Most developing oil exporters have used management and oil revenue management have
some of their fiscal resources to cushion the im- become more challenging and more important
pact of the crisis in 2009 (Table 2 and Table 5). than ever before. Strategies aimed at diversifying
the economic base and scaling up non-oil sources
Excessive volatility in oil prices is one of the of growth will also help reduce the vulnerability
major problems facing developing oil exporters of these countries to excessive oil price volatility.
going forward. Oil prices dropped $20 per barrel
in May 2010, before recovering to trade back close Several developing oil exporters including
to OPEC’s target range of $70–$90 per barrel. Sig- Iraq and the Republic of Yemen are especially
naling the increasing use of oil as a mainstream vulnerable to this volatility due to their limited
asset and OPEC’s difficulties with supply man- fiscal space (Table 5). In the Republic of Yemen,
agement, volatility in oil markets has grown over where the government obtains 60 percent of
time and is now much higher than the volatility fiscal revenue from oil exports and distribution,
of other commodity prices (Figure 27). Volatil- and fiscal and current account deficits were
ity of oil prices is expected to be present going above 10 percent as a share of GDP in 2009,
forward implying that prudent macroeconomic the goal of the government is to reduce the fis-

26
 Chapter 2: MENA’s Recovery is Proceeding in an Uncertain Global Economic Context

Table 5: MENA fiscal space in 2009

Reserves
Current (including
account Government Reserves in SWF) in
Fiscal Balance balance as % debt as % of months of months of
as % of GDP of GDP GDP imports imports
Oil exporters
GCC
Bahrain –8.7 1.6 27.1 4.1 19.2
Kuwait 19.3 29.2 6.9 6.8 88.9
Oman 2.2 –2.2 6.7 6.2 7.3
Qatar 13.0 15.7 39.5 7.6 27.3
Saudi Arabia –6.1 6.1 16.3 25.8 44.2
United Arab Emirates 0.4 –2.7 26.4 2.2 20.4
Developing oil exporters
Algeria –6.6 0.3 15.0 33.6 43.5
Iran, Islamic Republic of –2.7 2.6 16.2 9.3 10.7
Iraq –14.2 –25.7 141.6 12.9 —
Libya 10.6 16.8 0.0 41.8 64.8
Syrian Arab Republic –5.5 –2.4 29.1 10.7 —
Yemen, Rep. –10.2 –10.7 39.9 9.2 —
Oil importers
Oil importers with GCC links
Djibouti –4.9 –17.3 60.3 2.9 —
Jordan –10.3 –5.1 66.1 8.4 —
Lebanon –8.1 –15.5 148.0 24.0 —
Oil importers with EU links
Egypt, Arab Rep. –6.9 –2.3 76.2 6.3 —
Morocco –2.2 –5.0 46.9 7.8 —
Tunisia –3.0 –2.9 47.2 4.9 —
Source: World Bank data, Government debt and SWF data are from IMF.

Fiscal balance Larger than 2% of GDP –2% to + 2% of GDP Less than –2% of GDP
Current account balance Larger than 3% of GDP –3% to + 3% of GDP Less than –3% of GDP
Government debt 0 to 30% of GDP 30% to 80% of GDP Larger than 80% of GDP
International reserves in months of imports More than 6 months Between 3–6 months Less than 3 months

cal deficit by containing current expenditures
and slashing energy subsidies, but to protect
investment and priority spending. Development
spending, including social transfers to the poor-
est households and basic education and health,
are projected to increase in order to compensate
the poor and vulnerable for the increase in do-
mestic energy prices as a consequence of the
energy subsidy cuts, and sustain the progress
towards meeting the Millennium Development
Goals (MDGs). To accelerate non-oil growth and
employment opportunities, the government has

27
  Sustaining the Recovery and Looking Beyond – A Regional Economic Developments and Prospects Report
Figure 27: Commodity volatility (standard deviations in monthly prices)
Jan-94-feb 04
Coffee
Steel
Wheat
Gold
Tin
Natural Gas
Copper
Crude Oil
0 20 40 60
Source: Staff calculations based on World Bank data.
put in place an incentive system for private in-
vestment in line with international best practice.
In Iraq, the government has aimed to contain
current expenditures while protecting priority
public investments, and to commit to a medium-
term-oriented approach to oil revenue manage-
ment. Despite these efforts Iraq’s fiscal deficit is
expected to decline only modestly and remain
close to 12 percent of GDP in 2010. Agriculture
is the second engine of growth in Iraq but since
2002 its contribution has eroded as infrastructure
and productivity have deteriorated significantly.
In addition, oil price risks are compounded by po-
litical risks in Iraq. A prolonged political vacuum
or the formation of a government that excludes
part of the electorate could result in a worsening
of the security situation. This could also put at
risk the development of new oil fields by interna-
tional oil companies, which could limit projected
increases in oil production, and can put at risk
the growth outlook presented here.
Syria’s economy is much less vulnerable
to oil price shocks than the economies of other
developing oil exporters. Syria is a lot less de-
pendent on oil exports than other developing oil
exporters, and a substantial share of its non-oil
exports go to the GCC, and other countries. Given
expectations that Syria’s recoverable oil reserves
will be depleted by 2030, Syria has started di-
28
Mar-04-Aug10
80 100 120 140 160
versifying its economic base. Its non-oil exports
grew rapidly in the 2000s but so did imports of
goods and services. The government is taking
measures to boost exports further and tighten its
fiscal stance in 2010 compared to 2009, although
fiscal and current account deficits are expected
to persist in the near term.
Algeria is much less vulnerable to oil price
shocks than other developing oil exporters. The
government of Algeria has used its fiscal space to
launch an ambitious public investment program
over the next 4 years. This investment stimulus
is $100 billion larger than its 2005–09 plan and
intends to diversify the economy, promote pri-
vate investment and reduce unemployment. So
far the stimulus has had a positive impact on the
construction, infrastructure and energy sectors.
However, manufactures remain uncompetitive
due to the poor investment climate and restric-
tive policies toward FDI.
Some developing oil exporters are also vul-
nerable to a food price shock stemming from the
recent increases in wheat and food prices. The Re-
public of Yemen in particular stands out as the
most vulnerable in the region (Table 6). It is one
of the poorest countries in MENA, relies on wheat
imports to meet 82 percent of its consumption, has
reserves that would cover less than a month of its
average monthly wheat consumption and has a
 Chapter 2: MENA’s Recovery is Proceeding in an Uncertain Global Economic Context

Table 6: Impact of a wheat price hike in developing oil exporters

Change in import bill Change in import bill
due to a 50% increase due to a 50% increase
Net Imports (% of Wheat reserves in wheat prices in wheat prices (% of
Consumption) (months) (% of GDP) foreign reserves)
Algeria 57 3 0.4 —
Iran 9 2 0 —
Iraq 65 1 0.6 10
Syrian Arab Republic 38 10 0.4 —
Yemen, Rep. 82 0 0.9 20
Developing oil exporters 37 3 0.2 —
Source: Staff calculations based on USDA and World Bank data for 2009 GDP in ‘000s and 2008 monthly foreign reserves data.

weak fiscal position. A 50 percent increase in the
wheat price would translate into an estimated
increase in the import bill of nearly 1 percent of
GDP or more than 20 percent of foreign reserves.
The cuts in estimated global production between
May and August are projected to have raised the
domestic wheat price in the Republic of Yemen
by 26 percent. This price increase is likely to have
raised poverty in the Republic of Yemen by slightly
more than 0.3 percentage points (Figure 28),
which represents an increase in the number of
the poor by an estimated 80,000 people. Because
wheat production in the Republic of Yemen is
limited and its sales among the poor represent
less than 0.5 percent of their income, the poverty
impact of higher wheat prices is dominated by the
rising costs to the poor consumers who spend on
average 12.5 percent of their income on wheat and
wheat-related products.
Iraq also appears to be vulnerable although
slightly less than the Republic of Yemen largely
due to sourcing a smaller share of its wheat con-
sumption from abroad (Table 6). Algeria reacted

Figure 28: Some potential poverty impacts of a wheat price spike

2009/10–August 2010 2009/10–August 2010 + embargo

May 2010–August 2010 May 2010–August 2010 + embargo
1.0%
0.9%
0.8%
0.7%
0.6%
0.5%
0.4%
0.3%
0.2%
0.1%
0.0%
PAK

TJK

NGA

TLS

BGD

NIC

YEM

VNM

NIG

MWI

ECU

IDN

LKA

NEP

GTM

UGA

RWA

ARM

PER

PAN

BLZ

ALB

CIV

Source: Staff estimations, World Bank. Note: Simulations of poverty impacts in response to wheat price changes due to the decline
in world wheat production over different periods and the impacts of embargoes by Russia, Kazakhstan and Ukraine. The assumption
is that only half of the increase in the price would be transmitted to the domestic markets of each country. The names of economies
follow the UN 3 letter code system.

29
  Sustaining the Recovery and Looking Beyond – A Regional Economic Developments and Prospects Report

Figure 29: Non-oil merchandise exports to EU25

Total Exports over GDP Exports to EU 25 over Total Exports Exports to EU 25 over GDP

50
45
40
35
30
25
20
15
10
5
0
EAP

ECA

LAC

SA

SSA

MENA

GCC

Developing
Oil Exporters

Oil Importers
with GCC links

Oil Importers
with EU links
70

60

50

40

30

20

10

0
Algeria

Bahrain

Egypt, Arab Rep.

Iran, Islamic Rep.

Jordan

Kuwait

Lebanon

Morocco

Oman

Qatar

Saudi Arabia

Syrian Arab Republic

Tunisia

United Arab Emirates

Yemen, Rep.

Data source: WDI, World Bank and Comtrade.

to the Russian wheat export ban by purchasing A possible future slowdown in Europe,
extra wheat on the spot market. The impact of triggered by fiscal compression in the highly
a 50 percent price hike on its import bill would indebted parts of the EU and combined with
however be very small. Among the developing oil financial sector instability, is expected to have
exporters, Syria seems to be most prepared to face marginal effect on developing oil exporters
the jump in wheat prices as its wheat reserves can as their shares in non-oil exports to the EU25
cover roughly 10 months of consumption. In addi- and the Southern Euro Zone18 are small and
tion, Syria is far less dependent on wheat imports their financial sectors are not exposed to global
than other developing oil exports. The Islamic financial markets (Figure 29 and Figure 30).
Republic of Iran is not vulnerable as it imports
only a tiny share of its annual wheat consumption. 18
Southern Euro Zone includes Portugal, Italy, Greece and Spain.

30
 Chapter 2: MENA’s Recovery is Proceeding in an Uncertain Global Economic Context
Figure 30: Non-oil merchandise exports to Southern Euro Zone
Total Exports over GDP Exports to SEZ over Total Exports
45
40
35
30
25
20
15
10
5
0
EAP
ECA
LAC
SA
SSA
Data source: WDI, World Bank and Comtrade.
Only one country—Algeria—appears to be highly
exposed to the EU 25 through trade. Its exports
to the EU25 account for more than 50 percent
of its merchandise exports. This high exposure
is due mostly to oil exports which can easily be
redirected to other markets. Among developing
oil exporters, Syria is the country with the high-
est non-oil trade exposure to the EU25 market.
Still with a non-oil merchandise export share
to the EU25 of around 8 percent, the impact on
Syria’s economy is expected to be small.
Oil Importers’ Recovery Depends
on Developments in Key Markets,
Notably the EU
Oil importers weathered the effects of the global
economic and financial crisis better than other
MENA countries, but developments in Europe
are expected to have dampened growth in
2010, especially the growth of those countries
with strong EU links (Figure 3). Even though
at present a resolution of the fiscal issues in
high-income Europe is a likely scenario, oil im-
porters with strong EU links are likely to face
some repercussions of the expected significant
fiscal contraction in the heavily-indebted, high-
income European countries (EU-5),19 and the
Exports to SEZ over GDP
MENA
GCC
Developing
Oil Exporters
Oil Importers
with GCC links
Oil Importers
with EU links
expected slow growth in the EU. The effects
would come through the balance of payments,
reflecting the impacts on trade, remittances
and FDI flows.
Oil importers with EU links, such as Tuni-
sia, Morocco and Egypt, have the greatest trade
exposure to the highly-indebted countries in
the Southern Euro Zone (SEZ) and the second
highest trade exposure to the EU25, after ECA
(Figure 29 and Figure 30). The share of these
countries’ exports to the SEZ exceeds ECA’s
share by such a wide margin that even these
countries’ lower openness does not diminish
the impact of this exposure on income. In
this group of countries, Tunisia is the most
vulnerable to shocks in the EU25 and the SEZ
(Figure 29), followed by Morocco and Egypt.
How hard these countries are hit depends on
the extent of the fiscal contraction in the EU,
and how quickly they can shift sales to markets
outside the EU.
In addition, two of the oil importers with
EU links—Morocco and Tunisia—are much more
dependent on the EU for their remittance flows
19
This group includes Portugal, Italy, Island, Greece and Spain.
31
  Sustaining the Recovery and Looking Beyond – A Regional Economic Developments and Prospects Report
than Egypt and the rest of the oil importers. Ac-
cording to data for 2000, 72 percent of Morocco’s
emigrants and 75 percent of Tunisia’s migrants
were located in the EU27, compared to just 10
percent for Egypt’s.20 Demand for migrants in
the GCC countries is expected to grow at a much
faster pace than that in the EU as the GCC coun-
tries have fiscal space and long-term investment
plans that will fuel demand for imported labor,
while fiscal space in EU is extremely limited and
many large EU members have plans for large
fiscal contractions. According to the IMF fiscal
consolidations in the range of 9.2 and 4.8 per-
cent of GDP, respectively, are needed in Greece
and Italy to reduce the debt burdens in these
countries to 60 percent of GDP.
Compared to ECA, the oil importers are a lot
less likely to be affected through the financial
channel as their financial sectors are much less
integrated into the EU and global financial mar-
kets than ECA’s financial sector. Indeed according
to a recent report prepared by the Arab Monetary
Fund and the World Bank, a sizable share of capi-
tal flows in MENA is intra-regional suggesting that
the MENA countries have a buffer insulating them
to some degree from turmoil in global markets.
In anticipation of a prolonged slowdown in
the EU, most oil importers with strong EU links
extended or implemented new fiscal stimulus.21
Tunisia has chosen to maintain its expansionary
fiscal policy to support growth and delay fiscal
consolidation until at least 2011, as well as initi-
ate additional reforms aimed at improving the
business climate and foster foreign investment.
The government remains vigilant of the situation
in the Euro Zone and has set aside in the budget
an unallocated expenditure cushion of around
1.5 percent of GDP that could be used if the situ-
ation prevailing in European partner countries
worsens in the second half of 2010.
The government of Morocco implemented
several measures to help affected firms cope
with the decline of external demand well before
recent months, but in June 2010 the govern-
ment decided to extend the implementation of
the stimulus package until the end of 2010. The
support costs 0.2 percent of GDP and includes a
32
number of measures, including the provision of
guarantees on working capital loans; finance for
promotion campaigns and market surveys; debt
rescheduling; insurance coverage for exports;
training and logistics in partnerships with busi-
ness associations; removal of some types of im-
port restrictions; and public contribution to the
payment of social insurance by employers in eli-
gible categories. Specific programs have been de-
signed for firms operating in Morocco’s tourism
sector and for the remittances and investments
of Moroccan workers residing abroad. As of June
2010, 443 firms requested social insurance relief,
129 firms benefited from loan guarantees, 134
benefited from training. The majority of firms
that sought these types of support operate in
the textile industry, while the remaining are in
automotive equipment and electronics sectors.
In addition, the government continues to extend
tax relief, wage increases and social expenditures
for selected groups.
These measures, along with a much higher
public investment program kept domestic
demand high, but those expenses related to
Morocco’s food and fuel subsidy system consti-
tute a key macroeconomic risk in the event of
an unexpected increase of oil and food prices.
With the recent droughts in a number of coun-
tries and the wheat export ban in Russia, the
risk of a food price hike has become real. All
oil importing countries are vulnerable to the
effects of a sharp increase in food and wheat
prices. Egypt, Jordan and Lebanon rely heavily
on wheat imports, especially from Russia, and
the grain harvests in Morocco and Tunisia are
expected to be smaller this year compared to
last year. To head this off Egypt—the world’s big-
gest importer of wheat, as well as Tunisia and
20
Source: World Bank (2010).
21
In Egypt, the fiscal deficit is expected to have widened due to
the economic slowdown and the fiscal stimulus implemented by
the government of Egypt during the past fiscal year from July
2009 to March 2010. Although the stimulus package adds up
to 1.5 percent of GDP, 40 percent of it was spent in the fourth
quarter of the fiscal year. At the time this report was written
the government had no plans for additional fiscal stimulus
packages. Furthermore, the government plans fiscal measures
aimed at reducing the fiscal deficit to 3 percent of GDP over
the next 5 years.
 Chapter 2: MENA’s Recovery is Proceeding in an Uncertain Global Economic Context

Table 7: Impact of a wheat price hike in oil importers

Net Imports Wheat Change in import bill due Change in import bill due
(% of reserves to a 50% increase in wheat to a 50% increase in wheat
consumption) (months) prices (% of GDP) prices (% of foreign reserves)
Egypt, Arab Rep. 51 3 0.5 17
Morocco 42 2 0.4 9
Tunisia 56 4 0.4 7
Jordan 93 4 0.4 6
Lebanon 83 0 0.1 2
Oil importers 51 3 0.4 2
Source: Staff calculations based on USDA and World Bank data for 2009 GDP in ‘000s and 2008 monthly foreign reserves data.

Jordan, reacted quickly by buying extra wheat
on the spot market at higher prices than those
prevailing before the ban announcement. Egypt
and Morocco have the largest estimated monthly
imports, and therefore face the largest increases
in the import bill as a percent of monthly foreign
reserves (Table 7).
Strong domestic demand supported growth
in all oil importers. In Egypt economic activ-
ity in 2010 is expected to average 5.1 percent,
driven by private consumption and investment,
on the demand side, and strong expansions in
construction, services and non-oil manufactur-
ing, on the supply side. By contrast, Morocco and
Tunisia—the two economies most heavily depen-
dent on trade and remittances from Europe—are
expected to grow at a much slower pace than
Egypt and other oil importers.22 On the demand
side, growth in Morocco is expected to be driven
by expansion of consumption and private invest-
ment, as the rebound in exports will not offset
the surge in imports. On the supply side, growth
is expected to be driven by an expansion of in-
dustry and services, while agricultural output
is expected to have contracted following an ex-
ceptionally successful year. In Tunisia, internal
demand is driving the recovery too as import
growth has outstripped export growth due to a
strong inflow of imports of capital and interme-
diate goods. Manufacturing output expanded,
while most services expanded only modestly.
of the high expected growth in Lebanon, where
credit to the private sector has been growing at
the highest pace among oil importing econo-
mies (Figure 31). Strong regional demand fu-
eled by oil wealth and inflows of capital into
Lebanon’s real estate and banking sectors—con-
sidered a safe haven in times of crisis by the
Lebanese Diaspora and some GCC nationals—
has been driving the boom in the construction
and trade sectors. Sectors producing tradable
goods and high value-added services however
remained weak due to structural bottlenecks in
infrastructure, and the loss in competitiveness
associated with the continued real exchange
rate appreciation (Figure 32), driven by the
massive inflows of financial resources into the
Lebanese economy.
Management of large financial inflows has
been one of Lebanon’s key macroeconomic chal-
lenges. In 2009, deposits in the banking sector
increased by 23 percent—an increase equivalent
to 54 percent of GDP, and by 4.5 percent between
December of 2009 and June of 2010. In addition
to the appeal of Lebanon as a safe haven, the
country has attracted financial resources by of-
fering large spreads between interest rates on
deposits in Lebanese banks and international
rates. The spreads widened substantially in the
course of the financial crisis, but in 2010 have
narrowed down. The Central Bank of Lebanon

The growth outlook for oil importers with 22

See statistical appendix for country-specific macroeconomic
GCC links continues to be strong largely because information.

33
  Sustaining the Recovery and Looking Beyond – A Regional Economic Developments and Prospects Report

Figure 31: Credit growth in oil importers

Credit Growth (YoY, in percent) – MENA Emerging

Egypt Jordan Lebanon Morocco Tunisia

40

30

20

10

–10

–20
Jan–06
Mar–06
May–06
Jul–06
Sep–06
Nov–06
Jan–07
Mar–07
May–07
Jul–07
Sep–07
Nov–07
Jan–08
Mar–08
May–08
Jul–08
Sep–08
Nov–08
Jan–09
Mar–09
May–09
Jul–09
Sep–09
Nov–09
Jan–10
Mar–10
May–10
Source: Datastream.

Figure 32: Rodrik’s real undervaluation the deceleration of foreign inflows in the first
index for Lebanon half of 2010, and the deceleration of growth
compared to 2009.
1.6
1.4
Limited fiscal space—defined by large twin
Real undervaluation index

1.2
1.0
deficits and government debt above 145 percent
0.8 of GDP—is a key source of long-term vulnerabil-
0.6 ity in Lebanon. It constrains the ability of the
0.4 government to respond to unexpected adverse
0.2 shock, including the one related to the recent
0
wheat price spike. Most importantly, over the
–0.2
–0.4
long-run, a failure to implement structural re-
–0.6 forms aimed at increasing the competitiveness
1972 1977 1982 1987 1992 1997 2002 2007 of the economy and addressing the fiscal risks
Source: Staff calculations. could erode further the country’s growth outlook
Note: The Rodrik’s (2008) real undervaluation index is a mea- and debt servicing capacity.
sure of the deviation of the actual real exchange rate from the
PPP real exchange rate which takes into account the Balassa-
Samuelson effect, i.e. it takes into account the fact that the
Annual growth in Jordan is expected to in-
relative price of non-tradable goods are higher in countries crease relative to 2009 but remains far below its
with higher income per capita. pre-crisis level as credit to the private sector ex-
panded at the lowest pace among the oil import-
ing countries in the region (Figure 31). Jordan
has already initiated a new interest rate policy continues to rely on remittances and financial
aiming to gradually reduce the spread on deposi- flows from the GCC countries, but its exports
tor’s rates between Lebanon and the interna- have become a lot more dependent on the US
tional market. The spread has already declined and Asian markets and a lot less dependent on
by 81 basis points between October 2009 and the EU and the GCC (Figure 33).
June 2010. This has been a key factor behind

34
 Chapter 2: MENA’s Recovery is Proceeding in an Uncertain Global Economic Context
Figure 33: Jordan has made a dramatic shift in export destinations
1998
Africa 3%
Other
USA 2%
MNA
10%
RoW 9% Asia 33%
LAC 0%
GCC 28%
ECA 2%
EU 13%
Source: COMTRADE data.
The government of Jordan has decided to
tackle the country’s main source of vulnerabil-
ity—its limited fiscal space, by tightening the fis-
cal policy stance in 2010 and adopting measures
to rationalize government consumption. At the
same time the government has taken measures
to stimulate investment and economic activity.
These measures include income tax exemptions
on export activities, reduction in land and
property registration fees, and the provision of
public lands for production, tourism and ser-
vices projects. Hoping to encourage lending to
the private sector, the government has started
providing guarantees to SME’s borrowing for
productive projects. The government has also
approved a new debt strategy emphasizing fur-
ther reliance on external borrowing in order
to reduce any potential crowding out effects of
government borrowing. For this purpose, the
government has announced the first Eurobond
issuance in the history of Jordan. This issuance
is expected to serve as a benchmark for future
operations.
2008
Africa 3%
Other
MNA
10%
Asia 42%
USA 20%
RoW
6% GCC EU
LAC 1% 9% 7%
ECA 2%
A pronounced global economic slowdown in
the second half of the year is the key near term
risk to Jordan’s outlook, although for now the
chance of this happening has receded. Weaken-
ing political support for the medium term reform
agenda adopted by the government is another
risk that the government will need to take into
account as it decides to balance the need for stim-
ulus with the need to improve its fiscal stance.
The main effect of the financial and eco-
nomic crisis in Djibouti was felt in the form of
a significant slowdown in FDI flows as a conse-
quence of the financial difficulties in Dubai. In
2010, transport and port-related activities have
been areas of strength, but growth is expected
to have decelerated to 4.5 percent on weakness
in agriculture and manufacturing. With limited
fiscal space—including very small reserves—the
government has not extended any fiscal stimu-
lus this year. Instead, the government adopted
a fiscal stability plan in addition to a multiyear
payment schedule to partly cover domestic pay-
ment arrears accumulated in 2009.
35
Part II. Looking Beyond the
Recovery and Beyond Oil

MENA remains uncomfortably
dependent on the
capital-intensive oil sector
MENA felt the impact of the financial and
economic crisis to a much lesser extent than
developed economies and emerging markets
outside Asia, but the economic recovery in
MENA has also lacked vigor. By 2011–12 MENA
is expected to return to growth observed in the
period 2000–06, but growth rates in the range of
4.8 percent are not high enough to address the
key challenges facing the region. These include
high unemployment rates—especially for young
people, low labor force participation rates—nota-
bly for women, one of the world’s lowest formal
employment rates, and the highest population
and labor force growth rates among middle-
income economies (Figure 34).
In the last ten years MENA’s growth acceler-
ated relative to the previous decade in response
to intensified efforts in many countries to bolster
their private sectors and diversify their sources
of growth. Governments improved macroeco-
nomic management, simplified business regula-
tions, reduced restrictions to trade and invest-
ment, and opened up their financial sectors.
Indeed, the average number of reforms in MENA
has steadily increased during the last 5 years.
Achievements related to external barriers
to trade however have been more limited, and
per capita growth in developing MENA has been
modest. Governments have relied frequently on
“positive list” trade agreements which liberalize
trade for specific “listed” products and grant a
tariff preference to the signatories of these agree-
Chapter 3
ments, and by construction do not open trade in
goods produced domestically.23 Annual per capita
growth of developing MENA countries advanced
on average only modestly in the period between
2000 and 2008 and averaged just 2.5 percent per
annum—a rate that compares poorly with the mean
of 4.6 percent for the developing world (Figure 35).
The capital-intensive oil sector has been
and remains the primary vehicle for revenue
and wealth creation for the oil exporters in the
region, while the spillover effects to the oil im-
porting countries in the region and beyond have
been significant. Governments in oil exporting
countries have relied on oil revenues to provide
public services and infrastructure, and budget-
ary support in times of crisis, and some—especial-
ly the GCC countries—have used their oil wealth
to pursue state-led economic diversification
strategies. MENA oil importers also benefitted
from the oil wealth as they supplied labor to the
oil-rich MENA economies and absorbed invest-
ments coming from these countries.
Going forward the outlook for oil remains
promising, but there is significant uncertainty in
the projections. There is a consensus that crude
oil prices will remain high in the next decade due
to rapid demand growth in developing countries,
declining production from mature fields and
higher costs for new production in remote areas
and unstable regions. Indeed, the International
23
For more information see Hoekman and Sekkat (2009).
39
  Sustaining the Recovery and Looking Beyond – A Regional Economic Developments and Prospects Report

Figure 34: Population and labor force growth (%, annual averages)

Population growth rates

1990–99 2000–2008

3.0

2.5

2.0

1.5

1.0

0.5

0.0
EAP SSA SAS ECA LAC MNA

Labor force growth rates

2005–10 2010–20

3.5

2.5
Percent

1.5

0.5

0
Low income EAS LAC SSA SAS MENA

Source: World Bank, WDI. Note: Labor force growth rates are projection based on estimations presented in Koettl (2008) and assum-
ing constant participation rates.

Energy Agency (IEA 2008) announced that “the
era of cheap oil is over”. China and India are ex-
pected to account for just over half of the increase
in global primary energy demand between 2006
and 2030. However, climate change and policies
to mitigate green house gas emissions could
push energy prices lower by 2030, and increase
demand for low-carbon bio-fuels (IEA 2008). Not
surprisingly, a number of MENA oil exporters
are actively engaged in energy diversification
through the adoption of an aggressive renewable
energy exploitation plans based on untapped
sources, innovative technology, use of private
capital and energy trading.
With the benefits from oil however come
serious risks as MENA remains uncomfortably
dependent on the capital-intensive oil sector. In
2008, 55 percent of MENA’s population lived in
MENA’s oil exporting countries, oil accounted
for nearly 90 percent of these countries’ exports
(Figure 36), and nearly 50 percent of these
countries’ GDP. In 2007 twenty-two countries
received at least 90 percent of their merchan-
dise export earnings from commodities,24 and
approximately one third of them were MENA
24
Source: Mitchell and Aldaz-Carroll (2010).

