The Mediterranean - NASS · A multi-faceted region. The Mediterranean Basin is a region where three...
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Economic Outlookno.1198 August 2013
Special Reportwww.eulerhermes.com
The Mediterranean: Turning the tide
Economic Research
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Economic Outlook no. 1198 | August 2013 | Special Report Euler Hermes
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Contents
The Economic outlook is a monthlypublication by the Economic ResearchDepartment of Euler Hermes. This pu-blication is for the clients of Euler Hermesand available on subscription for otherbusinesses and organisations. Reproduc-tion is authorised, so long as mention ofsource is made. Contact the EconomicResearch Department Publication director and Chief Eco-nomist: Ludovic Subran Macroeconomic and Country Risk Re-search: Silvia Pepino (Head), AndrewAtkinson, Ana Boata, Mahamoud Islam,Emma Ménascé, Dan North, ManfredStamer (Country Economists), NicolasBargas, Rémy Carasse and ClémentineCazalets (Research Assistants) with the participation of Andrea Pi-gnagnoliSector and insolvency Research:Maxime Lemerle (Head), Bruno Goutard,Yann Lacroix, Marc Livinec, Didier Moizo(Sector Advisors) Editor : Martine Benhadj Graphic design : Claire Mabille Support : Laetitia Giordanella and NicolasBargas For further information, contact theEconomic Research Department of EulerHermes at 1, place des Saisons 92048Paris La Défense Cedex – Tel.: +33 (0) 184 11 41 15 – e-mail: [email protected] > Euler Hermes is a limitedcompany with a Directoire and Supervi-sory Board, with a capital of14468072,64 EUR, RCS Paris B 388236853 Photoengraving : Évreux Compo France– Permit août 2013 ; issn 1 162 – 2 881◾ September 16, 2013 ◾
3 EdiToRiAL
4 oVERViEw
8 AT THE CRoSSRoAdS oF SEVERAL CoNTiNENTS, iTS SHoRES ARE CoNTiNuouS buT CoNTRASTiNG
8 1. Mediterranean: growth of +0.4% in 2013, +1.8% in 2014
10 Zoom > How are exports being supported in the region?
13 2. Three sub-regions, three economic landscapes
14 Zoom > Israel, a high-growth country
16 Zoom > North shore of the Mediterranean Basin - Slovenia to Montenegro: what to make of it?
18 NAViGATiNG FRoM oPPoRTuNiTy To oPPoRTuNiTy iN THE MEdiTERRANEAN
18 1. Natural hubs: Morocco, Turkey and GCC in the lead, Southern Europe close behind
20 Focus > Air transport, a reflection of strengths, weaknesses and needs
21 Focus > Construction: public support paramount to meet infrastructure investment needs
26 2. Like in the past, the Mediterranean will be a lifeline for the clever and courageous merchant
28 Focus > Fair winds for the agri-food and automobile industries in the Southern Mediterranean
30 3. The companies will be Mediterranean!
31 Focus > Electricity highways: Medgrid making sparks fly
33 Focus > The chemicals industry in the Mediterranean Basin
36 No SToRM iN SiGHT buT THE TidEiS HiGH
36 1. business growth requires a stable political environment and a favorable business environment
38 Zoom > Social and political risk: the cases of Turkey and Egypt
41 Zoom > Gloomy prospects in Egypt, Libya and Syria
42 2. Headwinds blowing in the Mediterranean
45 3. innovation will be key if the Mediterranean is to realize its potential
48 ECoNoMiC ouTLooK SERiES
49 oTHER AVAiLAbLE PubLiCATioNS
50 SubSidiARiES
Economic ResearchEuler Hermes Group
Economic Outlookno. 1198 Special Report
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Euler Hermes Economic Outlook no. 1198 | August 2013 | Special Report
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The cradle of global tradeLudoViC SubRAN
It was on the shores of the Mediterranean, deep in the valleysof the Nile, the Jordan and the Euphrates, and on the coastsof the Red Sea, the Dead Sea and the Gulf that global tradewas born. At the time, trade took place in luxury items soughtafter by the caliphs and the sultans of the Near and MiddleEast: pepper, cinnamon, camphor, Indian Ocean pearls, salt,ivory, silk and murex, among others. Veritable routes werecreated to get these rare commodities and their names re-main to this day, for instance the Incense Route (linking Egyptwith South Arabia), the Silver Route (linking Spain with Tyrein Syria), the Nile Route, or even the Syrtes Route. At thetime, Alexandria had become a major port for trade with theWest, its brilliant lighthouse protecting seafarers along itscoastline. Egypt was a key participant in this Mediterraneantrade, and built cities and ports in the Arabian Peninsula tohelp protect traders travelling by land routes or on the RedSea. Greece, a major trading and militaristic country, thenmade an invaluable contribution to trade by creating moneyin the 7th century BC. After the glorious expansion of Athenscame that of Rome, founded on the force of its legions. Con-quests provided an opportunity for states to acquire newlands, new industries and new customers. After Rome,Venice, Genoa and Pisa traded with Constantinople, Egyptand the Crusader states. This thriving trade brought thesethree civilizations bordering the Mediterranean into contactwith each other and spurred intercultural and diplomatic re-
lations. The Persian Gulf, which had been strategic since thetimes of the Assyrians and the Babylonians, became evenmore so with land routes linking the ports of the Near Eastwith Mesopotamia. One thousand years later, Portugal con-trolled many ports, in particular in the south of Iran and onthe islands of Qeshm and Hormuz, as well as present-dayQatar and Bahrain. The Safavids of Iran then expelled themand welcomed foreign merchants (British, Dutch, Frenchand others). A more-European-than-ever Mediterranean be-gan to take shape. A few centuries later, in the aftermath ofthe Arab Spring, the eurozone crisis and the uprising inTurkey, what remains of this sea and former source of abun-dance and power? What of these countries that made usdream in history class? Despite the swell (and globalization)forever characterized by geopolitical, cultural and religiousconcerns, the Mediterranean is still home to many unparal-leled treasures.
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oVERViEw
The Mediterranean: Turning the tide
MAHAMoud iSLAM
A multi-facetedregion.
The Mediterranean Basin is aregion where three continentsmeet – Europe, Africa andAsia. It forms a heterogeneousgrouping both in political andeconomic terms andcomprises nearly 30 countries,namely those located on theshores of the Mediterraneanbut also those that haveconnections to it on historicaland economic levels, inparticular the countries of theGulf Cooperation Council(GCC).
Traditionally, analyses concerningthe region divide it into four geogra-phical sub-groups: First, the northern shore, extending from Spainto Turkey; the eastern shore, from Syria to Israel;the southern shore, comprising the countriesof North Africa; and last, the region’s islands,notably Malta and Cyprus. In this publication wepropose a different subdivision based on risksand opportunities in trade.
we identify three major economic groupswithin the one region. The “Mediterranean” encompasses three majorgroups of economies of varying potential. Thefirst, which we call “Old Europe”, mainly includesFrance, Italy, Spain and Greece. Its main featureis being at the centre (1) economically, givenits wealth, (2) logistically, because of its infra-structure, and (3) in terms of skills, thanks to itshighly qualified labor. The second group, the“Abtal” or “(future) champions” in Arabic, refersto the countries of North Africa, where the po-tential for growth is high but capped by a highlevel of political instability. We will highlight theMoroccan economy, the most advanced in ourview in the region’s economic cycle not only be-cause it has shown resilience during the globaleconomic crisis and the political crisis that theregion has experienced, but also because thedeterminants of stable long-run growth are be-ing strengthened there (improving infrastruc-tures and education and innovation drive). Last,
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the third group, the “Asian Gateway”, includes Turkey andthe GCC countries, notably Saudi Arabia and the United ArabEmirates. Strictly speaking, the GCC countries are not part ofthe Mediterranean region (they have no access!), but wewill show in this publication that they constitute the newborders for this historic sea of merchants and trade. Turkey,for example, has great potential to become the interface be-tween Europe and Asia. Outside of these three major andclearly demarcated groups, some of the region’s economieshave great potential but cannot be placed specifically in onecategory. Such is the case of Israel, which has an economywhose structures resemble Old Europe and whose strongperformance is nearer to those of the two other categories.
Prospects that fall short of the rest of the world in theshort term owing to weak demand in the eurozone.In 2013, economic growth will be slightly positive at +0.4%,a slow pace compared with the previous decade (+2% onaverage) and the global average (+2.3%). However, this trendconceals significant disparities, in particular between the eu-rozone and the other countries of the region, which are ex-pected to register much stronger rates of growth (+3.6% onaverage). Growth outside the eurozone will be driven mainlyby the “Asian Gateway” countries (Turkey, Saudi Arabia andUnited Arab Emirates) and by the “Abtal” countries, with
Morocco showing greater resilience. The outlook becomesmore favorable from 2014, when the whole region is ex-pected to return to the growth track on the back of a gradualresolution of the European crisis and the global recovery.While Southern Europe will continue to bear the scars of thecrisis, with moderate growth of +0.5% in 2014 (half its long-run average), growth in the rest of the region will accelerateto +4.1% (+4.5% long-term average). Given this performanceby the countries outside the eurozone, greater regional in-tegration of the latter, in particular through the strengtheningof trade ties, would add further fuel to growth. Against sucha backdrop, credit insurance would have an accompanyingrole in helping to better manage risk.
+0.4%growth in 2013,
a slower pace compared to the lastdecade (+2,2 % in average) and to theworld average (+2,3 %).
1.
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A basin of opportunities. The Mediterranean Basin’s position makes it aregion with strong trade potential. Access to searoutes provides an advantage insofar as it en-courages international trade. Coupled with ad-equate infrastructures for exports (building ofports, logistical improvements) and a drive toimprove economic competitiveness, maritimeaccess can be a lasting asset for growth. An over-all analysis of these determinants of foreigntrade points to solid performances by Saudi Ara-bia, the United Arab Emirates and Turkey in thelong term, and also speaks in favor of a strength-ening of Morocco’s performance provided thatpolitical stability endures, as the realization oflarge-scale infrastructure projects is closelylinked to the business climate. The Southern Eu-ropean countries are expected to benefit fromthe dynamism of their regional peers, as theirposition as logistical hub gives them a pivotalrole in the expansion of regional trade, in par-ticular towards the rest of Europe. The favorableprospects for the region outside the eurozonecan be expected to set in motion ripple effects.Activity is expected to gain in solidity in NorthAfrica and the Middle East, sustained by improv-ing fundamentals especially in the economiesof their respective regional leaders (Morocco,Saudi Arabia, United Arab Emirates and Turkey)both in terms of demand (growing middle class,increasing national wealth) and supply (rising
investment rates and improving human capital).Two sectors will accompany this improvementin prospects: construction, in line with infra-structural development, and transport, pavingthe way for more trade. Sectors linked to con-sumer goods and the automotive sector in par-ticular can then be expected to benefit as a re-sult, thanks to catch-up effects and thebroadening of the middle class. In addition tothese rather satisfactory macro- and microeco-nomic determinants, these countries are alsoreaping gains from improvements in regulatoryframeworks and financing conditions, favoringdynamism in the private sector.
Sources: IHS Global Insight, Euler Hermes forecasts
Risk levels and growth forecasts
One region,several growthrates, severalrisks.
▶
Country risk Growth forecasts
Long termRisk
Short termRisk 2013 2014
France AA 1 0.2 0.6
Italia AA 3 -1.8 0.3
Spain AA 3 -1.4 0.5
Turkey C 3 3.3 4.0
Saudi Arabia bb 1 4.0 4.5
United Arab Emirates bb 1 3.5 4.0
Egypt d 4 2.5 4.0
Greece AA 4 -4.2 -0.3
Israel bb 1 2.7 4.0
Algeria C 3 3.5 4.5
Qatar bb 1 4.5 5.0
Kuwait bb 1 4.0 3.0
Morocco b 2 4.5 4.5
Libya d 4 -5.0 5.0
Oman bb 1 5.0 6.0
Croatia C 4 -0.5 1.0
Syria d 4 -14.0 -10.0
Slovenia AA 3 -3.0 -0.5
Tunisia b 3 3.0 4.0
Lebanon d 4 2.0 3.5
Bahrain b 3 3.5 3.5
Cyprus AA 4 -8.5 -4.5
Albania d 4 1.8 2.5
Malta AA 2 1.0 1.2
Montenegro d 4 0.7 2.0
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in the medium term, the region’s economicprospects are likely to be favorable but toremain fragile. They are upbeat but the risk of slippage remainshigh. In North Africa, the risks are mainly political.Good economic performance requires a stablepolitical environment. Yet the Arab Spring isdragging on for a number of countries, increas-ing the chance of contagion to neighbouringcountries, and the legacy of political crisesthreatens to be long-lasting, in particular inLibya, Syria and Egypt. The cyclical risk linked tothe sluggish demand in the eurozone seems tobe easing, but the high degree of dependenceof the economies – particularly North Africanand Turkish – on the European cycle via foreigntrade, migrants’ remittances and investment,makes their outlook vulnerable. Last, while thenecessary fundamentals for sustainable growthare clearly present, there remains work to bedone in terms of innovation. Trends may havebeen positive in recent years, but the determi-nants (spending on R&D) still remain far behindthe global skills centres (OECD countries). In themedium term, this lag will undoubtedly be anadvantage for the region’s European countries,
as they are ahead in this area. This will lend itselfto the creation of a Mediterranean-wide valuechain, in which all parties would be stakeholders:Southern Europe as a skills and logistics hub,Morocco and Turkey as rising industrial powers,and GCC countries in the middle as a financialhub. ◽
2013,the year of dangerfor some national air carrier, facing serious financialdifficulties and weakened states as shareholders.
◾ Very low production costs in the NorthAfrican countries for local industry to develop.◾ Strong luxury goods industry in Italy(clothing, footwear, cars) and France (textiles, leather goods, beverages).◾ In France, several sectors continue toperform well and remain competitive onthe global stage: aeronautics, pharmaceu-ticals, chemicals and construction.
◾ Economic development in North Africa(launch of highway projects in Algeria).◾ Birth of an automotive industry in Morocco and one in the pipeline in Algeria.◾ The ongoing decline in labor costs inSpain, which is positive for growth in theindustrial sector.◾ Persistently brisk demand for aircraft forFrance’s aeronautics industry.
◾ 2013 will (?) be a year full of dangersfor some national airlines, faced with serious financial difficulties and weakenedgovernment shareholders. ◾ Ongoing decline in automobile production in Italy and France.◾ Changing consumer behaviour (products of private label brands preferredover traditional brands), accelerated byeconomic hardship.
