What Economic Future for the Southern Mediterranean Rim?

Tenth Mediterranean Research Meeting Montecatini Terme, 25-28 March 2009 Finance and Economic Development in the Mediterranean

What economic future for the Southern Mediterranean rim?

The prime role of SMEs and their financing Bénédict de Saint-Laurent, ANIMA, Invest in Med Programme Who are we, ANIMA ? z Initially: A Euro-Mediterranean Network of Investment Promotion Agencies (2002-2006) z Nov. 2006: a Federation of 18 founding organisations (ANIMA Investment Network) z Now (March 2009): 67 organisations committed to the economic development of the Mediterranean z Goals } Promote the Mediterranean as an attractive destination for investors (web site, events, scoreboards etc.) } Seek opportunities for territories and investors (economic intelligence, etc.) } Advocate a stable, dynamic and fair business environment for investors and enterprises

MRM 2009 © ANIMA-Invest in Med www.invest-in-med.eu 2 A. Prospective overview of Med economy

MRM 2009 © ANIMA-Invest in Med www.invest-in-med.eu 3 Med? What does it mean? z 9 countries associated with EU z Malta and Cyprus joined EU-27 in 2004 z Turkey is now a candidate to EU z Libya is an observer In these slides, European Union Turkey is included in the Med region Turkey (‘Med-10’), sometimes Libya, Syria Tunisia Malta Cyprus Cyprus & Malta Lebanon Jordan (’Med-13’) Morocco Palestine Algeria Israel

Libya Gulf Egypt countries

MRM 2009 © ANIMA-Invest in Med www.invest-in-med.eu 4 What MED future? z The “MED” region represents at the same time } A relatively weak economic partner for Europe } One of its best cards for a sustainable recovery… z MED is both a time bomb and a remarkable opportunity, with } A rapidly growing population } Huge social needs } Infrastructure and environmental challenges } Insufficient capital inflows } Almost unachievable job creation requirements z Med= a risk or an asset ? } Depending of Europe’s appetite for security vs. venture

MRM 2009 © ANIMA-Invest in Med www.invest-in-med.eu 5 North rim share (EU) Example: huge urban needs South rim share (Med) 80%

z In 2025, 100 cities over 1 m pop. 70% 66% 71% z Of which, 75 in Med countries 60% 50%

40%

30% 34% 29%

20% 1950 1975 2000 2025

Shift in global Euro-Med population share: the Southern rim now hosts more inhabitants

Map by M.Joannon and L.Tirone. Year

MRM 2009 © ANIMA-Invest in Med www.invest-in-med.eu 6

2000 data. Source: Geopolis data base A still highly uncertain future z Some dream about a deeper integration } Both intra-Med and with Europe } Stronger economic links } A more balanced sharing of wealth } A real partnership } A true Union for the Mediterranean… z This scheme would imply } More public and private investment } Not really the current priority in the present crisis times z Other views } Europe will lack million workers in coming years, easily supplied by MED job seekers } The Northern rim is able to carry more dwellers than the Southern shore -limited in terms of space, water, facilities } Population relocation into the North, a solution?

MRM 2009 © ANIMA-Invest in Med www.invest-in-med.eu 7 The economic gap with Europe… z Northern rim } Old countries, comfortable income per capita (8 times higher than in South), limited growth, industry losing GDP per capita 2007, World Bank momentum, post-industrial society centred on qualitative issues z Southern rim EU-27 : } Young countries, needed strong US$ 34,502 growth, industrial and service capabilities, pressure of quantitative issues - infrastructure, unemployment, Med-10 : US$4,737 basic services to the population

MRM 2009 © ANIMA-Invest in Med www.invest-in-med.eu 8 A very slow convergence… z Despite recent changes (growth differential, lower birth rate), it would take 150 years at current pace for Med to level with EU

EU/MED ratio for GDP EU/MED ratio for GDP per capita EU/MED ratio for population

20 18.0 15.8 15.0 13.1 14.3 13.8 13.2 15 12.6 11.1 9.8 10 8.22 6.53 7.68 7.47 7.28 6.96 5.22 6.26 5.55 5 4.15 3.02 2.67 2.40 2.19 2.01 0 1.87 1.84 1.82 1.80 1.78 1980 1985 1990 1995 2000 2005 2006 2007 2010 2013 (est.) (est.)