40
 Chapter 3: MENA Remains Uncomfortably Dependent on the Capital-Intensive Oil Sector
Figure 35: Growth of per capita income by region (percent)
1990–99
9
8
7
6
5
4
3
2
1
0
–1
–2
MENA
GCC
Developing
MENA
EAP
ECA
Source: World Bank WDI.
countries. Dependence on oil carries serious
risks to growth sustainability. Some of the risks
of dependence are well-understood and include
volatility, Dutch disease, environmental degrada-
tion, political instability and conflict, and insti-
tutional weakness and corruption. Other risks
are less obvious and have to do with a mismatch
between the economy’s endowment base and its
endowment use, and in the future, the threat of
viable alternatives to oil. The latter should also
not be discounted just because at present Asia has
a tremendous appetite for commodities. Techno-
logical advances would likely offer a low-carbon
emitting alternative to fossil fuels in the future.
Some MENA oil exporters have been taking
steps to minimize their potential risks and en-
hance the potential benefits of oil-driven growth.
The GCC countries, in particular, have followed
prudent macroeconomic policies and manage-
ment of oil revenues, and accumulated large
savings in the form of reserves and sovereign
wealth funds. Indeed, during the period between
1997 and 2007, the group of GCC countries be-
came the fourth largest exporter of capital after
China, Germany and Japan (Figure 37). Over the
years, GCC oil exporters have used their sover-
eign oil wealth funds to finance infrastructure,
technology and education, as well as to acquire
2000–2008
LAC
SA
SSA
Developing
economies
World
different types of foreign investments in an effort
to diversify their domestic and foreign sources
of revenue. The United Arab Emirates’s service-
driven model of economic diversification and
Saudi Arabia’s model of developing its oil-based
petrochemical industry are two widely cited
examples of diversification success stories. And
increasingly, the oil wealth of GCC and other
oil exporters is reaching other countries in the
region and beyond through FDI and remittances.
However, the labor-abundant developing oil
exporters have been far less successful than the
labor-importing GCC countries in dealing with
some of the pitfalls of oil dependence. These
countries suffer from weak institutions, conflicts,
macroeconomic volatility, and Dutch disease.
The latter has led to increases in the prices of
nontradeables relative to tradeables, making the
tradeable sector less competitive internationally,
and exacerbating the dependence on oil exports.
Between 1975 and 2008 oil exports grew in
importance as a source of export revenue and
growth in the developing oil exporting countries.
By contrast, during the same period oil exports
declined in importance in the GCC countries.
GCC oil exporters improved their competi-
tiveness as they implemented successfully pru-
41
  Sustaining the Recovery and Looking Beyond – A Regional Economic Developments and Prospects Report

Figure 36: MENA’s oil dependence

Oil exports
(% of total exports)

1975 2008

100
90
80
70
60
Percent

50
40
30
20
10
0
GCC oil exporters Non GCC oil exporters Oil importers

Oil exports
(% of GDP)

1975 2008

70

60

50

40
Percent

30

20

10

0
GCC oil exporters Non GCC oil exporters Oil importers

Source: World Bank, WDI. Note: Non-GCC oil exporters are the developing oil exporters.

dent macroeconomic and structural reforms.
Real exchange rate overvaluation became much
less of a problem in most GCC countries as they
opened labor and goods markets and blocked two
important channels through which “Dutch” dis-
ease operates. Real exchange rate overvaluation
however remains a problem in most developing
oil exporters.25 This is unfortunate because these
countries are labor abundant and need rapid job
growth to accommodate the second fastest grow-
ing labor force in the world after Sub-Saharan
Africa (Figure 4). As the oil industry is not labor
intensive, continued reliance on oil will not ad-
dress developing oil exporters’ major issue—em-
ployment creation, and will only exacerbate the
current situation.
Dutch disease has also become a threat to
those MENA oil importers receiving large re-
mittances and finance from the GCC markets.
Young people in oil importing countries, espe-
cially those with GCC links, prefer not to work
25
Yemen is a special case which reflects dwindling oil reserves
in a country that has not adjusted its aggregate demand.

42
 Chapter 3: MENA Remains Uncomfortably Dependent on the Capital-Intensive Oil Sector

Figure 37: Current account surpluses and deficits (US$ billions)

1997 2002 2007

400

200

–200

–400

–600

–800
USA UK Australia MENA EU Oil EA X GCC Japan Germany China
Oil exporters China
importers ( X GCC)

Source: World Bank, WDI.

Figure 38: Contribution of demand components to growth in MENA

Net Exports Gross Domestic Investment Government Consumption

Private Consumption GDP growth, %

14.0
12.0
10.0
8.0
6.0
4.0
2.0
0.0
–2.0
–4.0
–6.0
–8.0
2003 2004 2005 2006 2007 2008 2009 2010f 2011f

Source: Staff estimates based on World Bank data and projections for 2010 and 2011.

in their home countries due to good prospects
of finding a high-paying job in the GCC coun-
tries and elsewhere. This has increased wages
for some occupations in the oil importing coun-
tries. The oil boom in 2000s also triggered an
increase in investment flows from the GCC and
other developing oil exporters into the oil im-
porting countries in the region. The magnitude
of these flows was boosted perhaps because of
an increase in “home-bias,” or preference to
retain oil wealth in the region after 2001 on
concerns about potential restrictions on MENA
investments in other parts of the world.26 Much
of this investment has gone into the nontrade-
able sectors, notably real estate, and has been
less likely to help firms boost productivity or get
access to new technologies and integrate into
global production networks than investment
derived from a more diverse set of countries.
Indeed, net exports contributed little to growth
26
See for detail Noland and Pack (2008).

43
  Sustaining the Recovery and Looking Beyond – A Regional Economic Developments and Prospects Report
in MENA in the past decade (Figure 38), while
the contribution of gross exports was compa-
rable in size to the contribution of the govern-
ment sector.
Given this imperative, the second part of
this report looks at non-oil export growth trends
and the obstacles facing MENA’s nonoil export-
oriented firms in the context of the challeng-
ing, post-crisis global economic environment.
The analysis is structured around four sets of
questions. How did nonoil exports evolve in the
past decade? Do MENA countries face special
market access issues? What are the major con-
straints to MENA’s nonoil export growth? Are
reforms implemented by countries addressing
these major constraints? The answers to these
questions vary by country, although common
messages emerge for the three major types of
MENA countries—the GCC, developing oil ex-
porters and oil importers.
The analysis is guided by a diagnostic frame-
work which evaluates the relative importance
of factors affecting returns to investment and
cost of financing investments in nonoil export-
oriented activities. On the rate of return side,
these include factors such as market access,
infrastructure, human capital, technology, policy
Figure 39: Export revenue by type of exports (% of GDP, 2008)
Nonoil goods and services
70%
60%
50%
40%
30%
20%
10%
0%
SSA EAP ECA
Data source: Comtrade for goods, UN Services Trade Statistics for services, and World Bank for remittances.
44
and institutional environment, information and
coordination issues. On the cost of capital side,
these include access to domestic and foreign sav-
ings, and financial intermediation issues. The re-
port does not discuss all the factors in depth, but
focuses on those that are likely to be of special
concern for non-oil export growth. Furthermore,
some of the topics such as labor market issues
and governance are not discussed in depth in
this report as they have been presented in detail
in other regional studies.
MENA’s non-oil exports of goods
and services are below potential
due to developing oil exporters’
underperformance
Exports of non-oil goods and services play
a much smaller role in MENA than in other
regions. In 2008, MENA’s share of exports of
non-oil goods and services in GDP was just
16 percent compared to 44 percent in East
Asia and 22 percent in South Asia, and lower
even compared to the shares of LAC and SSA
(Figure 39). However, the regional average
hides big differences in the contribution of
non-oil exports of goods and services within
MENA—in particular, between oil importing
and oil exporting countries. In the oil import-
Oil and gas Remittances
LAC SAS MENA Oil Non GCC
Importers GCC oil
exporters
 Chapter 3: MENA Remains Uncomfortably Dependent on the Capital-Intensive Oil Sector
ing countries, non-oil exports of goods and
services accounted for 38 percent of GDP—a
ratio slightly lower only than East Asia’s, yet
they are insignificant as a share of total out-
put in the GCC countries, and especially in
the developing oil exporters. Furthermore,
the temporary movement of people to deliver
services abroad27 is of particular importance
in oil importing countries where remittances
account for a high share of income.
The analysis can be conducted more care-
fully by comparing the performance of MENA
countries with their estimated potential to
export nonoil goods and services. This export
potential is estimated with the help of a model
that conditions per capita exports of nonoil
goods and services on per capita natural re-
source endowments, measured by the value of
resource-based exports as a share of population.
For a cross-section of 71 middle-income coun-
tries including 15 MENA countries for which
data were available for the ten year period
between 1998 and 2007,28 the results indicate
a strong positive association of per capita ex-
ports of nonoil goods and services with income
per capita which controls for skills, technology
and institutional endowments indicative of the
capacity to export; and a negative association
with per capita natural resource exports which
tend to be associated with rents that discourage
non-natural resource exports.
Nonoil exports of goods and services of the oil
importers and the GCC countries are found to be
at potential, while the situation for the developing
oil exporters is significantly weaker than for the
other two groups (Figure 40). Developing oil ex-
porters’ non-oil exports are, on average, only one
fifth of predicted levels. The weak performance of
this group pulls down the overall MENA average
to 80 percent of predicted levels. The two middle-
income countries with weakest export perfor-
mance among the 71 middle-income countries in
the sample are Algeria and the Islamic Republic of
Iran, while those with strong performance include
the United Arab Emirates, Bahrain, Jordan, Tuni-
sia and Morocco (Figure 41). The rest of the fifteen
MENA countries appear to be underperforming
relative to their predicted potential.
Figure 40: MENA underperformed relative
to its nonoil export potential in the period
1998–2007
1.2
1
0.8
0.6
0.4
0.2
0
Oil GCC Developing MENA 15
Importers countries Oil Exporters
Source: Staff calculations of export potential is based on
the following estimated regression: PCNOX =-181.09+0.2*
PCGDPPPP-0.185*PCNatRes, sample size is 71, Adj R2=0.54,
where PCNOX stands for per capita exports of nonoil goods
and services, PCGDPPPP is the value of the PPP GDP in per
capita US$, PCNatRes is the value of per capita resource-based
exports in US$. The data has been adjusted for re-exports.
Other studies explore MENA’s potential to
export nonoil merchandise goods only, and come
up with the finding that overall MENA underex-
ports such products. Using cross-section data for
the period 2005–09, Behar and Freund (2010)
find that the typical MENA country exports
around 30 percent of its potential, conditioning
on size distance and other covariates. Miniesy
and Nugent (2002) also find that the typical
MENA country exports only 30–36 percent of
its potential. Similarly, Bhattacharya and Wolde
(2010) estimate that the average MENA country
exports 30 percent of potential. These results
suggests that overall MENA underexports nonoil
27
This is part of Mode 4 of trade in services. Mode 1 refers to
cross-border trade, consumption abroad as Mode 2, and estab-
lishment abroad is Mode 3.
28
The sample includes all middle income countries with per
capita income lower than US$11,456 and greater than US$935
in 2007, except for small economies with population less than
1 million. It also includes GCC countries and Yemen that are
not middle-income countries, but belong to MENA. The group
of GCC countries includes Bahrain, Kuwait, Oman, Qatar, Saudi
Arabia and United Arab Emirates. Developing oil exporters refer
to Algeria, Iran, Syria and Yemen, while oil importers include
Lebanon, Jordan, Egypt, Morocco and Tunisia.
45
  Sustaining the Recovery and Looking Beyond – A Regional Economic Developments and Prospects Report

Figure 41: MENA countries’ nonoil export potential relative to that of other middle income
countries for the period 1998–2007

3.0

2.5

2.0
Good performers Good performers
1.5

1.0
Underperformers
0.5

0
Malaysia
Mauritius
Thailand
Philippines
Costa Rica
Chile
Lithuania
Latvia
Botswana
Bulgaria
Poland
China
Ukraine
Mexico
Azerbaijan
Uruguay
Sri Lanka
Georgia
South Africa
Indonesia
Romania
Turkey
Cameroon
Kazakhstan
Albania
Argentina
India
Russian Federation
Nigeria
Colombia
Venezuela, RB
Bahrain
Jordan
United Arab Emirates
Tunisia
Morocco
Qatar
Lebanon
Syrian Arab Republic
Kuwait
Egypt, Arab Rep.
Oman
Saudi Arabia
Yemen, Rep.
Iran, Islamic Rep.
Algeria
Source: Staff calculations of export potential is based on the following estimated regression: PCNOX =-181.09+0.2* PCGDPPPP-
0.185*PCNatRes, sample size is 71, Adj R2=0.54, and PCNOX stands for per capita exports of nonoil goods and services, PCGDPPPP
is the value of the PPP GDP in per capita US$, PCNatRes is the value of per capita resource-based exports in US$.

merchandise goods, but the degree to which it
underexports declines after exports of services
are included in the analysis. The econometric
results above suggest that the typical MENA
country exports around 80 percent of its poten-
tial when both nonoil goods and services exports
are considered.
MENA has opened up and
diversified its exports
During the past decade most MENA countries
increased their openness and the average MENA
share of nonoil exports in GDP rose from 7.5
percent in 1996–99 to 9.2 percent in 2006–08
(Figure 42). All MENA oil importers also made
progress in reducing the concentration of their
merchandise export baskets (Figure 43). Only
the GCC oil exporters seem to have made virtu-
ally no progress in diversifying their merchan-
dise exports. They export primarily processed
industrial goods such as chemicals, fertilizers
and other processed goods (Figure 44), al-
though some GCC countries such as the United
Arab Emirates and Qatar have made advances
in diversifying their exports by expanding and
diversifying services exports.29 Oil exporting
countries export mostly processed industrial
products, as well as primary and processed
food items. Capital goods such as machinery
and equipment represent a tiny share of their
merchandise exports. By contrast, oil importers
have a more diverse export basket (Figure 44).
They export a mix of industrial, food and other
consumer items, including some parts and com-
ponents, and to a smaller extent, capital goods
such as machinery and equipment. Tourism
and transport are the main sources of export
revenue in MENA’s service sector. In the GCC
countries the communication sector features as
another major source of export revenue.
MENA has made a major shift towards the
fast-growing markets of Asia. In 1998, 14 percent
of MENA’s non-oil merchandise exports went to
Asia, but by 2008 this share nearly doubled and
reached 25 percent (Figure 45). The switch has
29
Note that exports of services are not captured in Figure 43.

46
 Chapter 3: MENA Remains Uncomfortably Dependent on the Capital-Intensive Oil Sector

Figure 42: Non-oil merchandise exports as a share of GDP (percent)

1996–1999 2006–2008

40
35
30
25
20
15
10
5
0
Algeria

Bahrain

Egypt, Arab Rep.

Iran

Jordan

Kuwait

Lebanon

Morocco

Oman

Qatar

Saudi Arabia

Syrian Arab Republic

Tunisia

United Arab Emirates

Yemen, Rep.

MENA
Source: COMTRADE data and World Bank MENA region, GDP data.
Note: The rise in export-to-GDP ratios is robust to data sources and types of exports.

Figure 43: Export concentration in developing regions

FDI inflows Herfindahl

5,000 0.35
4,500
0.30

Herfindhal Index on Exports

FDI Inflows (millions $US)

4,000
3,500 0.25
3,000 0.20
2,500
2,000 0.15
1,500 0.10
1,000
0.05
500
0 0
1995

2000

2005
1995

2000

2005
1995

2000

2005
1995

2000

2005
1995

2000

2005
1995

2000

2005
1995

2000

2005

Africa Asia ECA Latin Oil Developing GCC oil

America importers oil exporters
exporters

Source: Gourdon (2009). Herfindahl index is a flow-weighted concentration index H = (∑(sk)2–1/n)/(1–1/n), where sk is the share of
export line k in total exports, and n is the number of export lines. A drop in the index indicates a decline in the degree of export
concentration.
Numbers for Asia exclude China and the newly industrializing economies.

been particularly dramatic for the developing 12 percent in 1998 to 35 percent in 2008. The
oil exporters, whose share nearly tripled from move towards a greater reliance on Asia was a

47
  Sustaining the Recovery and Looking Beyond – A Regional Economic Developments and Prospects Report

Figure 44: MENA’s export structure, 2008

Export of nonoil goods Export of services

Food Industrial Parts & components Transport Travel Communication
Capital Consumer Insurance & finance Other business Gov services

Other oil Other oil

exporters exporters

Oil Oil
importers importers

GCC GCC
countries countries

0% 20% 40% 60% 80% 100% 0% 20% 40% 60% 80% 100%

Source: Comtrade data for goods and UN Services Trade Statistics for services.

Figure 45: MENA’s non-oil merchandise export destinations

MENA GCC countries

1998 2008 1998 2008
RoW USA 3%
RoW RoW RoW 11%
10% MENA 15% USA 4% 9%
MENA MENA
29% USA 27% 44% USA MENA
6% 8% 41%
Asia Asia
EU 14% Asia Asia
25% EU 20% 34%
41% EU 19%
29% EU
11%

Developing oil exporters Oil importers

1998 2008 1998 2008

RoW RoW RoW MENA RoW

13% MENA 19% USA 9% 14% 17% USA
MENA 24% 1% 6%
37% USA USA
Asia 1% MENA 6%
12% Asia
EU 12% Asia
EU EU 13%
37% Asia 8%
21% 35% EU 50%
65%

Source: Comtrade data.

48
 Chapter 3: MENA Remains Uncomfortably Dependent on the Capital-Intensive Oil Sector
lot less dramatic for the oil importing countries.
Their share increased from 8 percent in 1998 to
13 percent in 2008. Freund (2010) also finds that
MENA and other developing countries increased
exports to the four growing emerging markets30
(GEMs) that did not experience import collapses
during the crisis in 2008–09.
The shift towards Asia and the GEM (Brazil,
China, India and Indonesia) is good news for
MENA as these markets are well positioned to
drive trade growth in the future (Figure 46).
Indeed, a new post-crisis world trade order is
emerging in which South-South trade will play a
prominent role (Hanson 2010). Large and growing
emerging markets are absorbing capital and goods
from the rest of the world, and developing coun-
tries from MENA, SSA and SAS are shifting ex-
ports towards BRICs and low and middle-income
countries. The GEMs appear to be among the most
promising markets. They remained remarkably re-
silient during the crisis of 2008–09 despite sizable
exchange rate depreciation in Brazil and Indone-
sia, and without extensive fiscal support in Brazil,
India and Indonesia (Freund 2010). In the past
decade, the GEMs increased import demand for a
variety of industrial goods—in particular, chemical
products in Brazil, light manufactures in China
and Indonesia, and machinery and transport in
India (Freund 2010). Overall, however, import
growth in the GEMs has been largely at the inten-
sive margin, i.e. import growth has been driven by
an increase in the volume of existing imports from
existing sources. There has been some growth at
the extensive margin, especially in Indonesia.
Thirty percent of Indonesia’s imports in 2007/08
came from new exporters (Freund 2010).
Despite the shift away from the old conti-
nent, Europe remains the most important export
destination for MENA’s nonoil goods (Figure 45).
This reflects largely the fact that the EU received
half of the oil importing countries’ exports in
2008. For the GCC oil exporters, nonoil exports
destined to other MENA countries represented
the largest share, while for developing oil export-
ers, Asia became the most important destination
for their nonoil merchandise exports. The market
shift experienced by the developing oil export-
ers has been particularly striking. In 1998, 37
Figure 46: Import growth in major export
markets
2009 2010e 2011p
20
15
10
5
0
5
–10
–15
–20
East Asia EU25 South Asia USA
Source: World Bank, DECPG.
percent of their nonoil exports were destined for
MENA countries—a share equal in size to their EU
nonoil export share (Figure 45). In 2008, their
MENA and EU shares declined substantially to
just a quarter and a fifth of their nonoil merchan-
dise exports, respectively.
Services are an area of relative
strength for MENA
In 2008, MENA’s share in world exports of nonoil
goods and services was just 1.2 percent, up from
1 percent in 1998 (Table 8), and the share grew
at a pace comparable to the average for middle
income countries (MICs) excluding China, largely
because of the expansion of services exports.
During the period from 1998 to 2008, MENA’s
share in world exports of services grew by nearly
30 percent compared to just 15 percent for the
MICs excluding China. However, when it comes
to exports of nonoil goods, the situation reverses
with MENA’s share of exports of nonoil goods
growing by just 17 percent compared to 26 per-
cent for the MICs other than China (Table 8).31
These results suggest that MENA firms exporting
nonoil goods remain less competitive than firms
30
The four countries are Brazil, China, India and Indonesia.
31
In this comparison we allow other MICs to benefit from exports
of commodities other than petroleum.
49
  Sustaining the Recovery and Looking Beyond – A Regional Economic Developments and Prospects Report

Table 8: Shares in world exports

Exports of nonoil goods &
services Exports of nonoil goods Exports of services
1998 2008 Change 1998 2008 Change 1998 2008 Change
MENA 1.0 1.2 20.0 0.6 0.7 16.7 2.4 3.1 29.2
MICs without 13.2 16.3 23.5 13.3 16.7 25.6 13.0 15.0 15.4
China
China 3.1 8.6 177.4 3.5 10.0 185.7 1.7 3.7 117.6
Source: COMTRADE data.
Note: Change is percentage change in the share between 1998 and 2008.

Figure 47: Non-oil merchandise export growth by region for the period 1998–2008 (in value terms)
Exports of new products to new markets Exports of new products to exisiting markets
Exports of existing products to new markets Exports of existing products to existing markets

400%
350%
300%
250%
200%
150%
100%
50%
0%
GCC

Other Oil
Exporter

Oil Importer

MENA

SSA

SAS

EAP

ECA

LAC
Source: Staff calculations based on Comtrade data.

in other MICs, but the opposite is true for MENA
firms exporting services.
MENA nonoil merchandise goods exports
grew at a slower pace than exports of other de-
veloping countries. MENA’s nonoil merchandise
export growth was around 60 percent of growth
in East Asia and ECA, and two thirds of growth in
South Asia (Figure 47). Regional export growth
was driven more by an expansion of existing prod-
ucts to new markets and new products to existing
markets than by an increase of exports of existing
products to existing markets. Growth at the exten-
sive margin32 played a much bigger role in MENA
than in other regions. This was especially true in
the case of the developing oil exporters, whose ex-
tensive margin accounted for 82 percent of nonoil
export growth during the period 1998–2008—an
outcome consistent with the spectacular shift in
their nonoil export destinations.
The dominance of the extensive margin can
be explained partly by the decline or disappear-
32
The extensive margin captures the expansion of existing
products to new markets and new products to existing and
new markets.

50
 Chapter 3: MENA Remains Uncomfortably Dependent on the Capital-Intensive Oil Sector

Table 9: Contribution of intensive and extensive margins to nonoil merchandise growth,

1998–2008
Exports of existing Exports of existing Exports of new Exports of new
products to existing products to new products to exisiting products to new
markets markets markets markets
GCC 45% 40% 14% 1%
Developing oil exporters 20% 57% 20% 3%
Oil importers 53% 38% 9% 0%
MENA 45% 41% 13% 1%
SSA 44% 43% 6% 7%
SAS 58% 40% 1% 1%
EAP 82% 17% 0% 0%
ECA 61% 37% 2% 0%
LAC 77% 22% 2% 0%
Source: Staff calculations based on COMTRADE.
Note: Intensive margin refers to exports of existing products to existing markets or column (1). Extensive margin refers to exports
of existing products to new markets, exports of new products to existing markets and exports of new products to new markets, or
columns (2) through (4).

ance of exiting flows to some existing markets,
notably Europe.33 MENA’s exports of existing
products declined or disappeared at the highest
rate in the developing world. Some of the reasons
behind these outcomes might be linked to pres-
sures associated with increased competition from
China and other emerging economies in specific
markets such as the EU. China and other East
Asian developing countries were able to scale up
in a big way their existing exports in the EU and
elsewhere. Indeed, East Asia’s intensive margin
accounted for 82 percent of export growth in the
past decade, compared to 45 percent in MENA
(Table 9). Had MENA countries been able to
maintain the level of existing export flows that
actually declined or disappeared, export growth
would have been 50 percent higher in MENA,
59 percent higher in the GCC and developing oil
exporters, and 39 percent higher in oil import-
ers (Table 10). For East Asia, the decline and
disappearance of existing exports reduced export
growth by just 30 percent (Table 10).
seemed to have withstood competition better
than those from oil exporting countries,34 but
they were less successful in shifting existing
products to new markets, perhaps because they
were constrained by existing preferential trade
arrangements. Consequently, merchandise ex-
port growth of oil importers lagged behind that
of non-GCC oil exporters and other emerging
regions, except Latin America and Sub-Saharan
Africa (Figure 47).
During the past ten years oil importers grew
their exports in EU markets mostly by increas-
ing exports of existing products (Figure 48),
but they also managed to expand on a smaller
scale some types of merchandise exports to
Asia. MENA oil importers had much greater
success than MENA oil exporters in expanding
exports of parts and components to EU and
Asia (Figure 48). They were also more success-
ful than oil exporters in expanding exports of
capital goods to the EU. However, export growth

Behind MENA’s weak nonoil merchandise

export growth performance might have been
shifts in demand or intense competition be-
tween MENA firms and firms from other emerg-
ing markets. Firms from oil importing countries
33
Source: Brenton, Shui and Walkenhorst (2010).
34
The intensive margin of oil importers was affected to a much
smaller degree by the decline or disappearance of existing
products to existing markets.

51
  Sustaining the Recovery and Looking Beyond – A Regional Economic Developments and Prospects Report

Table 10: Decomposition of the intensive margin

Exctinction in
Exports of existing Increase in export of Fall in export of exports
products to existing exisiting products to exisiting products to exisiting products to
markets exising markets exising markets exising markets
GCC 80% 139% –30% –29%
Other oil exporter 54% 114% –26% –33%
Oil importer 116% 154% –20% –19%
MENA 92% 143% –25% –25%
SSA 89% 137% –21% –27%
SAS 178% 213% –20% –15%
EAP 290% 321% –21% –9%
ECA 213% 255% –25% –17%
LAC 139% 171% –22% –11%
Source: Staff calculations based on COMTRADE.

linked to global production sharing arrange-
ments was weak relative to export growth of
industrial products, consumer goods and food
products—especially to the EU.
Developing oil exporters’ nonoil export
growth was driven by an export expansion of
industrial products in Asia (Figure 48), followed
by much smaller increases in Europe, MENA and
the rest of the world. This group faced serious
competition in the EU markets for consumer
and capital goods. Exports of capital goods to
nontraditional markets grew more relative to
exports of these goods to other regions, but
the expansion was insignificant in quantitative
terms. The export growth of the GCC oil export-
ers could be attributed to a strong expansion of
industrial exports to Asia, and within the MENA
region. GCC oil exporters lost some ground in all
other industries in the EU (Figure 48).
Important information is hidden behind the
margin indicators. In a number of countries, the
key products that have driven growth to certain
markets have also driven the decline to other mar-
kets. For example, in Tunisia, the same product
group “men’s and boy’s cotton trousers” is at the
top of the lists of existing products with increased
exports to existing markets and decreased exports
to existing markets. This is an indication of the
considerable change in the structure of markets
to which Tunisia exports this product.35 Perhaps
in response to greater competition, in many
countries, in sectors with differentiated products,
there were substantial within-industry adjust-
ments as firms switched production to exports of
similar goods within the same product class. For
example, the decline in “men’s and boy’s cotton
trousers” has been compensated by an expansion
of “women’s and girl’s cotton trousers”.
Growth at the extensive margin is evidence
of the growing importance of global production
sharing arrangements in the electrical and motor
vehicle industries of oil importers with strong EU
links, and the increasing importance of chemicals
and chemical products for a number of countries,
including the GCC oil exporters. Finally, for a
number of products that have driven export
growth in MENA, China’s share in the world
market has increased significantly, suggesting a
complicated picture of export growth. In the EU,
MENA’s export expansion was limited by the
expansion of China and other emerging market
exporters in the EU market, but MENA firms
appear to have reallocated toward more rapidly
growing product and market segments of the
European Union and Asia.
35
For further analysis see Brenton, Shui and Walkenhorst (2010).

52
 Chapter 3: MENA Remains Uncomfortably Dependent on the Capital-Intensive Oil Sector

Figure 48: Nonoil merchandise export growth by market and industry, 1998–2008

Exports of new products to new markets Exports of existing products to new markets
Exports of new products to existing markets Exports of existing products to existing markets

Capital goods Parts & components

4% 5%
4%
3%
3%
2%
2%
1% 1%
0%
0%
–1%
–1%
–2%
–2% –3%
Asia
EU
MENA
RoW
USA
Asia
EU
MENA
RoW
USA
Asia
EU
MENA
RoW
USA

Asia
EU
MENA
RoW
USA
Asia
EU
MENA
RoW
USA
Asia
EU
MENA
RoW
USA
GCC Oil importer Other oil exporter GCC Oil importer Other oil exporter

Industrial primary & processed Consumer goods

45% 14%
40% 12%
35% 10%
30% 8%
25% 6%
20% 4%
15% 2%
10% 0%
5% –2%
0% –4%
Asia
EU
MENA
RoW
USA
Asia
EU
MENA
RoW
USA
Asia
EU
MENA
RoW
USA

Asia
EU
MENA
RoW
USA
Asia
EU
MENA
RoW
USA
Asia
EU
MENA
RoW
USA
GCC Oil importer Other oil exporter GCC Oil importer Other oil exporter

Food primary & processed

8%
7%
6%
5%
4%
3%
2%
1%
0%
–1%
Asia
EU
MENA
RoW
USA
Asia
EU
MENA
RoW
USA
Asia
EU
MENA
RoW
USA

GCC Oil importer Other oil exporter

Source: Staff calculations based on COMTRADE.