◾ Severe deterioration in construction activity in France, Italy and Spain under theweight of a large stock of unsold housing.◾ Declining consumption and investmentdue to austerity plans in Italy, Spain, Portugal, Greece and France.◾ Pharmaceuticals sector affected by payment delays in several health insuranceregimes in Greece.◾ Overcapacity in steel manufacturing in France and problems for the electronicsand agri-food sectors.
✓OPPORTUNITIES
↑ STRENGTHS WEAKNESSES ↘
THREATS ⚠
Sector Panorama
Source: Euler Hermes
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Economic Outlook no. 1198 | August 2013 | Special Report Euler Hermes
At the crossroads of several continents,its shores are continuousbut contrasting
In this chapter we will see that (1) thedifferent parts of the region areprogressing at different growth rates,in particular between the northernshore and the southern shore, and thisdisparity is likely to remain in the shortterm, (2) an increase in trade flows islikely to benefit the region in particularafter 2014.
Mediterranean: growth of+0.4% in 2013, +1.8% in2014
At the aggregate level, the medium-termgrowth outlook for the Mediterranean regionis weak. This dynamic is nevertheless notrepresentative of the trends in its regionalcomponents. While demand in the eurozonecountries is set to remain moderate, it isexpected to be more buoyant in North Africadespite the persistence of political tensions, inparticular thanks to the resilience of Moroccobut also – and above all – in Turkey and theGulf Cooperation Council countries.
Prospects below global growth, dragged down by Southern Europe.
After slowing to +0.4% in 2012, growth is forecast to stagnateat +0.4% in 2013 before picking up markedly in 2014 (+1.8%).
MAHAMoud iSLAM, ANdREw ATKiNSoN 1.
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These prospects nevertheless remain very weakcompared with global performances, with globalgrowth forecast at +2.3% in 2013 and +3.0% in2014. This stems first and foremost from thevery downbeat environment in the eurozone.In fact, growth in the countries outside the eu-rozone is forecast at +3.0% in 2013, comparedwith -1% for the region’s eurozone countries.Italy, Spain and Greece, which, notably, accountfor 36% of regional GDP, are expected to remainmired in recession in 2013 (-1.8%, -1.4% and -4.2%, respectively), while France (26% of regionalGDP) is expected to post stagnant growth(+0.2%) before picking up slightly in 2014. More-over, the weak prospects are a result of highlyfragile regional economic structures, in partic-ular the North African countries’ dependenceon the eurozone cycle, which is keeping theirgrowth rates below those of the past decade,but they also result from vulnerable politicalstructures in view of the conflict in Syria and theinstability in Egypt and in other parts of NorthAfrica (Tunisia, Algeria). Only the GCCeconomies are expected to continue to post sat-isfactory growth rates, on the back of oil pricesthat remain relatively high.
More regional integration will be a catalystfor growth.
◽ The region as a whole benefits from a highdegree of openness to global trade but per-formances are disparate. At the aggregate level,the region’s degree of openness is higher thanthe global average (56% versus 50% in 2012).However, regional differences remain pro-nounced. On the one hand, the main eurozonecountries are less open to global trade, with adegree of openness below 50%, as theireconomies are based on a growth model drivenmore by domestic demand. On the other hand,the GCC economies are highly open, with de-grees of openness ranging from 70% (Saudi Ara-bia) to 145% (United Arab Emirates), theirgrowth model being driven by commodity ex-ports. North Africa is in an intermediate position.Excluding Egypt, whose economy is not veryopen (30%), the other countries have degreesof openness ranging from 57% (Algeria) to 98%(Libya).
◽ This openness is mainly extra-regional: in-tra-Mediterranean trade is under-developed
(25% of the region’s trade). Intra-regional tradeis weak and has been on a relative downtrend,decreasing from 27% of the region’s trade (ex-ports + imports) in 2000 to 25% in 2012.Mediterranean partners remain less valued thanstrictly European ones. The Southern eurozonecountries in particular maintain close ties withtheir continental European peers thanks to theEuropean Union, and the North African countriesalso export primarily to the eurozone (≈50% ofexports). Asia-Pacific countries play an increas-ing role in Mediterranean trade, with a marketshare that increased by 10pps to 24% between2000 and 2012. This increase is a reflection ofvigorous growth in Asian exports to the region(+11pps), especially from China, in addition toa strengthening of trade ties with the MENAcountries (see chart on page 10).
◽ A shift in intra-regional trade flows towardsnon-eurozone countries would benefit re-gional growth. The potential for demand in theSouthern eurozone countries is weak comparedwith the rest of the region, as a result in partic-ular of population ageing and weaker growthprospects: (i) its population is set to grow but at
Regionalgrowthslowed bySouthernEurope.
-0.4 -0.3 -0.2 -0.1 0.0 0.1 0.2 0.3 0.4 0,5Italy
Spain
Greece
France
Morocco
Other
Egypt
Israel
Kuwait
Algeria
Qatar
United Arab Emirates
Saudi Arabia
Turkey
MED
Regional growth
Contribution toregional growth
GDP growth and regional components in 2013
Sources: IHS Global Insight, Euler Hermes
▶
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a low rate of +0.3% per year from 2012 to 2020,compared with +1.0% for the rest of the region,and is forecast to represent only 32% of the re-gion in 2020 (compared with 34% in 2012); (ii)the growth outlook remains sluggish (+1% onaverage between 2012 and 2020). For the exactopposite reasons (young and growing popula-tion), the potential for demand is high in therest of the region, in particular in North Africa
and the Middle East. Also, a reorientation of ex-port flows towards these centres of demandwould be beneficial in terms of economicgrowth. Such a shift would be all the more ad-vantageous as, in the long term, it would benefitthe development of the regional value chain,making the region a more competitive com-mercial basin at the global level.
0
10
20
30
40
50
60
70
80 MEDAsia-PacificAfrica, Near and Middle EastEuropeAmerica
12111009080706050403020100
MED region trade with other regions% of total trade
Sources: IHS Global Insight, Chelem, Euler Hermes
SpainFrance
ItalyGreece
Turkey
Israel
Morocco
Algeria
Libya
Kuwait
Saudi Arabia
United Arab Emirates
-1%
0%
1%
2%
3%
4%
5%
6%
7%
0% 20% 40% 60% 80% 100% 120% 140%
Aver
age G
DP gr
owth
(20
03-2
012)
Level of openess (2003-2012)
Growth and degree of openness
Sources: IHS Global Insight, Euler Hermes
Credit insurers playa special
accompanyingrole.
How are exportsbeing supported in the region?MAHAMoud iSLAM
There are many ways to finance exports. While short-term bank financing remainsindispensable, accounting for nearly 80% ofinternational trade credit, credit insuranceis just as important in its capacity to assistin the sound management of receivables –in particular internationally, thanks to itsexpertise in terms of country risk andanalysis of threats and opportunities ingeographically distant destination markets.Its use is fairly widespread in developedcountries to limit non-payment risk forexports, especially when the transactions
entered into involve emerging markets. Soit is not surprising to find the region’semerging countries among export creditinsurers’ main regions of exposure.Conversely, this form of financing is notwidely used by emerging economies. Morefrequent use would make it possible tobetter accompany these countries’ exportsby monitoring risks linked to their tradepartners. ◽
FoCuS
+1%on average between2012 et 2020Growth prospects remain weak inSouthern Europe.
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Inter-firm financing
Traditional bank financing
Traditional bank financing
payment and liquidity mechanisms
Payment and liquidity mechanisms
risk management
Risk managementexport guarantee/
insurance
Exportguarantee/insurance
Transaction on openaccount (or client account)with deferred payment
Credit for capitalinvestments
Credit for financing ofworking capital
Financement pré-export
Letter of credit ordocumentary credit
Supplier credit
Buyer credit
Countertrade
Factoring and forfaiting
Advanced paymentguarantee
Performance guarantee
Refund guarantee
Hedging
Export insurance
Export guarantee
Contract established between exporter and importer without third-party involvement. One ofthe two parties (generally the exporter) provides credit to the other by accepting a deferredpayment (usually from 30 to 90 days).
Medium-term financing of production means (e.g. machinery).
Short-term financing to meet day-to-day costs including payments to suppliers, production,transport costs, risk of late payment, currency fluctuations.
Similar to financing of working capital but the bank takes a stake in the good transported andreceives direct payment from the importer. Used for commodities.
A letter of credit is a bank guarantee to pay a specified amount to the supplier of goods orservices upon receipt of documentation confirming that the goods have been shipped or theservices rendered. The aim of these documents is to provide proof that the exporter’sobligations have been fulfilled. The bank then forwards the documents to the buyer in returnfor payment, so that the latter is able to take possession of the goods.
Financing that allows the buyer to defer payment on importing goods or services. It isextended by the seller, whose bank discounts the representative effects of the credit as thegoods are dispatched.
Term financing to provide cash payment to the supplier.
Provides liquidity (in particular access to the foreign exchange market) to facilitate anexchange of equivalent goods (barter, counter purchase, offset).
Factoring is a financial service where invoices or receivables are purchased from an exporterat a discount. The provider of this service then assumes the risk of non-payment.Forfaiting is similar to factoring but applies to sellers of capital goods or commodities withlong credit cycles.
Security (guarantee) provided to the buyer when the seller mobilizes a credit claim. Theamount is generally equivalent and can be reimbursed on demand.
Insurance provided to the buyer, refundable/claimable in the event the seller fails to fulfillobligations (compensation for financing costs, new tender, etc.).
Insurance provided to the buyer when payment must be made during the seller’s productionphase. Claimable in the event of non-delivery of the good.
Insurance (via a financial instrument issued by a bank) to offset market risk, includingcurrency risk, interest rate-risk and commodity-price risk.
Insurance for exporters against all types of risk: non-payment, exchange-rate fluctuations,political risk, etc..Instrument to protect banks that provide trade credit facilities. It facilitates bank financing forsome exporting companies (for example SMEs without a sufficient track record).
Category Product description
Types of export financing instruments
Sources: Tresury DG, Euler Hermes
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intra-Mediterranean trade to the rescue forthe eurozone recession?
Mediterranean countries’ development repre-sents a real opportunity for the Southern Euro-pean countries (especially France, Italy andSpain) thanks to the growing potential for im-ports in these neighbouring countries. Between2000 and 2010, for example, imports in theother Mediterranean countries posted averageannual increases of +25% in Algeria, +22% inthe Gulf countries and +22% in Slovenia. TheSouthern European countries were able to take
advantage of this trend: over the same period,French exports to the other Mediterraneancountries increased on average by +7.3% peryear, Italian exports by +9.6% per year and Span-ish exports by +10.3% per year. Our forecastsshow that the countries that will benefit themost from the development of intra-Mediter-ranean trade are the Gulf countries (USD 44 bil-lion in exports between 2012 and 2014), Turkey(USD 34 billion), Italy (USD 27 billion), France(USD 20 billion) and Spain (USD 18 billion).
+USD 50 billionof exports between 2012 et 2014
for Gulf countries.
▶
Cyprus Spain France Greece Italy Malta Slovenia Albania CroatiaSerbia-Monte-negro
Turkey Algeria Egypt Libya Morocco Tunisia Israel SaoudiArabia
OtherGulf
TotalExports
Cyprus - (1) 14 618 87 3 (7) (0) 1 (0) 46 0 116 0 (0) 14 140 1 2 1,035
Spain 125 - 7,138 290 4,514 14 114 23 78 65 1,599 1,530 414 121 1,876 421 97 373 1,109 19,902
France 88 2,525 - 222 4,222 (3) 99 17 29 118 1,973 1,864 445 142 894 709 91 1,587 2,708 17,730
Greece 533 146 174 - 472 (14) 97 104 26 142 529 353 109 162 6 14 2 66 218 3,139
Italy 222 3,494 7,068 529 - 311 1,175 550 533 518 2,801 1,804 897 297 538 978 230 1,141 3,766 26,851
Malta 13 98 84 7 87 - 1 1 20 (0) 125 1 498 60 75 152 42 22 37 1,321
Slovenia 26 93 423 126 681 2 - 23 382 641 168 124 3 17 6 23 156 31 31 2,957
Albania 0 330 16 29 343 - 4 - 2 203 141 0 1 - - 0 - 0 - 1,069
Croatia 36 71 20 19 509 86 202 46 - 303 159 58 35 16 5 22 1 2 287 1,880
Serbia-Montenegro
(9) 42 116 95 528 3 611 270 439 - 39 7 10 4 1 1 0 9 88 2,253
Turkey 418 2,095 2,469 499 2,209 252 257 103 227 401 - 655 1,397 2,563 511 340 1,366 1,344 1, 225 34,333
Algeria 0 1,218 365 108 6,828 3 17 - 5 - 423 - 666 34 617 673 - 11 14 10,983
Egypt 54 1,235 783 216 711 232 64 7 2 17 617 547 - 609 423 144 176 1,388 1,610 8,835
Libya 0 1,068 2,036 255 1,367 (3) 1 - (1) 569 (60) 7 32 - (3) (7) - (0) 3,386 8,646
Morocco 98 1,507 434 (4) 51 4 13 1 13 5 235 287 74 (4) - 39 1 (3) 118 2,869
Tunisia (0) 181 1,249 1 744 12 17 0 29 6 123 399 37 254 185 - 3 3 15 3,257
Israel 387 250 116 4 81 169 30 87 6 8 293 - 55 0 2 (0) - (1) 45 1,532
Saudi Arabia 0 1,386 130 178 1,679 1 54 2 85 37 649 390 395 - 865 49 32 - - 5,933
Other Gulf 50 2,762 764 423 4,204 (0) 55 2 (13) 8 9,022 376 3,610 56 106 26 13 2,880 19,398 43,739
Total imports
2,042 18,502 23,398 3,618 29,317 1,072 2,802 1,236 1,862 3,041 18,881 8,403 8,794 4,332 6,106 3,598 2,351 8,853 50,056
Additional flows between 2012 and 2014*USD million
Sources: Chelem, Euler Hermes
* Simulation 2012 to 2014taking into account stablemarket share; the numbersbetween brackets arenegative numbers.
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Three sub-regions,three economiclandscapesThe Mediterranean region can bedivided into three zones. First, Sou-thern Europe or the northern shore,mired in the European crisis. Next,the “Abtal” countries, or the econo-mies with great potential located inNorth Africa. While these countriesface political instability at present,their growth potential remainsstrong. Morocco, which has notreally experienced any great politi-cal shock, is a good example of thispotential. Last, the current regionalhigh performers: the GCC countries,in particular Saudi Arabia and theUnited Arab Emirates, and Turkey;together, we call this group the“Asian Gateway”.
