EU-MED and the Investment Climate
By Mustapha K. NabliChief Economist, Middle East and North Africa Region
World Bank
2
Outline
• 6 years after the Barcelona conference – where do we stand? – Low levels of private investment and FDI in MED countries– Linked to lack of improvements in the investment climate
• Why slow progress on structural reforms?– Oil and aid– Socio-economic pressures– Governance matters, especially in areas which affect the business
environment
• What can be done?
3
Private investment levels are stagnant or declining
(Private Investment as % of GDP)
0
5
10
15
20
25
Egypt Jordan Morocco Tunisia
90/94 95/98 99/2000
4
Unlike in countries with regional trade agreements like Poland and Mexico (EU accession and NAFTA)
(Private investment as % of GDP)
02468
101214161820
MED4 Poland Mexico
90/94 95/98 99/2000
5
FDI has increased in some of the Med countries and fallen in some…
FDI as % of GDP.
0.0
0.5
1.0
1.5
2.0
2.5
3.0
Egypt Jordan Morocco Tunisia
Perc
ent o
f GD
P
90/94 95/97 98/99
6
… but they lag behind CEE accession countries (Poland, Hungary and Czech Republic) and Mexico.
FDI as % of GDP.
0.0
1.0
2.0
3.0
4.0
5.0
6.0
MED4 Mexico CEE3
Perc
ent o
f GD
P
90/94 95/97 98/99
7
Slow progress on structural reforms in the MENA countries. (Structural reform index, 100=best value of all countries,
all years 1990-1998).
45
50
55
60
65
70
75
80
85
90
MED4 Mexico Poland and Hungary
1990 1998Source: Dasgupta, Keller and Srinivasan, (2001), World Bank.
8
What accounts for the slow progress on improving the investment climate?
• Access to “easy money” reduces incentives to foster reform– Mineral exports and aid money has been reduced but
remains high compared to other countries• Political inertia in advancing broad reforms, in
relation to social and political tensions– Labor market pressures increase the risk for political
instability (which also blocks reform)• Governance issues
9
Governance matters
– The four MED countries generally performing well on
governance compared to other MNA countries– But not to the rest of the world, especially for areas
which strongly affect the business environment• Opportunities for voice and mechanisms ensuring
accountability of government:– Political rights, transparency of legal system,
responsiveness of government to its people, business community voice and access to information, etc.
– The level of political participation is key
10
MED countries have a low level of political participation and low level of voice and accountability mechanisms...
Voice and accountability vs. level of political participation
MOREGY TUN
JOR
HUNCZE
MEX
0
1
2
3
4
5
6
-10 -5 0 5 10Level of political participation
Leve
l of v
oice
and
acc
ount
abili
ty
MED (4) COMPARATORS OTHER MNA
Source: Kauffmann, Kraay, Zoido-Lóbaton (1999), World Bank, and UMC Polity Index
11
… and a low level of voice and accountability relative to their income levels :
Voice and accountability vs. GDP per capita
JOR
TUNEGYMOR
HUNCZEPOL
MEX
0
1
2
3
4
5
6
6.0 7.0 8.0 9.0 10.0 11.0GDP per capita (ln)
Leve
l of v
oice
and
acc
ount
abili
ty
MED (4) COMPARATORS OTHER MNA
Source: Kauffmann, Kraay, Zoido-Lóbaton (1999), World Bank.
12
Governance – an agenda
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