53
  Sustaining the Recovery and Looking Beyond – A Regional Economic Developments and Prospects Report
Market access is more of an issue
for oil importers than oil exporters
Do MENA countries face any special market
access issues? To answer this question, this sec-
tion discusses estimates of overall protection by
type of merchandise goods such as agricultural
goods, manufactures, nonoil and oil products,
and by region, including MENA, its three major
subgroups—the GCC oil exporters, the develop-
ing oil exporters and oil importers, and other
key regions. It is important to note that only in
this section, non-oil goods are a subcategory
of manufactured products, while in all other
sections of the report, non-oil goods refer to all
merchandise goods other than petroleum prod-
ucts. The estimation required a split of products
at the HS6 level into two mutually exclusive
sets of agricultural and manufactured products.
Manufactured products were then split again into
another two mutually exclusive sets comprised
of oil products and non-oil products. Appendix
tables A2 through A15 present the complete set
of estimates of overall protection, tariffs and
ad-valorem equivalents (AVEs) of NTMs. Box 2
elaborates on the methodology for computing the
different types of protection rates.
MENA countries have relatively good market
access for nonagricultural goods in high income
countries. The average protection encountered
by MENA’s exports in advanced countries’ mar-
kets, measured by the overall restrictiveness in-
dex (see Box 2), was less than 1.9 percent in 2008
(Figure 49). This low average protection reflects
mainly low or zero tariffs on oil exports, which
dominate MENA oil exporting countries’ export
baskets, as well as tariff and quota free access to
the EU and the US for manufactured goods com-
ing from some oil importers.36 MENA’s average
nonoil protection rate is higher at 5.2 percent
but this rate is in line with nonoil protection on
exports of firms from other regions (Figure 49).
However, overall agricultural protection is high,
reflecting restrictive NTBs and constraining
exports, especially for oil importers with EU
links. Overall protection on agricultural goods is
highest for Tunisia (51.1%), followed by Morocco
(37%) (Appendix Table A14).
54
MENA countries have more restricted mar-
ket access in China than in advanced markets.
Overall nonoil protection in China averaged 10.2
percent for imports from MENA and 15.6 percent
for imports from MENA’s oil importing countries
(Figure 49). MENA oil importers with EU links
encountered much higher overall protection
than others (Figure 50 and Figure 49) because
of high tariffs on specific products exported to
China. Indeed, China’s protection rate on nonoil
imports from these countries was around 11 per-
cent, and approximately 3 to 4 times higher than
protection imposed on imports from other parts
of Asia, and the rest of the world. By contrast,
China’s overall barriers on nonoil goods exported
by MENA’s oil exporters and oil importers with
GCC links are much lower than the ones imposed
on oil importers with EU links and other regions
(Figure 50). The relatively low trade barriers
appear to have facilitated the rapid growth of
these countries’ exports to China and other
parts of Asia in the period between 1998 and
2008. Tariff protection on MENA’s agricultural
exports to China was steep compared to other
regions (Figure 51), reflecting high tariffs on
specific products.
All regions face higher protection in India
than elsewhere, and MENA region is not an ex-
ception (Figure 50). However, the overall protec-
tion on MENA’s nonoil exports to India is among
the highest in the world, largely because of high
barriers on GCC’s nonoil exports. Protection
on oil importers’ exports was generally lower
in India than in China largely due to product
composition effects as the simple average tar-
iff in India was 18% vs. 10% in China in 2008.
Tariffs in China and India vary substantially by
product line, with more than 100 tariff peaks
each. In China, these peaks affect agricultural
and industrial products in equal proportions. In
India, four fifths of all peaks fall on agricultural
goods (Pigato 2009).
36
Within the group of oil importing countries, Morocco, Tunisia,
Egypt, Lebanon, and Jordan have signed bilateral FTAs with the
EU, while Morocco, Jordan and Lebanon have signed bilateral FTAs
with the US. See for further detail Hoekman and Sekkat (2009).
 Chapter 3: MENA Remains Uncomfortably Dependent on the Capital-Intensive Oil Sector
Box 2: How is the overall trade restrictiveness index calculated?
The trade policy instruments of a country typically
include both tariffs and non-tariff barriers (NTBs).
While tariffs are mostly expressed in terms of a certain
percentage of the custom value of an imported prod-
uct, NTBs are sometimes hard to quantify. Examples
of NTBs include quotas, non-automatic licensing,
antidumping duties, technical regulations, monopolistic
measures, and subsidies. Thus, to adequately measure
the restrictiveness of the trade policies of a country, one
needs to combine the different forms of trade policies in
a meaningful way. The question is how to combine a 10%
tariff, with a 1000 ton quota, a complex non-automatic
licensing procedure and a $1 million subsidy?
To achieve this objective, Kee, Nicita and Olarreaga
(2009) first estimate the quantity-impact of NTBs on
imports in a good level regression, conditioning on the
existing tariff level of each product in each country. The
estimated quantity impacts of NTBs on trade imports
of the good is then converted to price effects using
the import demand elasticities of the product in each
country from Kee, Nicita and Olarreaga (2008). These
are the estimated ad-valorem equivalents (AVEs) of
NTBs for each country at the tariff-line level. Combin-
There is no evidence that protection has
increased substantially since 2008 when the
global crisis erupted. Indeed, a study by Bown
and Kee (2010) underscore the limited role of
trade barriers in the global trade collapse at the
end of 2008.37 They find evidence that much of
the new post-crisis protectionism is in the form
of “South-South” trade barriers such as anti-
dumping that one developing economy imposes
on the imports of other developing economies.
This phenomenon has not been new but has been
trending in this direction long before 2008–09,
and was accentuated during the crisis.
MENA countries are less successful
than other developing economies in
penetrating foreign markets
Despite good market access developing MENA
countries underexploit existing opportunities
for export growth as measured by the index of
ing the estimated AVEs of the NTBs with tariffs for
each product in each country gives us the overall trade
policy restriction of each country at tariff line level.
To obtain the overall trade restrictiveness index of
a country, the weighted average of the overall trade
policy restriction of each country at tariff line level is
calculated with weights reflecting the import share and
import demand elasticity of the each tariff line product.
For more details please refer to Kee, Nicita and Olar-
reaga (2009).
For the estimations presented in this report we
relied on tariff data for 2008 and latest NTB data. How-
ever, for the MENA countries the information refers to
the period prior to 2005 as more recent information on
NTBs was not available for these countries at the time
of writing. GCC oil exporters are represented by Oman
and Saudi Arabia, and developing oil exporters by Al-
geria, due to lack of data on other GCC and developing
oil exporters. Thus, the results for the GCC countries
and developing oil exporters should be interpreted with
caution. Oil importers include countries with strong
GCC links (Jordan, and Lebanon) and those with strong
EU links (Egypt, Morocco and Tunisia).
export market penetration. The index is calcu-
lated by dividing the number of export bilateral
flows by the number of bilateral flows that would
occur if the country were to export its products
to all the markets that import such products.38
Developing oil exporters such as the Republic of
Yemen, Algeria, the Islamic Republic of Iran, and
Syria exported their products to less than 5 per-
cent of markets in 2005 (Table 11). Oil importers
were more successful than them despite facing
37
There are a number of hypotheses about what caused the
collapse and why it became so widespread and deep. Some ar-
gue that the collapse in trade was the result of a synchronized
postponement of purchases, especially of durable consumer and
investment products. Others insist that the collapse in trade was
a consequence of the sudden financial arrest, which froze global
credit markets and spilled over to the specialized financial in-
struments that finance international trade. Still others note that
with the globalization of supply-chains, a fall in manufactures
could lead to an outsized fall in total trade, particularly if supply
chains are disrupted. For more detail see Haddad et al. (2010).
38
For more details see Brenton and Newfarmer (2009).
55
  Sustaining the Recovery and Looking Beyond – A Regional Economic Developments and Prospects Report

Figure 49: Market access for MENA merchandise goods, overall trade restrictiveness index

All products Agriculture Manufactures Nonoil products Oil

High income markets

40%
35%
30%
25%
20%
15%
10%
5%
0%
MENA GCC oil Other oil Oil importers Oil importer Oil importers
exporters exporters with GCC links with EU links

China
40%
35%
30%
25%
20%
15%
10%
5%
0%
MENA GCC oil Other oil Oil importers Oil importer Oil importers
exporters exporters with GCC links with EU links

Source: Staff estimates based on tariff data for 2008 and latest official NTBs data. Note: (1) Agriculture includes primary and pro-
cessed agricultural products and food items.
Note: The estimates exclude restrictive NTBs imposed by China on natural gas imports from Algeria. These are extremely high and
distort the average protection rates faced by developing oil exporters in China. (2) The estimations exclude quotas on manufactured
exports from Algeria, Morocco, Tunisia, Lebanon, Jordan, and Egypt to the EU as these countries have FTAs with EU.

in many cases higher barriers in world markets,
but still most of them exported to less than
7 percent of markets, and compared poorly to
other countries, including Turkey which reached
27 percent of markets that import its products.
Furthermore, success in penetrating foreign
markets varies greatly across MENA countries
(Table 12) and cannot be explained just with
differences in protection in these markets. For
instance, MENA countries take advantage of
market opportunities in some EU countries to a
much greater extent than in others EU countries.
Morocco, for example, takes advantage of nearly
60 percent of opportunities to sell its export
products in France and Spain, but just 20 percent
of its export opportunities in the Netherlands
and Portugal. Tunisia has much greater success
in France and Italy than in Spain and Portugal.
By contrast, the variability of Turkey’s index
was much smaller than that of MENA countries
suggesting that Turkey’s firms market their prod-
ucts successfully and consistently in different
country contexts.

56
 0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
EAS w/o CHN EAS w/o CHN EAS w/o CHN

India India India

SAS w/o IND SAS w/o IND

SAS w/o IND

LAC LAC
LAC

SSA SSA
SSA

ECA ECA
ECA
Nonoil products

MENA MENA

China

World
MENA
GCC oil GCC oil
exporters exporters
High income markets

GCC oil
exporters
Other oil Other oil
exporters exporters
Manufactures

Other oil
exporters
Oil importers Oil importers

Oil importers Oil importers Oil importers

with GCC links with GCC links
Oil importers
Oil importers with GCC links Oil importers
with EUlinks with EUlinks

Oil importers
High income with EUlinks High income

China High income China

Figure 50: Market access for nonagricultural products, overall trade restrictiveness index (2008)

(continued on next page)

Chapter 3: MENA Remains Uncomfortably Dependent on the Capital-Intensive Oil Sector

57
  Sustaining the Recovery and Looking Beyond – A Regional Economic Developments and Prospects Report

Figure 50: Market access for nonagricultural products, overall trade… (continued)

Nonoil products Manufactures

India
20%
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
EAS w/o CHN

SAS w/o IND

LAC

SSA

ECA

MENA

GCC oil
exporters

Other oil
exporters

Oil importers

Oil importers
with GCC links

Oil importers
with EUlinks

High income

China
Source: Staff estimates based on tariff data for 2008 and latest official NTBs data.
Notes: (1) The estimates exclude restrictive NTBs imposed by China and India on natural gas imports from Algeria. These are
extremely high and distort the protection rates faced by developing oil exporters in China and India. (2) The external trade barrier on
nonoil products in EAS excluding China averages slightly more than 20 percent.

Table 11: Index of export market penetration by country, 1995 and 2005 (percent)
1995 2005
Algeria 2.1 2.4
Egypt, Arab Rep. 6.6 11.3
Iran, Islamic Rep. 4.6 6.9
Jordan 2.9 4.9
Lebanon 4.1 7.6
Morocco 6.0 8.8
Syrian Arab Republic 4.3 7.2
Tunisia 4.4 7.7
Yemen, Rep. 1.5 2.0
Turkey 13.5 27.1
Source: Brenton, Shui and Walkenhorst (2009).

58
 Chapter 3: MENA Remains Uncomfortably Dependent on the Capital-Intensive Oil Sector

Figure 51: Tariff protection in China’s market (2008)

Agriculture Manufactures Nonoil products

14%

12%

10%

8%

6%

4%

2%

0%
EAS w/o CHN India SAS w/o IND LAC SSA ECA MENA High income

14%

12%

10%

8%

6%

4%

2%

0%
MENA GCC oil Other oil Oil Oil importers with Oil importers
exporters exporters importers GCC links with EU links

Source: Staff estimates based on tariff data for 2008.

Note: The estimates exclude restrictive NTBs imposed by China on natural gas imports from Algeria. These are extremely high and
distort the average protection rates faced by developing oil exporters in China.

59
  Sustaining the Recovery and Looking Beyond – A Regional Economic Developments and Prospects Report

Table 12: Bilateral index of export market penetration of EU and US markets

Exporters
Iran, Syrian
Egypt, Islamic Arab Yemen,
Importer Algeria Arab Rep. Rep. Jordan Lebanon Morocco Republic Tunisia Rep. Turkey
Europe and the United States
Belgium 9.0 17.3 6.3 4.6 12.9 25.9 9.6 28.1 1.2 52.0
France 32.5 26.6 17.7 6.1 21.8 57.3 18.5 61.3 2.6 57.0
Germany 7.4 33.2 32.9 11.5 16.7 33.5 18.7 36.2 6.6 71.8
Greece 1.0 22.0 3.4 3.6 9.1 7.1 11.8 6.2 0.2 61.7
Italy 18.3 34.0 18.2 9.8 18.8 36.9 17.8 50.4 2.6 62.5
Netherlands 4.2 18.4 13.0 7.5 7.7 20.8 7.1 15.6 1.2 51.4
Portugal 3.4 7.1 3.0 1.6 2.1 19.4 0.7 11.0 — 32.2
Spain 19.9 27.1 15.3 11.2 19.1 57.0 12.9 29.5 0.6 54.3
United 8.6 29.4 16.5 13.3 16.0 28.1 14.6 19.7 7.6 64.1
Kingdom
United 3.8 27.2 5.8 20.6 19.5 26.1 13.1 17.2 4.0 52.0
States
Source: Brenton, Shui and Walkenhorst (2009).

60

What are the major constraints to
MENA’s nonoil exports?
Protection in developing MENA is
high, largely due to NTMs
MENA region has liberalized its trade consider-
ably by lowering its tariff barriers, which are now
comparable to tariffs in other regions (Figure 52).
In the GCC oil exporters, tariffs on agricultural
products averaged around 10 percent in 2008,
while tariffs on manufactured goods were less
than 3 percent on average (Figure 52). Overall
trade restrictiveness was also low—lower even
than the restrictiveness in high incomes coun-
tries. By contrast, tariffs in developing MENA
countries were higher than in most other regions.
For manufactured products they were 10 percent
in the developing oil exporters and around 7 per-
cent in oil importers. For agricultural products,
tariffs were comparable to those in high income
countries and ECA, and were much lower than
tariffs in India. Within MENA, agricultural tariff
protection was higher in the oil importers with
EU links than in all other regional subgroups.
Overall protection in developing MENA is
much higher than tariff protection due to restric-
tive nontariff measures (NTMs) (See Box 3).
Nonoil NTMs which act as nontariff barriers
(NTBs) are estimated to be extremely large in
developing MENA, especially in the non-GCC oil
exporters (Figure 53). When nontariff barriers
are included the rate of overall protection on
nonoil goods in developing MENA more than
triples and reaches 35 percent in developing oil
exporters and 28 percent in oil importers. The
increase is more dramatic for agricultural goods
which are much more heavily protected than
manufactures. Agricultural protection averages
Chapter 4
around 50 percent in developing MENA, while
protection on manufactured goods reaches 35
percent in developing oil exporters, and 28
percent in developing oil importers. Given that
by the Lerner symmetry theorem, removing
import restrictions is tantamount to removing
restrictions on exports, there is thus a substantial
nontariff agenda in developing MENA countries.
In a set of MENA countries for which NTM
information is available,39 more than 19,000
tariff lines were affected by some type of NTB
at the HS6 digit product level. This implies that
of all 5,200 existing product lines at the HS6
digit product level, most products are affected
by NTMs and many of these are affected by more
than one NTM. In MENA, technical barriers ac-
count for 60 percent of the product lines affected
by some type of NTM, followed by quotas and
prohibitions which cover just 25 percent of the
product lines and licenses—18 percent.
Estimates produced for this report suggest
that NTM-related protection rates on nonoil goods
range from 12 percent in MENA (Figure 53), LAC
and EAS outside China, to around 5 percent in
developed economies and China. Nonoil NTM-
related protection rates in other developing coun-
tries fall within this range and average 10 percent
in ECA, 9 percent in SSA, 8 percent in India and
6 percent in other South Asia. Within MENA, the
range of NTM-related protection rates widens dra-
matically, from 2 percent in the GCC countries, to
39
The countries include Egypt, Jordan, Lebanon, Morocco,
Tunisia, Algeria, Bahrain and Oman.
61
  Sustaining the Recovery and Looking Beyond – A Regional Economic Developments and Prospects Report

Figure 52: Overall trade restrictiveness by market and product (2008)

All goods Agriculture Manufactures Nonoil

Tariff and nontariff barriers

60%

50%

40%

30%

20%

10%

0%
MENA

GCC oil
exporters

Other oil
exporters

Oil importers

Oil importers
with GCC links

Oil importers
with EUlinks

High income

China

EAS w/o CHN

India

SAS w/o IND

LAC

SSA

ECA
Tariffs only
60%

50%

40%

30%

20%

10%

0%
MENA

GCC oil
exporters

Other oil
exporters

Oil importers

Oil importers
with GCC links

Oil importers
with EUlinks

High income

China

EAS w/o CHN

India

SAS w/o IND

LAC

SSA

ECA

Source: Staff estimates based on tariff data for 2008 and latest official NTBs information. In MENA latest official NTB data reflects
information for different years between 1999 and 2003 in different countries.

19 percent in the oil importers, and to 26 percent their trade, while Lebanon and, to a large extent,
for developing oil exporters (Figure 53). Morocco have opened their markets for manufac-
tured imports. Tariffs on manufactures are low
Tariff and nontariff protection rates in Jordan, but NTBs substantially increase the
vary widely across MENA rate of protection there (Figure 54). In Tunisia
tariffs on manufactures are above 10 percent, and
Tariff and nontariff barriers on agricultural and are high relative to the world average, whereas
manufactured imports vary widely across MENA in Egypt and Algeria protection is high largely
countries. The GCC oil exporters have liberalized due to NTBs (Figure 54). In agriculture protec-

62
 Chapter 4: What are the Major Constraints to MENA’s Nonoil Exports?
Box 3: Nontariff measures – definitions and state of knowledge
Nontariff measures (NTMs) include a wide array of
instruments such as sanitary and phytosanitary mea-
sures (SPS), technical barriers to trade (TBT), quotas
and prohibitions, import and export licenses, custom
surcharges, financial, anti-competitive, and anti-dump-
ing measures and others. Some of these measures are
essential by nature and imposed to achieve objectives
other than to restrict trade. Evidence exists however that
countries are using NTMs to erect NTBs as trade agree-
ments impose limits on the use of traditional trade policy
instruments such as tariffs. NTBs are difficult to mea-
sure since there is no comprehensive and continuously
updated information on NTMs. The most comprehensive
source of NTMs information—the UNCTAD Trade Analy-
sis and Information System (TRAINS) database used in
this study—has not been updated regularly since 2001
and does not have adequate and accurate country cover-
age and coverage of new forms of non-tariff measures.
Figure 53: Estimated NTM-related
protection rates in MENA
30%
25%
20%
15%
10%
5%
0%
MENA GCC oil Other oil Oil
exporters exporters importers
Source: Staff estimates based on tariff data for 2008 and latest
official NTBs data. In MENA latest official NTB data reflects
information for different years between 1999 and 2003 in differ-
ent countries.
tion is high mostly because of substantial NTBs,
except in Jordan where markets for agricultural
goods are opened to imports. Only Tunisia and
Morocco use tariffs above 20 percent to protect
agriculture (Figure 54).
Given these caveats, the estimates of overall pro-
tection inclusive of NTMs should be interpreted with
caution and considered indicative of the restrictions
created by NTMs prevailing in the set of countries on
which data are available. The tariff-only protection
rates provide lower bounds to protection discussed in
the report. NTMs typically affect a very large share of
imports and technical barriers, including SPSs and
TBTs, which are the most prevalent form of NTM. Es-
timates of NTM coverage range from 34 to 54 percent
for industrial countries’ imports from the developing
world (Nogues et al. 1986, Kee et al. 2009). Kee et al.
estimate that NTMs result in protection rates of 9.2
percent in simple average terms and 7.8 percent in
trade-weighted terms. Similar to trade logistics bar-
riers, NTMs have a trade-reducing impact. Hoekman
and Nicita (2008) find that cutting NTMs in half from
around 10% to 5% would boost trade by 2–3 percent.
In most MENA countries other than the GCC
oil exporters NTM barriers on manufactured
goods are estimated to raise protection substan-
tially. And these barriers appear to be higher for
exports coming from within MENA. Indeed, oil
importers with EU links, and developing oil ex-
porters such as Algeria encounter much higher
overall protection rates on manufactured goods
in MENA than the developed countries, India,
Latin America, Europe and Central Asia, and East
Asia except China (Figure 55). Furthermore,
MENA countries do not exploit well opportunities
to sell their exports in other MENA countries.
Turkey has a better export penetration in the
MENA region than the MENA countries them-
selves (Table 13).
Within the group of oil importers, those with
GCC links have better access to MENA markets
than those with EU links (Figure 55). Overall pro-
tection rates on manufactured goods exported by
the oil importers with GCC links within MENA
averaged slightly over 10 percent, while the
protection on corresponding products exported
by importers with EU links averaged close to 18
percent (Figure 55). In addition, political tension
63
  Sustaining the Recovery and Looking Beyond – A Regional Economic Developments and Prospects Report

Figure 54: Tariff and nontariff barriers (NTBs) by MENA country

NTBs Tariffs

Manufactures Agriculture

Tunisia Tunisia

Morocco Morocco

Lebanon Lebanon

Jordan Jordan
Egypt, Egypt,
Arab Rep. Arab Rep.
Algeria Algeria

0% 5% 10% 15% 20% 25% 30% 0% 10% 20% 30% 40% 50% 60%

Source: Staff estimates based on tariff data for 2008 and NTBs in different countries for different years between 1999 and 2003.

Table 13: Bilateral index of export market penetration of MENA markets

Exporters
Egypt, Iran, Islamic Syrian Arab Yemen,
Importer Algeria Arab Rep. Rep. Jordan Lebanon Morocco Republic Tunisia Rep. Turkey
Middle East and North Africa
Algeria — 29.9 4.9 12.5 13.7 17.0 34.2 38.4 0.8 57.2
Egypt, Arab 2.6 — 4.2 26.6 18.3 2.9 19.8 4.7 10.2 431.0
Rep. of
Jordan 1.0 38.4 8.7 — 32.5 1.6 40.5 2.9 3.8 51.8
Morocco 15.5 25.2 4.9 4.4 10.7 — 17.8 23.6 40.6
Syrian Arab 0.8 19.8 6.4 16.2 19.2 1.1 — 1.3 0.9 28.3
republic
Tunisia 11.0 18.3 2.3 4.3 6.9 24.2 14.5 — 0.8 38.2
Yemen, 0.4 26.6 7.5 18.7 12.9 1.0 29.3 1.3 — —
Rep. of
Turkey 9.8 19.6 25.8 10.8 6.5 16.5 12.2 14.5 0.2
Saudi Arabia 5.8 69.9 34.2 56.3 56.1 23.2 72.5 18.7 39.0 62.1
Source: Brenton, Shui and Walkenhorst (2009).

between Algeria and Morocco has limited trade trade more than 3 percent of total imports and
between the two countries. Not surprisingly, oil exports with the other three partners, and except
importers with GCC links trade a lot more within for Tunisia, the same is true for the five members
the region than those with EU links. In 2007, a of the Arab Maghreb Union.42
third of Jordan’s trade and a fifth of Lebanon’s
trade in goods was intra-regional, compared to
40
Source: Rouis (2010).
3 percent for the countries in the Maghreb.40,41 41
The Maghreb includes Algeria, Libya, Mauritania, Morocco,
None of the members of the Agadir Agreement, and Tunisia.
including Egypt, Jordan, Morocco and Tunisia, 42
Source: World Bank (2008a).

64
 Chapter 4: What are the Major Constraints to MENA’s Nonoil Exports?

Figure 55: Protection faced by different regions and country groups in MENA

Nonoil products Manufactures

Tariff and nontariff protection

45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
EAS w/o CHN

India

SAS w/o IND

LAC

SSA

ECA

MENA

GCC oil
exporters

Other oil
exporters

Oil importers

Oil importers
with GCC links

Oil importers
with EUlinks

High income

China
Tariffs only
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
EAS w/o CHN

India

SAS w/o IND

LAC

SSA

ECA

MENA

GCC oil
exporters

Other oil
exporters

Oil importers

Oil importers
with GCC links

Oil importers
with EUlinks

High income

China

Source: Staff estimates based on tariff data for 2008 and NTBs in different countries for different years between 1999 and 2003.

Intra-regional trade stagnated
and intra-industry trade remains
limited
The Pan-Arab Free Trade Agreement (PAFTA)
and the Free Trade Agreements (FTAs) with the
EU were driving forces behind the opening up of
MENA markets. However, intra-regional exports
remained approximately the same as a share of
MENA’s total nonoil exports between 1998 and
2008 (Figure 45). GCC and developing oil export-
ers shifted their nonoil exports away from MENA
and EU towards Asia and rest of the world, while
intra-regional exports of oil importers increased
slightly as a share of their total nonoil exports
(Figure 45).
Low trade complementarity places natural
limits on intra-regional trade. The dominance of
oil in more than two thirds of the countries in the

65
  Sustaining the Recovery and Looking Beyond – A Regional Economic Developments and Prospects Report
region, and the similarity of industrial policies and
cultural characteristics imply that trade comple-
mentarity is low among MENA countries. The
degree of complementarity between two countries
can be measured with the bilateral complementar-
ity index which captures the similarity between
the export basket of one country and the import
basket of another country.43 The index ranges from
0 to 100, with higher values indicating greater
complementarity. Typically, the complementarity
indexes between partners in successful regional
agreements are above 50, while for moderately
successful ones, they are between 25 and 30. In
MENA, bilateral complementarity indexes are
almost always below 20, with a large share of the
numbers in single digits. The non-oil complemen-
tarity indexes tell a similar story.
Thus, unlike East Asia, Europe and North
America, there is no natural hub or anchor coun-
try in MENA and no equals, i.e. large countries
with interests in cooperating. Outside MENA, the
EU could serve as a hub for developing MENA,
while Turkey could serve as an intermediate link
in the production network. Complementarity
indexes of MENA countries with the North are
greater than those between MENA countries.
There is also evidence that Turkey has started
the process of moving operations to low-cost
locations in the Mashreq,44 for instance Syria.
The challenge would be to build momentum and
to address the barriers to trade, including those
created by existing preferential arrangements.
When integration is limited to a PTA without
common external tariffs, the rules of origin
become a major determinant of the incentive
regime confronting firms.
Countries with high most-favored-nation
(MFN) tariffs, for instance Tunisia and Morocco,
are exposed to high risk of costly trade diversion.
Opening toward selected partners in the region
or outside the region can divert trade flows from
more efficient third-country producers to less
efficient partner country producers, resulting in
a loss of tariff revenues without the benefits of
lower purchasing costs. The risk of trade diver-
sion is higher if the intensity of trade between
partners before bilateral liberalization is low as
is the case in MENA.
66
Wide dispersion of tariffs across MENA
countries complicates matters further as it im-
plies that industries in these countries benefit to
varying degrees from policy-generated transfers.
When the costs and benefits of opening up are
unevenly distributed, it becomes politically dif-
ficult to open markets among regional partners.
The fact that members of PAFTA continue to
limit access for specific products by using NTBs
or not implementing the policies specified in the
agreement is evidence of these political tensions.
MENA countries have generally failed to seri-
ously implement most PTAs. Fawzy (2003) ar-
gues that, on the political front, concerns over
the distribution of gains from integration across
and within countries, issues of national sov-
ereignty and the cost of adjustment resulting
from increased competition, all constrained
intra-MENA PTAs. Another limiting factor, with
a political dimension, was a lack of mechanisms
to compensate losers. Despite the emergence of
“credible” PTAs such as PAFTA, the GCC and the
FTAs with the EU and the US, it is not known
to what extent these are implemented and their
impact. Finding out answers to these questions
is a research priority in MENA.
When a country both exports to and imports
from another country in the same industry, it
does so either because it trades differentiated
products or because it participates in interna-
tional supply chains. When measured at the
product level, one is more likely to find that
intra-industry trade occurs because of differen-
tiation, while when measured at the industry
level, it can be a result of both effects. Traditional
adjustment effects of trade liberalization are less
likely to be felt when trade is intra-industry since
resources do not have to move across industries
where retraining and retooling is necessary,
rather they need to move across firms within a
given sector. However, as seen during the recent
crisis countries engaged in intra-industry trade
because of their participation in global produc-
tion networks are vulnerable to external shocks
affecting these networks.
43
Source: See Yeats (1998) and Khandelwal (2004).
44
Mashreq includes Iraq, Jordan, Lebanon, Syria, and West
Bank and Gaza.
 Chapter 4: What are the Major Constraints to MENA’s Nonoil Exports?

Intra-industry trade within MENA and intra-industry trade surged reflecting the shift
with the rest of the world is measured by the of supply chains to Asia over this period. In the
intra-industry trade (IIT) index. The IIT index Middle East and North Africa, growth in intra-
represents the share of intra-industry trade in industry trade also appears to have been sharper
country’s total trade (Box 4), and varies between within the region than globally during the same
0 when there is no intra-industry trade and 1 period (Figure 57).
when trade is completely balanced across sec-
tors and countries. Behar and Freund (2010) Consistent with low protection on manu-
calculate the IIT index for MENA and other factured trade in GCC countries and oil import-
regions in a background paper commissioned ers with strong GCC links, a study by Brulhart
for this report. They find that MENA’s aggre- (2009) suggests that intra-industry trade has
gate intra-industry trade is much more limited grown more rapidly within the block of GCC and
than that of other regions (Figure 56)—a finding Mashreq countries than within Maghreb, where
similar to that presented in a paper by Brulhart it has stagnated. Still the increase in IIT within
(2009). However, the aggregate index obscures a the GCC-Mashreq block remains small in com-
significant variation among countries. The typi- parison to the increase of IIT in other regions.
cal MENA country is not too different from the The IIT linkages between MENA and LAC, SSA
typical country in SSA, SAS and LAC in terms and ECA were weakest among all pairs of world
of intra-industry trade when measured with the regions represented in the paper. IIT linkages
average index of intra-industry trade (Figure 56). between MENA and the high income countries,
They all have low levels of intra-industry trade, and MENA and South Asia were stronger, but
but the aggregate regional results in SSA, SAS still very weak compared to those between ECA,
and LAC are affected by large IIT flows in large LAC, SAS, EAS and the high income economies.
economies like South Africa, India, Mexico and
Brazil. In East Asia, aggregate intra-industry Differences in the rules of origin of various
trade remained constant at about one-third of regional agreements generate additional compli-
total trade from 1995 to 2007, while average ance costs and limit intra-regional, intra-industry

Figure 56: Intra-industry Trade index by region

1995 2007 1995 2007

Aggregate Intra-Industry Trade Average Intra-Industry Trade

0.50 0.40

0.40
0.30
0.30
0.20
0.20
0.10
0.10

0.00 0.00
Middle East

Sub Saharan
Africa

South Asia

Latin America

East Asia

Europe

Sub Saharan
Africa

South Asia

Middle East

Latin America

Europe

East Asia

Source: Behar and Freund (2010).