REGioN 1: Southern Europe, mired in the eurozone cri-sis.
In the short term, the economic outlook in Sou-thern Europe remains weak due to the sovereigndebt crisis and structural weaknesses inheritedfrom the 2009 crisis (record unemploymentrate, high debt and low corporate profitability).Austerity policies are expected to remain inplace until 2015, domestic demand is forecastto remain fragile given the severe deteriorationin the job market, and it will be a long time be-fore the structural measures start to bear fruitin the region’s major economies. Indeed, inFrance, the government is struggling to imple-ment structural reforms, while the Monti go-vernment in Italy initiated a number of structuralmeasures but the country’s political instabilityis jeopardizing the progress of these reforms.Growth is expected to average +0.9% between
2014 and 2015 in the case of France, and +0.7%for Italy. In Spain, growth is forecast to rebound(+1.0%) more vigorously, driven by a better ex-port performance and helped along by structu-ral measures, in particular in the area of laborcosts. A clear upturn is expected in Greece in2015 (+1%) thanks largely to statistical base ef-fects and a greater contribution by external de-mand to growth.
Recovery posponedto
2014
0.0
0.2
0.4
0.6
0.8
1.0
GreeceSpainUnitedKingdom
ItalyFranceUnited States
Japan
Southern Europe Benchmark
Indicators of the implementation of OECDrecommendations since the start of the crisis
Sources: OECD, Euler Hermes
-8-7-6-5-4-3-2-10123456
GreeceItalyFranceSpain
14131211100908070605
GDP growth in Southern European countries
Sources: IHS Global Insight, Euler Hermes
Nb: 1 = major actions taken,0 = no action taken.
▶
2.
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Economic Outlook no. 1198 | August 2013 | Special Report Euler Hermes
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israel operates as an effectively-functioning democracyand it is classified as a high income country. it is amember of the oECd and shares characteristics withother members of that grouping. The economy isrelatively diverse but the country lacks a significantnatural resource base—although offshore natural gassupplies offer the prospect of a move towards energy-independence. Agriculture and tourism are bothsignificant sectors but the key driver to growth nowcomes from activity in a vibrant high-tech industry andrelated sub-sectors, which attract significant amounts offoreign investment. Expenditure on R&d as % of GdP isthe highest in the world (4%, compared with an oECdaverage of 2.3%).
1> The business environment is pro-market andgenerally supportive of commercial activity and tradingprospects, although the state retains direct interests insome sectors. Overall, the World Bank Ease of DoingBusiness 2013 survey ranks Israel 38 out of 185 countriesassessed. Rule of law is respected and there is consistencyin the protection of property rights.
2> GDP growth was above a recent long-term annualaverage (+3.9% in 2000-08) in both 2010 and 2011, beforefalling back in 2012 (+3.2%), partly reflecting domesticpolicy adjustments and partly the country’s export-dependency and weak performance in some Europeanmarkets.
3> The outlook for growth in the short term reflectsregional and global uncertainties. Early indicators in 2013suggest a dampening/weakening in consumer demand,manufacturing, investment and exports, so overall GDPgrowth is expected to be moderate. However, with the USaccounting for over 25% of exports by value and almost12% of imports, Israel is not as heavily dependent as some
other regionaleconomies ondevelopments inEurope, whereprospects appearmuted. Moreover,EULER HERMESexpects that thenascent natural gassector and a focus ondefence-relatedexpenditure willenable more-rapidGDP growth in 2014,
with +4% expansion now our central forecast. Regionaluncertainties include potential for indirect contagion fromthe Arab Spring and civil war in Syria, unclear messagesfrom the new government in Cairo about Israel-Egyptrelations, perceptions of an unfavorable outlook for peacetalks with Palestinian entities and the ongoing risk ofconflict with Iran. EULER HERMES’s central scenario for2013 does not include a pre-emptive strike against Iraniannuclear establishments. ◽
israel,a high-growth country
ANdREw ATKiNSoN
ZooM
4%of GDPhighest R&D spending in the world.
GdP growthshouldaccelerate in2014, thanks todefensespending.
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REGioN 2: The “Abtal” countries, future champions ofthe Mediterranean basin.
North African economies expanded at a similarannual rate in the period from 2000 to the onsetof the Arab Spring. Countries that underwentrevolutionary activity, including Egypt and Tu-nisia, experienced a sharp downturn in 2011-12, while Morocco, which was relatively unaf-fected directly, continued to record soundgrowth. Moroccan GDP growth was affectednegatively by drought and weak agricultural out-put in 2012, otherwise economic expansionwould have continued at around +4.5%. Growthin countries undergoing significant political tran-sition, again including Egypt and Tunisia, havethe capacity to rebound but this assumes thatpolitical/social stability prevails.
Political risk outlook
Morocco 4 +Algeria 4 -Tunisia 4 -Egypt 6 -Libya 6 -Sudan 6 -North Africamedian 5 -
Political risk in “Abtal”countries
NB: the scale comprises 6 levels; 1 represents the lowest risk, 6 the highest.
Source: Euler Hermes
MoRoCCo
▶ Morocco is the most dynamic economyof the region. Less affected by the financialcrisis, Morocco will remain a key driver ofthe regional growth.
+4.5%in 2013 and 2014,
Moroccan economy should reiterate its pre-crisis performance.
▶
▶
-2
-1
0
1
2
3
4
5
6
7
8EgyptTunisiaAlgeriaMorocco
14131211100908070605
GDP growth in the “Abtal' countries”
Sources: IHS Global Insight, Euler Hermes
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Economic Outlook no. 1198 | August 2013 | Special Report Euler Hermes
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North shore of the Mediterranean basinSlovenia to Montenegro:what to make of it?
SloveniaThe economy has never reallyrecovered from the deep recession in2009 and saw a renewed contractionof GdP by -2.3% in 2012.Further declines by about -3% for 2013 and-0.5% for 2014 are projected. Consequently,insolvency risk is high in the short term.Moreover, the banking sector has become amajor threat to economic stability in thenear future since a growing number ofhighly leveraged companies has beenunable to repay or roll-over credits,resulting in a rapid accumulation ofnonperforming loans and deterioratingcapital adequacy. Meanwhile arecapitalisation of major banks appearsinevitable, the burden of which will largelyfall on the government. However, thegovernment is already struggling withfiscal consolidation and facing risingfunding costs as a result of successivesovereign downgrades, such that Sloveniahas become a candidate for aninternational bailout at some point.However, Eurozone membership providesfor moderate exchange rate and transferrisk.
CroatiaCroatia became the 28th member stateof the Eu in July 2013. However, theeconomic situation looks precarious. Real GDP contracted by -2% in 2012,marking the fourth consecutive yearwithout growth. Domestic demand hasbeen particularly weak and will remain soowing to tight monetary policy―aimed atexchange rate stabilisation―and fiscalconsolidation efforts as public financeshave sharply deteriorated in recent years.Expect 2013 to be another year withoutgrowth. Insolvency risk will remain high inthe next two years or so. The current
account reached balance in 2012, as weakdomestic demand also curbed imports, butthe legacy of earlier large current accountdeficits has left Croatia with a very highexternal debt burden of more than 100% ofGDP.
Bosnia andHerzegovinaThe economy slipped back into recessionin 2012, with real GdP contracting by -1.7% or so, and will recover onlymodestly to about +1% growth in 2013. Payment disruptions are likely in thisenvironment. The economic structure isweak. The small manufacturing base isconcentrated on low-value-added productsand primary commodities account for 41%of exports. External liquidity and debt riskswill remain very high in the medium termowing to ongoing large current accountdeficits and very high external debt. A highvulnerability to external shocks wasrevealed by the 2008-09 global economiccrisis which pushed the economy intorecession and crisis. An IMF financialsupport package was needed and approvedin mid-2009 (a total of EUR1.1bn). Asubsequent IMF facility was granted inSeptember 2012. Bosnia & Herzegovinawill remain highly dependent oninternational transfers in the foreseeablefuture and is still far from attaining self-sustaining growth.
MontenegroReal GdP growth came to a standstill in2012 owing to weak domestic demandand a sharp slowdown of externaldemand from Hungary and the Eurozone,Montenegro's major export markets.
Growth is forecast to pick up only modestlyin 2013-14 and payment disruptions arelikely. Inflation accelerated towards end-2012 but should ease in 2013. The fiscalposition is weak, with large fiscal deficitsand rapidly rising public debt (51% of GDPin 2012). External liquidity risk is very highas the current account will continue to posthuge deficits of around 17% of GDP.External debt accounts for almost 100% ofGDP. On a more positive note, Montenegrohas unilaterally adopted the EUR as solelegal tender which provides for moderateexchange rate and transfer risk.
AlbaniaReal GdP growth slowed to +1.6% in2012, affected by the economicdownturn in italy which is Albania'smajor export market (45% market share)and a key source of remittances fromAlbanian migrants. Growth should gradually gain momentumin 2013-14 but payment disruptionsremain likely. Inflation is moderate but thefiscal position is weak, with public debthaving risen to more than 60% of GDP.External liquidity risk remains high as thecurrent account will continue to post largedeficits of around 10% of GDP. Externaldebt has rapidly increased to a worrisomelevel of 55% of GDP. ◽
ZooM
In July2013,Croatia became the 28th member state of the EU.
MANFREd STAMER
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REGioN 3: The “Asian Gateway” countries, regionaloutperformers.
In the Middle East or West Asia region, an inter-face between Asia and Europe and Africa, thecontrast between GDP growth in oil and non-oil economies is quite marked. The oil producersrecorded higher growth in the period 2011-12and their energy-related earnings provide acushion to support growth in 2013-14 through
increased state expenditure. Non-oil economiesremain more fragile and their societies are morelikely to struggle to meet the challenges stillemerging from the Arab Spring, including man-aging refugee inflows.
0
10
20
30
40
50
60
70
80
90
100
Rest of world
North America
European Union
Asia Pacific
12111009080706050403020100
Trade with major regions Share of foreign trade with regions in total foreign trade
Sources: IHS Global Insight, Euler Hermes
The “Asian Gateways”All these economies should grow at the paceof more than 4% in the medium term.
▶
-6
-4
-2
0
2
4
6
8
10Saudi ArabiaUnited Arab EmiratesTurkey
14131211100908070605
Growth in the main GCC countries and Turkey
Sources: IHS Global Insight, Euler Hermes
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Economic Outlook no. 1198 | August 2013 | Special Report Euler Hermes
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Navigating from opportunity to opportunity in the Mediterranean
The United Arab Emirates, SaudiArabia, Turkey and Morocco seem topresent the greatest opportunities fortrade in the region. They enjoy apropitious environment for foreigntrade thanks to greater integration inglobal transport networks, improvinginfrastructures and satisfactory exportperformances (United Arab Emirates,Turkey) as well as sustained demandfor imports (Saudi Arabia, Morocco).With the exception of Greece, theSouthern European countries – namelyFrance, Italy and Spain – should benefitfrom this economic windfall by playingthe role of interface, notably with theirregion (the European Union) andthanks to better logisticalfundamentals (adequate andimproving infrastructure for trade).
Natural hubs: Morocco,Turkey and GCC in the lead,Southern Europe closebehindIn order to assess the regions' countries withthe greatest trade potential, we will introducethree sets of indicators. First, an indicator ofintegration in global transport networks,including UNCTAD’s Liner Shipping Connecti-vity Index as well as air transport datagathered from the World Bank. Second, anindicator of infrastructure for foreign trade,drawing on the World Bank’s Logistics Perfor-mance Index, and, last, trade performance asmeasured by growth in exports and imports.
ANA boATA, MAHAMoud iSLAM
1.
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0 10 20 30 40 50United Arab Emirates
LebanonGreece
Saudi ArabiaChile
MaltaPeru
MalaysiaOmanTurkey
PortugalDenmark
RussiaSweden
Republic of KoreaSingapore
ChinaVietnam
PolandMorocco
Improvement in the maritime connectivity index between 2007 and 2012Top 20, change in the index
Sources: UNCTAD, Euler Hermes
0 20 40 60 80 100Nethelands
OmanGermany
Saudi ArabiaDenmarkPortugalSweden
United Arab EmiratesUnited Kingdom
RussiaTurkey
VietnamHong Kong
PolandMalaysia
United StatesSingapore
MoroccoRepublic of Korea
China
Euler Hermes Index of integrationin global transport networks Top 20, 100=highest ranked country
Sources: UNCTAD, Euler Hermes
3rd placefor Morocco,
the best ranked economy in terms of integration in globaltransport networks.
▶
The degree of connectedness with global transport net-works is a key factor of trade performance. Overall, the region has good fundamentals thanks to its sea-facing position. Determined by geographical positioning(number of nearby coasts) and the determination of a coun-try’s leaders (construction of ports and airports), high con-nectivity to global networks constitutes a comparative tradeadvantage insofar as it fosters trade. The Mediterranean re-gion contains many natural hubs thanks to its access to searoutes. Furthermore, it is not surprising to find eight of theregion’s leading economies among the 20 highest-rankedeconomies for integration in global maritime transport net-works in 2012. In addition to the region’s developedeconomies, which are already highly integrated in globalmaritime networks, the United Arab Emirates, Saudi Arabia,Egypt, Morocco and Turkey also feature. For the latter groupof countries, with the exception of Egypt, the trend is clearlypositive. Morocco, for example, gained 46 points between2007 and 2012 on the back of major reforms – includingliberalization of services and the development of port infra-structure with international ambitions – and is the best per-former among our sample countries. Turkey is ranked in11th place, with an improvement of 21 points thanks to in-creasingly dynamic port infrastructure and an emphasis ondeveloping its maritime industry. This performance at the maritime level translates into betterintegration in global transport networks. In fact, the inte-gration in global transport networks index that we have de-veloped here, taking into account current performance butalso trends observed in recent years (2007 to 2012) througha range of maritime and air transport indicators, reveals po-tential regional leaders. Morocco, for example, is ranked in3rd place, Turkey in 10th, UAE in 13th and Saudi Arabia in17th.
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Economic Outlook no. 1198 | August 2013 | Special Report Euler Hermes
2020
FoCuS Air transport, a reflection of strengths, weaknesses and needsbRuNo GouTARd
Air transport in theMediterranean region reflectseconomic difficulties linked tothe region’s history but also tothe logistical expansion of fast-growing zones as well as theambitions of influence ofsome actors.