Note: Middle East stands for Middle East and North Africa.

67
  Sustaining the Recovery and Looking Beyond – A Regional Economic Developments and Prospects Report

Box 4: Intra-industry trade (IIT) index

The IIT index measures the share of intra-industry in industry i. The numerator is the total trade between
trade in the country’s total trade. For example, if a country and its partners that qualifies as intra-indus-
exports from country A to country B in a sector are try. The denominator is a country’s total trade.
100 and imports are 50, then intra-industry trade The index can be aggregated up for a region as
in the sector between country A and B is 100 in that
n j k
sector (50 of exports and 50 of imports). If all trade is ∑ ∑ ∑ 2 ∗min(x ,m
c =1 p =1 i =1 pi pi
)
completely balanced across sectors and countries, i.e. (2) IITR = n j k
,
imports are equal to exports in every sector in every ∑ ∑ ∑ (x + m )
c =1 p =1 i =1 pi pi

country the index takes the value of one. In contrast, if

where c are the n countries in region R. The numera-
a country’s exports to all trade partners are in differ-
tor is the total trade between the countries in a region
ent sectors from its imports, then the index will take
with the world that qualifies as intra-industry. Note
a value of zero. Specifically, the index for a country is
that intra-industry trade is still at the bilateral level.
calculated as
It is the sum of trade among all country pairs that is
j k intra-industry, where one partner is in a given region.
∑ ∑ 2 ∗min(x ,m
p =1 i =1 pi pi
)
The denominator is the region’s total trade.
(1) IITc = j k
.
∑ ∑ (x + m ) The average of the countries’ IITs in region R is calcu-
p =1 i =1 pi pi
lated as follows:
Where p is partner, and there are j partners; i is j
industry and there are k industries; xpi is export to (3) AVEIITR =
∑ c =1
IITc
partner p in industry i and mpi is import from partner p n

Source: Behar and Freund (2010).

Figure 57: Intra-Regional, Intra-Industry Trade index by region

1995 2007 1995 2007

Intraregional Aggregate Intraregional Average

Intra-Industry Trade Intra-Industry Trade
0.50 0.50

0.40 0.40

0.30 0.30

0.20 0.20

0.10 0.10

0.00 0.00
Middle East

Sub Saharan
Africa

South Asia

Latin America

Europe

East Asia

Sub Saharan
Africa

Middle East

South Asia

Latin America

Europe

East Asia

Source: Behar and Freund (2010).

Note: Middle East stands for Middle East and North Africa.

68
 Chapter 4: What are the Major Constraints to MENA’s Nonoil Exports?
trade. Most of the intraregional agreements ad-
here to a 40 percent value-added rule to confer
origin, they differ with respect to cumulation
rules. PAFTA allows the use of inputs from other
member countries toward the value-added tar-
get, but the Arab Maghreb Union and the Agadir
Agreement do not (Wippel 2005). In addition,
the intra-regional rules of origin are markedly
different from those pertaining to Euro-Med, so
that companies need to run parallel procurement
and production processes to satisfy the respec-
tive requirements or be limited in their choices
of input suppliers.
Cross-country networks of suppliers can be
major drivers of integration and intra-industry
trade. Over the past two decades, such networks
have become prominent in ECA and EAS. In
these regions, systems of interrelated suppliers
have taken advantage of wage differentials across
countries, geographic proximity and economies
of scale from specialization.45 The success of
these networks and the intra-regional trade
volumes have depended on demand for the final
goods outside the region and good logistics. In
MENA, logistics performance varies substantially
across countries, with GCC and oil importers
scoring close to expected levels for their income
groups, and nearly all developing oil exporters
scoring significantly below the average for their
income group.46 Given the evidence that good
logistics performance and other trade facilita-
tion measures are associated with increased
exports,47 improving logistics should be a prior-
ity area, especially for developing oil exporters.
But, MENA countries have long lagged in net-
work trade,48 although some Maghreb countries
have been catching up in recent years. Tunisia has
been most successful in integrating into produc-
tion networks. Tunisia has the highest share of IIT
(40 percent), followed by Morocco and the United
Arab Emirates, and IIT has grown rapidly in
Egypt49 and Jordan. Given the high ratio of imports
to exports of components, manufacturing appears
to be mostly an assembly-type activity directed at
domestic markets as opposed to integration into
global supply chains. The only country in the
region with a significant share of components in
its total exports is Tunisia. Its share of parts and
components exports in total exports grew from
less than 4 percent in 1985 to 10 percent in 2006.
MENA’s services sector is heavily
protected
The region relies heavily on exports of ser-
vices which generated revenue equivalent to
6 percent of GDP in 2008 (Figure 4). Only one
other region—South Asia—has a higher share of
export revenue from services than MENA. The
importance of services as a source of export
growth is much greater for MENA’s oil importing
countries, even compared to South Asia. Indeed,
oil importers’ exports of services accounted for
a fifth of their combined GDP in 2008—slightly
more than the revenue from their exports of
merchandise nonoil goods. Unlike many other
developing countries, most developing MENA
countries are net exporters of services,50 and
rank better in terms of net rather than gross
positions.
During the past ten years, MENA’s share in
world exports of services grew at a much faster
pace than that of the MICs outside China. Indeed,
international exports of commercial services
more than doubled between 1996 and 2006, and
outpaced by a substantial margin export growth
of agricultural and manufactured goods. Services
are an area of relative strength for MENA and a
key source of future potential growth and export
revenue. Rapid advances in information and com-
munication technologies (ICT) and the ongoing
45
See Haddad (2007) for more information.
46
The report measures logistics performance using the Logistic
Performance Index (LPI), which ranks logistics quality on scale
from 1 (worst) to 5 (best). The logistics performance index sur-
veys logistics professionals about a number of factors affecting
logistics in over 150 countries, including customs clearance,
infrastructure quality, facility of international shipments, local
logistics competence, the ability to track and trace shipments
and the timeliness with which shipments arrive. The report
benchmarks the performance of MENA countries against oth-
ers by regressing LPI on the logarithm of 2009 GDP per capita
expressed in 2005 PPP$.
47
See Behar et al. (2009) and Hoekman and Nicita (2008).
48
Source: Yeats and Ng (2000).
49
Egypt however needs to improve logistics as it has a low LPI
score relative to the score expected for its income level.
50
Developed oil exporters run trade services deficits due to the
structure of their economies.
69
  Sustaining the Recovery and Looking Beyond – A Regional Economic Developments and Prospects Report

Figure 58: Services value-added (% of GDP)

Oil-rich countries
By region By country within MENA
80 90.0
70 80.0
60 70.0
60.0
50
50.0
40
40.0
30
30.0
20 20.0
10 10.0
0 0.0

Djibouti*
Lebanon
Jordan
Tunisia
Morocco
Egypt, Arab Rep.
MNA*
Iran, Islamic Rep.*
Syrian Arab Republic
United Arab Emirates*
Algeria
Saudi Arabia
Libya
OECD

Europe &
Central Asia

Latin America &

Caribbean

South Asia

Sub-Saharan
Africa

MNA

East Asia
& Pacific

Source: Staff calculations.

global liberalization of trade and investment in Figure 59: Size of service sector (% of GDP)
services have increased opportunities for trade and income per capita in MENA
in many service activities and created new kinds
of tradable services. Thus, services have offered a 5.0
vehicle for many MENA countries to diversify and
Real GDP per Capita (Log)

modernize their economies. Recent trends point 4.0

to the growing importance of telecommunications
in Kuwait, health services in Tunisia, port and 3.0
ICT services in Dubai, call centers in Morocco
and Tunisia. 2.0

Beyond being sources of economic diversi- 1.0

fication, services are also core inputs into most
economic activities, and therefore determine 0.0
0.0 20.0 40.0 60.0 80.0 100.0
production costs and firms’ competitiveness.
Telecommunications are crucial to the dissemi- Services Value Added (% GDP)
nation and diffusion of knowledge; transport Source: Staff calculations.
services affect the cost of shipping goods and the
movement of workers within and between coun-
tries; business services are channels through
which innovations are transmitted across firms; In MENA region, services account for just 46
distribution services connect producers and percent of GDP—one of the lowest in the world
consumers; basic services, such as electricity (Figure 58). Only East Asia has a lower share
and water, are key inputs into the production of than MENA, but this outcome reflects the impor-
manufactures, and health and education services tance and dynamic nature of the manufacturing
are key inputs into—and determinants of—the and agricultural sectors in the East Asian econo-
quality of human capital. mies. In MENA, the low share is due to the large

70
 Chapter 4: What are the Major Constraints to MENA’s Nonoil Exports?

Figure 60: Restrictiveness of services trade policies and share of services in GDP

Share services in GDP (%) STRI

80
STRI and share of services in GDP

70
70
60.6 60.8
60 53.5 54.6
50 48.2 46.4
40.9 39.4 39.3 41.6
40
30 29.6
30
20.7 19.9 18.9
20
10
0
GCC EAP MENA SAR SSA LAC ECA OECD

Source: Global Services Policy Restrictiveness database. Regional scores are simple averages of constituent country scores.

size of the oil sectors in oil exporting countries. tional wisdom growth rates would have been
Indeed, the small share of services in total GDP even higher had services regulation been more
in oil exporting countries makes MENA the only liberal. In the case of East Asia, growth rates
region in the world where the share of services have been driven by merchandise exports, so
is inversely correlated with per capita income firms might have been shielded to some extent
(Figure 59). In other regions of the world, the from the adverse effects of services barriers.
higher the GDP per capita, the higher the share For South Asia, it is harder to explain the co-
of services in GDP. existence of high services trade restrictiveness
in most sectors including professional services,
The Services Trade Restrictiveness Indices transport, and telecoms that have higher STRIs
(STRI) from the Global Services Policy Restric- that MENA and other regions, and remarkable
tiveness database compiled by the World Bank growth of South Asia’s services exports. More
shows that restrictive policies are observed in research is needed to link the applied policy
MENA in the five key sectors—financial services, data to outcome data of interest such as FDI or
telecommunications, retail distribution, trans- foreign presence, ideally taking into account
portation and professional services—covered by firm characteristics, or to determine to what
the survey which provides information for the extent current protection levels—similar to
STRI (see Box 5 for detail on methodological is- protection levels in other fast-growing regions—
sues). Indeed, the STRIs by region suggest that inhibit growth.
applied policies governing trade in services in
the MENA region are more restrictive than those The high restrictiveness index for the GCC
in other regions except East and South Asia. group of countries also appears as a puzzle.
Generally, high income countries tend to have
The fact that the fastest-growing regions lower barriers to trade in services as shown
seem to exhibit restrictive services policies has by Gootiiz and Mattoo (2009).51 And while the
been recognized as a puzzle. On the one hand, GCC telecom sector is highly protected, the
unlike tariffs, services regulation could be pru- GCC countries export communication services
dential, so one cannot conclude a priori that
less is always “better”. On the other hand, the
answer depends on the proper counterfactual, 51
Gootiiz, B. and A. Mattoo (2009) “Restrictions in Service Trade
and it might well be that in line with conven- and FDI in Developing Countries.” Mimeo.

71
  Sustaining the Recovery and Looking Beyond – A Regional Economic Developments and Prospects Report
Box 5: Measuring restrictions affecting trade in services
Two different approaches have been used in the lit-
erature to assess the magnitude and impact of policy
barriers to trade in services (Francois and Hoekman
2010). The first one requires collection of information
on applied policies, converting these into coverage/
frequency indicators and using the resulting indices
to explain observed measures of prices or costs. The
second one uses indirect methods including calcula-
tion of price-cost margins by sector across countries
or gravity regressions to estimate what trade flows
“should be” and obtain an estimate of the tariff equiva-
lent of policies from the difference between estimated
and observed flows. With this second approach it is
impossible to attribute price-cost margins or differ-
ences in trade volumes to specific policies. For this
reason, most of the literature uses the first approach,
although researchers are increasingly using gravity
estimations whenever they have access to bilateral
trade in services data.
Under the first approach of measuring services
trade restrictiveness, the quantification of barriers to
trade in services must be preceded by a collection of
information on a sector-by-sector basis, relying on
government documents and the expertise of sector
specialists (Mattoo, Stern, & Gianni, 2008). Many stud-
ies are based on “regulation” questionnaires developed
by the OECD and the Productivity Commission of Aus-
tralia that attempt to capture all the regulations that
can affect significantly entry, competition and trade in
services. The Services Trade Restrictiveness Indices
(STRI) from the Global Services Policy Restrictive-
ness database, compiled by the Bank and used in this
report, is also based on this type of questionnaires. The
successfully. The GCC countries also appear re-
markably open to trade in services under mode
4. The total number of foreign workers in the
GCC was estimated at 12.5 million or nearly 40
percent of the population in 2007, compared to
70 million migrants in Europe (or 10 percent of
the population) and 50 million in North America
(or 14.2 percent of the population). While many
of these foreign workers do not work in services
but in agriculture and industry, a very large
share are employed as service workers in retail,
72
latter are submitted to regulators, administration and
private sector in order to collect qualitative information
on entry, competition and business conduct barriers in
services sectors.
A number of steps need to be followed. First, one
collects qualitative information about regulatory
restrictions affecting services delivery in a particular
country. Then, one converts it into a quantitative index
(or indexes) using weights that reflect the relative
severity of the different restrictions. The general ap-
proach in Findlay and Warren (2000)—used in many
studies—is to convert qualitative information about
regulatory restrictions into a quantitative index, using
a priori judgments about the relative restrictiveness of
different barriers (i.e., the weighs of the restrictiveness
index components). This is generally less conten-
tious within a given category of barriers than between.
For example, it makes sense to score a regime that
restricts foreign ownership to 25 percent or less as
being twice as restrictive as one that restricts foreign
ownership to 50 percent or less. What is less obvi-
ous is how to weigh the scores on foreign ownership
restrictions together with those on licensing require-
ments, or those on restrictions on lines of business.
Nevertheless, some of the inherent arbitrariness of
the weighting procedures can be tested empirically.
Finally, the information on barriers should be captured
following the 4 modes of services deliveries recognized
by the WTO—cross-border trade (Mode 1), movement
of customer to the country of the provider (Mode 2),
sales of services through an offshore affiliate (Mode 3)
and the (temporary) movement of persons to provide
services (Mode 4).
transport, tourism, real estate, and hold profes-
sional positions in banking, education and other
service industries.
Furthermore, while de jure policies indicate
high obstacles to FDI in services, observed flows
have been substantial. For example, FDI from
Asia into the Gulf has increased at a breath-
taking pace, and not all of it has gone into the
oil and gas sector but instead has flown into
transport and tourism infrastructure, and
 Chapter 4: What are the Major Constraints to MENA’s Nonoil Exports?
other services industries.52 This situation might
reflect the fact that de facto policies could be
relaxed and rendered ineffective as foreign
investors have sought to involve GCC nationals
as partners in their business ventures to avoid
the high minimum employment requirement
of nationals and other discriminatory policies.
Unfortunately, there is no way to measure the
magnitude of the bias. Alternatively, the STRI
index might be biased upward as it excludes
tourism and real estate which might be less
protected. It is clear that more work is needed to
understand the effective protection in services
in the GCC group.
Regional trade agreements have not helped
to liberalize intraregional trade in services
in developing MENA. A recent study by the
World Bank shows that restrictions on trade
in the five sectors surveyed are much steeper
in the PAFTA member countries than in the
rest of the world (Borchert at al. 2010).53 In
reality, many services sectors in the region
are liberalized, but only to a limited extent
and governments tend to retain control, which
leads to lack of transparency and discretion in
how restrictions are applied.54 Foreign equity
limits, for example, have been relaxed in most
MENA countries in recent years, yet many
service markets remain dominated by state-
owned or domestic enterprises. High levels
of state control persist in such cases through
conflicting regulations that protect current
market structures.
Restrictions that discourage FDI inflows
into services are particularly harmful as they
have a negative impact on the potential size and
productivity of firms, the technology used by
firms, the markets firms choose to operate and
the quality of services. For example, Algerian
service companies are frequently informal and
inward-oriented (Cattaneo, Ighilahriz, Lopez-
Calix and Walkenhorst 2010), and in a number of
countries some services sectors are dominated by
SMEs that do not have the means or incentives
to expand operations. Such is the situation in
Tunisia’s legal, and information and communi-
cation technologies sectors (Cattaneo, Diop and
Walkenhorst 2010).
In banking, Morocco and Tunisia display
many restrictions, in particular cross-border
and consumption abroad restrictions linked to
their capital account regime which is only par-
tially open. Egypt has an intermediate level of
openness driven by mode 2, whereas restrictions
span across modes 1, 3 and 4. Jordan’s banking
sector is relatively open, with restrictions only
in modes 1 and 4, whereas Lebanon’s banking
sector is the most open in the region, with nearly
no restrictions across modes 1, 2, and 3.
In insurance, Egypt is among the least re-
strictive countries in non-GCC MENA, reflecting
the liberalization of the sector in recent years.
However, specific restrictions apply on com-
mercial presence, namely the Economic Needs
Test. On the other end of the spectrum, Morocco
and Tunisia are among the most restrictive
due mainly to restrictions on cross-border and
consumption abroad. For Morocco, important
non-discriminatory concessions have been made
as part of its FTA with the United States,55 and
once effective, the provisions in that agreement
will significantly open the sector.
MENA has been ranked as the most restric-
tive region for trade in fixed telecom services
among a group of Asian and transition econo-
mies.56 However, in line with recent reforms, the
sector is opening up to trade and foreign pres-
ence. Morocco and Jordan have the most open
telecom sectors in the region, whereas Egypt and
Tunisia still lag behind despite the very recent
opening of Tunisia’s fixed line telephony to a
private operator.
In maritime transport, major restrictions
exist in Morocco and, to a lesser degree, Egypt.
In contrast, Tunisia and Jordan have fairly open
maritime sectors. Across the MENA countries,
it is common to award preferential treatment
52
Asian countries signed contracts worth $500 billion to com-
plete infrastructure projects in the Middle East (Kemp 2010).
53
The sectors are financial and insurance, retail, telecommuni-
cations, transportation, and professional services.
54
Source: Case studies conducted in Morocco, Tunisia, Egypt,
Jordan and Lebanon.
55
Morocco’s FTA with the USA was signed in 2004.
56
Source: Dihel & Shepherd (2007).
73
  Sustaining the Recovery and Looking Beyond – A Regional Economic Developments and Prospects Report
to ships flying the national flag. Jordanian and
Egyptian flag carriers, for instance, are given
discounts on prices such as port services. Egypt
also gives flag carriers priority access to the cabo-
tage market. In Morocco, regular shipping line
services established in the country must fly the
national flag. While open to foreign carriers, non-
liner shipping is also restricted. Foreign shippers
need to contract Moroccan liner intermediaries
who have the exclusivity of chartering foreign
vessels. However, it is expected that Morocco will
remove this restriction as it strives to converge
with European maritime legislation under the
EU Action Plan. Finally, in air transport, Egypt
displays high restriction levels in modes 1 and
2. On the other hand, Morocco, the most open in
modes 1 and 4, has recently introduced many air
service reforms in an effort to promote growth
in the tourism industry, but it remains more
closed than Jordan which overall has the most
open sector.
Converting services trade into an engine
for growth requires emphasis on quality and
efficiency. Reputation is a key to success in
services trade, and competitiveness could be
increased through improved efficiency at same
or higher quality output (Pigato 2009). Assessing
the potential exposure of the different service
sectors to international competition and adopt-
ing nondiscriminatory, accompanying measures
would help maximize the benefits of opening and
minimize the costs.
Impediments vary by sector and country,
and so do the specific reforms needed. In Tuni-
sia, growth in services exports has been aided
by among other strengths, the large pool of
skilled engineers willing to work at relatively
low wages and the geographical and cultural
proximity to Europe. Tunisia’s heavy investment
in human and physical capital, especially higher
education and telecommunication networks, has
enabled substantial expansion over recent years
of knowledge-based sectors, notably medical
services, which attract substantial number of
foreign patients; engineering and architecture;
accounting; legal services, and ICT-enabled ser-
vices supplied by telecom and internet providers.
Substantial growth potential still exists for Tuni-
74
sia in medical tourism, back office outsourcing
and information technology enabled services.
To sustain the growth momentum, however,
Tunisia needs to (i) increase competition in
fixed-line telecommunications and ease restric-
tions on foreign entry into professional services
so as to lower service provision costs; (ii) improve
payment discipline of public procurement ser-
vices to avoid exacerbating financial difficulties
facing SMEs; and (iii) strengthen selected areas
of education and training such as nursing and
managerial education so as to ease staffing bottle-
necks for aspiring exporters (Cattaneo, Diop and
Walkenhorst 2010). Furthermore, Tunisia’s tele-
com reforms need to extend from liberalization
of private mobile market to include competition
in other segments of the sector with potential
impact on trade, such as internet service provi-
sion and land line to reduce cost of international
communications.
In Morocco, a gradual regulatory alignment
with the EU in the context of the European
Neighborhood Policy arguably offers the country
the opportunity to anchor productivity-enhanc-
ing reforms, particularly in air transport, road
transport and energy (Diop 2010). This would
require convergence of Morocco’s policy frame-
work with EU rules pertaining to competition
and state aid.
In Algeria, current policies that promise
to boost the further development of service
trade include: (i) the privatization program;
(ii) the tourism development strategy;57 (iii) an
enhanced regulatory regime for services aimed
at expanding the domestic market and promot-
ing improved efficiency of domestic producers;
and (iv) international trade agreements that
may play a complementary role by serving as
anchors for the reform process and shielding the
government from domestic lobbies. International
experience and research supported by local data
and interviews indicate that more openness in
57
The tourism development strategy aims at better exploiting
the country‘s natural and cultural endowments, improving the
quality of services and reputation of the country and rehabilitat-
ing tourism infrastructure.
 Chapter 4: What are the Major Constraints to MENA’s Nonoil Exports?
Figure 61: Global Competitiveness Index (GCI) ranking by region, 2010
120
100
80
60
40
20
0
Dev. oil
exporters
Oil
importers
GCC
countries
MENA
ECA
Source: World Economic Forum (2010).
private services resulting from Algeria’s privati-
zation program is essential to attract sufficient
know-how and investment capital from domestic
and foreign sources (Cattaneo, Ighilahriz, López-
Cálix and Walkenhorst 2010).
Other factors hurting MENA firms’
competitiveness
Beyond trade distortions, numerous other fac-
tors impede export growth and hurt the produc-
tivity of export-oriented firms.58 A recent report
on private sector development in the region
estimates that MENA’s average total factor
productivity lags behind the productivity in fast-
growing developing countries. It was assessed
at less than half of the total factor productivity
in Brazil and 62 percent of the productivity
level in China, according to data from recent
enterprise surveys. The region’s ranking in the
Global Competitiveness Index is higher than
those of most other regions except East Asia
and the advanced economies (Figure 61), but
competitiveness and total factor productivity
levels vary substantially within MENA. Firms
from GCC countries are much more produc-
tive than firms from developing MENA, while
developing oil exporters’ firms are least produc-
tive. Assessments based on labor productivity
measures confirm these findings.
EAP
SA
SSA
HIC
LAC
A number of factors have hurt the productiv-
ity of export-oriented firms and have discouraged
private investment, in the process muting the
investment response to reforms in the region.59
Analysis conducted for this report relies on both
subjective and objective data, capturing different
aspects of the investment climate in order to
identify the major obstacles for private sector
growth. Recent enterprise surveys for 10 MENA
countries60 suggest that corruption, taxes, infor-
mal competition and access to finance are among
the top concerns of the average MENA firm, and
these rank as top concerns for export-oriented
firms in the region as well (Figure 62).
However, there are major differences be-
tween the top concerns of export-oriented firms
in the GCC oil exporters, developing oil exporters
and oil importers. In the GCC countries, access
to finance and shortage of skills are cited as top
concerns for export-oriented firms (Figure 63).
58
Export-oriented firms are defined as those with at least 10
percent of sales destined for foreign markets.
59
Source: World Bank (2009).
60
Survey data were available for the following GCC countries,
including Oman (2003) and Saudi Arabia (2005), developing
oil exporters, including Algeria (2007), Syria (2003) and Ye-
men (2005), and oil importers, including Egypt (2006), Jordan
(2006), Lebanon (2006) and Morocco (2007).
75
  Sustaining the Recovery and Looking Beyond – A Regional Economic Developments and Prospects Report

Figure 62: Leading constraints to export-oriented firms in MENA region (weighted average of
share of firms ranking a constraint as “major” or “severe”)
50
% Firms Identifying Constraint

45
40
as Major or Severe

35
30
25
20
15
10
5
0
Corruption

Tax Rates

Informal Compet.

Finance

Macro Uncert.

Skills

Land

Regulatory
Uncert.

Electricity

Cust Trade Reg.

Tax
Administration

Legal System

Licenses
Source: Staff estimates based on recent enterprise survey data for 9 MENA countries.
Note: Individual country outcomes were weighed with the relative sizes of countries’ labor forces. Results do not change when
population numbers are used as weights instead.

Figure 63: Leading constraints to export-oriented firms in GCC oil exporting countries (share
of firms ranking a constraint as “major” or “severe”)

70
% Firms Identifying Constraint

60
as Major or Severe

50
40
30
20
10
0
Finance

Skills

Land

Licenses

Regulatory
Uncert.

Informal Compet.

Macro Uncert.

Legal System

Trade
Regulations

Tax Rates

Electricity

Tax Admin.
Corruption

Source: Staff estimates based on recent enterprise survey data for 2 GCC countries – Saudi Arabia and Oman.
Note: Individual country outcomes were weighed with the relative sizes of countries’ labor forces. Results do not change when
population numbers are used as weights instead.

Other sources61 confirm that access to finance 61

Source: background papers for the upcoming MENA finance
is a particular problem for SMEs in the GCCs, flagship.
while employability concerns linked to basic

76
 Chapter 4: What are the Major Constraints to MENA’s Nonoil Exports?

Figure 64: Leading constraints to export-oriented firms in developing oil exporting countries
(share of firms ranking a constraint as “major” or “severe”)
50
% Firms Identifying Constraint

45
40
as Major or Severe

35
30
25
20
15
10
5
0
Tax Rates

Corruption

Land

Electricity

Tax Admin.

Finance

Informal Compet.

Skills

Trade
Regulation

Regulatory
Uncert.

Macro Uncert.

Licenses

Legal System
Source: Staff estimates based on recent enterprise survey data for Algeria, Yemen and Syria.
Note: Individual country outcomes were weighed with the relative sizes of countries’ labor forces. Results do not change when
population numbers are used as weights instead.

Figure 65: Leading constraints to export-oriented firms in oil importing countries (share of
firms ranking a constraint as “major” or “severe”)
60
% Firms Identifying Constraint

50
as Major or Severe

40

30

20

10

0
Corruption

Macro Uncert.

Informal Compet.

Tax Rates

Regulatory
Uncert.

Skills

Finance

Trade
Regulation

Electricity

Land

Legal System

Tax Admin.

Licenses

Source: Staff estimates based on recent enterprise survey data for Egypt, Jordan, Lebanon, and Morocco.
Note: Individual country outcomes were weighed with the relative sizes of countries’ labor forces. Results do not change when
population numbers are used as weights instead.

and advanced skill acquisition are two areas in 62

Market size is cited as the biggest obstacle to realizing efficien-
which GCC countries rank lowest, according to cies, but the GCC countries have taken measures to address this
the Global Competitiveness Index (Figure 66).62 constraint by opening their markets for goods. Still, protection
in services remains high and more work is needed to understand
Innovation and technological readiness also ap- the complexities of such protection and the rules constraining
pear to be areas in need of special attention in firms in the service sector.

77
  Sustaining the Recovery and Looking Beyond – A Regional Economic Developments and Prospects Report

Figure 66: GCC’s Global Competitiveness Index rankings by pillar

GCC HIC EAP

70
60
50
40
30
20
10
0
Market size

Health and
primary
education
Higher
education
and training

Innovation

Technological
readiness

Labor market
efficiency

Business
sophistication
and innovation

Financial
market
development

Infrastructure

Institutions

Goods market
efficiency

Macroeconomic
environment
Source: Global Competitiveness Report 2010.

Figure 67: Developing oil exporters’ Global Competitiveness Index rankings by pillar
Developing oil exporters HIC EAP

140
120
100
80
60
40
20
0
Labor market
efficiency

Financial
market
development

Goods market
efficiency

Business
sophistication
and innovation

Innovation

Technological
readiness

Higher
education
and training

Institutions

Infrastructure

Market size

Health and
primary
education

Macroeconomic
environment

Source: The Global Competitiveness Report 2010.

the GCC countries as these countries score much ent even bigger problems for the competitive-
lower than their peer HIC group (Figure 66). ness of export-oriented firms (Figure 67). In
oil importers, corruption and macroeconomic
In developing oil exporters, taxes and cor- uncertainty top the list of major constraints to
ruption are the most frequently-mentioned ma- growth (Figure 66). Macroeconomic stability is
jor complaints by exporting firms (Figure 65),
but due to state dominance other issues, espe- 63
The developing oil exporters are mostly state-dominated
cially inefficiencies in input and goods markets63 economies in which market inefficiencies are expected to be
and poor financial market development, pres- pronounced.

78
 Chapter 4: What are the Major Constraints to MENA’s Nonoil Exports?

Figure 68: Oil importers’ Global Competitiveness Index rankings by pillar

Oil Importers HIC EAP

120
100
80
60
40
20
0
Labor market
efficiency

Macroeconomic
environment

Innovation

Technological
readiness

Infrastructure

Higher
education
and training

Health and
primary
education

Financial
market
development

Market size

Institutions

Business
sophistication
and innovation

Goods market
efficiency
Source: The Global Competitiveness Report 2010.

indeed an area of concern as suggested by the exporters and most developing oil exporters have
low ranking of oil importers on this pillar of the ample domestic savings so access issues reflect
Global Competitiveness Index (Figure 68), but barriers linked to widespread state ownership of
an even bigger weakness is the inefficient and banks and financial market underdevelopment,
inflexible labor market. Firms in oil importing especially in developing oil exporters, and poor
countries also appear to fall behind East Asia access to finance for SMEs in the GCC countries.
in terms of innovation efforts (Figure 68). The According to the global competitiveness index,
next few sections provide an in-depth discus- financial market development is an area of rela-
sion of the major stumbling blocks to firms’ tive strength in the GCC countries (Figure 66).
competitiveness.64
Low transparency in bank operations and
Access to finance is limited, especially high informality in the enterprise sector are
for small enterprises linked to high collateral requirements, fairly
high levels of nonperforming loans, and low
Access to finance is a top concern for export- rates of access to bank loans. Banks often use
oriented firms in the GCC oil exporters and the collateral requirements as a credit-rationing
fourth major concern for exporters in the region tool rather than to allocate credit based on risk
(Figure 63 and Figure 62). Analysis presented analysis. Furthermore, the required collateral is
in MENA’s private sector flagship report (World among the highest in the world, indicating that
Bank 2009) confirms that credit rationing is high collateral legislation is inefficiently enforced
among MENA countries, especially the develop- and not trusted by lenders. Most importantly,
ing oil exporters which rank extremely low in state-owned banks have traditionally served as
terms of access to credit, according to the World channels of political patronage and have sup-
Bank’s Doing Business indicators (Figure 69) ported state-owned firms or channeled credit to
and World Economic Forum’s Global Competi- well-connected private enterprises. And private
tiveness Index (Figure 67). banks in the region have not remained immune

The problem of access to finance in MENA 64

Labor markets issues are the topic of an upcoming MENA
reflects financial intermediation issues rather report titled Opening up Job Opportunities for All: Employ-
than low savings (Figure 70). Indeed, all GCC oil ability in the Middle East and North Africa Region.

79
  Sustaining the Recovery and Looking Beyond – A Regional Economic Developments and Prospects Report

Figure 69: Regional ranking of ease of getting credit

160
140
120
100
80
60
40
20
0
Dev. oil
exporters

Oil
importers

GCC
countries

MENA

ECA

EAP

LAC

SSA

HIC
SA
Source: World Bank, Doing Business Indicators (2010).

Figure 70: Gross domestic saving, 2007

70
Gross domestive saving as % of GDP

Kuwait Qatar
60 Algeria Bahrain
Saudi Arabia
50 Iran, Islamic Rep.
40 United Arab Emirates
Oman
30 Yemen,
Rep. Morocco
20 Tunisia
Syrian
0 Arab Egypt, Arab Rep.
10 Republic Lebanon
–10 Jordan
–20
3 3.5 4 4.5 5
LN GDP pc

Source: World Bank.

to the problems of public banks as supervision small enterprises are twice as likely to be credit
and regulation of credit markets is open to politi- constrained as large firms, and only one in five
cal interference and discretionary enforcement firms have a loan or a line of credit. Loans to
(World Bank 2009). SMEs account for only 8 percent of total lending
in the region. Entrepreneurs report difficulties
Small enterprises face greater difficulties in accessing capital from the domestic financial
accessing finance than large enterprises because system to start a new business, and finance ex-
banks perceive them as less financially transpar- port discoveries (Nassif 2009).
ent. Small firms are also less capable of meeting
the collateral requirements of banks, and face Access to finance for SMEs appears to be
higher transaction costs per loan. In MENA more constrained in MENA than in any other

80
 Chapter 4: What are the Major Constraints to MENA’s Nonoil Exports?
region in the world, and there are significant
differences between GCC and developing MENA
countries, according to work conducted as
part of World Bank’s upcoming MENA finance
flagship report.65 The average share of SME
lending in the GCC group of countries is only
2 percent,66 while the share of SME lending in
developing MENA is 14 percent.67 The low share
of SME lending in the GCC oil exporters reflects
to a large extent the structure of oil-based
economies. They are less diversified than the
oil importers, dominated by large enterprises,
and characterized by relatively small non-oil
traded sectors. Moreover, GCC countries tend to
have small populations, and the nationals tend
to find attractive positions in the public sector,
which may also discourage risk-taking in the
SME sector. These factors set “natural” limits
to the size of the SME sector of the GCC coun-
tries, especially in the non-oil sectors producing
traded goods. By contrast, in developing MENA
there is scope for SME growth across a wider
range of economic sectors, including traded
sectors, and also as part of supply chains linked
to large enterprises.
Even though the actual SME lending in the
region is low, there is substantial room for further
lending as shown by banks’ long-run targets for
SME lending. The drivers that encourage banks
to engage in SME lending include the potential
profitability of the SME market, the saturation of
the large corporate market, the need to enhance
returns, and the desire to diversify risks. Targets
are significantly lower in the GCC group (about
12% of total lending), revealing that the banks
themselves have concluded that there are “natu-
ral” limits to profitable SME lending in oil-based
economies. In the case of developing MENA, the
long-run target is much higher and around 29%
of total lending. This suggests that if constraints
can be eased access to finance for SMEs can
improve significantly.
Banks identify two major constraints to SME
lending including the lack of SME transparency
and the weak financial infrastructure, in particu-
lar weak credit information, weak creditor rights
and collateral infrastructure. MENA compares
poorly with other regions on these aspects of
doing business. MENA has the lowest legal rights
index among all the regions, and even though
the credit information index has improved in
recent years, the coverage of credit reporting
systems is still very limited. Collateral regimes
are also considered weak and inefficient by banks
in MENA. While a relatively low share of banks
reports serious problems with the registration
of fixed collateral, a high share of banks reports
that registries of movables remain very deficient.
Enforcement of collateral is an even bigger prob-
lem, especially for movables, but also for fixed
collateral in the case of banks in developing
MENA. Finally, an even larger share of banks
reports problems in selling the seized collateral.
Again, this is true for both GCC banks and banks
in other MENA countries, and applies to all types
of collateral. Thus, creditors perceive high risks
in SME lending that can only be partially offset
through greater reliance on relationship lending,
or through the use of other lending techniques
such as leasing and factoring, or still through
access to a guarantee scheme.
Several MENA countries have introduced
credit guarantee schemes and other policy inter-
ventions such as interest subsidies, and exemp-
tions on reserve requirements to compensate
for these weaknesses in financial infrastructure.
These interventions may be well justified, but
they should not be the main components of the
architecture of SME finance in the MENA region.
Improving financial infrastructure should be
the priority item in the policy agenda of MENA
countries. This will entail expanding the range
of movable assets that can be used as collateral,
65
In order to understand the supply of SME finance in MENA, a
bank-level survey was conducted as part of the upcoming MENA
financial flagship report. The survey covered the following
themes: i) strategic approach to SME lending; ii) main products
offered to SMEs; iii) risk management techniques employed;
and iv) SME lending data. The response rate for the survey was
high as 139 banks from 16 of the 18 MENA countries sent in
responses. These banks account for about half of MENA banks
and almost two thirds of the banking system loans.
66
The share of SME lending is consistently low across all GCC
countries.
67
The survey included the following countries in developing
MENA: Egypt, Iraq, Jordan, Lebanon, Libya, Morocco, Palestine,
Syria, Tunisia and Yemen. There is more variation in the share
of SME lending across countries within developing MENA.
81
  Sustaining the Recovery and Looking Beyond – A Regional Economic Developments and Prospects Report
improving registries for movables, and improving
enforcement and sales procedures for different
types of collateral. It also entails upgrading
public credit registries, and more importantly,
introducing private credit bureaus capable of
significantly expanding coverage and the depth
of credit information.
Competition policy can also contribute to
further SME lending. Survey results suggest that
there are private banks that have more effective
lending technologies, and that are able to gener-
ate and manage a significant SME portfolio, even
within weak enabling environments. The entry
of these banks in other MENA countries could
contribute to more SME lending, both directly
and through spillover effects. In this case, the
policy implication is to ensure that entry re-
quirements are not overly restrictive and that
banking markets remain contestable.68 Lastly, it
is important to recognize that the potential for
SME finance is also a function of the structure
of the economy and the size of the SME sector.
In the case of developing MENA, there is huge
potential for expanding SME finance, with large
numbers of smaller enterprises underserved and
low levels of bank competition to serve them. In
the case of GCC countries, the size of the SME
sector may remain more constrained by the na-
ture of oil economies, but there is also scope for
further expansion of SME finance, especially if
access is also extended to resident non-nationals.
Governance issues impede reform
implementation, raise uncertainty and
lead to uneven playing field
Governance issues top the list of major concerns
of export-oriented firms in developing MENA.
A serious problem is the discretion available to
bureaucrats in implementing regulations. This
creates an unlevel playing field and encour-
ages the pursuit of privileged access. Coupled
with barriers to entry and exit, this has created
an environment of private sector stagnation.
Furthermore, unequal, discretionary, and pref-
erential implementation of announced policies
are important sources of uncertainty in policy
implementation affecting many areas including
trade policy, entry and exit regulations, product
82
and factor market regulations. The way policies
are prepared and announced by governments
also raises policy uncertainty. Lack of consulta-
tion with the business community and opacity
in reform design lead to unpredictability and dis-
courage investors. Furthermore, policy reversals
are common in some countries and reduce the
credibility of reforms. Policy changes are often
unannounced creating confusion about the rules
governing business operations for managers,
government administrators and investors.
Regulatory ambiguity expands the opportu-
nity for discretion in public agencies and enables
harassment, sometimes in the form of frequent
inspections, difficulties in obtaining licenses,
clearing customs, resolving conflicts or obtain-
ing permits to use land and other resources
and inputs. Discretionary implementation of
the rules can impose a burden on firms in any
area in which they interact with the state and
regulatory agencies.
Regulatory opacity could also lead to politi-
cal capture as the influential and powerful ben-
efit from discretion and preferential access to
public benefits while the rest develop a sense of
unfairness. Export-oriented firms in oil import-
ing countries consider this issue a top concern
(Figure 65). They are concerned that privileged
large competitors evade the burden of taxes
and regulations or get favorable treatment and
access to privileges. In Lebanon, entrepreneurs
identify several types of privileged firms, includ-
ing firms receiving government subsidies, firms
with favored access to credit, infrastructure or
customers, firms that conspire to limit access to
markets and supplies for other firms, firms that
violate copyrights, patents or trademarks, and
avoid different types of taxes and regulations.
Formal firms are concerned that small informal
enterprises pay few taxes and get an unfair ad-
vantage over them.
Macroeconomic uncertainty is a top
concern for export-oriented firms in the oil
importing countries (Figure 65), which rank
68
Anzoategui et al. (2010) show that there is a higher rejection
of banking licenses in MENA than in other regions.
 Chapter 4: What are the Major Constraints to MENA’s Nonoil Exports?
low in terms of macroeconomic environment
in the World Economic Forum’s (WEF) Global
Competitiveness Index (GCI). The low rank-
ing reflects the fact that oil importers in the
sample have had limited fiscal space in the
past decade. Consequently, these countries
have been vulnerable to external shocks, de-
spite relatively diversified economic bases and
favorable macroeconomic environment. By
contrast, GCC oil exporters, and some of the
developing oil exporters in the sample have
had ample fiscal space to soften the impact of
external shocks on their economies. The GCC
countries demonstrated their commitment to
macro and financial stability during the past
financial and economic crises, including the
most recent one. Indeed, the GCC’s rank in
terms of macroeconomic environment is high
both compared to other components of the GCI
and the ranking of HICs and EAS on this com-
ponent (Figure 66). Thus, it is not surprising to
find out that only slightly more than 20 percent
of export-oriented firms consider macroeco-
nomic instability as a major or severe constraint
to their business operations, compared to 50
percent in oil importing countries.
Skill shortages in the GCC states are an
acute but old problem
GCC export-oriented firms cite skills as one of
the top constraints to their business operations
(Figure 63)—an area of particular weakness for
the GCC countries according to the WEF’s Global
Competitiveness Report (Figure 66). However,
the problems faced by firms as they search for
qualified labor are not new and have existed for
more than 30 years. The regional labor markets
have been characterized by heavy reliance on
expatriate labor, high unemployment among
nationals, huge wage differentials between na-
tional workers and expatriate workers, and a
strong preference by nationals for work in the
public sector.
On the supply side, the large wage differ-
entials have discouraged GCC nationals from
acquiring skills. Even if they had the skills to
obtain private sector jobs, they would be compet-
ing in the labor markets with foreign nationals
who would be interested in obtaining the same
jobs at much lower wages. Thus, public sector
jobs have remained an attractive alternative. On
the demand side, firms have had to compete with
each other for the few skilled domestic workers
most companies are eager to hire in an effort to
promote skilled nationals. Firms have avoided
recruiting and training nationals, as these are
not expected to stay long in the same company.
So, firms have preferred to import skilled foreign
workers even at the cost of dealing with layers
of bureaucracy.
There are no quick solutions to the prob-
lem of skill shortages. In the short term, GCC
countries could continue investing in skills, on
the supply side, and in improved enforcement
of employment targets for nationals in the pri-
vate sector, on the demand site. Governments
could facilitate the matching of labor supply
and demand through improved information
and intermediation services by strengthening
the collection and use of labor market statis-
tics, and employment services across the GCC
countries. In the long term, the goal could be to
gradually transform the economy away from the
current low-wage, low-productivity equilibrium
dependent on expatriate workers towards a high-
productivity one in which employers offer wages
sufficiently high to attract nationals through eco-
nomic incentives. It would be critical however to
coordinate the migration reform and the reforms
required to transition to technology intensive
production that relies on fewer but highly quali-
fied workers, and modernized equipment.
A focus on technology is central
to MENA’s efforts to improve
competitiveness
Technology has been central to both economic
growth and many elements of social welfare that
are only partly captured by standard measures
of GDP, including health, education, and gender
equality. A broad definition of technology en-
compasses the techniques by which goods and
services are produced, marketed, and made avail-
able to the public. Thus, technological progress
at the national level can occur through scientific
innovation and invention, through the adoption
83
  Sustaining the Recovery and Looking Beyond – A Regional Economic Developments and Prospects Report

and adaptation of preexisting, but new-to-the-
market, technologies, and through the spread of
technologies across firms, individuals, and the
public sector within the country. Total factor
productivity, which is one measure of technologi-
cal progress,69 explains much of the differences
in both the level and rate of growth of incomes
across countries (Easterly and Levine 2001;
Hall and Jones 1999; King and Levine 1994).
Simon Kuznets, among others, argued that the
rapid economic growth in developed nations had
stemmed from the systematic application of sci-
ence and technology to the production process.
on TAI are available, MENA countries, with a few
exceptions, have scored below their peers in the
same income group (Table 14).
As shown in World Bank (2008b), the higher
the underlying level of technological absorptive
capacity, the higher the level of technological
achievement to which a country is converging
over time. The low level of technological achieve-
ment in MENA is therefore directly correlated
with the low level of technology absorption,
which depends on the quality of macroeconomic
and financial management, skills and institu-

The level of technology achieved by a

country is in general positively correlated with
income levels.70 However, there is considerable Table 14: Technological Achievement Index
variation in countries’ technological achieve- 1990 2000
ment within income groups because of differ- East Asia & Pacific 0.14 0.19
ences in the nature of production processes, the Europe & Central Asia 0.13 0.20
extent to which governments have given prior-
Latin America & Caribbean 0.11 0.15
ity to and succeed in delivering services with a
strong technological component, and the ease South Asia 0.10 0.13
with which technologically sophisticated firms Sub-Saharan Africa 0.08 0.11
have been able to grow and expand their weight Middle East & North Africa 0.10 0.14
in the overall economy. These factors, which Egypt, Arab Rep. 0.10 0.13
are summarized by the concept of technological
Tunisia 0.12 0.16
absorptive capacity, determine to a significant
Syrian Arab Republic 0.09 0.12
degree the level of technological achievement
to which a country is converging. Differences in Kuwait 0.11 0.18
absorptive capacity help explain why countries Source: World Bank (2008b)
at similar income levels can have such different
levels of technological achievement.
69
Total factor productivity reflects factors other than pure tech-
nical change such as increasing returns to scale, markups due
MENA, despite some progress in the past two to imperfect competition, and sectoral reallocations.
decades, lags behind other developing regions, 70
See World Bank (2008b).
such as EAS, ECA and LAC in terms of exposure 71
Technological achievement is measured indirectly since
to external technology, penetration of old and technology does not have easily counted physical presence (see
Burns 2009). TAI, published by the United Nations Development
new technologies and scientific innovation, as Programme (UNDP) is an index that incorporates information
measured by the technological achievement index on the diffusion of technologies and indicators of innovation
(TAI).71 Regional averages however hide a great such as the number of patents. Some other indexes measuring
technological achievement emphasize inputs into technological
heterogeneity between countries. For instance, advances, such as educational levels, the numbers of scientists
Tunisia, which is among the most diversified econ- and engineers, R&D expenditures or R&D personnel. One ex-
omies in the region, has been scoring consistently ample of such an index is the Index of Innovation Capability
of the United Nations Conference on Trade and Development
better than other countries in the same group. (UNCTAD, 2005). Still others focus on outputs, such as the share
The GCC countries, such as Kuwait or Qatar and of high-technology activities in manufacturing value added and
Bahrain, score closer to the level of technological exports. The Index of Competitive Industrial Performance,
achievement their income levels would predict, published by the United Nations Industrial Development Orga-
nization (UNIDO) is such an index. The National Innovative
and therefore higher than the regional average. Capacity Index focuses on the mechanisms by which techno-
Overall, up to the year 2000 when the latest data logical progress is achieved (Porter and Stern 2004).

84
 Chapter 4: What are the Major Constraints to MENA’s Nonoil Exports?

Table 15: Index of Technological Adaptive Table 17: Index of Technological Readiness
Capacity 2005 2010
1990 2000 Oil exporters 3.17 3.36
East Asia & Pacific 0.45 0.49 Bahrain 4.60 4.90
Europe & Central Asia 0.44 0.49 Kuwait 4.20 3.50
Latin America & Caribbean 0.40 0.43 Qatar 4.40 4.40
South Asia 0.35 0.39 United Arab Emirates 5.30 5.20
Sub-Saharan Africa 0.33 0.36 Algeria 2.70 3.00
Middle East & North Africa 0.39 0.42 Oil importers 3.53 3.42
Jordan 0.46 0.49 Jordan 4.30 3.70
Tunisia 0.40 0.44 Egypt, Arab Rep. 3.70 3.30
Egypt, Arab Rep. 0.39 0.42 Morocco 2.80 3.50
Syrian Arab Republic 0.35 0.39 Tunisia 4.10 3.90
Iran, Islamic Rep. 0.33 0.38 Source: Staff calculations based on a sub-index of World Eco-
Source: World Bank (2008b). nomic Forum’s Global Competitiveness Index.
Note: Population numbers are used as weights in country
group indexes.

Table 16: Knowledge Economic Index

2000 2009 tions. The index of Technological Adaptive Ca-
GCC countries 5.01 5.61
pacity (TAC) offers one way to measure technol-
ogy absorption.72 According to this index, during
Bahrain 6.73 6.04
the period 1990 to 2000, MENA made significant
Kuwait 6.24 5.85 progress in terms of expanding its technological
Oman 5.16 5.36 capacity (Table 15), mostly thanks to improve-
Qatar 6.06 6.73 ments in macroeconomic management and edu-
Saudi Arabia 4.56 5.31 cational achievement as many of the non-GCC
countries in developing MENA continue to lag
United Arab Emirates 5.96 6.73
other developing regions in terms of government
Developing oil exporters 3.06 3.30
effectiveness and institutional quality.
Algeria 2.73 3.22
Iran, Islamic Rep. 3.56 3.75 One way to assess progress since 2000 in
Syrian Arab Republic 2.96 3.09 the absence of updated TAC and TAI indexes is
Yemen, Rep. 2.03 2.20
to look at the World Bank Institute’s Knowledge
Economic Index (KEI). It corresponds closely to
Oil importers 4.21 4.05
the Technological Adaptive Capacity index since
Oil importers with GCC links 5.00 4.95
Djibouti 1.70 1.47
Jordan 5.62 5.54 72
TAC is computed based on a set of measures including:
Lebanon 4.78 4.81 macroeconomic environment; general government balance as
percentage of GDP; annual CPI inflation rate; real exchange rate
Oil importers with EU links 4.14 3.97 volatility; financial structure and intermediation; liquid liabilities
Egypt, Arab Rep. 4.31 4.08 percent of GDP; private credit percent of GDP; financial system
deposits percent of GDP; human capital; primary educational
Morocco 3.72 3.54 attainment percent of population aged 15 and over; secondary
educational attainment percent of population aged 15 and over;
Tunisia 4.12 4.42
tertiary educational attainment percent of population aged 15
Source: Staff estimates based on World Bank data. and over; voice and accountability; political stability; govern-
Note: Population numbers are used as weights in country ment effectiveness; regulatory quality; rule of law and control
group indexes. of corruption.

85
  Sustaining the Recovery and Looking Beyond – A Regional Economic Developments and Prospects Report
Table 18: FDI has grown rapidly in MENA (% of GDP, net inflows)
1990 1995
EAP 1.57 3.9
ECA — 1.06
LAC 0.74 1.73
SAS 0.14 0.63
SSA 0.41 1.4
MIC 0.78 1.97
World 0.99 1.13
MENA 0.22 0.31
Source: World Bank, WDI
it takes into account whether the environment is
conducive for knowledge to be used effectively
for economic development, in addition to factors
indicating the overall potential of knowledge
development in a given country.73 According to
this index, during the past 10 years GCC and
developing oil exporters made progress in their
capacity to absorb and use capacity, while oil
importers except for Tunisia and Lebanon did
not (Table 16).
This assessment is consistent with the find-
ings based on the technological readiness index
(Table 17). It offers an alternative way to measure
the agility with which an economy adopts exist-
ing technologies to enhance the productivity
of its industries, with specific emphasis on its
capacity to fully leverage information and com-
munication technologies in daily activities and
production processes for increased efficiency
and competitiveness. The issue of whether a
technology used in a country has or has not been
developed within national borders is irrelevant
for a country’s ability to enhance productivity.
The index captures the central point that the
firms operating in the country have access to
advanced products and blueprints and the abil-
ity to use them.
Foreign Direct Investment (FDI) plays a key
role in the process of technological acquisition
and learning-by-doing in developing countries.
In MENA, FDI started increasing at a rapid pace
after 2000. Indeed, net FDI inflows as a share of
86
2000 2005 2008
2.64 3.46 3.33
2.16 3.07 4.44
3.93 2.74 3.01
0.72 1.08 3.31
2 2.94 3.47
2.71 2.88 3.51
4.83 2.55 3.04
1.22 2.57 4.57
GDP were highest in MENA compared to other
regions in the world (Table 18), and FDI appears
to be above its estimated potential in the oil
importing countries and some developed oil ex-
porters (Figure 71). However, except for tourism,
FDI outside the energy sector was directed to
nontradables with little going to export-oriented
manufacturing or high-tech services (Figure 72).
There is little evidence of job creation or technol-
ogy and knowledge transfers via FDI from parent
companies to local affiliates.74
MENA countries’ efforts to improve the
technological content of their nonoil merchan-
dise exports have had mixed results. During the
period between 2000 and 2008, oil importers’
share of high technology exports in total nonoil
merchandise exports declined, while oil export-
ers’ shares stagnated (Figure 73). Developing
MENA countries were much more successful in
increasing the presence of medium-high tech-
nology products in their nonoil merchandise
basket during the same period (Figure 73). GCC
countries’ progress however was negligible.
The ability of MENA firms to discover new
products is further limited by the modest do-
73
The Knowledge Economic Index (KEI) is computed based on
the average of the normalized performance scores of a country
or region on all 4 pillars related to the knowledge economy—
economic incentive and institutional regime, education and
human resources, the innovation system and Information and
Communication Technology (ICT).
74
Source: Pigato (2009).
 Chapter 4: What are the Major Constraints to MENA’s Nonoil Exports?

mestic knowledge generation than can partly
substitute for foreign technology. Two reliable
indicators of domestic innovation activity are
R&D expenditures and patenting activity. Arab
nation’s R&D spending is low as a percentage of
GDP, compared to other middle-income regions
(Figure 74). MENA residents receive very few
patents. Egyptians were granted fewer than
seven U.S. patents per year on average between
2001 and 2005, whereas Malaysians received

Figure 71: MENA countries’ FDI potential conditioned on openness, natural resources and
population for the period 1998-2007 (actual to predicted net FDI inflows as % of GDP)
Kuwait
Iran, Islamic Rep.
Yemen, Rep.
Developing Oil Exporters
Syrian Arab Republic
Morocco
Algeria
Oman
Saudi Arabia
GCC Countries
MENA 13
Tunisia
Egypt, Arab Rep.
Oil Importers
Bahrain
Jordan
Lebanon
0 0.5 1.0 1.5 2.0 2.5 3.0

Source: Staff calculations of export potential is based on the following estimated regression: FDI/GDP = –0.077+0.033*NOX/GDP-
0.007*NatRes/GDP-0.003*log(POP), sample size is 69, R2=0.1, and FDI/GDP stands for net foreign direct investment inflows as a
percent of GDP, NOX/GDP defines the value of nonoil exports of goods and services as a percent of GDP, NatRes/GDP defines the
value of resource-based exports as a share of GDP,a POP stands for population.
a
The value of resource-based exports is given by the sum of the value of exports of oil, mineral, food and agricultural raw products.

Figure 72: Structure of FDI, cumulative 2000–07 (percent of FDI)

Manufacturing Telecoms Finance Tourism & Construction Energy High Tech Services

90
80
70
60
50
40
30
20
10
0
Algeria

Egypt,
Arab Rep.

Morocco

Tunisia

Jordan

Lebanon

Syrian Arab
Republic

Turkey

China

European
Union

Sources: United National Conference on Trade and Development, World Development Indicators, national accounts.

87
  Sustaining the Recovery and Looking Beyond – A Regional Economic Developments and Prospects Report

5 times more per year and Koreans and Taiwan- quality of Tunisian research institutions is among
ese each earned thousands (Table 19). the best in MENA region, according to the Global
Competitiveness Report (World Economic Forum
Still, some MENA countries are vastly more 2010). Education absorbs 7 percent of GDP, and
successful than others in their use of technology. the system produces a large number of university
One such country is Tunisia whose R&D expen- graduates in general fields as well as in sciences
diture as a share of GDP doubled between 2000 and technologies. The country is rated 7th in the
and 2005, when it became more than double world in terms of availability of scientists and
the average for MENA region (Figure 75). The engineers—well ahead of MENA and even the EU
country has a complex innovation infrastructure average (World Economic Forum 2010). Despite
and a large number of public programs aimed at these successes, Tunisia faces serious challenges
providing incentives for R&D and innovation. The in its quest for a gradual transformation of tradi-

Figure 73: Technological content of exports by region

High technology

EAP ECA LAC Oil importers Developing oil exporters GCC oil exporters

40%
Share in Exports of Nonoil Goods

35%
30%
25%
20%
15%
10%
5%
0%
1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008
Medium-High technology

EAP ECA LAC Oil importers Developing oil exporters GCC oil exporters

60%
Share in Exports of Nonoil Goods

50%

40%

30%

20%

10%

0%
1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

Source: COMTRADE data.

88
 Chapter 4: What are the Major Constraints to MENA’s Nonoil Exports?

Figure 74: Research and development expenditure (% of GDP)

2000 2005

3.0

2.5

2.0
% of GDP

1.5

1.0

0.5

0.0
EAP ECA LAC SAS MENA OECD MIC World

Source: World Bank, WDI.

Note: No data were available for MENA region in 2000. MIC stands for Middle Income Countries.

Table 19: Number of resident patents filing per million people

Country of Origin 2000 2001 2002 2003 2004 2005 2006
GCC oil exporters
Saudi Arabia 4 2 3 3 4 5 5
Developing oil exporters
Algeria 1 2 1 1 2 2 2
Syrian Arab Republic 15 11 11 12 11 6 6
Yemen, Rep. 0 0 0 1 0 1 1
Oil importers with EU links
Egypt, Arab Rep. 8 7 9 7 5 6
Morocco 4 3 5 6
Tunisia 5 2 5 4 5 6
Chile 16 16 25 21 24 22 18
Malaysia 9 11 13 15 21 20 20
Philippines 2 2 2 2 2 2 3
United States of America 584 623 640 651 646 703 742
Republic of Korea 1549 1557 1608 1887 2191 2538 2598
Source: WIPO and World Bank, WDI.

tional sectors into high-value-added, knowledge- more than 100 interviews structured around 23
intensive sectors (see Box 6). case studies in five MENA countries. Although

Innovations, technological adaptation, cus-

tomization or licensed production of foreign-
owned products can all lead to export discov-
eries. A paper by Nassif (2010) discusses six
possible triggers for export discovery75 based on
75
Export discoveries were defined as products that had not
been sold abroad, or sold only in very limited amounts, at the
beginning of the period (1989) and were consistently exported
in large quantities by the end of the period (2004).