Characterized by the global recession and the ongoingcrisis in the eurozone, French and italian air trafficvolumes (ton-km transported/passengers-freight)contracted significantly between 2008 and 2011: -13%for the former, -11% for the latter. By contrast, Turkey posted the strongest growth in theregion over the same period (+89%), followed closely byMorocco (+75%). The Turkish example sheds light on thefoundations of such growth: a domestic market of 70million inhabitants with solid economic growth, strong
competitiveness compared with traditional Europeancompanies thanks to lower operating costs, idealgeographic positioning between Europe and Asia as well asbeing a dynamic national carrier. The coming years will seea continuation along similar lines. For example, TurkishAirlines, which increased its capacity by +24% in 2012, istargeting 90 million passengers in 2020 (39 million in2012) and is giving itself the means to get there, assuggested by its recent order of 117 A320 aircraft for USD 9billion (not to mention the USD 7 billion project to increasethe capacity of Istanbul’s airport to 150 millionpassengers). With growth of a similar level, the United ArabEmirates or, more specifically, Dubai, has already achieved“superpower” status among airlines, with continuousgrowth in capacity (between 15% and 20% annually forEmirates, which will soon see the company at number onein terms of international flights). The strategic dimension of“air transport” in a broader project of economicdevelopment should be assessed in terms of efforts still tobe made in the coming years to establish this dominance:the expected delivery of 200 long-haul aircraft (60 for AirFrance-KLM) for a current fleet of 181 aircraft (alreadymore than Lufthansa and Air France-KLM). ◽
+89%in TurkeyStrongest growth of theregion between 2008 and2011.
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Construction : public support paramount to meet infrastructure investment needs
Morocco > the road networkFinancing of construction works for Berrechid-Beni Mellal highway (172 km)and the Rabat Ringroad (41 km).Morocco’s aim is to have 1,800 km of highways linking all cities of more than400,000 inhabitants by 2015. Public investments are also being made tostrengthen port infrastructure (under the 2010-2030 master plan), hydraulicinfrastructure (with the construction and completion of several dams) andairport infrastructure (extension of terminals and building infrastructure inseveral airports).
Turkey > the rail networkThe Ministry of Transport is funding a vast project to upgrade and develop theTurkish rail network (11,000 km) to the tune of more than EUR 23 billion out to2023. Turkey plans to build 10,000 km of additional high-speed rail lines and4,000 km of additional conventional rail lines, in addition to having 8,000 km ofelectrified lines. Note that Turkey’s rail network is managed by state-owned company TCDD andreform is afoot to liberalize it. Urban rail transport (currently 12 cities have railtransit systems) is also to be expanded.
Saudi Arabia > the big marketProjects in the construction sector over the next five years amount to USD 613billion, of which USD 17 billion to build the Mecca metro rail network launchedby the city. Saudi Arabia has the largest construction market in the Middle East.The construction sector is the second largest sector in the country, accountingfor 8% of total GDP.
united Arab Emirates > the big projects One-off projects are piling up, such as the construction of a new artificial island(Bluewater project) – featuring the tallest Ferris wheel in the world (210 m)dubbed the “Dubai Eye” – for a total amount of USD 1.6 billion. The project isbeing undertaken by Meraas Holding. The emirate, severely affected by thecredit crunch and the fall in the real estate market in 2008, receives capitalinflows from countries affected in recent years by social and political turmoil. ◽
didiER MoiZo
FoCuS
Projects in construction sectorin Saudi Arabia are worth
USD 613millions
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From Tangier to Istanbul,projects are not lacking. Theconstruction of Tangier MEDhas increased theimportance of Moroccowithin the region for thepast five years. Comingprojects suggest theemergence of new regionalleaders.
In search of large worksfor large ambitions
MAHAMoud iSLAM
Morocco: Tanger-Med, major portcomplexThe "Tangier-Mediterranean” port complexwas inaugurated in 2007. Tanger-Med 1has been a big success since its inception:traffic has exceeded projections by 30% andthe port plays host to the world’s largestshipping groups (notably Maersk Line, CMACGM). Between 2007 and 2012, thecountry climbed 60 places in the WorldBank’s Liner Shipping Connectivity Index.This progress is expected to be confirmedfollowing the extension of the complexunder the Tanger-Med 2 project, expectedto get under way in 2015.
Algeria: Oran, the regional BarcelonaThe city of Oran is in the midst of majorchange. The Algerian government isaiming to make it a major metropolis on anequal footing with those on theMediterranean’s northern shore, notablyBarcelona. In May 2012, the city
inaugurated its first tramline (32 stations,19 km) and an extension is underdiscussion. Construction of a high-speedrail line (Oran-Tlemcen) and a fourthringroad is under way. The launch ofconstruction work for Oran’s first metroline – approximately 16 km from east towest – will take place in 2014.
Tunisia: Taparura project, or thecreation of a new urbancenter geared for tradeThe Taparura project is undoubtedly themost ambitious public works project inTunisia. Initiated 28 years ago, this projectaims to (1) restore the coastline around thecity of Sfax, where the seabed had beendevastated by the discharge ofphosphogypsum, a by-product ofphosphate processing, (2) create an urbanhub, and (3) develop the port industry. Inconcrete terms, this has translated intoinvestments in environmental remediationof the northern coast of Sfax and has led tothe emergence of a 55 ha urban park and 6
km of beaches. The second phase of theproject is to create a new urban center,expanding the city of Sfax and boostingtourism and dynamism in the real estatemarket.
Turkey:to build the world’s largestairport in 2017/2018Turkey has plans to build the largest airportin the world by 2017/2018 in Istanbul. Itwill be able to receive nearly 150 millionpassengers per year, compared with 90million for Atlanta airport, which iscurrently the world’s largest. This project ispart of Turkey’s strategy of increasingintegration in global transport networks:Turkish air traffic is currently the 13thlargest in the world, with nearly 130 millionpassengers; Atatürk Airport, the sixthlargest in the world, recorded an increase intraffic of 20% in 2012, making it the fastest-growing in the world. ◽
FoCuS
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Good infrastructure is a precondition for strong exportperformance insofar as it lends fluency to trade rela-tions.
With the exception of Greece, the Southern European coun-tries are the best-performing, while the GCC countries, Turkeyand Morocco are improving. So-called “hard” infrastructure,or a country’s physical infrastructure networks, makes it pos-sible to transport goods via ports, airports, roads and rail.“Soft” infrastructure, which represents overall systems thatassist the movement of goods (legal framework for cross-border trade, business environment, and means of transportand telecommunications), facilitates commercial transac-tions and improves competitiveness. Here we use the Lo-gistics Performance Index developed by the World Bank toevaluate this key component of foreign trade. Infrastructure-rich developed countries top the ranking. Witha few exceptions (France, United Arab Emirates), mostMediterranean countries are below the top 20 (Italy in 30thplace, Turkey 38th, Morocco 74th). An analysis of trendsshows a positive trend for the main economies of the region,with the exception of crisis-ridden Greece, whose perform-ances have deteriorated. For the remainder of the economies,the overall drive to improve logistics far exceeds the median
effort at the global level. All in all, the countries with the bestfundamentals in infrastructure terms are those of SouthernEurope (Greece excluded), with France in first place followedby Spain and Italy. Data for the GCC countries, Turkey andMorocco reveal moderate performances (satisfactory rankingand positive prospects). The countries that have traversedextreme risks, such as a prolonged economic and politicalcrisis, are found at the bottom of the ranking.
-1.00 -0.75 -0.50 -0.25 0.00 0.25 0.50 0.75Greece
Saudi Arabia
United Arab Emirates
Median
France
Italy
Turkey
Kuwait
Spain
Oman
Israel
Morocco
Egypt
Algeria
Qatar
Croatia
Change in logistic performancebetween 2007 and 2012
Sources: UNCTAD, World Bank, Euler Hermes
Ranking of regional economies in terms of logistics performance
Weak performance (deteriorating prospects): declining logisticsperformance due to extreme risks, in particular of political and socialnature.Average performance (potential): ranked satisfactorily and positiveoutlook.Strong performance (good fundamentals): ranked within the 30 bestperformers and positive outlook.
Source: Euler Hermes
weakperformance
Averageperformance
Strongperformance
Greece
Egypt
Algeria
Libya
Saudi Arabia
Qatar
Kuwait
Oman
Turkey
Morocco
Croatia
Tunisia
France
Italy
Spain
United Arab Emirates
▶
▶
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Economic Outlook no. 1198 | August 2013 | Special Report Euler Hermes
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Foreign trade indicators reveal vigorous growth inexports (united Arab Emirates and Turkey in particular)and imports (Saudi Arabia and Morocco).
The most important ports in terms of economic size are lo-cated in Southern Europe, although their outlook remainsweak in the short term because of the eurozone crisis.Against this backdrop, we are interested in regional tradepotential. Opportunities in the short term can be found inthe countries with the best trade performances, with sus-tained growth in either exports or imports over a long pe-riod of time. We will highlight growth in trade indicatorssince 2007 throughout the region. The “best-performing”countries are those with high and stable growth in exports(or imports) over the period 2007-2012. In terms of ex-ports, the highest-ranked countries are Qatar, the UnitedArab Emirates and Turkey. For imports, Qatar tops the list,followed by Saudi Arabia and Morocco. The performancesof the region’s developed countries remain quite weakcompared with the first group of countries because ofsluggish demand and a deterioration in the determinantsof supply (declining profitability, high private-sector debt).Nevertheless, medium-term prospects remain positivethanks to competitiveness gains made since the onset ofthe 2008 crisis.
All in all, the overlapping indicators suggest that the fu-ture regional standard bearers will be the United ArabEmirates, Saudi Arabia and Turkey. Morocco is also a
good candidate. Next come France, Italy and Spain,which benefit from comparative advantages in infra-structure. In the medium term, these results appear tobe comforted by the distribution of foreign investment inthe region (as a percentage of GDP), the lion’s share ofwhich still heads to non-eurozone countries.
0
20
40
60
80
100
Egyp
t
Gree
ce
Italy
Mor
occo
Israe
l
Saud
i Ara
bia
Fran
ce
Alge
ria
Spai
n
Wor
ld
Kuw
ait
Turk
ey
Unite
d Ar
ab E
mira
tes
Qata
r
Strong and stable export performance
Export performance Main economies, 100 = highest ranked
Sources: UNCTAD, World Bank, Euler Hermes
-15
-10
-5
0
5
10
15
20
25
30
Gree
ce
Italy
Spai
n
Mor
occo
Fran
ce
Turk
ey
Israe
l
Unite
d Ar
ab E
mira
tes
Egyp
t
Qata
r
Kuw
ait
Ager
ia
Saud
i Ara
bia
Competitiveness gains
Change in real effective exchange rates 2012 vs 2008
Sources: UNCTAD, World Bank, Euler Hermes
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
Gree
ce
Kuw
ait
Italy
Spai
n
MED
Egyp
t
Turk
ey
Alge
ria
Fran
ce
Unite
d Ar
ab E
mira
ted
Mor
occo
Saud
i Ara
bia
Israe
l
Qata
r
Foreign Direct Investment% of GDP, 2012 estimates
Sources: IHS Global Insight, Euler Hermes
▶
▶
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Euler Hermes Economic Outlook no. 1198 | August 2013 | Special Report
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Les 7 commercial hubs to count on
Sources: Chelem, Euler Hermes
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Economic Outlook no. 1198 | August 2013 | Special Report Euler Hermes
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Like in the past, theMediterranean will be alifeline for the clever andcourageous merchant
Demand and supply are forecast to increasestrongly among the outperformers (GCC andTurkey) and in Morocco; demand and supplyare expected to remain restrained among thesouthern eurozone countries.
demand is expected to increase thanks to demographicdynamism and rising incomes in the region’s emergingcountries.
This demographic momentum will be a catalyst for demand.Demand is expected to strengthen in the coming yearsthanks to forecast population growth of +1.1% over the next10 years, a slight slowdown from the previous decade(+1.4%) but satisfactory compared with the global average(+0.9%). This dynamism will be underpinned by the countriesoutside the eurozone (GCC, Turkey, North Africa) whose pop-ulations are forecast to grow at a similar rate to the last ten
years (+1.6% compared with +1.7% between 2003 and2012), or five times higher than that of the Southern Euro-pean countries. In fact, in addition to improving healthprospects (excluding the countries in conflict), these coun-tries benefit from a much higher fertility rate than in EUcountries (2.6 on average in the Middle East and North Africacompared with 1.6 in the EU) and a relatively young popu-lation (the population aged 0-14 represents more than one-quarter of the population on average compared with lessthan 20% in the eurozone countries). Looking ten yearsahead, Egypt and Turkey should remain the region’s mostpopulous countries, accounting for nearly one-third of theregional population and equivalent to Italy, France, Spainand Greece together. The Maghreb is forecast to represent15% of the population, or 3pps more than France. Saudi Ara-bia and the United Arab Emirates should together make for8%, the same level as Spain. Tunisia’s population is expectedto overtake that of Greece.
The demographic dynamics will be supported by risingnational wealth, favoring an improvement in livingstandards.
A projection of trends in nominal GDP for the grouping ofcountries outside the eurozone suggests growth of +72%between 2012 and 2020 (compared with +28% in the south-ern eurozone countries), in line with the global average. Be-hind this good overall performance, however, there are sig-nificant differences. The GDP of Turkey, Egypt and Moroccois expected to double, while the nominal GDP of UAE andSaudi Arabia is forecast to increase by nearly +50%. Last, the
0
20
40
60
80
100
120
0
2
4
6
8
10
12
14
16
18
20Share of population (% MED)(right axis)
Population mns(left axis)
Israe
l
Unite
d Ar
ab E
mira
tes
Tuni
sia
Gree
ce
Syria
Saud
i Ara
bia
Mor
occo
Alge
ria
Spai
n
Italy
Fran
ce
Turk
ey
Egyp
t
2022 population projections countries ranked by regional weight in 2012
Sources: IHS Global Insight, Euler Hermes
0
20
40
60
80
100
United Arab
EmiratesIsraelAlgeriaTunisiaEgyptMoroccoTurkey
GDP/capita growth between 2012 and 2022Annual average change,in %
Sources: IHS Global Insight, Euler Hermes
▶ 2.
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Euler Hermes Economic Outlook no. 1198 | August 2013 | Special Report
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southern eurozone countries should see an increase ofaround +30%. In ten years’ time, Turkey’s national wealthwill exceed that of Spain, while Egypt should surpass Greece.All in all, per capita wealth is expected to double in Turkeyand Morocco between 2012 and 2022, to increase by nearly+70% in Egypt and to grow moderately in the southern eu-rozone countries as well as in the United Arab Emirates andSaudi Arabia (increase of less than 40%), where the currentlevel is already high.