89
  Sustaining the Recovery and Looking Beyond – A Regional Economic Developments and Prospects Report
Figure 75: Research and development expenditure in MENA (2005)
1.2
1.0
Percent of GDP
0.8
0.6
0.4
0.2
0
Algeria Egypt, Iran,
Arab Rep. Islamic Rep.
Source: WDI
Box 6: Tunisia’s national innovation system: achievements, challenges and vision
Over the last decades, Tunisia has emerged as one
of the regional leaders in science, technology and in-
novation in the region and abroad. The government’s
ambition is to further accelerate the rate of investment
in R&D in the years to come, and become a regional
innovation hub and a destination of choice for high-
tech FDI. However, Tunisia has to address a number of
important challenges to convert the country’s consid-
erable R&D capacity and human capital into an asset
for an innovation-driven economy.
Human capital is underutilized
As shown in a 2010 Tunisia’s Development Policy Re-
view conducted by the World Bank, the economy is still
largely dominated by low-skilled activities, only 15%
of currently employed people have a university degree.
This explains the high and growing unemployment
rate of this category of job-seekers. At the same time,
Tunisian firms struggle to find adequately educated
workforce to accompany their development (World
Economic Forum 2010).
Private sector innovation capacity is limited
Tunisia’s productive sectors have limited innovation
capacity. Business spending on R&D constituted only
0.15% of GDP in 2009, and the number of patents
submitted in the United States and the EU remains
negligible. There is also little collaboration between
research centers and the private sector. Among those
firms that do invest in R&D, only 15% collaborate with
universities.
90
Kuwait Saudi Arabia Tunisia MENA EAP
Limited technology spillovers from FDI
The energy sector absorbs the bulk of FDI in Tunisia,
while FDI inflows into manufacturing go predominantly
to low value-added sectors. Furthermore, FDI is largely
located in the offshore sector disconnected from the
rest of the economy. In these circumstances, while
industrial upgrading may occur, technological spillover
effects are limited.
Inefficiencies in public R&D expenditures
Public R&D spending is scattered around a large
number of themes and public institutions without
clear alignment with national priorities. The objectives
of a large number of R&D programs overlap and the
performance criteria for distributing R&D spending
are unclear. As a result, budgets received by individual
laboratories are limited, and so are production and its
economic relevance.
Government’s vision
In light of the above, the government’s new strategy
is to promote a gradual transformation of traditional
sectors into high-value-added, knowledge-intensive
sectors as well as increase investments in emerging
technology-intensive sectors. As highlighted by the
recent Tunisia Development Policy Report of the World
Bank, to achieve this goal Tunisia has to (i) enhance the
efficiency and effectiveness of public R&D spending; (ii)
improve supply of adequate skills and competencies;
and (iii) strengthen private financing of innovation.
 Chapter 4: What are the Major Constraints to MENA’s Nonoil Exports?
the results should be treated with caution as the
methodology is open to selection bias, and the
sample of firms is not representative, they are
indicative of the factors that mattered to the pro-
cess of export discovery by existing MENA firms.
These factors included external unanticipated
shocks; market evolution; research; information
about new business opportunity; capacity to
produce in excess of domestic market; and ran-
dom events. The paper found that in many cases
more than one trigger was at play. Information
about a new business opportunity obtained by an
entrepreneur willing to take high risks and invest
in new technologies and management techniques
was shown to be decisive.
Technology can be used to gather and dis-
seminate information needed by entrepreneurs to
make export discoveries. Entrepreneurs identified
insufficient information about demand in specific
markets, prices of new products or services, and
the methods for producing quality goods and ser-
vices efficiently as the key obstacle to the discov-
ery of new export activities. Lack of information
about these processes increases uncertainty and
raises risk perceptions, which in turn discourage
investors. The high cost of gathering the required
information is the greatest hurdle in initiating
new export activity (Klinger 2007).
According to the survey, MENA entrepre-
neurs overcame these uncertainties by partner-
ing with firms with the required knowledge;
some benefited from subsidies from input
suppliers; many accepted the higher risks and
absorbed the costs; a few benefited from export
promotion, technical assistance or knowledge
transfer. Except for access to finance, survey
participants did not think policy-induced busi-
ness constraints mattered for their export dis-
coveries. And neither did government support.
Many entrepreneurs pointed out that initial
support—through export promotion schemes,
competitiveness programs, and innovation
grants, was not available to them. Almost all
entrepreneurs reported difficulties in access-
ing capital from the domestic financial system
to start a new business. Successful entrepre-
neurs overcame this obstacle but there were
consequences including delayed investment,
high personal risk and dependence on informal
financial resources.
91

What should countries do to
improve nonoil export growth?
What did we learn? Summary of
key findings
Achievements have been made in MENA in the
last ten years when growth accelerated relative
to the previous decade in response to intensified
efforts in many countries to bolster their private
sectors and diversify their sources of growth. But
despite accelerated reform efforts, the growth
response in developing MENA since 2000 has
been modest in per capita terms relative to
that of other developing regions. Oil has been
and remains the primary vehicle for revenue
and wealth creation for the oil exporters in the
region, while the spillover effects to the oil im-
porting countries in the region and beyond have
been significant.
And while the outlook for oil remains prom-
ising in the medium term due to strong demand
for oil in Asia and other fast-growing markets,
counting on oil will not solve the problem of
fueling inclusive growth in the region. As the oil
industry is capital intensive, continued reliance
on oil will not address developing countries’
major issue—employment creation, and will
only exacerbate the current situation. MENA
needs to expand exports of nonoil goods and
services in order to spur job creation for the
fastest-growing labor force in the middle-income
group of countries. Despite some progress, ex-
ports contributed little to regional growth in the
past decade, and nonoil exports of goods and
services remain below potential for the region
as a whole. However, the situation differs signifi-
cantly for the GCC oil exporters and the MENA
oil importers whose nonoil exports of goods and
Chapter 5
services are at potential, and the developing oil
exporters whose nonoil exports are only a fifth
of expected levels.
Overall, MENA has made progress in achiev-
ing greater openness, diversifying its exports
and export destinations. Nearly all countries
increased their exports as a share of output and
all oil importers made progress in reducing the
concentration of their merchandise export bas-
kets. The GCC and the oil importing countries
made advances by expanding and diversifying
services exports as well. Importantly, MENA
has made a major shift in the destinations for its
nonoil goods towards fast-growing Asia and away
from slow-growing EU—a move that has been a
lot less dramatic, but nevertheless substantial
for the oil importers. The shift towards Asia and
fast-growing BRICs is good news for MENA as
South-South trade is expected to play a much
more prominent role in the new post-crisis world
trade order.
Nonetheless, the importance of various
markets will differ by country group. Europe
remains the most important export destination
for MENA’s nonoil products and services. This re-
flects largely the fact that the EU receives around
half of oil importers’ exports. Nonoil exports
destined to other MENA countries represents the
largest share of GCC’s total nonoil exports, while
for developing oil exporters Asia has become the
most important nonoil export destination.
The service sector appears to be an area of
relative strength for MENA and a key source of
export revenue and future potential growth.
93
  Sustaining the Recovery and Looking Beyond – A Regional Economic Developments and Prospects Report
MENA expanded its share in the global nonoil
export market largely due to an increase in ex-
ports of services. Only one other region in the
world—South Asia—generates a higher share of
output than MENA by exporting services. And
the importance of services as a source of export
growth is much greater for MENA’s oil importing
countries than any other region in the world.
By contrast, merchandise exports of other
developing countries grew much faster suggest-
ing that MENA firms producing nonoil mer-
chandise goods are not as competitive as some
of their foreign counterparts. Regional nonoil
merchandise export growth was driven more
by an expansion of existing products to new
markets and new products to existing markets
than by an increase of exports of existing prod-
ucts to existing markets. The latter is indicative
of substantial pressures from competition with
other emerging countries’ exports. Oil exporters
expanded exports of industrial products, notably
in Asia, while oil importers were much more suc-
cessful than oil exporters in expanding exports
of parts and components to the EU and Asia, and
capital goods to the EU. However, export growth
linked to global production sharing arrangement
was weak relative to export growth of industrial
products, consumer goods and food products—
especially to the EU.
Growth at the extensive margin is evidence
of the shift toward rapidly growing product and
market segments in Asia and the EU, and also of
the growing importance of exports of industrial
products, and to some extent, global production
sharing arrangements in the electrical and mo-
tor vehicle industries in the oil importers with
strong EU links. However, intra-industry trade
(IIT) remains limited within MENA and with the
rest of the world, and manufacturing activities
in MENA appear to be mostly assembly-type op-
erations directed at domestic markets. The only
country in the region with a significant share of
components in its total exports is Tunisia.
MENA countries have relatively good market
access for nonagricultural goods in high income
countries, but overall agricultural protection in
developed markets is high mainly due to non-
94
tariff barriers (NTBs), especially constraining oil
importers with EU links. MENA countries have
more restricted market access in China than in
advanced markets, and oil importers with EU
links encountered much higher overall protec-
tion than others because of high tariffs on spe-
cific products exported to the Chinese market.
All regions face higher protection in India
than elsewhere, and MENA region is not an excep-
tion. Furthermore, the region encounters higher
protection on its nonoil exports to India than
most other regions, largely because of high bar-
riers on GCC’s nonoil exports. However, overall
protection on oil importers’ exports was generally
lower in India than in China, reflecting a product
composition effect. Notably, there is no evidence
that in general protection has increased substan-
tially since 2008 when the global crisis erupted.
Despite good market access developing MENA
countries do not exploit well existing opportu-
nities for nonoil export growth. Developing oil
exporters such as the Republic of Yemen, Algeria,
the Islamic Republic of Iran, and Syria exported
their products to less than 5 percent of markets
in 2005. Oil importers were more successful
than them, but still most exported products to
less than 7 percent of markets, and compared
poorly to other countries, including Turkey which
reached 27 percent of markets for its products.
Furthermore, success in penetrating foreign
markets varies greatly across MENA countries
and cannot be explained just with differences in
protection across markets, but rather reflects lack
of information about markets—an area of special
concern to export-oriented firms in MENA—and
other constraints limiting firms’ competitiveness.
MENA region has liberalized its trade consid-
erably by lowering its tariff barriers, which are
comparable to tariffs in other regions. Yet, apart
from the GCC countries, the region remains one
of the most protected markets for goods in the
world, largely due to non-tariff measures such as,
technical barriers to trade, quotas and prohibi-
tions, import and export licenses, anti-dumping
and other anti-competitive measures. Some of
these measures are essential by nature and im-
posed to achieve objectives other than to restrict
 Chapter 5: What Should Countries do to Improve Nonoil Export Growth?
trade. However, evidence exists that countries
are using non-tariff measures to erect non-tariff
barriers as trade agreements impose limits on
the use of traditional trade policy instruments
such as tariffs. Given that by the Lerner sym-
metry theorem, removing import restrictions is
tantamount to removing restrictions on exports,
there is thus a substantial nontariff agenda in de-
veloping MENA countries. Research is underway
to update the information on nontariff measures
in MENA and provide further knowledge on the
barriers erected to protect domestic markets
from competition.
Intra-regional exports of non-oil merchan-
dise have not increased as a share of total nonoil
exports despite the gradual implementation of
EU trade agreements, PAFTA and GCC. Some
reasons for this include high nontariff barriers
on intra-MENA trade, failure to exploit well op-
portunities to sell in regional markets, or simply
low trade complementarity among MENA coun-
tries. Furthermore, when integration is limited
to a PTA without common external tariffs, the
rules of origin become a major determinant of
the incentive regime confronting firms, and
countries with high most-favored-nation tariffs
such as Tunisia and Morocco are at risk of costly
trade diversion. In addition, differences in the
rules of origin of various regional agreements
generate additional compliance costs and limit
intra-regional, intra-industry trade.
Wide dispersion of tariffs across MENA coun-
tries also imply that industries in these countries
benefit to varying degrees from policy-generated
transfers. When the costs and benefits of opening
up are unevenly distributed, it becomes politi-
cally difficult to open markets among regional
partners. The fact that members of PAFTA con-
tinue to limit access for specific products by
using NTBs or not implementing the policies
specified in the agreement is evidence of these
political tensions. Another limiting factor, with
a political dimension, is the lack of mechanisms
to compensate losers. Despite the emergence of
“credible” PTAs such as PAFTA, it is not known
to what extent agreements are implemented
and their impact. Finding out answers to these
questions should be a priority.
MENA appears to have some of the most
restrictive policies governing trade in services
in the world, according to estimates measuring
de jure policies in a number of services sectors.
Furthermore, regional trade agreements have
not helped to liberalize intraregional trade in
services in developing MENA. The situation
varies by country and sector. In banking and
insurance, Morocco and Tunisia are among the
most restrictive countries in MENA. In telecom
sector, Egypt and Tunisia still lag behind others
despite the very recent opening of Tunisia’s fixed
line telephony to a private operator. In maritime
transport, major restrictions exist in Morocco
and, to a lesser degree, Egypt, while in air trans-
port, Egypt displays highest restriction levels.
The GCC countries appear to have the most
restrictive service sector policies in MENA, but
effective applied protection in some services in-
dustries might be lower than de jure restrictions
as firms find ways to get around the restrictions.
Further research is needed to link policies to out-
comes of interest such as FDI or foreign presence,
ideally taking into account firm characteristics or
to determine to what extent current protection
levels—similar to protection levels in other fast-
growing regions—inhibit growth. Restrictions that
discourage FDI inflows into services are particu-
larly harmful as they limit the potential size and
productivity of these sectors, the competitiveness
of firms operating in these sectors, the technology
they use, the markets they choose to operate and
the quality of services they provide.
A range of factors impede MENA’s nonoil
export growth, discourage investment, and
hurt firms’ productivity. But the analysis must
recognize that competitiveness and total factor
productivity levels vary substantially within
the region, and that there are big differences
between the major obstacles to growth in the
GCC oil exporters, developing oil exporters and
oil importers. Firms from GCC countries are
much more productive than firms from develop-
ing MENA, while developing oil exporters’ firms
are least productive.
In the GCC countries, limited access to fi-
nance for SMEs and distortions in labor markets
95
  Sustaining the Recovery and Looking Beyond – A Regional Economic Developments and Prospects Report
that discourage skill acquisition and entry into
the private sector, and discriminatory policies
that discourage FDI inflows into some of the ser-
vices sectors are major problems. Innovation and
technological readiness also appear to be areas
in need of special attention as these countries
are behind their peers in the developed world.76
In developing oil exporters, nonoil tariff
and nontariff protection is highest in the world,
taxes and corruption are the most frequently-
mentioned major complaints by exporting
firms, but due to the dominance of the state,
other issues, especially inefficiencies in labor
and goods markets, and poor financial market
development, present even bigger problems for
the competitiveness and growth prospects of the
export-oriented sector.
In oil importing countries—especially those
with EU links—protection is still high largely
due to nontariff barriers. Wide dispersion of
tariffs across countries implies that industries in
these countries benefit to varying degrees from
policy-generated transfers, making the opening
of markets among regional partners difficult de-
spite PAFTA. Protection in services also remains
high and beyond the scope of regional agreement
such as PAFTA and the bilateral FTAs with the
EU. Limited fiscal space in quite a few of the
oil importers implies that macroeconomic un-
certainty remains a top-most concern for firms,
while the inefficient and inflexible labor market
is another weakness. Furthermore, to be able to
compete effectively in global markets, firms in
oil importing countries must catch up with East
Asian firms in terms of innovation efforts.
Are reforms implemented by
countries addressing the major
constraints?
MENA countries are implementing reforms ad-
dressing some of the constraints to nonoil export
growth identified in the report, but in many coun-
tries a lot more needs to be accomplished as wide
policy gaps remain in some areas. The average
number of reforms in MENA steadily increased
during the last 5 years. Between June 2009 and
May 2010, 11 of 18 economies in MENA adopted
96
a total of 22 business regulation reforms to im-
prove the climate for doing business according
to the latest Doing Business report (2011). The
top reformers in the region were Saudi Arabia
and Egypt which were among the 15 most active
reformers in the last 5 years.
MENA governments improved macroeco-
nomic management, simplified business regula-
tions, reduced restrictions to trade and invest-
ment, and opened up their financial sectors. In
the past year, many of the business regulation
reforms in the region involved the application of
new information technologies which is expected
to increase efficiency and transparency, thereby
addressing to some extent governance concerns
linked to nontransparent and corrupt practices.
Improvements were made to trade facilitation
in some GCC countries including Saudi Arabia,
the United Arab Emirates, and Bahrain, as well as
some oil importers such as Egypt, Morocco, and
Tunisia. Morocco launched a national strategy for
development of trade logistics, aimed at enhanc-
ing competitiveness and trade growth over the
next 5 years. Interventions will promote optimal
management of goods flows to reduce logistics
costs from 20 to 15 percent of GDP by 2015. Egypt
approved a PPP law in May 2010 to facilitate imple-
mentation of PPPs and accelerate plans to expand
Egypt’s infrastructure. Commencement of the
first phase of development of seven trade zones
and logistical centers between private sector and
government has been announced for implementa-
tion through end 2011.77 the Republic of Yemen
approved an amendment to its Customs law in
July 2010 to meet WTO membership requirements
and standards, with the aim of completing WTO
accession by end 2010.
In the GCC, Qatar is addressing one of the
major constraints to growth of its services indus-
76
Countries that used successfully their natural resources
typically established strong institutional and organizational
structures, knowledge networks and aggressive human capital
policies (De Ferranti et al. 2002).
77
Bidding for the 2nd and 3rd phases, which include establish-
ment of commercial centers in 22 governorates, will be initiated
by end 2010.
 Chapter 5: What Should Countries do to Improve Nonoil Export Growth?
tries by easing restrictions on majority foreign
ownership of local companies—considered to be
a significant liberalization measure, following
simplification of the tax regime for foreign com-
panies at a flat 10% rate. Still, its services sector
trade restrictiveness remains high even by Arab
country standards with noteworthy restrictions
in banking, insurance, telecommunications and
transport. Bahrain and Qatar are planning to ac-
tively monitor the implications from the Basel III
process and the Financial Stability Board for its
financial sector business models. Tunisia plans
to equalize, from 2012 onward, the fiscal incen-
tives offered to offshore and onshore FDI and
raise the limit on foreign ownership in certain
sectors from 49 to 60 percent.
Some GCC countries are planning or already
implementing reforms addressing issues related
to their major competitiveness issue—skill short-
ages. Bahrain has taken a first step toward nar-
rowing the wage gap between foreign immigrants
and domestic workers while funding active labor
market programs and training for nationals to
enhance their competitiveness. Kuwait is imple-
menting tentative, non-controversial labor market
reforms—allowing immigrants already working
in Kuwait to change their visa sponsors without
notice to the incumbent sponsor, and a draft law
abolishes the sponsorship system entirely, in ad-
dition to other limited reforms, although this law
faces resistance from many employers.
In Morocco, new funding mechanisms under
the Crédit Agricole bank for the Green Morocco
Plan would be aimed at helping small farmers
to access finance and technical assistance for
productivity-improving investments. Other
countries are planning measures to strengthen
financial stability. Tunisia plans to raise the
minimum capital requirement for banks to 100
million dinars, and lower the NPL ratio to less
than 7 percent by 2014. For this purpose, banks
are urged to increase the efficiency of their loan
recovery efforts and to take vigorous actions on
their portfolio of non-performing loans. The au-
thorities have also decided to implement the Ba-
sel II framework, starting with the standardized
approach, and to establish a deposit guarantee
fund financed by the banks.
A number of developing oil exporters are plan-
ning reforms to address inefficiencies in input and
goods markets stemming from state control. In
Syria, a new telecommunications law was passed
in June 2010 authorizing the separation of regu-
latory and operator functions currently handled
by the state-owned Syrian Telecommunications
Establishment, and paving the way for possible
entry of a third mobile operator. Regulatory func-
tions will be carved out to a new entity and the
Syrian Telecommunications Establishment will
be restructured to become a more commercially
driven institution. The government is committed
to further reforms in the sector and in the medium
term is looking to possibly end Syrian Telecom-
munications Establishment’s monopoly over fixed
line services. The latest activity of the Islamic
Republic of Iran’s ongoing privatization program
comprised reduction in government’s stake in the
country’s two biggest automotive manufacturers
from 49 to 31 percent. The government plans to
privatize some 200 firms in 2010–11. With a sub-
stantial share of transfers going to other public
entities, however, many question the effectiveness
of this privatization program.
Some developing oil exporters are planning
much needed improvements to the functioning
of their financial market systems. Two develop-
ing oil exporters (the Islamic Republic of Iran
and Syria), the United Arab Emirates, Jordan
and Lebanon made much needed improvements
of their credit information systems—one of the
areas identified as a major constraint to firms
in the region. Other MENA countries need to
follow suit and strengthen not only credit in-
formation systems, but also creditor rights and
collateral infrastructure. As part of its ongoing
financial system reform program, Syria has initi-
ated a new competition and anti-trust law for the
financial sector. The law is aimed at prohibiting
monopolies and anti-competitive practices. Pub-
lic and private banks and enterprises, however,
do not yet compete on a level playing field. Iraq
has adopted an action plan to modernize the
banking sector, taking into account the findings
and recommendations presented in recently
completed audit reports of the two main state-
owned commercial banks and addressing the
benchmarks of the IMF Stand-By Agreement.
97
  Sustaining the Recovery and Looking Beyond – A Regional Economic Developments and Prospects Report
Several of the developing oil exporters with
more limited fiscal space are planning improve-
ments to their tax code and removals of other
costly distortions. Syria’s government is planning
to streamline the substantial quasi-fiscal opera-
tions currently conducted by public sector banks
and enterprises as well as to advance preparations
for the launch of the value-added tax (VAT).78 In
January 2010 the Islamic Republic of Iran’s par-
liament passed a comprehensive subsidy removal
bill that was implemented in December 2010. The
bill targets subsidies on fuel, water, sewage, food,
postal, airline and rail services and is expected
to yield savings amounting to $100 billion. A sig-
nificant portion of the resources saved under the
reform program will be transferred to low-income
families and business firms as cash or non-cash
payments. With the reduction in expenditures on
subsidies and transfers, the government expects
to lessen domestic fuel demand and vulnerability
to international sanctions.
The Republic of Yemen has begun implemen-
tation of a series of tax reforms. It plans to apply
the General Sales Tax legislation to widen the tax
base and enhance tax revenues. The government
has approved a new Income Tax law to reduce the
corporate income tax rate from 35 to 20 percent,
the personal tax rate from 20 to 15 percent, and
eliminate many tax exemptions and petroleum
price subsidies over the next three years. It has
approved a new investment law to eliminate
indirect exemptions and introduce international
best practices. the Republic of Yemen also plans
a reform of the social welfare fund with the objec-
tive of improving targeting of the cash transfer
system according to income criteria.
Many of the oil importers with limited fiscal
space are implementing reforms to address the
issue and respond to one of the major concerns
of the private sector—macroeconomic uncer-
tainty. Tunisia is preparing a law to ensure
financial viability of pension schemes over the
next 20 years without additional tax increases or
budget financing. Egypt raised natural gas and
electricity prices in June 2010 to different levels
by industry.79 Subsidized food prices under the
ration card system were unified in May 2010 in
order to eliminate the opportunity for trading
98
subsidized goods on the black market and to sim-
plify administration of the food subsidy system.
Jordan has responded to its fiscal pressures by
setting aside all new capital projects and shift-
ing from publicly-funded investments towards
public-private partnership (PPP) arrangements.
A PPP regulatory framework is established and
successful PPPs have already been conducted.
Wide policy gaps, however, remain in a num-
ber of areas where MENA governments should
step up reform efforts. In the GCC, more needs
to be done to address the issue of skill short-
ages in a comprehensive way. GCC governments
should continue to invest in skills, facilitate the
matching of labor supply and demand through
improved data collection, information and inter-
mediation services. It would be critical to coordi-
nate migration reform and reforms required to
transition to technology intensive production.
A lot more needs to be done to understand the
nature and extent to which regulations restrict
trade and FDI in the GCC services.
In developing MENA, countries need to
intensify efforts to strengthen institutions, im-
prove information gathering and dissemination,
and reform implementation. Countries should
press on with financial market development—
especially improving financial infrastructure.
This will entail expanding the range of movable
assets that can be used as collateral, improving
registries for movables and enforcement and
sales procedures for different types of collateral,
upgrading public credit registries, and more
importantly, introducing private credit bureaus
capable of significantly expanding coverage and
the depth of credit information.
Developing MENA countries should also
strengthen macroeconomic management, ad-
dress inefficiencies in labor and goods markets,
and facilitate innovation activities, knowledge
and technological acquisition. There is evidence
78
The drafting of the VAT law and tax procedures code is
proceeding in order to enable introduction of a VAT planned
for 2011.
79
Increases for gas used by the chemical and processed glass
industries will be effective starting fiscal year 2011.
 Chapter 5: What Should Countries do to Improve Nonoil Export Growth?
that the existing labor market rigidities—espe-
cially the high firing costs—have played a role in
reducing the impact of the crisis on unemploy-
ment. However, these rigidities are now limiting
job creation, and the ability of the economy to
pick up speed post crisis.
Finally, it should be a priority to understand
better the nature and extent to which nontar-
iff barriers restrict trade in non-oil goods and
services. Some countries such as Algeria have
backtracked in their efforts to open up their
economies to trade after the crisis. Algeria’s
2010–14 public investment plan (PIP) focuses on
diversification and job creation. Yet, in contrast
to the requirements of an effective diversifica-
tion program that requires increased attention
to competitiveness and more open trade regime,
several of Algeria’s policies indicate a shift in the
direction of greater state control of the economy
and greater restrictions on foreign trade. Notably,
new 2010 FDI rules add to policies adopted in
2009 to restrict options for foreign investment
and consumer imports. Potential foreign inves-
tors face new requirements designed to limit
profit taking and repatriation. Public firms are
being strengthened and privatizations are de-
layed, while steps toward liberalizing external
trade have slowed since 2008, including the halt-
ing of activities toward WTO accession.
99
Statistical Annex

101
102
Table A1: Macroeconomic outlook
Real GDP growth Fiscal balance Current account balance
2010 2011 2012 2010 2011 2012 2010 2011 2012
2008 2009 Est. Proj. Proj. 2008 2009 Est. Proj. Proj. 2008 2009 Est. Proj. Proj.
(Annual percentage change) (In percentage of GDP) (In percentage of GDP)
MENA region 5.3 2.0 4.0 4.8 4.8 12.8 –2.1 0.6 2.8 3.9 16.1 2.0 5.8 6.9 7.8
Oil exporters 4.9 1.1 3.7 4.7 4.5 16.1 –1.2 2.4 5.0 6.3 19.8 3.6 8.4 9.6 10.8
GCC oil exporters 6.0 0.5 4.2 5.0 4.8 24.2 0.8 5.4 8.3 9.7 23.9 6.7 10.8 12.7 14.0
Bahrain 6.1 2.6 3.5 3.9 4.9 4.9 –8.7 –5.2 –2.4 –0.3 10.6 1.6 3.6 6.1 7.4
Kuwait 5.6 –4.4 1.9 4.5 5.0 19.9 19.3 16.5 17.2 20.9 40.7 29.2 29.3 30.2 31.7
Oman 12.3 3.6 4.8 4.7 3.9 13.9 2.2 6.9 7.6 6.5 9.1 –2.2 2.6 3.3 3.6
Qatar 15.8 9.0 18.5 14.3 9.2 10.9 13.0 9.4 12.2 14.3 33.0 15.7 22.7 38.0 34.9
Saudi Arabia 4.2 0.6 3.7 4.2 4.4 32.5 –6.1 –0.8 2.7 3.3 27.8 6.1 6.7 5.6 7.2
United Arab Emirates 5.1 –1.0 1.0 3.1 4.0 20.4 0.4 9.9 13.4 15.0 8.5 –2.7 7.3 7.7 10.7
Developing oil exporters 3.0 2.1 2.9 4.2 3.9 4.1 –3.9 –1.5 0.3 1.5 13.7 –0.4 5.1 5.2 6.1
Algeria 2.4 2.4 2.4 4.1 4.1 7.7 –6.6 –8.0 –7.0 –3.4 20.2 0.3 5.6 5.4 5.9
Iran, Islamic Republic of 2.3 1.4 1.5 3.0 3.0 0.0 –2.7 0.4 2.3 2.0 7.2 2.6 6.7 7.2 7.3
Iraq 9.5 4.2 2.6 11.5 11.0 –3.3 –14.2 –12.2 –8.2 3.3 12.8 –25.7 –13.5 –9.2 –3.0
Libya 3.8 2.1 5.4 6.2 3.9 24.6 10.6 15.8 17.7 12.1 40.7 16.8 23.5 19.7 20.4
Syrian Arab Republic 5.2 4.0 5.0 5.5 5.6 –2.8 –5.5 –4.4 –3.4 –3.5 –1.9 –2.4 –2.3 –3.5 –3.6
Yemen, Rep. 3.6 3.9 8.0 4.1 4.2 –4.5 –10.2 –5.6 –5.0 –4.7 –4.6 –10.7 –5.2 –4.8 –4.6
Oil Importers 6.8 4.9 4.9 5.3 5.7 –4.6 –5.7 –6.8 –6.2 –5.5 –3.9 –4.4 –4.8 –4.1 –3.8
Oil importers with GCC links 8.6 6.5 6.5 6.3 5.8 –8.6 –8.9 –7.9 –7.1 –6.0 –15.8 –11.5 –13.1 –11.9 –12.0
Djibouti 5.8 5.0 4.5 5.4 6.0 1.3 –4.9 –0.5 0.0 0.0 –27.6 –17.3 –14.5 –19.4 –25.4
Jordan 7.6 2.3 4.0 5.0 5.5 –8.8 –10.3 –7.4 –5.0 –4.0 –9.6 –5.1 –9.5 –6.5 –6.6
Lebanon 9.3 9.0 8.0 7.0 6.0 –8.8 –8.1 –8.5 –8.7 –7.5 –19.8 –15.5 –15.4 –15.2 –15.1
Oil importers with EU links 6.5 4.6 4.6 5.1 5.7 –3.9 –5.1 –6.6 –6.0 –5.4 –1.8 –3.2 –3.2 –2.7 –2.3
  Sustaining the Recovery and Looking Beyond – A Regional Economic Developments and Prospects Report

Egypt, Arab Rep. 7.2 4.7 5.1 5.5 6.0 –6.8 –6.9 –8.2 –7.9 –7.3 0.5 –2.3 –2.0 –1.7 –1.3
Morocco 5.6 4.9 3.5 4.4 5.1 0.4 –2.2 –5.0 –3.3 –2.4 –5.2 –5.0 –5.3 –4.4 –3.9
Tunisia 4.5 3.1 3.8 4.8 5.0 –1.0 –3.0 –3.0 –2.8 –2.6 –3.8 –2.9 –4.5 –4.1 –3.7
Source: World Bank data.
 Table A2: Trade restrictiveness in East Asia excluding China, 2008 (in percent)
Overall trade restrictiveness Tariffs Ad-valorem equivalents (AVEs) of NTBs
Exporting
country All Agriculture Manufactures Nonoil Oil All Agriculture Manufactures Nonoil Oil All Agriculture Manufactures Nonoil Oil
EAS excl China 12.7 32.1 9.5 13.8 2.9 5.0 8.8 4.3 5.2 2.6 7.7 23.3 5.1 8.5 0.4
India 26.5 38.4 22.8 27.7 6.9 5.9 16.3 2.7 6.3 0.6 20.5 22.1 20.0 21.4 6.3
SAS excl India 9.2 14.0 8.4 9.2 20.9 5.3 10.9 4.4 5.3 0.1 3.8 3.1 4.0 3.8 20.8
LAC 13.4 22.7 9.4 13.4 20.4 5.0 11.1 2.4 5.0 0.2 8.4 11.6 7.0 8.3 20.2
SSA 23.0 41.4 6.6 27.1 0.7 15.2 31.0 1.1 17.9 0.7 7.8 10.4 5.5 9.2 0.0
ECA 9.1 12.3 8.8 9.8 5.8 4.3 10.9 3.6 4.1 5.3 4.9 1.3 5.2 5.8 0.4
HICs 12.2 23.6 11.1 12.7 8.9 5.9 9.2 5.6 5.9 5.6 6.3 14.4 5.5 6.8 3.3
China 12.9 24.1 12.4 13.0 10.4 6.8 8.6 6.7 6.7 10.2 6.2 15.5 5.7 6.3 0.2
MENA 6.0 17.3 5.9 16.7 2.7 1.9 9.0 1.9 1.9 1.9 4.1 8.3 4.0 14.8 0.8
GCC oil exporters 4.9 32.7 4.9 25.4 2.7 2.1 17.3 2.0 3.3 1.9 2.9 15.5 2.9 22.1 0.8
Other oil 1.8 1.8 1.8 4.2 0.0 0.1 1.7 0.1 0.2 0.0 1.7 0.0 1.7 4.0 0.0
exporters
Oil importers 12.2 13.6 12.2 12.2 20.4 1.1 7.1 1.0 1.1 0.1 11.1 6.5 11.2 11.1 20.3
Oil importers w/ 14.9 82.3 14.9 14.9 0.0 0.1 46.7 0.1 0.1 0.0 14.8 35.6 14.8 14.8 0.0
GCC links
Oil importers w/ 7.2 13.2 6.7 7.1 20.4 3.0 6.8 2.8 3.0 0.1 4.1 6.4 4.0 4.1 20.3
EU links
Maghreb 5.5 8.3 5.5 7.5 0.0 3.9 4.4 3.9 5.3 0.0 1.6 4.0 1.6 2.2 0.0
Algeria 1.8 1.8 1.8 4.2 0.0 0.1 1.7 0.1 0.2 0.0 1.7 0.0 1.7 4.0 0.0
Egypt, Arab Rep. 6.6 14.0 6.0 6.6 20.6 1.5 7.2 1.1 1.5 0.1 5.1 6.8 4.9 5.0 20.5
Jordan 15.0 41.1 15.0 15.0 0.0 0.1 2.8 0.1 0.1 0.0 14.9 38.3 14.9 14.9 0.0
Lebanon 6.0 92.0 3.7 6.0 0.0 2.1 57.1 0.6 2.1 0.0 3.9 35.0 3.1 3.9 0.0
Morocco 10.1 26.8 10.0 10.1 0.0 8.2 7.7 8.2 8.2 0.0 2.0 19.1 1.8 2.0 0.0
Oman 7.2 31.7 7.1 33.4 3.3 3.9 26.2 3.8 7.6 3.3 3.3 5.6 3.3 25.8 0.0
Saudi Arabia 4.8 33.3 4.7 24.6 2.6 1.9 12.3 1.9 2.8 1.8 2.8 21.0 2.8 21.7 0.8
Tunisia 5.1 3.5 5.2 5.1 0.0 4.7 3.5 4.9 4.7 0.0 0.3 0.0 0.4 0.3 0.0
Source: Staff estimates using tariff data for 2008 and latest official NTB data.
Statistical Annex

103
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Table A3: Trade restrictiveness in India, 2008 (in percent)
Overall trade restrictiveness Tariffs Ad-valorem equivalents (AVEs) of NTBs
Exporting
country All Agriculture Manufactures Nonoil Oil All Agriculture Manufactures Nonoil Oil All Agriculture Manufactures Nonoil Oil
EAS excl China 20.9 83.8 13.7 22.6 6.0 9.9 31.2 7.5 10.4 6.0 11.0 52.6 6.2 12.2 0.0
SAS excl India 15.6 17.4 15.0 15.8 2.4 5.9 9.9 4.7 6.0 2.4 9.7 7.4 10.4 9.8 0.0
LAC 10.4 36.8 6.6 14.0 5.0 8.5 30.5 5.5 10.9 5.0 1.8 6.3 1.2 3.0 0.0
SSA 9.2 41.6 6.9 13.9 5.0 8.1 37.8 6.0 11.6 5.0 1.1 3.7 0.9 2.3 0.0
ECA 15.5 32.5 14.8 16.8 5.3 8.1 32.2 7.1 8.4 5.3 7.4 0.3 7.7 8.3 0.0
HICs 16.5 26.2 16.4 16.8 9.3 8.1 20.6 7.9 8.1 9.3 8.4 5.6 8.4 8.7 0.0
China 14.5 50.9 14.3 14.6 9.2 9.0 42.4 8.8 9.0 9.2 5.5 8.5 5.5 5.5 0.0
MENA 9.8 25.4 9.8 16.6 5.8 6.3 22.2 6.3 7.1 5.8 3.5 3.2 3.5 9.5 0.0
GCC oil exporters 9.1 33.5 9.1 17.9 5.5 6.0 29.7 6.0 7.3 5.5 3.1 3.7 3.1 10.7 0.0
Other oil 16.6 0.0 16.6 6.5 9.1 8.6 0.0 8.6 6.5 9.1 8.0 0.0 8.0 0.0 0.0
exporters
Oil importers 11.0 22.0 11.0 12.4 6.9 6.8 19.0 6.8 6.8 6.9 4.2 3.0 4.2 5.7 0.0
Oil importers w/ 11.6 55.4 11.5 12.0 5.0 5.6 28.4 5.6 5.7 5.0 5.9 27.0 5.9 6.3 0.0
GCC links
Oil importers w/ 10.8 20.9 10.8 12.7 7.0 7.3 18.7 7.2 7.4 7.0 3.6 2.2 3.6 5.3 0.0
EU links
Maghreb 10.9 25.1 10.8 11.9 9.1 6.9 22.1 6.9 5.6 9.1 3.9 3.0 3.9 6.3 0.0
Algeria 16.6 0.0 16.6 49.7 9.1 8.6 0.0 8.6 6.5 9.1 8.0 0.0 8.0 43.2 0.0
Egypt, Arab Rep. 13.7 19.4 13.7 21.1 7.0 8.4 17.5 8.3 9.8 7.0 5.4 1.9 5.4 11.3 0.0
Jordan 11.6 28.1 11.6 12.1 5.0 5.6 26.7 5.6 5.7 5.0 6.0 1.4 6.0 6.4 0.0
Lebanon 10.1 56.2 9.2 10.1 0.0 6.4 28.4 6.0 6.4 0.0 3.7 27.8 3.2 3.7 0.0
Morocco 4.9 24.9 4.9 4.9 0.0 4.9 21.8 4.8 4.9 0.0 0.1 3.1 0.1 0.1 0.0
Oman 27.8 30.3 27.8 34.1 6.7 7.9 29.6 7.9 8.3 6.7 19.9 0.8 19.9 25.8 0.0
  Sustaining the Recovery and Looking Beyond – A Regional Economic Developments and Prospects Report

Saudi Arabia 7.2 39.2 7.2 12.5 5.5 5.8 30.0 5.8 6.9 5.5 1.4 9.2 1.4 5.6 0.0
Tunisia 7.6 26.7 7.6 7.6 0.0 6.4 24.4 6.4 6.4 0.0 1.2 2.3 1.2 1.2 0.0
Source: Staff estimates using tariff data for 2008 and latest official NTB data.
Note: The estimates exclude restrictive NTBs imposed by India on natural gas imports from Algeria. These are high and distort the protection rates levied by India on nonoil exports of develop-
ing oil exporters.
 Table A4: Trade restrictiveness in South Asia other than India, 2008 (in percent)
Overall trade restrictiveness Tariffs Ad-valorem equivalents (AVEs) of NTBs
Exporting
country All Agriculture Manufactures Nonoil Oil All Agriculture Manufactures Nonoil Oil All Agriculture Manufactures Nonoil Oil
EAS excl China 24.8 47.6 14.0 24.9 16.5 14.5 16.8 13.4 14.5 16.5 10.3 30.9 0.5 10.4 0.0
India 9.5 12.5 9.0 8.7 14.7 8.8 11.1 8.4 7.8 14.7 0.7 1.4 0.6 0.8 0.0
SAS excl India 10.3 11.7 9.8 10.3 21.7 9.6 11.5 8.8 9.5 21.7 0.8 0.2 1.0 0.8 0.0
LAC 11.8 18.8 4.1 11.8 11.9 4.8 5.5 4.0 4.8 11.9 7.0 13.3 0.1 7.0 0.0
SSA 5.4 12.0 3.6 5.2 13.8 5.0 12.0 3.2 4.9 13.8 0.3 0.0 0.4 0.3 0.0
ECA 9.1 7.7 10.7 9.1 19.2 7.2 7.6 6.7 7.2 19.2 1.9 0.2 4.0 1.9 0.0
HICs 11.7 11.0 11.8 11.7 11.3 10.5 9.6 10.7 10.5 11.3 1.2 1.4 1.2 1.3 0.0
China 11.8 14.5 11.7 11.8 13.4 10.2 11.1 10.2 10.2 13.4 1.5 3.4 1.5 1.5 0.0
MENA 4.5 14.7 4.5 4.9 4.3 4.5 13.0 4.4 4.7 4.3 0.1 1.7 0.1 0.2 0.0
GCC oil exporters 4.3 20.3 4.3 4.4 4.3 4.3 16.9 4.3 4.1 4.3 0.1 3.4 0.1 0.3 0.0
Other oil 4.4 0.0 4.4 4.4 0.0 4.4 0.0 4.4 4.4 0.0 0.0 0.0 0.0 0.0 0.0
exporters
Oil importers 5.4 8.9 5.4 5.4 13.7 5.4 8.9 5.3 5.4 13.7 0.1 0.0 0.1 0.1 0.0
Oil importers w/ 8.6 18.0 8.5 8.6 0.0 8.6 18.0 8.5 8.6 0.0 0.0 0.0 0.0 0.0 0.0
GCC links
Oil importers w/ 5.3 8.7 5.2 5.3 13.7 5.2 8.7 5.2 5.2 13.7 0.1 0.0 0.1 0.1 0.0
EU links
Maghreb 5.0 10.7 5.0 5.0 13.8 5.0 10.7 5.0 5.0 13.8 0.0 0.0 0.0 0.0 0.0
Algeria 4.4 0.0 4.4 4.4 0.0 4.4 0.0 4.4 4.4 0.0 0.0 0.0 0.0 0.0 0.0
Egypt, Arab Rep. 6.3 8.6 6.2 6.3 13.7 6.1 8.6 6.0 6.0 13.7 0.2 0.0 0.2 0.2 0.0
Jordan 2.3 17.9 2.2 2.3 0.0 2.3 17.9 2.2 2.3 0.0 0.0 0.0 0.0 0.0 0.0
Lebanon 13.2 18.7 13.2 13.2 0.0 13.2 18.7 13.2 13.2 0.0 0.0 0.0 0.0 0.0 0.0
Morocco 5.1 13.0 5.1 5.1 0.0 5.1 13.0 5.1 5.1 0.0 0.0 0.0 0.0 0.0 0.0
Oman 3.5 11.3 3.4 3.1 13.8 3.5 11.3 3.4 3.1 13.8 0.0 0.0 0.0 0.0 0.0
Saudi Arabia 4.4 23.7 4.4 4.8 4.3 4.3 19.1 4.3 4.4 4.3 0.1 4.7 0.1 0.4 0.0
Tunisia 2.5 3.3 2.5 2.4 13.8 1.7 3.3 1.7 1.6 13.8 0.7 0.0 0.7 0.7 0.0
Source: Staff estimates using tariff data for 2008 and latest official NTB data.
Statistical Annex

105
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Table A5: Trade restrictiveness in LAC, 2008 (in percent)
Overall trade restrictiveness Tariffs Ad-valorem equivalents (AVEs) of NTBs
Exporting
country All Agriculture Manufactures Nonoil Oil All Agriculture Manufactures Nonoil Oil All Agriculture Manufactures Nonoil Oil
EAS excl China 14.2 20.6 13.7 14.2 3.7 7.9 8.2 7.9 7.9 3.7 6.3 12.4 5.9 6.3 0.0
India 13.6 29.4 13.0 16.8 0.2 8.0 8.0 8.0 9.8 0.2 5.6 21.4 5.1 7.0 0.0
SAS excl India 43.4 30.1 45.7 43.4 0.0 22.4 3.8 25.6 22.4 0.0 21.0 26.3 20.1 21.0 0.0
LAC 11.7 24.7 9.8 12.4 2.3 1.5 3.1 1.3 1.4 2.3 10.2 21.6 8.5 11.0 0.0
SSA 4.7 16.0 3.6 9.9 0.0 2.3 10.3 1.5 4.8 0.0 2.4 5.6 2.1 5.1 0.0
ECA 14.3 45.9 14.2 16.8 1.8 2.5 13.5 2.4 2.6 1.8 11.9 32.4 11.7 14.2 0.0
HICs 15.4 24.6 14.2 17.0 1.3 4.4 4.3 4.4 4.8 1.3 11.0 20.4 9.8 12.3 0.0
China 19.1 33.2 18.9 19.1 4.8 10.1 12.2 10.1 10.1 4.8 9.0 20.9 8.8 9.0 0.0
MENA 7.3 51.8 7.1 11.4 1.0 1.5 18.6 1.4 1.8 1.0 5.8 33.2 5.7 9.6 0.0
GCC oil exporters 2.8 8.3 2.8 5.2 1.5 1.3 7.5 1.3 0.8 1.5 1.5 0.8 1.5 4.3 0.0
Other oil 7.1 6.2 7.1 44.7 0.1 0.1 6.2 0.1 0.1 0.1 7.0 0.0 7.0 44.6 0.0
exporters
Oil importers 10.6 52.6 10.3 10.8 1.8 2.1 18.8 2.0 2.1 1.8 8.5 33.8 8.3 8.7 0.0
Oil importers w/ 17.0 29.3 16.5 17.0 0.0 2.0 13.3 1.6 2.0 0.0 15.0 16.0 15.0 15.0 0.0
GCC links
Oil importers w/ 10.4 57.3 10.1 10.6 1.8 2.1 19.9 2.0 2.1 1.8 8.3 37.4 8.1 8.5 0.0
EU links
Maghreb 12.0 79.3 11.8 22.1 0.1 1.9 10.3 1.8 3.3 0.1 10.2 69.0 10.0 18.7 0.0
Algeria 7.1 6.2 7.1 44.7 0.1 0.1 6.2 0.1 0.1 0.1 7.0 0.0 7.0 44.6 0.0
Egypt, Arab Rep. 6.4 40.7 6.2 6.4 2.9 1.2 26.3 1.0 1.1 2.9 5.2 14.3 5.2 5.3 0.0
Jordan 11.9 35.1 11.8 11.9 0.0 1.0 25.4 0.8 1.0 0.0 10.9 9.6 10.9 10.9 0.0
Lebanon 28.6 28.5 28.6 28.6 0.0 4.4 11.6 3.5 4.4 0.0 24.2 16.9 25.1 24.2 0.0
Morocco 16.0 84.5 15.5 16.6 0.2 3.6 10.3 3.6 3.7 0.2 12.4 74.2 11.9 12.8 0.0
  Sustaining the Recovery and Looking Beyond – A Regional Economic Developments and Prospects Report

Oman 21.8 8.9 22.2 21.8 0.0 12.1 8.9 12.2 12.1 0.0 9.7 0.0 10.0 9.7 0.0
Saudi Arabia 2.8 8.2 2.8 5.2 1.5 1.3 7.3 1.3 0.8 1.5 1.5 0.9 1.5 4.3 0.0
Tunisia 27.4 57.8 27.3 27.7 5.9 5.1 11.9 5.1 5.1 5.9 22.3 45.8 22.2 22.6 0.0
Source: Staff estimates using tariff data for 2008 and latest official NTB data.
 Table A6: Trade restrictiveness in SSA, 2008 (in percent)
Overall trade restrictiveness Tariffs Ad-valorem equivalents (AVEs) of NTBs
Exporting
country All Agriculture Manufactures Nonoil Oil All Agriculture Manufactures Nonoil Oil All Agriculture Manufactures Nonoil Oil
EAS excl China 14.0 21.5 10.2 14.2 2.1 8.6 10.5 7.6 8.7 2.0 5.4 11.0 2.6 5.5 0.1
India 14.9 31.8 14.1 16.2 9.3 7.6 15.6 7.2 8.7 2.6 7.4 16.2 6.9 7.5 6.6
SAS excl India 29.8 40.8 28.0 30.8 10.0 18.0 17.8 18.0 18.4 10.0 11.8 23.1 9.9 12.4 0.0
LAC 13.1 21.4 8.5 13.5 3.7 7.9 10.9 6.3 8.2 0.6 5.2 10.5 2.2 5.2 3.2
SSA 9.6 16.5 7.5 10.9 5.7 6.4 13.1 4.3 7.2 3.8 3.2 3.4 3.2 3.6 2.0
ECA 16.7 31.9 15.4 17.7 9.6 8.1 19.1 7.2 8.6 4.8 8.6 12.9 8.2 9.1 4.8
HICs 14.8 20.6 14.2 14.5 21.1 7.7 10.5 7.4 7.9 4.2 7.1 10.1 6.8 6.6 16.9
China 19.0 35.7 18.5 19.0 10.7 11.1 16.0 11.0 11.1 10.4 7.9 19.7 7.5 7.9 0.3
MENA 20.9 69.3 18.0 35.0 5.0 3.1 11.5 2.6 4.0 2.1 17.8 57.9 15.4 31.0 2.9
GCC oil exporters 20.1 108.7 17.0 40.4 4.2 2.5 12.5 2.1 3.0 2.1 17.6 96.2 14.9 37.4 2.2
Other oil 21.9 16.2 23.2 29.0 0.5 5.7 11.6 4.3 7.4 0.5 16.1 4.6 18.9 21.5 0.0
exporters
Oil importers 24.5 34.4 22.9 24.4 25.5 5.8 10.4 5.0 5.9 4.5 18.7 24.0 17.9 18.5 21.0
Oil importers w/ 23.1 29.8 22.6 23.7 6.5 6.5 15.0 5.9 6.5 6.5 16.6 14.8 16.8 17.1 0.0
GCC links
Oil importers w/ 24.9 35.0 22.9 24.6 26.8 5.6 9.9 4.7 5.7 4.3 19.3 25.1 18.2 18.9 22.5
EU links
Maghreb 27.8 40.2 23.2 27.6 28.9 9.1 12.0 8.1 9.9 4.4 18.6 28.2 15.1 17.7 24.5
Algeria 21.9 16.2 23.2 29.0 0.5 5.7 11.6 4.3 7.4 0.5 16.1 4.6 18.9 21.5 0.0
Egypt, Arab Rep. 22.8 22.2 22.8 23.3 18.4 3.5 6.9 3.1 3.5 3.3 19.3 15.3 19.7 19.8 15.1
Jordan 31.0 20.2 31.6 31.0 1.4 4.5 15.0 3.8 4.5 1.4 26.5 5.2 27.8 26.5 0.0
Lebanon 20.2 32.5 19.2 20.8 6.5 7.3 15.0 6.6 7.3 6.5 13.0 17.5 12.6 13.5 0.0
Morocco 30.9 44.4 24.6 27.4 62.2 8.9 11.1 7.9 8.9 8.8 22.0 33.3 16.7 18.4 53.3
Oman 13.1 53.3 11.9 29.2 6.9 2.9 14.7 2.5 7.7 1.0 10.2 38.6 9.4 21.4 5.9
Saudi Arabia 20.2 109.6 17.1 40.5 4.1 2.5 12.5 2.1 2.9 2.1 17.7 97.1 15.0 37.6 2.1
Tunisia 23.3 42.2 19.3 27.1 1.0 13.5 17.9 12.6 15.7 1.0 9.7 24.3 6.7 11.4 0.0
Source: Staff estimates using tariff data for 2008 and latest official NTB data.
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Table A7: Trade restrictiveness in ECA, 2008 (in percent)
Overall trade restrictiveness Tariffs Ad-valorem equivalents (AVEs) of NTBs
Exporting
country All Agriculture Manufactures Nonoil Oil All Agriculture Manufactures Nonoil Oil All Agriculture Manufactures Nonoil Oil
EAS excl China 17.3 23.7 15.4 17.3 4.9 6.9 9.9 6.1 6.9 4.9 10.4 13.8 9.4 10.4 0.0
India 12.8 29.0 10.1 13.1 0.1 5.9 13.4 4.6 6.0 0.1 6.9 15.6 5.5 7.1 0.0
SAS excl India 16.2 50.8 6.5 16.2 0.0 5.9 8.9 5.1 5.9 0.0 10.3 42.0 1.5 10.3 0.0
LAC 29.7 44.7 9.8 29.7 1.6 12.2 18.0 4.4 12.2 1.6 17.6 26.7 5.4 17.6 0.0
SSA 7.0 11.4 5.6 7.0 0.0 2.3 4.3 1.6 2.3 0.0 4.7 7.1 4.0 4.7 0.0
ECA 5.0 19.3 4.1 6.2 0.2 1.3 4.0 1.1 1.5 0.2 3.8 15.3 3.0 4.7 0.0
HICs 17.5 23.2 16.5 17.7 4.0 8.5 16.0 7.2 8.6 4.0 9.0 7.2 9.3 9.1 0.0
China 18.4 30.5 18.1 18.4 4.6 7.2 11.0 7.1 7.2 4.6 11.2 19.4 10.9 11.2 0.0
MENA 2.2 13.4 1.4 2.7 0.1 1.5 8.6 1.0 1.9 0.1 0.7 4.8 0.4 0.8 0.0
GCC oil exporters 1.0 25.3 0.9 3.1 0.1 0.9 23.4 0.8 2.9 0.1 0.1 1.8 0.1 0.3 0.0
Other oil 0.1 3.1 0.1 0.1 0.0 0.0 2.7 0.0 0.0 0.0 0.1 0.4 0.1 0.1 0.0
exporters
Oil importers 7.1 13.6 5.0 7.2 0.1 4.8 8.6 3.5 4.8 0.1 2.3 5.0 1.5 2.3 0.0
Oil importers w/ 4.4 12.1 3.9 4.4 5.0 2.8 9.0 2.4 2.8 5.0 1.6 3.0 1.5 1.6 0.0
GCC links
Oil importers w/ 7.3 13.6 5.1 7.4 0.1 4.9 8.6 3.7 5.0 0.1 2.4 5.0 1.4 2.4 0.0
EU links
Maghreb 1.5 6.6 1.2 1.6 0.0 1.2 5.5 0.9 1.2 0.0 0.4 1.1 0.3 0.4 0.0
Algeria 0.1 3.1 0.1 0.1 0.0 0.0 2.7 0.0 0.0 0.0 0.1 0.4 0.1 0.1 0.0
Egypt, Arab Rep. 7.5 22.0 3.1 7.7 0.1 4.4 12.3 2.0 4.5 0.1 3.1 9.7 1.2 3.2 0.0
Jordan 7.4 21.5 5.9 7.4 5.0 5.0 15.8 3.8 5.0 5.0 2.4 5.7 2.1 2.4 0.0
Lebanon 3.4 5.8 3.3 3.4 5.0 2.0 4.5 1.9 2.0 5.0 1.4 1.3 1.4 1.4 0.0
Morocco 6.7 6.4 6.8 6.7 0.0 5.8 5.5 6.0 5.9 0.0 0.8 0.9 0.7 0.8 0.0
  Sustaining the Recovery and Looking Beyond – A Regional Economic Developments and Prospects Report

Oman 4.5 19.6 4.4 2.5 6.7 4.3 14.5 4.2 2.0 6.7 0.2 5.2 0.2 0.5 0.0
Saudi Arabia 0.9 25.5 0.9 3.2 0.0 0.8 23.8 0.8 2.9 0.0 0.1 1.7 0.1 0.3 0.0
Tunisia 7.9 8.4 7.9 7.9 2.3 4.9 6.1 4.7 4.9 2.3 3.0 2.2 3.2 3.0 0.0
Source: Staff estimates using tariff data for 2008 and latest official NTB data.
 Table A8: Trade restrictiveness in MENA, 2008 (in percent)
Overall trade restrictiveness Tariffs Ad-valorem equivalents (AVEs) of NTBs
Exporting
country All Agriculture Manufactures Nonoil Oil All Agriculture Manufactures Nonoil Oil All Agriculture Manufactures Nonoil Oil
EAS excl China 16.3 30.2 12.4 16.3 5.7 7.3 10.3 6.5 7.3 5.7 8.9 19.8 5.9 9.0 0.0
India 16.6 25.5 13.7 17.4 8.5 7.0 8.7 6.5 6.9 8.5 9.6 16.8 7.2 10.5 0.0
SAS excl India 21.1 24.6 18.2 21.1 0.0 8.7 8.5 8.9 8.7 0.0 12.4 16.1 9.3 12.4 0.0
LAC 43.5 61.0 15.3 43.5 7.0 8.7 10.0 6.7 8.7 5.9 34.8 51.0 8.6 34.8 1.1
SSA 28.4 45.3 22.1 29.1 10.0 6.6 13.6 4.1 6.5 10.0 21.8 31.7 18.1 22.6 0.0
ECA 16.1 21.8 14.5 17.1 7.9 7.4 10.2 6.6 7.3 7.8 8.7 11.6 7.9 9.8 0.1
HICs 16.9 48.2 12.5 17.0 5.0 7.7 19.3 6.1 7.8 4.7 9.1 28.9 6.4 9.3 0.3
China 22.0 39.9 21.5 22.0 22.3 8.9 15.8 8.7 8.9 9.7 13.1 24.1 12.8 13.1 12.6
MENA 13.3 25.7 11.9 18.9 0.4 1.5 3.4 1.2 1.9 0.4 11.8 22.4 10.7 17.0 0.0
GCC oil exporters 7.8 18.9 7.2 16.3 0.2 0.3 0.4 0.3 0.5 0.2 7.5 18.5 6.9 15.8 0.0
Other oil 27.2 117.3 26.6 27.6 5.3 3.4 70.7 2.9 3.3 5.3 23.9 46.6 23.7 24.2 0.0
exporters
Oil importers 18.2 27.9 15.8 18.6 6.9 2.8 4.1 2.4 2.6 6.5 15.4 23.9 13.4 15.9 0.4
Oil importers w/ 12.0 20.2 10.9 12.0 6.7 0.6 0.7 0.5 0.6 1.9 11.4 19.4 10.4 11.4 4.8
GCC links
Oil importers w/ 20.3 29.4 17.7 20.9 6.9 3.5 4.7 3.2 3.4 6.5 16.8 24.7 14.6 17.5 0.4
EU links
Maghreb 25.5 39.1 24.0 26.0 3.7 4.2 9.2 3.7 4.3 3.0 21.2 29.9 20.3 21.7 0.7
Algeria 27.2 117.3 26.6 27.6 5.3 3.4 70.7 2.9 3.3 5.3 23.9 46.6 23.7 24.2 0.0
Egypt, Arab Rep. 19.5 27.2 17.4 20.0 8.1 2.8 4.1 2.5 2.6 8.0 16.7 23.1 14.9 17.4 0.2
Jordan 11.1 16.7 10.7 11.1 0.1 0.3 1.4 0.2 0.3 0.1 10.8 15.3 10.5 10.8 0.0
Lebanon 13.4 22.1 11.3 13.4 15.7 1.0 0.4 1.2 1.0 4.4 12.4 21.7 10.1 12.4 11.4
Morocco 26.3 42.2 18.5 26.8 5.3 7.2 8.4 6.6 7.2 5.3 19.1 33.8 11.9 19.6 0.0
Oman 3.1 2.8 3.3 3.1 0.0 0.5 0.9 0.2 0.5 0.0 2.6 2.0 3.1 2.6 0.0
Saudi Arabia 8.0 26.6 7.3 17.4 0.2 0.3 0.2 0.3 0.5 0.2 7.7 26.4 6.9 16.9 0.0
Tunisia 20.5 28.0 18.9 21.5 2.0 4.6 4.1 4.7 4.8 0.6 16.0 23.8 14.2 16.7 1.5
Source: Staff estimates using tariff data for 2008 and latest official NTB data.
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Table A9: Trade restrictiveness in GCC oil exporters, 2008 (in percent)
Overall trade restrictiveness Tariffs Ad-valorem equivalents (AVEs) of NTBs
Exporting
country All Agriculture Manufactures Nonoil Oil All Agriculture Manufactures Nonoil Oil All Agriculture Manufactures Nonoil Oil
EAS excl China 5.8 19.6 3.7 5.8 5.0 3.9 6.0 3.5 3.9 5.0 2.0 13.6 0.2 2.0 0.0
India 8.0 21.5 5.0 8.1 5.0 5.9 11.4 4.7 5.9 5.0 2.1 10.0 0.3 2.1 0.0
SAS excl India 5.3 5.6 5.0 5.3 0.0 3.3 2.0 4.2 3.3 0.0 2.0 3.5 0.8 2.0 0.0
LAC 6.2 8.1 4.5 6.2 5.0 3.8 3.0 4.4 3.8 5.0 2.4 5.0 0.1 2.4 0.0
SSA 8.2 18.1 4.8 8.2 5.0 6.7 13.5 4.4 6.7 5.0 1.5 4.6 0.4 1.5 0.0
ECA 4.2 1.6 5.1 4.2 5.0 4.0 1.1 5.0 4.0 5.0 0.2 0.5 0.1 0.2 0.0
HICs 7.1 37.9 4.9 7.2 5.0 6.2 33.0 4.2 6.2 5.0 1.0 4.9 0.7 1.0 0.0
China 4.5 17.5 4.3 4.5 5.0 3.9 3.5 3.9 3.9 5.0 0.6 14.0 0.4 0.6 0.0
MENA 4.5 12.7 2.4 4.5 0.0 0.0 0.0 0.0 0.0 0.0 4.5 12.7 2.3 4.5 0.0
GCC oil exporters 4.9 18.3 0.1 5.0 0.0 0.0 0.0 0.0 0.0 0.0 4.9 18.3 0.1 5.0 0.0
Other oil 5.4 0.0 5.5 5.4 0.0 4.3 0.0 4.3 4.3 0.0 1.1 0.0 1.1 1.1 0.0
exporters
Oil importers 4.3 9.7 3.1 4.3 0.0 0.0 0.0 0.0 0.0 0.0 4.3 9.7 3.1 4.3 0.0
Oil importers w/ 7.2 8.8 7.1 7.2 0.0 0.0 0.0 0.0 0.0 0.0 7.2 8.8 7.1 7.2 0.0
GCC links
Oil importers w/ 3.0 9.8 1.0 3.0 0.0 0.0 0.0 0.0 0.0 0.0 3.0 9.8 1.0 3.0 0.0
EU links
Maghreb 0.8 2.4 0.4 0.8 0.0 0.2 0.0 0.3 0.2 0.0 0.5 2.4 0.1 0.5 0.0
Algeria 5.4 0.0 5.5 5.4 0.0 4.3 0.0 4.3 4.3 0.0 1.1 0.0 1.1 1.1 0.0
Egypt, Arab Rep. 3.4 10.8 1.1 3.4 0.0 0.0 0.0 0.0 0.0 0.0 3.4 10.8 1.1 3.4 0.0
Jordan 10.2 9.1 10.3 10.2 0.0 0.0 0.0 0.0 0.0 0.0 10.2 9.1 10.3 10.2 0.0
Lebanon 2.0 8.5 0.8 2.0 0.0 0.0 0.0 0.0 0.0 0.0 2.0 8.5 0.8 2.0 0.0
Morocco 0.6 2.5 0.1 0.6 0.0 0.0 0.0 0.0 0.0 0.0 0.6 2.5 0.1 0.6 0.0
  Sustaining the Recovery and Looking Beyond – A Regional Economic Developments and Prospects Report