QatarKuwait
United Arab Emitates
Turkey
Tunisia Egypt
Algeria
Morocco
Saudi Arabia
-0.2%
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
1.2%
0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0%
Varia
tion
in p
oint
s (20
07-2
012)
Level 2012
Consumer car sales Annual sales per capita
Sources: OICA, Euler Hermes
1.Ali, Shimelse and Uri Dadush(2012), “A new measure ofGlobal middle-class”.
2.They are less pertinent fordeveloped countriesbecause such countriesalready have large middleclasses and alternativemeans of transport.
-5
-4
-3
-2
-1
0
1
2
3
4
5
6
7
8
Italy
France
United Arab Emirates
Saudi Arabia
Morocco
Turkey
14131211
Growth in private consumption,%
Sources: IHS Global Insight, Euler Hermes
The expanding middle class in the countries outside theeurozone will strengthen regional demand.
It is difficult to arrive at a precise estimate of the change inthe middle class of a given territory, as this category of thepopulation varies from one country to the next (classificationthresholds differ) and because, technically, gathering thedata requires a developed statistical apparatus. In addition,such data are very piecemeal in the region, in particular inthe Middle East and North Africa. Under these conditions,the best way to evaluate the development of the middleclasses in a region, looking beyond an exact number, is toproceed with a set of indices. Statistics for consumer carsales are a good indicator of middle-class development1 inemerging countries2, given the price of such goods, and aresuperior to international standards defining the poverty line(two dollars per day after adjusting for purchasing powerparity). An analysis of trends between 2007 and 2012 pointsto rapid growth in the middle class in high-income emergingcountries (GCC), moderate growth in Turkey and Moroccoand weak growth in Egypt and Algeria, partly reflecting (?)theeffect of the economic slowdown due to the Arab Spring.These results are consistent with the trends shown by datafor household consumption and employment, which are ex-pected to increase throughout the region with the exceptionof Southern Europe. ▶
+95%GDP per capitain Morocco and Turkeybetween 2012 et 2022.
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Economic Outlook no. 1198 | August 2013 | Special Report Euler Hermes
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Trends in the agri-food industries of ourMediterranean panellogically echo theeconomicdivergences observedin 2012.
Ongoingdeterioration in theauto market in theNorthernMediterraneancountries.
FoCuS
Fair winds for the agri-food andautomobile industriesin the Southern Mediterranean
bRuNo GouTARd, yANN LACRoiX
For example, whereas production declined by around -0.9% in Italyand fell in Spain (-4.0% for the food products sector alone), theagri-food industries of Turkey, Morocco, the United Arab Emiratesand Saudi Arabia recorded an entirely different reality, with growthin production of +3.5%, +3.4%, +5.0% and +2.8%, respectively.
Current trends reflect the combination of, inter alia, economic growth (growing importance ofmiddle classes) and population growth, and point to similar levels of growth in the years ahead. Bycomparison with 2007, the gulf with neighboring countries is even more impressive: +26% for agri-food production in Turkey and +18% in Morocco, compared with -2.4% in Italy and -3.8% in Spain.Echoing prospects for growth in domestic markets, investment in this sector over the next threeyears is expected to further widen this trend differential: at an annual average between 2012 and2015, for example, Spain is expected to hold stable while growth of +13% is forecast in Turkey. ◽
Sales in Italy, which amounted to around 2.5 million units in 2007,fell to less than 1.4 million units in 2012 and 2013 and look set tofall a further -7%.
In Spain, the situation has deteriorated even more, as sales halved from 1.6 million units in 2007 to700,000 units in 2012, and 2013 will see a further contraction of -4%. Figures for France show amore mixed situation. Sales in 2012 were down -7% from their pre-crisis level, which is less alarmingthan the trends in its southern neighbours. Nevertheless, 2013 is expected to see a morepronounced fall of -9%. Prospects are more positive in the United Arab Emirates, Saudi Arabia, Turkeyand Morocco. In the two GCC countries, 2013 sales are forecast to increase by +5% and +8%,respectively. In Turkey and Morocco, the markets are small (or even embryonic in the case ofMorocco) but the potential is clear thanks to the dynamism of demand. The number of units sold in2013 is expected to increase by +4% to 600,000 units in Turkey, and by +10% to 132,000 units inMorocco. ◽
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Euler Hermes Economic Outlook no. 1198 | August 2013 | Special Report
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Positive fundamentals on the demand side to be accom-panied by an improvement in fundamentals on thesupply side.
In addition to an upward trend in national output (GDP),markets are improving and investment is showing solidity.Unlike in the region’s developed countries, where investmenthas struggled to pick up since the crisis, Saudi Arabia, theUnited Arab Emirates, Turkey and Morocco have seen theirinvestment cycles pick up. Enjoying higher investment ratesthan in European countries, their prospects are upbeat withmuch higher levels expected in 2014 than in 2009. Thesetrends are in contrast with those of the region’s two largeEuropean countries, especially Italy, where the ratio is at itslowest over the past ten years (17%-18% in 2013-2014). Pro-ductivity indicators seem to be following the same trajectory,with a noticeable improvement in the southern Mediter-
ranean, an intermediate situation in France and a deteriora-tion in Italy. These trends are consistent with the weak nom-inal growth expected in the short term in the eurozone. Onepositive point in common throughout the region is the wide-spread improvement in human capital via lifting skill levelsamong wage earners in all the region’s economies. The en-rolment ratio in higher education is on a clear uptrend, al-though growth rates differ depending on the country. It is ata satisfactory level in developed countries thanks to moreefficient and more developed educational structures. Inemerging countries, Turkey displays good performances,with a sharp improvement in the enrolment rate over thepast ten years. By contrast, Morocco is lagging behind, witha low ratio and little improvement.
Activity in the region is expected to increase, driven by animprovement in the determinants of growth in North Africa,particularly in Morocco, but also in the Middle East thanks toa positive outlook for both demand and supply in Turkey andthe GCC countries. The southern eurozone countries shouldbenefit from the positive externalities of such dynamism bystrengthening its ties with the region and returning to morerobust rates of growth after 2014, a year in which pressurefor more austerity will likely fade.
10
15
20
25
30
35
40 United Arab EmiratesMoroccoFranceSaudi ArabiaItaliaTurkey
141312111009080706050403020100
Investment rate Investment as % of GDP
Sources: International Monetary Fund, Euler Hermes
0%
5%
10%
15%
20%
25%
30%
35%
0 10 20 30 40 50 60 70 80 90
Rate of school enrolment (post 2009)
Chan
ge in
rate
(pos
t 200
9 vs
200
0)
Turkey
Saudi Arabia
Algeria
Spain
Italy
France Morocco
Egypt
School enrolment rate in higher education
Sources: IHS Global Insight, Euler Hermes
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Economic Outlook no. 1198 | August 2013 | Special Report Euler Hermes
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The companies will beMediterranean! Economic activity in the MENA region will bebolstered by growth in the private sector.Since 2005, enterprise start-ups have beenvigorous for most MENA countries and havebeen accompanied by strong job creation,spurred on by private investment. As a result,the private sectors of the countries in theMENA region are expected to increase thanksto improvements in the businessenvironment and in borrowing conditions aswell as a favorable tax system and ongoingprivatizations. However, structural reformswill be needed to ensure that this investmentmomentum endures, due to shortfall in lowlabor productivity in most countries (with theexceptions of Turkey and Qatar).
industrial activity in the Gulf countries and Turkey hassurpassed its pre-crisis peak.
The contraction in industrial activity in the Gulf countriesduring the crisis was less severe (-11% in Saudi Arabia and -9% in the United Arab Emirates between the trough in 2008and Q4 2012) in comparison with other emerging or devel-oped countries (-18% in Turkey, -15% in Brazil and more than-20% in Italy and Germany). Since 2010, there has been apronounced recovery in industrial activity both in the Gulfcountries and in Turkey, bolstered by good performances interms of private investment from both domestic and foreign(FDI) investors and by labor-cost moderation and rising oilprices. Thus, industrial production is now 24% higher than
its pre-crisis level in Turkey, +45% in Qatar and +16% in theUnited Arab Emirates, compared with -22% in Italy, -13% inFrance, +4% in Brazil and +7% in Russia.
The private sector has shown dynamism, with theexception of southern Europe, where only France hasheld up.
The number of enterprise start-ups has increased markedly.Between 2005 and 2011, this number increased by 60% inMorocco, by nearly 30% in the UAE and by 15% in Turkey.This trend has been accompanied by strong job creation, areflection of greater economic liberalization. In the GCCcountries, for example, the private sector accounted for morethan two-thirds of job creation. This trend was helped notonly by the emergence of a new educated labor force, butalso by better incentives such as the introduction of favorableimmigration policies in the GCC countries to bolster the pri-vate sector (expatriates represent more than 50% of the pop-ulation of the GCC and around 10% in the MENA region) orallowances to compensate employees working in the privatesector (like in Oman).
-30
-20
-10
0
10
20
30
40
50
60
Industrial productionQ1 2013 compared to the trough
Industrial productioncompared to Q4 2007
ItalyUnited
Arab EmiratesQatarSaudi ArabiaTurkey
Industrial productionGrowth in %
Sources: IHS Global Insight, Euler Hermes
-40
-30
-20
-10
0
10
20
30
40
50
60
70
80
SpainItalyFranceTurkeyUnitedArab
EmiratesMorocco
Enterprise start-ups2011 vs 2005
Sources: World Bank, Euler Hermes
Total jobcreation
o.w. privatesector
o.w. publicsector
Qatar 1,118 96.4 % 3.6 %
Bahrain 297 95.6 % 4.7 %
Oman 527 91.3 % 8.7 %
Saudi Arabia 2,598 90.2 % 9.8 %
United ArabEmirates 1,546 90.0 % 10.0 %
Kuwait 986 69.0 % 31.0 %
Job creations in the private sector
Sources: International Monetary Fund, Euler Hermes
▶
▶3.
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Euler Hermes Economic Outlook no. 1198 | August 2013 | Special Report
The energy sector is among the industrial sectors workingtowards strengthening trade ties between the north and thesouth of the Mediterranean.
1 > The southern European countries are an important market for oildrilled in Libya and gas extracted in Algeria. For a few years now therehas also been a willingness to develop electricity produced from theenormous solar potential in the Maghreb countries. The result is theMedgrid project, formed in early 2011 by a consortium of around 20industrial groups from the energy sector, mostly European. With a budgetestimated at USD 10 billion, the aim is to increase the density of – or evenunite – the electricity networks on both sides of the Mediterranean throughfive new “electricity highways” between the south and the north. Of course,building a (new) electricity transmission network requires securing sourcesof supply. Also, Medgrid is part of a broader project under the name ofDesertec, born in 2003 out of the political will to seek to develop theimmense energy potential of large deserts, in particular in terms of solarpower. To give an idea, less than 8% of the surface of the Sahara coveredwith solar captors would suffice to meet the planet’s electricityconsumption. The initial target is to feed these new networks with aninstalled capacity of 20 GW produced locally, of which one-quarter – or 5GW – would be exported to Europe.
2 > The original idea behind these projects stemmed from theobservation that, on the one hand, Europe has committed to sourcing20% of its final energy consumption from renewable energies by 2020and, on the other hand, the Maghreb countries are particularly wellendowed in solar and wind energy. The latter are expecting 6% annualgrowth in their electricity consumption out to 2025. Regular and powerfulwinds favor wind energy in North Africa: its production cost is estimated atEUR 60/MWh, compared with EUR 100/MWh for onshore wind energy inEurope and EUR 200/MWh for offshore wind in the North Sea. Next in line issolar power, given the region’s – very – long hours of sunshine: its yield isdouble that of solar power in Europe but, at around EUR 150/MWh, its highproduction cost is an obstacle.
3 > desertec can lay claim to being a much more ambitious plan thanMedgrid, and not only because it preceded it. Its aim is to invest EUR 400billion in solar power plants and wind farms in the Sahara over time toprovide Europe with 15% of its electricity needs within 30 years. However, itis struggling to take off in the face of many obstacles to overcome, on bothfunding and policy (political) levels. At a time when several North Africancountries are in a turbulent social situation, cooperation in energy mattersis not an easy issue to advance. In addition, two of the project’s powerfulbackers, Siemens and Bosch, ended up throwing in the towel with solarenergy last year, unable to fend off Chinese competition in terms of costs.To date, the concrete illustration of this project is confined to the start-up ofa thermal solar power plant in Ouarzazate in Morocco in 2014. Initialelectricity production is targeted at 125 MW, subsequently increasing to500 MW. MASEN (Moroccan Agency for Solar Energy) has even projectedthat 42% of the country’s electricity will be produced by renewable energiesby 2020 (2,000 MW in wind, 2,000 in solar).
4 > in addition to the construction of a power station, the cost oftransporting the electricity also needs to be considered. Generated asalternating current, it is then transported over a long distance as directcurrent. Yet a converter station costs EUR 250 million for 1,000 MW of
electricity processed, on top of which, depending on the distance covered,comes between EUR 500 million and EUR 900 million for the submarinecables. In other words, transporting 1,000 MW over 400 km costs EUR 1billion at the lowest estimate. The Achilles’ heel of these ambitious projectstherefore clearly remains their funding. This is now especially the case inlight of two recent technological trends in the energy sector: the fact thatEurope has underutilized gas-fired power stations for electricity production,and the fact that Algeria has large (shale) gas reserves that it intends todevelop cheaply. ◽
Electricity highways: Medgridmaking sparks fly
MARC LiViNEC
FoCuS
One preconditionfor a well-functioningprivate sector isaccess toelectricity: seldommentioned but ofmajorimportance, thiskey factor in thebusinessenvironment isthe object of aMediterraneanproject.
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Economic Outlook no. 1198 | August 2013 | Special Report Euler Hermes
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Looking ahead, enterprise start-ups will bebolstered by 1> an improving businessenvironment, 2> growing access to creditfor companies, 3> developing local finan-cial markets, and 4> a favorable tax system.
1> Administrative barriers to starting abusiness continue to be eased in the MENAregion. Since 2003, the number of administrative pro-cedures needed to start a business has beenhalved in Turkey and Morocco and has beenreduced by 40% in Saudi Arabia and the UAE.Moreover, the number of days to create a newbusiness has also fallen sharply during thisperiod: from more than two months to less thanone month in Saudi Arabia in 2012, from morethan one month to one week in Turkey, andfrom one month to two weeks in Morocco.