Oman 0.1 0.1 0.2 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.1 0.2 0.1 0.0
Saudi Arabia 7.3 55.9 0.1 7.6 0.0 0.0 0.0 0.0 0.0 0.0 7.3 55.9 0.1 7.6 0.0
Tunisia 0.3 1.8 0.1 0.3 0.0 0.0 0.0 0.0 0.0 0.0 0.3 1.8 0.1 0.3 0.0
Source: Staff estimates using tariff data for 2008 and latest official NTB data.
 Table A10: Trade restrictiveness in developing oil exporters, 2008 (in percent)
Overall trade restrictiveness Tariffs Ad-valorem equivalents (AVEs) of NTBs
Exporting
country All Agriculture Manufactures Nonoil Oil All Agriculture Manufactures Nonoil Oil All Agriculture Manufactures Nonoil Oil
EAS excl China 45.5 68.7 37.4 45.5 80.3 13.5 18.5 11.8 13.5 22.3 31.9 50.2 25.7 31.9 57.9
India 36.0 46.3 34.1 36.0 80.3 12.8 17.5 11.9 12.8 22.3 23.2 28.8 22.1 23.2 57.9
SAS excl India 49.3 36.9 49.9 49.3 0.0 14.5 24.1 14.1 14.5 0.0 34.8 12.8 35.8 34.8 0.0
LAC 62.5 72.7 22.1 62.5 80.3 8.2 8.1 8.7 8.2 22.3 54.3 64.7 13.4 54.3 57.9
SSA 40.6 42.2 35.5 40.6 80.3 22.1 26.2 9.1 22.1 22.3 18.5 16.0 26.3 18.5 57.9
ECA 35.7 57.8 22.9 35.6 80.3 16.7 25.8 11.5 16.7 22.3 18.9 32.1 11.3 18.9 57.9
HICs 35.5 51.9 31.7 35.5 80.3 9.7 6.9 10.4 9.7 22.3 25.8 44.9 21.3 25.8 57.9
China 42.0 64.1 41.4 42.0 80.3 14.9 22.6 14.7 14.9 22.3 27.1 41.5 26.7 27.1 57.9
MENA 39.6 94.2 36.0 39.5 80.3 11.5 22.0 10.8 11.5 22.3 28.0 72.3 25.1 28.0 57.9
GCC oil exporters 36.6 123.9 35.1 36.4 80.3 7.7 28.8 7.3 7.6 22.3 28.9 95.1 27.7 28.7 57.9
Other oil 40.0 93.2 36.1 39.9 80.3 12.1 21.7 11.4 12.1 22.3 27.9 71.5 24.7 27.9 57.9
exporters
Oil importers 14.8 12.2 15.0 14.8 80.3 3.4 8.3 3.1 3.4 22.3 11.3 3.8 11.9 11.3 57.9
Oil importers w/ 44.4 107.4 39.8 44.3 80.3 13.6 24.1 12.8 13.6 22.3 30.8 83.3 27.0 30.8 57.9
GCC links
Oil importers w/ 42.7 117.3 36.8 42.6 80.3 12.3 26.5 11.2 12.3 22.3 30.3 90.8 25.6 30.3 57.9
EU links
Egypt, Arab Rep. 46.8 91.7 43.8 46.7 80.3 15.3 20.2 15.0 15.3 22.3 31.5 71.5 28.8 31.4 57.9
Jordan 6.3 5.9 6.3 6.3 0.0 0.5 4.8 0.2 0.5 0.0 5.7 1.1 6.1 5.7 0.0
Lebanon 41.1 46.6 40.8 41.0 80.3 12.4 27.8 11.7 12.4 22.3 28.6 18.8 29.1 28.6 57.9
Morocco 48.9 105.1 44.4 48.9 0.0 13.5 28.5 12.3 13.5 0.0 35.4 76.6 32.1 35.4 0.0
Oman 74.9 145.7 32.2 74.9 0.0 20.3 30.0 14.4 20.3 0.0 54.7 115.7 17.8 54.7 0.0
Saudi Arabia 36.0 113.9 35.1 35.8 80.3 7.5 28.3 7.3 7.5 22.3 28.5 85.7 27.8 28.4 57.9
Tunisia 40.4 121.7 34.1 40.3 80.3 11.9 25.8 10.8 11.9 22.3 28.5 95.9 23.3 28.4 57.9
Saudi Arabia 8.0 26.6 7.3 17.4 0.2 0.3 0.2 0.3 0.5 0.2 7.7 26.4 6.9 16.9 0.0
Tunisia 20.5 28.0 18.9 21.5 2.0 4.6 4.1 4.7 4.8 0.6 16.0 23.8 14.2 16.7 1.5
Source: Staff estimates using tariff data for 2008 and latest official NTB data.
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Table A11: Trade restrictiveness in oil importers, 2008 (in percent)
Overall trade restrictiveness Tariffs Ad-valorem equivalents (AVEs) of NTBs
Exporting
country All Agriculture Manufactures Nonoil Oil All Agriculture Manufactures Nonoil Oil All Agriculture Manufactures Nonoil Oil
EAS excl China 30.0 33.5 28.1 30.0 14.0 12.3 12.4 12.2 12.3 14.0 17.7 21.1 15.9 17.7 0.0
India 24.6 27.0 23.5 27.5 9.3 7.8 6.6 8.3 7.5 9.3 16.9 20.4 15.1 20.0 0.0
SAS excl India 35.1 41.4 29.0 35.1 0.0 13.7 14.2 13.2 13.7 0.0 21.4 27.3 15.7 21.4 0.0
LAC 59.3 78.3 23.6 59.3 28.0 11.7 13.4 8.4 11.7 28.0 47.6 64.8 15.3 47.6 0.0
SSA 44.3 72.1 36.0 46.9 10.0 4.8 9.0 3.6 4.4 10.0 39.4 63.0 32.4 42.5 0.0
ECA 17.8 20.0 17.4 20.2 7.8 7.1 9.8 6.6 6.9 7.8 10.7 10.3 10.8 13.3 0.0
HICs 30.7 53.7 24.7 31.9 4.5 10.2 13.4 9.3 10.4 4.5 20.6 40.3 15.4 21.5 0.0
China 34.6 45.5 34.3 34.6 14.9 12.4 20.1 12.2 12.4 14.9 22.2 25.5 22.1 22.2 0.0
MENA 13.8 30.9 12.4 22.5 0.4 1.2 4.7 0.9 1.7 0.4 12.6 26.2 11.5 20.9 0.0
GCC oil exporters 7.8 18.7 7.4 18.4 0.2 0.3 0.6 0.3 0.4 0.2 7.5 18.2 7.2 18.0 0.0
Other oil 27.4 117.8 26.7 27.7 5.3 3.4 71.0 2.9 3.3 5.3 24.0 46.8 23.9 24.4 0.0
exporters
Oil importers 23.8 34.6 20.5 24.9 6.7 2.6 5.3 1.8 2.4 6.7 21.1 29.3 18.6 22.5 0.0
Oil importers w/ 16.9 29.6 14.7 16.9 0.1 0.7 0.8 0.7 0.7 0.1 16.2 28.8 14.0 16.2 0.0
GCC links
Oil importers w/ 25.8 35.4 22.4 27.4 6.7 3.2 6.1 2.2 2.9 6.7 22.6 29.4 20.2 24.5 0.0
EU links
Maghreb 25.3 36.7 24.1 26.0 2.8 3.4 8.9 2.8 3.4 2.8 21.9 27.8 21.3 22.6 0.0
Algeria 27.4 117.8 26.7 27.7 5.3 3.4 71.0 2.9 3.3 5.3 24.0 46.8 23.9 24.4 0.0
Egypt, Arab Rep. 28.0 37.2 25.2 29.6 8.4 3.1 6.5 2.1 2.7 8.4 24.8 30.6 23.1 26.9 0.0
Jordan 13.3 30.4 12.1 13.3 0.1 0.6 2.4 0.5 0.6 0.1 12.7 28.0 11.6 12.7 0.0
Lebanon 21.5 29.3 18.8 21.5 0.0 0.9 0.3 1.2 0.9 0.0 20.6 29.1 17.6 20.6 0.0
Morocco 35.0 51.6 16.6 36.8 5.3 9.6 9.9 9.3 9.9 5.3 25.4 41.8 7.2 26.9 0.0
  Sustaining the Recovery and Looking Beyond – A Regional Economic Developments and Prospects Report

Oman 17.9 29.6 13.9 18.7 0.0 2.9 10.0 0.4 3.0 0.0 15.0 19.6 13.4 15.7 0.0
Saudi Arabia 7.7 18.2 7.4 18.4 0.2 0.3 0.1 0.3 0.4 0.2 7.5 18.1 7.1 18.0 0.0
Tunisia 9.8 11.4 9.2 10.8 0.0 0.1 0.2 0.1 0.1 0.0 9.7 11.3 9.2 10.7 0.0
Source: Staff estimates using tariff data for 2008 and latest official NTB data.
 Table A12: Trade restrictiveness in oil importers with GCC links, 2008 (in percent)
Overall trade restrictiveness Tariffs Ad-valorem equivalents (AVEs) of NTBs
Exporting
country All Agriculture Manufactures Nonoil Oil All Agriculture Manufactures Nonoil Oil All Agriculture Manufactures Nonoil Oil
EAS excl China 22.8 26.6 21.2 22.8 5.4 8.4 10.2 7.6 8.4 5.4 14.4 16.4 13.6 14.4 0.0
India 17.7 23.5 14.7 17.4 21.6 6.5 7.9 5.9 5.4 21.6 11.1 15.6 8.9 12.0 0.0
SAS excl India 26.0 21.8 31.8 26.0 0.0 13.9 15.6 11.5 13.9 0.0 12.1 6.1 20.3 12.1 0.0
LAC 42.9 50.6 23.7 42.9 3.4 8.7 9.9 5.9 8.7 3.4 34.2 40.8 17.8 34.2 0.0
SSA 23.3 46.9 4.3 23.3 0.0 5.4 10.1 1.5 5.4 0.0 18.0 36.8 2.8 18.0 0.0
ECA 10.8 10.0 11.1 11.8 7.0 5.3 3.3 5.9 4.8 7.0 5.5 6.7 5.2 7.0 0.0
HICs 17.3 51.4 13.7 19.9 4.5 5.5 6.5 5.4 5.7 4.5 11.8 44.9 8.2 14.1 0.0
China 25.7 51.7 24.7 25.7 12.5 8.4 11.2 8.3 8.4 12.5 17.3 40.5 16.4 17.3 0.0
MENA 12.3 26.3 10.3 23.5 0.0 0.0 0.0 0.0 0.0 0.0 12.3 26.3 10.3 23.5 0.0
GCC oil exporters 4.6 18.8 3.6 13.4 0.0 0.0 0.0 0.0 0.0 0.0 4.6 18.8 3.6 13.4 0.0
Other oil 4.6 102.6 4.5 4.6 0.0 1.4 15.7 1.4 1.4 0.0 3.2 86.9 3.2 3.2 0.0
exporters
Oil importers 31.7 30.6 32.1 32.5 0.0 0.0 0.0 0.0 0.0 0.0 31.7 30.6 32.1 32.5 0.0
Oil importers w/ 13.2 14.4 12.8 13.2 0.0 0.0 0.0 0.0 0.0 0.0 13.2 14.4 12.8 13.2 0.0
GCC links
Oil importers w/ 35.0 33.4 35.6 36.1 0.0 0.0 0.0 0.0 0.0 0.0 35.0 33.4 35.6 36.1 0.0
EU links
Maghreb 24.4 45.7 7.8 32.7 0.0 0.1 0.0 0.1 0.1 0.0 24.3 45.7 7.7 32.6 0.0
Algeria 4.6 102.6 4.5 4.6 0.0 1.4 15.7 1.4 1.4 0.0 3.2 86.9 3.2 3.2 0.0
Egypt, Arab Rep. 36.1 30.8 37.9 36.2 0.0 0.0 0.0 0.0 0.0 0.0 36.1 30.8 37.9 36.2 0.0
Jordan 9.4 33.4 4.3 9.4 0.0 0.0 0.0 0.0 0.0 0.0 9.4 33.4 4.3 9.4 0.0
Lebanon 16.4 6.3 21.4 16.4 0.0 0.0 0.0 0.0 0.0 0.0 16.4 6.3 21.4 16.4 0.0
Morocco 42.7 48.7 17.0 42.7 0.0 0.0 0.0 0.0 0.0 0.0 42.7 48.7 17.0 42.7 0.0
Oman 15.1 12.3 16.4 16.7 0.0 0.0 0.0 0.0 0.0 0.0 15.1 12.3 16.4 16.7 0.0
Saudi Arabia 4.5 19.0 3.5 13.3 0.0 0.0 0.0 0.0 0.0 0.0 4.5 19.0 3.5 13.3 0.0
Tunisia 7.3 18.5 6.2 16.3 0.0 0.0 0.0 0.0 0.0 0.0 7.3 18.5 6.2 16.3 0.0
Source: Staff estimates using tariff data for 2008 and latest official NTB data.
Statistical Annex

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Table A13: Trade restrictiveness in oil importers with EU links, 2008 (in percent)
Overall trade restrictiveness Tariffs Ad-valorem equivalents (AVEs) of NTBs
Exporting
country All Agriculture Manufactures Nonoil Oil All Agriculture Manufactures Nonoil Oil All Agriculture Manufactures Nonoil Oil
EAS excl China 32.3 35.3 30.6 32.3 27.9 13.6 13.0 13.9 13.6 27.9 18.7 22.3 16.7 18.7 0.0
India 26.4 27.9 25.7 30.4 8.1 8.1 6.3 9.0 8.1 8.1 18.3 21.6 16.7 22.3 0.0
SAS excl India 46.1 77.7 26.6 46.1 0.0 13.4 11.5 14.6 13.4 0.0 32.7 66.2 12.0 32.7 0.0
LAC 62.2 83.6 23.6 62.2 32.9 12.2 14.1 8.7 12.2 32.9 50.0 69.4 14.9 50.0 0.0
SSA 46.2 76.9 38.0 49.2 10.0 4.8 8.8 3.7 4.3 10.0 41.4 68.1 34.2 44.9 0.0
ECA 19.5 23.7 18.8 22.2 8.0 7.5 12.1 6.7 7.4 8.0 12.0 11.6 12.1 14.8 0.0
HICs 35.3 54.0 29.2 35.4 4.6 11.7 14.3 10.9 11.7 4.6 23.6 39.7 18.3 23.6 0.0
China 37.5 43.0 37.3 37.5 26.1 13.7 23.7 13.4 13.7 26.1 23.8 19.3 24.0 23.8 0.0
MENA 14.7 37.8 13.5 22.1 0.7 1.9 11.8 1.4 2.5 0.7 12.8 26.0 12.2 19.6 0.0
GCC oil exporters 9.9 18.6 9.8 20.8 0.3 0.5 2.3 0.4 0.6 0.3 9.5 16.3 9.4 20.2 0.0
Other oil 27.5 117.8 26.8 27.8 5.3 3.4 71.0 2.9 3.3 5.3 24.1 46.8 23.9 24.5 0.0
exporters
Oil importers 16.8 39.5 11.3 17.7 8.5 5.0 11.9 3.3 4.6 8.5 11.9 27.6 8.0 13.0 0.0
Oil importers w/ 18.7 48.8 15.4 18.7 5.3 1.1 1.7 1.0 1.1 5.3 17.6 47.1 14.4 17.6 0.0
GCC links
Oil importers w/ 16.1 38.0 9.3 17.2 8.5 6.5 13.6 4.4 6.3 8.5 9.6 24.4 5.0 11.0 0.0
EU links
Maghreb 25.3 33.3 24.7 25.7 5.3 3.6 12.2 2.9 3.5 5.3 21.7 21.1 21.8 22.1 0.0
Algeria 27.5 117.8 26.8 27.8 5.3 3.4 71.0 2.9 3.3 5.3 24.1 46.8 23.9 24.5 0.0
Egypt, Arab Rep. 15.9 50.6 8.1 17.5 8.7 7.8 20.4 5.0 7.6 8.7 8.1 30.2 3.1 9.9 0.0
Jordan 14.6 23.5 14.4 14.6 5.3 0.8 8.0 0.6 0.8 5.3 13.8 15.5 13.8 13.8 0.0
Lebanon 24.9 53.7 17.4 24.9 0.0 1.5 0.5 1.8 1.5 0.0 23.3 53.2 15.6 23.3 0.0
Morocco 31.1 54.7 16.5 33.5 5.3 14.5 20.4 10.8 15.3 5.3 16.7 34.3 5.7 18.2 0.0
  Sustaining the Recovery and Looking Beyond – A Regional Economic Developments and Prospects Report

Oman 20.3 52.0 12.0 20.3 0.0 5.4 23.0 0.8 5.4 0.0 14.9 29.0 11.2 14.9 0.0
Saudi Arabia 9.9 15.8 9.8 20.8 0.3 0.4 0.6 0.4 0.6 0.3 9.5 15.3 9.4 20.3 0.0
Tunisia 10.3 11.0 10.0 10.3 0.0 0.1 0.2 0.1 0.1 0.0 10.2 10.8 10.0 10.2 0.0
Source: Staff estimates using tariff data for 2008 and latest official NTB data.
 Table A14: Trade restrictiveness in HICs, 2008 (in percent)
Overall trade restrictiveness Tariffs Ad-valorem equivalents (AVEs) of NTBs
Exporting
country All Agriculture Manufactures Nonoil Oil All Agriculture Manufactures Nonoil Oil All Agriculture Manufactures Nonoil Oil
EAS excl China 9.4 41.3 5.2 10.2 0.6 3.5 19.7 1.4 3.8 0.6 5.9 21.6 3.8 6.4 0.0
India 6.1 16.0 4.9 6.4 1.5 2.2 3.7 2.0 2.3 1.5 3.9 12.3 2.9 4.2 0.0
SAS excl India 17.2 19.7 17.1 17.3 3.6 2.5 2.5 2.5 2.5 3.6 14.8 17.2 14.6 14.8 0.0
LAC 6.3 30.9 2.4 7.3 0.2 1.5 7.8 0.5 1.7 0.2 4.8 23.1 1.9 5.6 0.0
SSA 5.6 39.0 1.6 8.2 0.1 1.4 4.0 1.1 2.0 0.1 4.2 35.0 0.6 6.2 0.0
ECA 4.0 25.9 3.1 6.1 0.3 1.0 8.6 0.7 1.4 0.3 3.0 17.3 2.4 4.7 0.0
HICs 7.1 34.7 4.1 7.6 0.5 2.7 15.1 1.3 2.8 0.5 4.4 19.6 2.8 4.8 0.0
China 7.4 34.0 6.6 7.4 0.8 3.1 18.6 2.6 3.1 0.8 4.3 15.5 4.0 4.3 0.0
MENA 1.9 25.8 1.0 5.2 0.5 0.7 5.0 0.5 1.0 0.5 1.2 20.8 0.5 4.2 0.0
GCC oil exporters 0.7 2.4 0.7 1.6 0.6 0.6 0.9 0.6 0.6 0.6 0.2 1.5 0.1 1.0 0.0
Other oil 0.3 16.8 0.2 0.4 0.2 0.2 1.5 0.2 0.1 0.2 0.1 15.3 0.0 0.3 0.0
exporters
Oil importers 7.2 33.2 3.1 8.2 0.6 1.3 6.3 0.5 1.4 0.6 5.9 26.9 2.5 6.8 0.0
Oil importers w/ 6.3 12.7 5.6 6.3 1.3 1.3 6.8 0.6 1.3 1.3 5.0 5.8 5.0 5.0 0.0
GCC links
Oil importers w/ 7.3 35.4 2.7 8.5 0.6 1.3 6.2 0.5 1.5 0.6 6.0 29.1 2.2 7.1 0.0
EU links
Maghreb 3.2 39.4 0.5 6.7 0.2 0.6 5.8 0.2 1.0 0.2 2.6 33.6 0.3 5.7 0.0
Algeria 0.3 16.8 0.2 0.4 0.2 0.2 1.5 0.2 0.1 0.2 0.1 15.3 0.0 0.3 0.0
Egypt, Arab Rep. 7.0 21.3 5.4 8.9 0.8 1.6 7.1 1.0 1.9 0.8 5.3 14.2 4.4 7.0 0.0
Jordan 10.3 21.5 9.5 10.3 3.3 2.1 16.3 1.0 2.1 3.3 8.2 5.3 8.4 8.2 0.0
Lebanon 1.2 7.2 0.2 1.2 0.0 0.2 1.0 0.0 0.2 0.0 1.0 6.2 0.2 1.0 0.0
Morocco 10.7 36.9 1.2 11.0 0.5 0.8 2.7 0.2 0.9 0.5 9.9 34.2 1.1 10.2 0.0
Oman 1.0 4.7 0.8 1.4 0.7 0.8 1.2 0.8 0.9 0.7 0.2 3.6 0.0 0.5 0.0
Saudi Arabia 0.7 1.6 0.7 1.7 0.6 0.6 0.8 0.6 0.6 0.6 0.2 0.7 0.1 1.1 0.0
Tunisia 4.5 51.1 0.8 5.3 0.2 1.5 17.7 0.2 1.7 0.2 3.0 33.5 0.6 3.6 0.0
Source: Staff estimates using tariff data for 2008 and latest official NTB data.
Note: The estimations exclude quotas on manufactured exports from Algeria, Morocco, Tunisia, Lebanon, Jordan, and Egypt to the EU as these countries have FTAs with EU.
Statistical Annex

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Table A15: Trade restrictiveness in China, 2008 (in percent)
Overall trade restrictiveness Tariffs Ad-valorem equivalents (AVEs) of NTBs
Exporting
country All Agriculture Manufactures Nonoil Oil All Agriculture Manufactures Nonoil Oil All Agriculture Manufactures Nonoil Oil
EAS excl China 10.5 15.2 10.0 10.9 3.0 4.2 9.3 3.6 4.3 3.0 6.3 5.9 6.4 6.6 0.0
India 7.9 22.0 7.5 7.9 5.0 3.3 4.4 3.3 3.3 5.0 4.6 17.6 4.2 4.6 0.0
SAS excl India 8.0 9.6 7.8 8.0 0.0 5.2 9.6 4.8 5.2 0.0 2.8 0.0 3.0 2.8 0.0
LAC 12.0 21.2 9.6 13.2 1.8 2.8 5.0 2.3 3.0 1.8 9.1 16.2 7.3 10.2 0.0
SSA 3.0 5.6 2.9 4.1 0.0 1.4 5.5 1.2 1.9 0.0 1.6 0.1 1.7 2.2 0.0
ECA 8.9 7.6 8.9 12.9 1.7 2.8 7.3 2.6 3.4 1.7 6.1 0.3 6.3 9.5 0.0
HICs 12.7 13.3 12.7 13.2 5.2 7.8 9.0 7.8 8.0 5.2 4.9 4.4 4.9 5.2 0.0
MENA 1.7 12.8 1.7 10.2 0.1 1.0 12.8 1.0 5.7 0.1 0.7 0.0 0.7 4.5 0.0
GCC oil exporters 1.2 11.8 1.2 8.4 0.1 0.7 11.8 0.7 4.8 0.1 0.5 0.1 0.5 3.6 0.0
Other oil 6.8 14.0 6.8 0.5 0.0 0.0 14.0 0.0 0.5 0.0 6.8 0.0 6.8 0.0 0.0
exporters
Oil importers 15.0 13.0 15.0 15.6 5.6 10.2 13.0 10.1 10.4 5.6 4.9 0.0 4.9 5.1 0.0
Oil importers w/ 2.7 5.4 2.7 2.7 0.0 2.6 5.4 2.6 2.6 0.0 0.1 0.0 0.1 0.1 0.0
GCC links
Oil importers w/ 16.6 13.8 16.6 17.3 5.6 11.1 13.8 11.1 11.5 5.6 5.5 0.0 5.6 5.8 0.0
EU links
Maghreb 11.1 13.0 11.1 23.7 0.0 7.2 13.0 7.1 15.2 0.0 4.0 0.0 4.0 8.4 0.0
Algeria 6.8 14.0 6.8 0.5 0.0 0.0 14.0 0.0 0.5 0.0 6.8 0.0 6.8 0.0 0.0
Egypt, Arab Rep. 16.4 18.7 16.4 18.1 5.6 5.4 18.7 5.3 5.4 5.6 11.0 0.0 11.1 12.7 0.0
Jordan 2.8 5.3 2.8 2.8 0.0 2.8 5.3 2.8 2.8 0.0 0.0 0.0 0.0 0.0 0.0
Lebanon 1.6 13.6 1.6 1.6 0.0 1.1 13.6 1.1 1.1 0.0 0.5 0.0 0.5 0.5 0.0
Morocco 15.1 21.1 15.0 15.1 0.0 15.0 21.1 14.9 15.0 0.0 0.1 0.0 0.1 0.1 0.0
Oman 0.1 11.8 0.1 2.9 0.0 0.1 11.6 0.1 2.3 0.0 0.0 0.1 0.0 0.6 0.0
  Sustaining the Recovery and Looking Beyond – A Regional Economic Developments and Prospects Report

Saudi Arabia 1.7 12.1 1.7 9.0 0.1 1.0 12.1 1.0 5.0 0.1 0.7 0.0 0.7 3.9 0.0
Tunisia 20.3 5.4 21.1 20.3 0.0 19.5 5.4 20.2 19.5 0.0 0.8 0.0 0.9 0.8 0.0
Tunisia 10.3 11.0 10.0 10.3 0.0 0.1 0.2 0.1 0.1 0.0 10.2 10.8 10.0 10.2 0.0
Source: Staff estimates using tariff data for 2008 and latest official NTB data.
Note: The estimates exclude restrictive NTBs imposed by China on natural gas imports from Algeria. These are extremely high and distort the average protection rates faced by developing oil
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 Middle East and North Africa Region

Sustaining the Recovery and Looking Beyond

Middle East and North Africa Region
Economic Developments & Prospects, January 2011

Sustaining the Recovery and Looking Beyond Economic Developments & Prospects, January 2011

Sustaining the Recovery

and Looking Beyond

ISBN 978-0-8213-9889-0

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