2> increasing access to bank credit forSMEs should speed up private-sectorgrowth. Although it still remains at moderate growthrates compared with the large emerging coun-tries, credit to the domestic sector in the Gulfcountries and in Turkey remains buoyant(increasing in excess of 10% year on year), par-ticularly in light of the downward trend in the
southern European countries. Since 2005, creditto the private sector as a percentage of GDP hasremained at sustainable levels, at around 50% ofGDP compared with levels above 100% in theeurozone and China. Moreover, the vigour ofdomestic demand should continue to fuelgrowth in bank credit in these countries in thecoming years, as will the need to finance publicprojects (infrastructure, hospitals) and the risingwealth of households in these countries.
-60
-50
-40
-30
-20
-10
0
-8 -7 -6 -5 -4 -3 -2 -1 0
Tim
e re
quire
d to
star
t a b
usin
ess (
days
) 201
2 vs
200
3
Start-up procedures to register a business (number) 2012 vs 2003
Turkey
Morocco
United Arab Emirates
Italy
Saudi Arabia
World
Israel
Easin
g of
bus
ines
s procedures
Administrative barriers to start a business
Source: World Bank
0
30
60
90
120
150
Wor
ld
Euro
zone
Chin
a
Israe
l
Mor
occo
Unite
d Ar
ab E
mira
tes
Braz
il
Indi
a
Arab
wor
ld
Saud
i Ara
bia
Russ
ia
Qata
r
Turk
ey
Alge
ria
403946
49
3935
13
38
58 60
115
123130
95
Credit to the private sector% of GDP, average 2005-2011
Source: World Bank
0
5
10
15
20
25
2012
2011
2010
2009
2008
2007
2006
SaudiArabia
QatarMoroccoTurkeyUnited ArabEmirates
Corporate bond issuanceEUR billion
Sources: World Bank, Euler Hermes
▶
▶
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Euler Hermes Economic Outlook no. 1198 | August 2013 | Special Report
33
The chemicalsindustry is one of thefavored sectors in theeconomies of theMediterranean Basin.
The chemicals industryin the Mediterranean basinMARC LiViNEC
on two accounts:
1> Saudi Arabia and the United ArabEmirates are major players in organicchemicals, if only as a result of the size oftheir oil and gas reserves, respectively.Similarly, with its state-owned enterpriseOCP, Morocco features among the largestplayers in the inorganic chemicals industryand, more specifically, in the production ofphosphate fertilizers.
2> It benefits from competitive seaaccess made possible by the existence ofmany oil and gas pipelines providing analternative to the bottleneck of the Strait ofHormuz. These pipelines transport the rawmaterial (oil or gas) near theMediterranean Sea, where it is refined orliquefied locally before being shipped toconsumer countries. The sea constitutes aparticularly valued means of transport forchemical products, and this is even moretrue in the case of the Mediterranean Seabecause of its lower risk of piracy than inthe Indian Ocean.
A chart illustrating chemicals productionin volume terms by our panel countriesshows two salient points from 2010:
.Southern Europe (Spain and Portugal) islosing ground. Its chemicals industry has notrecovered from the 2009 crisis, and especiallynot from the crisis in its largest market, con-struction, which is a situation that is set tocontinue..Alongside major player Saudi Arabia, anew “chemicals cluster” is developing in theMediterranean Basin, comprising Turkey andMorocco.
The case of Morocco in the chemicalsindustry deserves a closer look, as shownby the small table below.Average annual growth in the Moroccanchemicals industry amounted to 5% overthe period 2007-2013. In addition, amongthe sub-sectors of chemicals products, the
FoCuS
-15
-10
-5
0
5
10
15
20
Morocco
Turkey
Portugal
Spain
Saudi Arabia
United Arab Emirates
2014(f)2013(f)2012201120102009
Change in industrial chemicals sales In volume terms
Sources: IHS Global Insight, Euler Hermes Sources: IHS Global Insight, Euler Hermes
Morocco 2007 2013 (e)
Revenue in the chemical sector 3.4 USD bn 4.5 USD bn
Proportion of fertilizers 63% 53%
Proportion of specialtyproducts (excl.pharmaceutical)
27% 36%
+5%over the2007-2013 period.Annual average growth ofchemistry in Morocco.
combined share of fertilizers and specialtyproducts has remained stable, accountingfor 90% of the total.
Morocco has a prime competitive positionin the manufacture of fertilizers. It enjoysthe enormous advantage of being home to75% of global phosphate reserves, whichenables it to produce its phosphate-basedfertilizers locally – and therefore atcompetitive costs.
Not wanting to rely solely on this naturaladvantage in inorganic chemicals, thecountry has gradually sought to developthe branch of its specialty chemicalproducts (excluding pharmaceuticals, suchas pesticides, hygiene products, paint,adhesives and cosmetics). It has succeededin doing so, as the share of fertilizers hasfallen 10 percentage points since 2007 tothe benefit of higher-value-added specialtychemicals. ◽
Indicators of the Moroccan chemicals industry
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Economic Outlook no. 1198 | August 2013 | Special Report Euler Hermes
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3> Companies are expected to have moreaccess to the financial markets. At present, the corporate bond markets in theMENA region are equivalent to only 5%-10% ofItalian or Spanish bond issuance. Nevertheless,the improvement in the perception of credit riskbetween 2000 and 2013 (S&P: +2 notches toBBB- for Morocco and to AA- for Saudi Arabia,+3 notches to BB+ for Turkey, +5 notches to A+for Israel and +6 notches to AA for Qatar) andthe environment of very low interest rates indeveloped countries should encourage foreigninvestors to shift more towards these emergingmarkets to seek higher yields, as well as domes-tic investors thanks to a more favorable taxenvironment. Last, state-owned companies inthe region, which represent a larger share inthese economies than in the rest of the world,have begun financing their projects through“sukuk” Islamic bonds. Issuance of sukuk bondshas doubled since 2011. This should also bolsterthe development of local financial markets inthe years ahead. Equity markets in the MENAregion, which are currently small comparedwith international markets, representing 60% of
regional GDP, should also benefit from newinvestor inflows in the coming years. Privatiza-tions are expected to increase in the mediumterm, as one-third of listed companies on theregion’s stock markets are state-owned, whichwould bolster the rise in publicly floated capitalfrom the current modest levels of 50% of totalshares, compared with more than 70% in devel-oped markets. In addition, the strengthening ofgovernance and local regulation should alsoencourage private investments and, in doing so,the development of local equity markets, evenif this process may be gradual and relativelyslow.
4> Favorable tax regimes will boost busi-ness growth in the MENA region.In fact, more favorable taxation in the MENAregion than the global average and its tendencyto decrease since 2005 is another factor that willbolster business growth and encourage enter-prise start-ups. In addition, many tax measureshave been introduced since the Arab Spring tar-geting subsidies, tax loopholes, public sectorwages and the social welfare system. This
0
2
4
6
8
10
2012
2010
2008
ChinaBrazil
SpainItalia
SaudiArabia
TurkeyIsrael
QatarUnited
Arab Emirates
Morocco
Equity markets% of global market capitalization
Sources: IHS Global Insight, Euler Hermes
0
10
20
30
40
50
60
70
80
2012
2008
2005
Alge
ria
Italy
Fran
ce
Mor
occo
Wor
ld
Euro
zone
Gree
ce
Turk
ey
Spai
n
Israe
l
Unite
d Ar
ab E
mira
tes
Saud
i Ara
bia
Qata
r
Taxes% of corporate profits
Sources: World Bank, Euler Hermes
▶
-2% / -4%decrease in labourproductivity
in Saudi Arabia and United Arab Emiratesbetween 2009 et 2012.
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should bolster the improvement in the businessenvironment and encourage enterprise start-ups in the coming years, although political andsocial stability still constitute risks on the down-side.
Qatar
Turkey
United Arab Emirates
Saudi Arabia
AlgeriaMorocco
Real
wag
e gr
owth
(%) 1
999-
2011
Labour productivity growth (%) 1999-2011
IndiaBrazil
-10% 0% 10%-2%-4%-6%-8% 8%6%4%2%
-5.0%
-2.5%
0.0%
12.5%
15.0%
2.5%
5.0%
7.5%
10.0%
China
Labor productivity vs real wage growth
Source: World Bank
A healthy investment dynamic in the futurewill be sustainable only if it is coupled withproductivity gains and a diversification ofthe economies. Labor costs in the MENA region have been quitestable over the past decade. While average realwages have been vigorous in Asia (+100% since2000) and more moderate in Africa (+18%) andLatin America (+15%), they have remained vir-tually stable in the MENA region over the period.However, labor productivity in the MENA regionshows signs of weakness (decline of -2% to -4%in Saudi Arabia, the United Arab Emirates andMorocco between 1999 and 2011 comparedwith +2% in Turkey or +9% in China), whichcould curb future investment momentum if thegovernments of these countries are not mindfulto contain this trend, especially as they aspire toimprove their export performance (e.g.Morocco). In addition, production in many of theregion’s countries is concentrated in a smallnumber of sectors (e.g. United Arab Emirates inthe organic chemicals industry, Morocco in inor-ganic chemicals). Diversification towards othergrowth sectors should figure in governments'future strategies in order to limit dependence onthe global demand cycle. ◽
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No storm in sight but the tide is high
Although the growth outlook is quitepositive, the risks facing the region’seconomies are high. First, the politicalenvironment and business climate areextremely sensitive, as shown byevents in Egypt. Second, the closenessof trade and financial ties with theeurozone, with its weakenedfundamentals, makes the regionvulnerable to a demand and financingshock. Last, with the exception of thesouthern European countries, theMediterranean as a whole continues tolag in terms of innovation – a keydeterminant in sustainable growth.
business growth requires astable politicalenvironment and afavorable businessenvironment
The risk of derailment remains high. The eco-nomies of North Africa and the Middle Eastare still vulnerable to political and social ten-sions. In addition, although improving, thebusiness environment remains structurallyweak.
ANdREw ATKiNSoN, ANA boATA, CLÉMENTiNE CAZALETS
1.
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The Arab Springs are struggling to turn intosummer, which, by contagion, has had aconsiderable economic effect on the regionas a whole and even beyond – this despitethe uncertain political trajectories anddivergent paths taken by the countriesconcerned, as illustrated by the volatility ofcountry risk indices in the region. Politicalstability and better governance are essen-tial to improve the business environmentand for private-sector growth in the coun-tries of the MENA region.
The Arab Spring has had a significant impact onactivity in North Africa. In 2011, the region’s eco-nomic growth hit its lowest level in ten years,falling to +2.2% compared with +4.2% in 2010.The worst-affected countries have been thoseat the epicentre of the revolution, namely Libya,Tunisia, Egypt, Syria and Yemen, while Moroccois the only country to have seen its growthstrengthen over the period, despite the Mar-rakech bombing. The economic recovery re-mained modest in 2012 (+2.4%), given the frag-ile political and social stability in the region,weighing on foreign investment inflows, whichcontracted sharply in 2011 (-46% to USD 11.4
billion, their lowest level since 2004), and un-certainty weighing on some key sectors of theeconomy (e.g. tourism, construction). In themedium term, these prospects are neverthelesslikely to improve. Governments have introducedstimulus measures in support of the various eco-nomic agents (consumer subsidies for energyprices) as well as structural reforms with theaim of boosting investment (bill for developingpublic-private partnerships in Tunisia) and re-ceiving international assistance (the Arab Fi-nancing Facility for Infrastructure set up by theWorld Bank).
▶ The historically highly-attractive Mediterranean region saw its tourism activity deteriorate sharply in 2011, mainly due topolitical and social turmoil. > World Tourism Organization estimates for 2012 point to an improvement in North Africa, while theMiddle East is still in negative territory.
▶ For example, the Arab Spring led to a pronounced fall in visitor numbers in North Africa in 2011 (-9.1%), > particularly inTunisia (-30%) where the tourism sector is a driver of growth. 2012 saw a rebound in arrivals (+9%), underlining the easing ofpolitical tension in the region.
▶ in the Middle East, by contrast, the unrest is still being felt: > visits fell by -5% in 2012, after a fall of -5.6% in 2011. Only Turkeyrecorded continuous improvement, the country now occupying 6th place in the world in terms of visitor numbers.
▶ Tourism in southern Europe has slowed. > Although tourism revenues declined slightly in 2012, visits continued to increase in2011 (+7.7%) and 2012 (+2%) despite the region’s economic problems. ◽
Tourismsector hit bypoliticalturmoil.
Visits Revenue (local currency)
2011 2012 2011 2012
Southern Europe +7.7% +2.2% +6.0% -0.3 %
North Africa -9.1 % +8.7% -5.5 % +2.4%
Middle East -5.6 % -5.4 % -14.4 % -2.2 %
Tourism indicatorsAnnual growth
Source: World Tourism organization
▶
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Addressing theissue of social risk is
to take a look intoan important
determinant ofpolitical risk.
Social and political risk:the cases of Turkey and EgyptMAHAMoud iSLAM
we call political risk the risk that“the political situation of a countryimpedes business carried out in thatcountry”. In practical terms, this break on businesscan result from protest movements, rioting,war or even the geopolitical situation of acountry (contagion effect). Social risk is onedeterminant of political risk. It results froma weakness of (i) initial endowments(shortcomings in education and the healthsystem), (ii) a lack of opportunities(employment, ability to engage inbusiness), and also (iii) a lack of economicand political freedom (difficult to dobusiness, weak property rights, labor law inparticular) and translates rising socialresentment. These risks have beenparticularly underscored in recent monthsby events in Egypt and Turkey. We will seethat while these events may have commonroots, the situations and resulting risks arenot comparable.
Recap of events.
. in Turkey, protests began in May 2013.At the root were demands concerning theprotection of Gezi Park, threatened bydestruction as part of an urbandevelopment plan. They subsequently
spread, exposing strained relationsbetween the government and thepopulation, mounting police violence andbreaches of fundamental rights includingfreedom of speech and assembly.
. in Egypt, two years after the Egyptianrevolution and one year after the electionof Mohamed Morsi as president,demonstrations demanding his resignationerupted and the Morsi’s government hasbeen removed. The charges laid against hisgovernment: a brand of politics deemedtoo authoritarian, too aligned with theinterests of the Muslim Brotherhood, andan economic and social climate that hadremained toxic.
Social resentment in bothcases, different politicalimplications
Turkey’s social fundamentals are quitesatisfactory compared with a country likeEgypt. Also, while the former suffers fromrising social resentment, the magnitude isnot the same and the implications aredifferent.
1> Turkey has more favorable initialendowments in terms of health andeducation. The Turkish economy boomed after aserious financial crisis in 2000. In 2010 itsurpassed Saudi Arabia to become thelargest economy in the Middle East. It hasmade considerable effort in terms ofeducation and healthcare. The enrolmentrate in higher education (as a percentage ofthe total population of those five yearsolder than the secondary school leavingage) doubled between 2000 and 2010,from 25% to 55%, and is now near Europeanstandards (France at 57%). In Egypt, itremains relatively low at 33%. Likewise, percapita spending on healthcare in Turkeytrebled (+226%), while in Egypt it increasedby +59%, in line with other healthindicators such as life expectancy (+7% inTurkey, +6% in Egypt over the decade).
2> opportunities in terms ofemployment and ease of doing businessare greater in Turkey. Employment data are more satisfactory inTurkey, with a relatively containedunemployment rate (8.3% compared with13.5% in Egypt), the country alsobenefitting from a better growth outlook.Likewise, opportunities in terms of businessare upbeat. The country is ranked 71st (outof 185) in the Doing Business ranking, withprogress in terms of Enforcing Contracts(ranked 12 places higher than in 2012) andResolving Insolvency (+2). Egypt is farbehind in 109th place, with a deteriorationin most assessment criteria (9 out of 10).
3> Finally, a ranking in terms ofeconomic freedom shows Turkey in abetter position.Economic freedom, according to the indexestablished by the Heritage Foundation,sees Turkey, ranked 69th, well ahead ofregional counterpart Egypt, in 125th place.The criteria that explain this gap are betterconditions in terms of Property Rights,Investment Freedom and Trade Freedom.
Also, while social resentment has risen inTurkey, we believe that this reflects a trendaffecting all emerging countries that have agrowing, more educated middle class withmore demands. Depending on the socialfundamentals (endowments and economicopportunities and freedom), somecountries will be more susceptible thanothers to an increase in tensions. This is thecase with Egypt. This example is a goodillustration of the difficulty in categorizingeconomies in boxes. Applying theabovementioned rankings to the CIVETScountries, an economic grouping createdby the EIU, reveals disparate performancesby the different countries. .
ZooM
4550556065707580
TurkeyEgyptVietnamIndonesiaColombia
Economic freedom Opportunities
Endowments
40
Social risk z-score*
Sources: UN, Heritage Foundation, Euler Hermes
*High notemeans the riskis lower
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The MENA countries as a whole 1>have a structurally weak businessenvironment, 2> procedures for resol-ving solvency of variable qualityaccording to the determinants analy-zed, 3> irrespective of historical andpolitical factors specific to each coun-try.
overall, the business environment in theMENA countries shows structural weak-nesses:
Recovery rates are half the average in OECDcountries, i.e. 37 cents per dollar recovered bycreditors in reorganization, liquidation or debtenforcement proceedings, compared with 68cents for OECD countries. Recovery times areroughly twice as long as in OECD countries (3.1versus 1.7 years on average). The cost of insol-vency proceedings, expressed as a percentageof the value of the debtor’s estate, is also higher(i.e. 12.5% versus 8.8% on average in OECD coun-tries).
However, the risks linked to insolvency varydepending on the determinants analyzed.
The Maghreb countries (Morocco, Tunisia andAlgeria) present relatively low recovery rates,times and costs compared with the average forthe MENA countries and North Africa, althoughrecovery costs in Morocco remain high (18%
versus 13% on average in the MENA region).The situation for the GCC countries is favorableon the whole for insolvency proceedings, al-though the situation differs from one countryto the next within this group. The recovery ratefor the MENA region remains half that of OECDcountries, while recovery costs and time remainaround twice as high as the OECD average. Thissituation also holds for Turkey, with recoverytimes in line with those of the MENA region buteven higher recovery costs and lower recoveryrates.
Highly surprisingly, the doing businessindex developed by the world bank and itssubsidiary iFC does not reveal a high corre-lation between the degree of politicalinstability linked to the Arab Spring and thebusiness environment that could resultfrom it.
The countries implicated in the Arab Springpresent very similar recovery times, costs andrates to those for the MENA region as a whole.Some countries are very well ranked, such asTunisia and the GCC countries, while others,such as Morocco and Egypt, show poor per-formances irrespective of the degree of politi-cal instability experienced in 2010-2011.
Political stability and good governance
Increased investment in infrastructure
Increased investment in SMEs
Improved capital markets regulation
Development of the private sector
Regional economic integration
Increased investment in education
Other
50%19%6%6%6%5%4%4%
What do you think would have the most positive impacton the MENA economy in 2013?This survey was conducted in mid-February 2013 by the CFA Institute to coincide with the2013 Middle East Investment Conference. Respondents included portfolio managers,business leaders and research analysts.
Source: CFA
Subsidies Social welfare
Government salaries
Tax breaks
Total (% of GdP)
Saudi Arabia 4 7 3 >23.0
Qatar 4 7 3 >5.0
Kuwait 4 7 >2.5
Jordan 4 7 3 8 2.0-2.2
Oman 4 7 3 >1.5
Bahrain 7 3 8 1.5
United Arab Emirates 4 3 >1.0
Lebanon 8 1.0
Egypt 3 8 0.7-0.9
Pakistan 4 0.3
Budgetary measures announced in response to Arab Spring protests
Source: International Monetary Fund
▶
▶
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Economic Outlook no. 1198 | August 2013 | Special Report Euler Hermes
40
Source: Euler Hermes
Arab spring: impact on political risk
Structural weaknesses on the way to resolve insolvencyamong MENA countries may be explained inter alia bya form of “stigmatization” of insolvencies, curbing busi-ness creation and innovation.
Local insolvency resolution regimes are highly restrictive andoften do not comply with international norms. In the Gulfcountries, communities view corporate insolvencies as a hu-miliation, leading to the emergence of a real “punitive culturetowards debtors”3. In fact, bankruptcies and insolvenciesare seen as shameful events for the family of the businessowners, which is a considerable obstacle to risk-taking andinnovation. Under these conditions, the independence andefficiency of the legal system as well as the rights of the par-ties – especially debtors – must be reinforced. Current legis-lation provides for reorganization, supposed to enable themost viable companies to survive in situations of distress,but it is too seldom applied.
Ease ofdoing
businessResolving insolvency
Time (years)
Cost(% value ofthe estate)
Recovery rate (centsper dollar)
Algeria 152 2.5 7 41,7
Saudi Arabia 22 2.8 22 28
Bahrain 42 2.5 10 66,2
Egypt 109 4.2 22 17,6
Jordan 106 4.3 9 27.4
Kuwait 82 4.2 10 31.7
Morocco 97 1.8 18 35.1
Oman 47 4 4 36.6
Turkey 71 3.3 15 23.6
Tunisia 50 1,3 7 52
MENA average 91.3 3.3 13.3 34.5
OECD average 29.3 1.7 8.8 70.6
Europe average 33.3 1.8 9.3 67.8
world average 105.8 3.1 17.7 31.2
Resolving insolvency and determinants
Source: Doing Business
▶
Kuwait, Qatar and theunited Arab Emirateshave barely been affected.
iran, iraq and israelface other political risks.
▶
3. Source: OECD Brief « Building sound insolvency systems in theMENA Region », by Elena Miteva (2007).
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Gloomy prospectsin Egypt, Libya and Syria
ANdREw ATKiNSoN
ZooM
Egypt
The political transition and the economy bothremain highly fragile. The political changes have been, and will remain, protracted andchallenging to implement. The latest demonstrations (including removalby the armed forces of the elected Islamist president, Mohamed Morsi, andensuing violence) show that the transition has entered a new phase, withheightened uncertainties. Even so, the expectation of enhanced politicaland social freedoms and of improvements in daily life has not been diluted.The population wants change but remains largely divided betweensecularists and liberals on the one hand and Islamists on the other, with thearmed forces again wielding significant influence. Meanwhile, although theSuez Canal, Sumed oil pipeline and oil and gas sectors have remainedrelatively unscathed (other than through a generally weaker globaleconomic environment), the tourist sector, domestic and foreigninvestment and workers’ remittances have been adversely affected and realGDP growth will remain below potential in the short term. GDP growth fellto only +1.8% in 2011 and +2.2% in 2012 and recovery from these lows hasbeen lacklustre, to date. Significant bilateral financial pledges have beenmade but progress on an IMF facility appears to have been halted as theFund awaits to see if fresh elections will result in a government with a firmmandate to rule. In the meantime, the GCC states, particularly Saudi Arabia,Kuwait and the UAE are providing financial support. FX reserves have beendepleted and much depends on Egypt retaining access to bilateral financialsupport. EH now expects GDP growth of only +2.5% in 2013, with arebound to around +4% in 2014, subject to a period of relative stability andenhanced security.
LibyaFormal economic activity was extremely limited in2011, the year of revolution and overthrow of theQadhafi regime, with the country’s key oil sectoreffectively closed down. GDP is estimated to have contracted by over -60% in 2011 but, followingthe overthrow, partial oil output was resumed relatively quickly and GDP isestimated to have grown by around +90% in 2012, for that reason. As oiloutput recovered to pre-crisis levels and hydrocarbon prices remained firm,the economy once more began to generate strong FX inflows. However,because the political transition remained uncertain, with the rulingauthorities attempting to solidify their power base against a background of
a splintered country, with forces (militias) showing stronger allegiance toregional or city/town bases rather than a national sovereign authority, oiloutput has again been disrupted. Forging a unified state will not be easywith such strong tribal affiliations and an East-West divide. As politicalparties were outlawed and civil institutions discouraged during Qadhafi’srule, there is little experience of administration, political activity and statebuilding. Accordingly, stability and security are unlikely to materialise easilyand quickly and business opportunities in the non-oil sector are likely to belimited.
Prospects for SyriaThe onset of the Arab Spring brought peacefulprotests to Syria but a strong military response ledto conflict, eventual armed resistance and nowoutright civil war. There is little common ground between a splintered opposition (nowincluding jihadist elements) and a regime that gets its principal supportfrom a minority Shia off-shoot sect (Alawite) and that now fears for itspolitical and commercial dominance. The protracted nature of the uprisingis having severe adverse economic effects. In the initial stages of theuprising, commercial activity was only disrupted in specific towns or areasand overall GDP contracted by -4.2% in 2011. As the armed resistancespread so did the economic disruption. GDP is estimated to have contractedby -18.5% in 2012.The outlook is highly uncertain and Syria’s national sovereignty is notguaranteed, although a break-up of the state would have profound regionalrepercussions in terms of stability and economic development. EULERHERMES’s current GDP forecast for Syria of -14% in 2013 is based on anassumption that the civil war will not end before end-2013 (infrastructuredamage is tentatively estimated at USD12 billion, at least). EH’s tentativeforecast is for GDP to contract by a further -10% in 2014. The conflict inSyria is also having adverse effects on neighbouring states, particularlyLebanon and Jordan, that are attempting to cope with large refugeeinflows, as well as reduced commercial activity associated with Syria’s crisis.Accordingly, business prospects for Syria and its immediate environs arelikely to remain highly limited this year and going into 2014. ◽
EgyptGDP growth should reach+2,5% in 2013, before a +4%rebound in 2014, assuminga political stabilisation and asecurity reinforcement.
LibyaStability and security mightnot be implemented easilyor rapidly and commercialopportunities might belimited outside of the oilsector.
SyriaCurrent Euler Hermesforecasts, a -14% GDP dropin 2013, are based on thecontiunation of the warduring 2013.
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Headwinds blowing in theMediterranean
The region remains exposed to cyclical shockslinked to global demand through investmentflows, remittance payments and trade flows,particularly from the eurozone, its main part-ner. In 2012, the persistence of this weaknesskept damage at high levels.
The GCC countries, North Africa and Turkey suffered the ad-verse effects of the eurozone crisis through different chan-nels, namely (i) trade, (ii) incoming remittances and (iii) for-eign direct investment (FDI). While exports and FDI from
the eurozone have slowed markedly since 2008 in certaincountries such as Algeria or Tunisia (-28% and -11%, respec-tively), incoming remittance payments have held up well(+6.5% in 2012 compared with around +10% between 2009and 2011).
The impact of the eurozone crisis on total exports wascushioned by the resilience of emerging countries, hen-ceforth increasingly important for trade in the MENAregion.
The North African countries remain the most exposed to theeurozone economic climate, given their degree of depend-ence through exports: 42% of total exports for Algeria, 50%for Morocco and 70% for Tunisia. Although this degree ofdependence has declined somewhat since 2008 for all thesecountries, the impact on total exports is significant: -28% for
▶
0 20 40 60 80 100
Rest of wordBRICOther
advancedcountries
Eurozone
UAE 2012
UAE 2009
Turkey 2012
Turkey 2009
Tunisia 2012
Tunisia 2009
Saudi Arabia 2012
Saudi Arabia 2009
Morocco 2012
Morocco 2009
Egypt 2012
Egypt 2009
Algeria 2012
Algeria 2009
Exports by destination% of total exports
Source: International Monetary Fund
End-2011
22%8%7%6%6%6%5%5%5%5%
Source: International Monetary Fund
Turkey
NetherlandsGermanyUnited KingdomUnited StatesUnited Arab EmiratesAustriaBelgiumSpainLuxembourgFrance
Top ten sources of Fdi
End-2011
74%6%5%3%3%2%1%1%1%1%
Morocco
FranceSwedenSpainKuwaitSwitzerlandUnited Arab EmiratesNetherlandsSaudi ArabiaBelgiumCayman Islands
End-2010
10%9%8%7%5%5%5%4%4%4%
Saudi Arabia
KuwaitFranceJapanUnited Arab EmiratesChina, P.R. MainlandGermanyUnited KingdomBahrain, Kingdom ofNetherlandsJordan
+6.5%in 2012, against about 10%between 2009 and 2011,incoming flows slowed down.
2.
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Algeria and -11% for Tunisia. Over the same period, exportsfrom Morocco (+0.5%), Turkey (+15%) and the Gulf countriesshowed more resilience. At the same time, a diversificationof export markets is taking place: while intra-regional traderemains weak (3% of total trade for the MENA region) dueto numerous trade barriers and excessive logistical costs,trade relations with emerging countries are gaining traction,having increased from 7% to 12% over the past decade. Asia’srole not only in trade relations but also in investment (infra-structure, industry) is growing constantly: the share of Asiain MENA countries’ trade has doubled since 2000 to 12%.
Resilience of incoming remittance payments despitethe eurozone crisis.
Remittance flows to developing countries amounted to USD406 billion in 2012, up +6.5% compared with 2011. Althoughthis constitutes a slowdown on previous years (average an-nual rate of +9.9% between 2009 and 2011), remittancepayments held up well in light of the European crisis (50% oftotal remittance payments are from eurozone countries)and the slowdown in growth in developed countries. TheMENA countries, alongside Southern Asian countries – withlarge numbers of workers in GCC countries, whoseeconomies were very brisk in 2012 – saw the largest increasein remittance payments in 2012 (+8.4% and +12.5%, respec-tively). Within the MENA region, Egypt saw the highest rateof growth in remittances in 2012 (+43%), followed by Tunisia(+10%), which can be explained above all by the politicalcrisis and therefore the support provided by expatriates totheir families at home. This high rate of growth brought thedependency rate of the Egyptian economy on remittancepayments to 8% of GDP, compared with 7% in Morocco and5% in Tunisia.
0
3
6
9
12
15 TurkeyTunisiaMoroccoItalyIsraelEgypteAlgeria
1210080604020098969492908886848280
Remittance inflows% of GDP
Source: World Bank
0
20
40
60
80
100
Rest of world
Emerging markets
Other developed countries
Eurozone
Turkey2011
Turkey2009
SaudiArabia2010
SaudiArabia2009
Morocco2011
Morocco2009
-1,0%
-0,2%
+0,2%
+3,9%
+2,0%
-0,6%
+0,2%
+0,2%
+0,2%
Foreign direct investment (FDI) inflows by sourceAs % of total FDI inflows
Source: World Bank
▶
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Economic Outlook no. 1198 | August 2013 | Special Report Euler Hermes
44
Foreign direct investment (Fdi) was severely affectedby the eurozone crisis.
Since 2009, FDI inflows have declined by -1% in Morocco,mainly due to the decline in investments from the eurozone,while in Turkey FDI has fallen by -1.9%, with the -3.2% fall inFDI from the eurozone being partially offset by an increasein FDI from emerging countries and other developed coun-tries (outside the eurozone). Despite the European crisis,Morocco and Turkey continue to be highly dependent on di-rect investment from the eurozone. Eurozone countries ac-count for 82% of total FDI in Morocco and 66% in Turkey,compared with 22% for Saudi Arabia – France, Germany, theNetherlands, Spain and the United Kingdom being the maininvestor countries. This is all the more important for eco-nomic growth insofar as FDI inflows represent a large shareof GDP in both countries: 20% in Morocco and 15% in Turkey.The GCC countries are also very dependent on FDI, chiefamong which Bahrain (60% of GDP) and Saudi Arabia (26%of GDP). For the latter country, the eurozone remains thelargest investor, accounting for around 20% of GDP, withFrance alone accounting for 10% of GDP.> in 2012, insolvencies remained at high levels in allsub-regions. Greece and Spain recorded more than twiceas many insolvencies as in 2008. Italy and Turkey remain farabove (more than 50%) their pre-crisis level. France and Mo-
rocco have fared better, but the risk remains all the same, asthe latest data still exceed 2008 levels. These figures are es-pecially alarming as current trends do not point to any turn-around in 2013. Notably, Greece and Spain are expected topost double-digit increases (+10% and +40%, respectively).
France
Morocco
Turkey
Italy
Greece
Spain 169.5%
148.7%
71.1%
56.0%
30.8%
11.4%
Corporate insolvency risk Growth in insolvencies between 2008 and 2012
Sources: TOBB, Inforisk, national statistical services, Euler Hermes
▶
▶
+10%and +40%insolvency increase in 2013 inGreece and Spain.
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Euler Hermes Economic Outlook no. 1198 | August 2013 | Special Report
45
innovation will be key if theMediterranean is to realizeits potential
Last, innovation remains the biggest Achilles’heel for the region’s economies. While it is ata satisfactory level in the developed countries,little extra effort has been made in recentyears. By contrast, the “champions” of theMENA region have invested in education andresearch, although the levels reached stillremain low.
Although spending on R&d and education has beenvigorous in recent years, it remains low compared withboth emerging and developed countries.
Between 2005 and 2009, for example, spending on R&D in-creased by +20% in Tunisia, +11% in Egypt and +44% inTurkey. This increase was helped by transfers of skills madepossible by the proliferation of intra- and extra-regional eco-nomic partnerships and investments. Each country presentsits own strengths and its own weaknesses, illustrating a ca-pacity for innovation that is particularly favorable for the di-versity of production in the region (see table page 46). Themajor innovation hubs in the Mediterranean remain thesouthern European countries Italy, France and Spain, as thesecountries benefit from innovation capital that has been ac-cumulated over several decades. These countries have con-siderable advantages in terms of enrolment rates, certifica-tion, clusters and development of innovative products. Thisdoes not, however, prevent the catch-up phenomenon fromtaking place in the MENA countries, which, while they arestarting from far behind, are now on a positive trajectoryand benefit from tax advantages. The recent boom in publicspending on education (to high levels in Saudi Arabia, Mo-rocco and Tunisia), especially in technical and scientific fields,and the development of infrastructure point towards goodperformances in the area of innovation. High-tech exports,for example, increased by 30% between 2009 and 2011 inMorocco.
Israe
l
High
inco
me
Wor
ld
Italy
Low
& m
iddl
e in
com
e co
untri
es
Tuni
sia
Turk
ey
Mor
occo
Egyp
t
Saud
i Ara
bia
Alge
ria 0
.07%
0.2%
0.6
% 0.8% 1.
1% 1.2% 1.
3%
2.2%
2.5%
4.4%
0.08
%
Research & Development spending% of GDP
Sources: World Bank, Euler Hermes
0 1 2 3 4 5 6 7United Arab Emirates
Qatar
Turkey
Egypt
Algeria
Italy
Spain
Morocco
Saudi Arabia
France
Israel
Tunisia
Spending on education% of GDP
Source: CIA World Factbook
▶
3.
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Economic Outlook no. 1198 | August 2013 | Special Report Euler Hermes
46
Sources: INSEAD, Euler Hermes
◾ Drive to improve logistics performance.
◾ Rising investment in infrastructures(transport, trade).
◾ Intense local competition,favoring creativity.
◾ Public spending on education still too low.
◾ Weak business environment.
◾ Lack of synergies and communicationwith foreign investors.
↑ STRENGTHS WEAKNESSES ↘
innovationStrengths et weaknesses
Turkey
◾ Very favorable business environment(taxes, entrepreneurship, investor protection).
◾ Strong government involvement in education.
◾ Development of innovation centers and clusters.
◾ Highly dependent on the energy sector.
◾ Complex insolvency resolution andweak investor protection.
◾ Lack of sophistication of exports (fewexports of high-tech goods).
↑ STRENGTHS WEAKNESSES ↘Saudi Arabia
◾ High public spending on education.
◾ High number of engineering graduates.
◾ Patents, clusters, market capitalization,and booming venture capital.
◾ Opaque tax system.
◾ Insufficient investor protection.
◾ Production not aimed enough at inno-vation and new technologies.
↑ STRENGTHS WEAKNESSES ↘Morocco
◾ Favorable business environment (espe-cially in terms of resolving insolvencies.
◾ Rapid increase in spending on educa-tion and research.
◾ Investment in ICT and high-value-added products in partnership with foreign investors.
◾ Weak foreign investment inflows.
◾ High tariff protection and royalties.
◾ • Insufficiently developed foreign tradeand domestic competition.
↑ STRENGTHS WEAKNESSES ↘Tunisia
◾ Ease of the tax system.
◾ Public spending on education and ICT(but limited by the current situation).
◾ Favorable ranking in R&D within the region.
◾ Complex insolvency resolution andweak investor protection.
◾ Weak market access for non-energy ex-ports.
◾ Influence of foreign innovation still verylimited (spreading of knowledge, exportsof high-value-added products).
↑ STRENGTHS WEAKNESSES ↘United Arab Emirates
◾ Ease of entrepreneurship and risk-taking (venture capital).
◾ Public spending on education and ICT(but limited by the current situation).
◾ Favorable ranking in R&D within the re-gion.
◾ Unfavorable regulatory (insolvencies)and political environment.
◾ Foreign trade limited by lack of infra-structure.
◾ Weak synergies between universitiesand industry.
↑ STRENGTHS WEAKNESSES ↘Egypt
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Euler Hermes Economic Outlook no. 1198 | August 2013 | Special Report
47
innovation will be a key factor for the economic deve-lopment of emerging countries.
Despite the progress made in recent years, MENA countriesand Turkey continue to lag behind developed countries interms of innovation and spending on R&D. Only 1% of theregion’s GDP is used for R&D projects in these countries,compared with more than double that at the worldwidelevel. Nevertheless, positive trends are taking shape, in par-ticular in Turkey, where spending on R&D has been risingsince 2009 thanks to a strong partnership between the publicand private sectors: more than 15% of R&D spending comesfrom private companies, compared with 6% in Europe and35% in China. The need to strengthen government policiesand public spending on education and innovative projects iscrucial in light of 1> the declining dependency of the economies on hydro-carbons and therefore the need to find new sources ofgrowth;
2> demographic projections which, without innovation, willincrease the economies’ dependence on imports and foreignlabor; 3> and (iii) globalization and growing international compe-tition. Also, collaboration between universities and private-sector research remains very weak in the MENA region, unlikein developed countries. The southern European countrieswill draw advantage from this lag in the medium term. How-ever, they will also have to step up their innovation drive inthe coming years in order to bolster their regional competi-tiveness. ◽
Chan
ge fr
om 2
011
(poi
nts)
Innovation ranking 2012
15
10
5
0
-5
-10
-15
-200 20 40 60 80 100 120
MoroccoSaudi Arabia
Egypt
QatarChina
Turkey
France
Italy
Spain
Israel United Arab Emirates
Oman
TunisiaBahrain
Positive trendfor innovation
Leadersin innovation
Innovation Index*
Sources: INSEAD, Euler Hermes
▶
* Index calculated on thebasis of the capacity of theeconomy to implementinnovative projects. Criteriainclude institutions, humancapital, infrastructure, thebusiness environment aswell as local knowledge andthe number of creativeprojects.
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Economic Outlook no. 1198 | August 2013 | Special Report Euler Hermes
48
Economic ResearchEuler Hermes Group
EconomicOutlookSeries
Already issued:
no. 1180 ◽ business insolvency in France (only available in French) The overall decrease in French insolvencies hides several weaknesses
no. 1181 ◽ Macroeconomic, Risk and insolvency outlook A fog cannot be dispelled by a fan
no. 1182 ◽ Special Report Payment periods in Europe: wide gaps
no. 1183-1184 ◽ Macroeconomic, Risk and insolvency outlook Too much time wasted saving time
no. 1185 ◽ Global Sector outlook Economic sectors put to the test
no. 1186 ◽ Macroeconomic, Risk and insolvency outlook In 2013, we take the same and start again
no. 1187 ◽ Special Report The Reindustrialization of the United States
no. 1188 ◽ Special Report The Reindustrialization of the United States
no. 1189-1190 ◽ Macroeconomic, Risk and insolvency outlook World heads for sixth year of crisis: something the Maya did not forecast! !
no. 1191 ◽ Global Sector outlook Now where did global demand go?
no. 1192 ◽ Special Report Trade Routes: What has changed, what will change
no. 1193 ◽ Macroeconomic, Risk and insolvency outlook Europe: still looking for a second wind
no. 1194 ◽ business insolvency worldwide Corporate insolvencies: the true nature of the Eurozone crisis
no. 1195-1196 ◽ Macroeconomic, Risk and insolvency outlook The world at a crossroads
no. 1197 ◽ Global Sector outlook Reconciling economic (dis)illusions and financial risks
no. 1198 ◽ Special Report The Mediterranean: Turning the tide
To come :
no. 1199 ◽ Macroeconomic and Risk outlook
no. 1194
Business Insolvency Worlwide
Corporate insolvencies: the true nature of the Eurozone crisis
www.eulerhermes.com | no. 1194 | April 2013
Euler Hermes Economic Research Department
Economic Outlook
no. 1195-1196May-June 2013
Macroeconomic, Risk and Insolvency Outlook
The world economyat a crossroads
www.eulerhermes.com | no. 1195-1196 | May-June 2013
Euler Hermes Economic Research Department
Economic Outlook
no. 1197Global Sector Outlook
Reconciling economic(dis)illusions andfinancial risks
www.eulerhermes.com | no. 1197| July 2013
Euler Hermes Economic Research Department
Economic Outlook
48
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Euler Hermes Economic Outlook no. 1198 | August 2013 | Special Report
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Back issues:
◽China: Mini credit crunch for a megaeconomy? >August 19, 2013 (Fr, En)◽The eurozone needs a credit policy> July 31st, 2013 (Fr, En)◽Transatlantic Free-Trade Agreement:More than just corn and foie gras? > July1st, 2013 (Fr, En)◽Europe: The scarring effects of youthunemployment > July 1st, 2013 (Fr, En)◽united States : structural unemploy-ment as a long-term impediment togrowth > June 25, 2013 (En)
◽En France, la remontée desdéfaillances d’entreprises se diffuse à lagrande majorité du tissu économique> 24 juin 2013 (Fr)◽défaillances : pourquoi cette crise est-elle différente de 2009 ? > 6 juin 2013 (Fr)◽‘Greecovery’: Is there enough light atthe end of the Greek tunnel > June 4, 2013(En)◽Shale gas : One country’s meat isanother country’s poison? >May 29, 2013(En)◽insolvency forecast germany :Several sectors at insolvency risk in 2013> May 29,2013 (De, En)
◽Plus de 61000 défaillances l’an enFrance, avec une envolée des procéduresde sauvegarde > 27 mai 2013 (Fr)◽Heavy truck market just ticking over: Ahighly cyclical sectorun > May 20,2013 (Fr,En)◽Crisis in the European petrochemicalindustry? > May 19, 2013 (Fr, En)◽Construction: The end of the Polishexception > May 15,2013 (Fr, En)◽California : The Agrifood Valley at-risk>May 7, 2013 (En)
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Economic Outlook no. 1198 | August 2013 | Special Report Euler Hermes
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Euler Hermes Economic Outlookis published monthly by the Economic Research Departmentof Euler Hermes Group1, place des Saisons, 92048 Paris La Défense Cedex E-mail : [email protected] - Tel. : +33 (0) 1 84 11 50 50
This document reflects the opinion of the Economic Research Department of Euler Hermes.
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Department of Euler Hermes has no responsibility for the consequences hereof and no liability.
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