MRM 2009 © ANIMA-Invest in Med www.invest-in-med.eu 9 Med, a motor for

10 year change in GDP growth Euro-Med growth? Source: www.ers.usda.gov 6.0 9.9 1997 9.3 1997 2006 2.6 2.2 1.4 4.5 2006 3.3 EU 27 RUSSIA 2006

EURO-MED 8.0

ALENA 1997 CHINA 2006 4.5 5.3 5.5 1997 3.6 4.4

INDIA MEDA 10 2006 ASEAN 4.9 5.1 5.0 1997 2.7

SADC MERCOSUR

MRM 2009 © ANIMA-Invest in Med www.invest-in-med.eu 10 The ‘natural’ Med future (land use) Based on ANIMA’s observatories /current FDI trend z A few areas of excellence (capital cities, logistics and industrial poles, prime service locations) } Able to retain the best of Med activities and citizens z The outer circles of these metropoles } For “urban servants” living in difficult conditions z The “average” territory (suburbs, small cities) } For the growing middle class z Rural spaces either exploited (traditional villages, agrifood, plantations) or semi-abandoned (desert, mountains, reserves) z Numerous tourism enclaves exploited by abroad operators z A few “retention” zones (something like Gaza...) for population not entitled to reach Europe… z The Mediterranean sea } Partly exploited (logistics, off-shore, aquaculture, tourism) } Partly sanctuarised (reserves), but globally more polluted MRM 2009 © ANIMA-Invest in Med www.invest-in-med.eu 11 Industrial gaps in Med countries z Weak industrial fabric } Productive system characterised mainly by small enterprises } Strong specialisation in low and mid-tech sectors ~Agrofood, textile/clothing/footwear, furniture, mechanics } Local industry lacks depth, integration and international size ~Except energy, petrochemicals, mining, agribusiness, real estate, tourism and some new sectors (ICT, off-shoring) z Few world-level metropolitan industrial clusters } Tanger-Med, Arzew, Southern Tunis, Alexandria, Istanbul

MRM 2009 © ANIMA-Invest in Med www.invest-in-med.eu 12 Med business in the global world z Few international companies } Champions: Orascom, hydrocarbons, construction holdings… z Obstacles in enterprise/SME development } Infrastructure, financing, trade barriers, red tape, poor internet service } Limited entrepreneurship, university-industry relationship } The formal sector is often a minority employer z Companies dominated by foreign partners /competitors } Mainly sub-contractors or assemblers } Absence in the most strategic segments of the value chain (branding, design, organisation of work, marketing, logistics, R&D, distribution etc.)

MRM 2009 © ANIMA-Invest in Med www.invest-in-med.eu 13 Result: a limited position in world trade z 2.6% of exports, vs. 4% of population } And this percentage includes energy! z High imbalance imports (covered at 78%) vs. exports } With the notable exception of Algeria z Fairly modest intra- Med trade Source Euromed Transport 2002 data } 4.5% of imports In 2006, the Euro-Med trade /6.2% exports, to be represented €205 bn (imports + compared with 45 exports), vs. €140 bn in 2002 or a /49% with EU growth of around 9% per year

MRM 2009 © ANIMA-Invest in Med www.invest-in-med.eu 14 Med, what industrial future? z Probably not the plant of the world } Except in a few sectors: eg. petrochemicals, metallurgy, fertilizers z Some niches with competitive advantages for Med } Container routes, reasonable labour cost Æ cars, electronics } Heritage, civilisation, sun & sea Æ tourism, healthcare } Proximity with Europe Æ garments, short fashion } Interest for farming, gardening Æ agribusiness, organic food } Etc. z But most of growth and jobs will come from mid-size activities… } Services and light industry } Direct jump into the knowledge economy? } ICT, education, R&D z … and from smart co-development with Europe

MRM 2009 © ANIMA-Invest in Med www.invest-in-med.eu 15 Med, an attractive positioning z The central segment of world trade } 30% of world maritime freight & containers } 25% of hydrocarbures Northern Europe Bursa z A central positioning for high Black Sea value goods Southern Europe Central Asia } Car, electronics, brown products, fashion etc. Middle America, z An attractive production East platform East North Africa coast } Affordable labour costs America West } Good logistics Tanger Malta East coast Port z At the doors of Europe and Med Freeport Asia Euro-Med future single market Saïd

MRM 2009 © ANIMA-Invest in Med www.invest-in-med.eu 16 rationality Move towards another future? z Still possible z Made of millions of individual decisions z Implies a set of collective choices based on long-term

} Systematic preference for sustainable projects } Development of subsidiarity and local accountability } Commitment to sound regional co-operation } Priority to education and training } Real economic chances given to entrepreneurs, youth, women and diasporas z Awareness and intelligence will be determining to avoid wasting the sometimes limited available resources } For instance seashore space, for which urbanisation, logistics, tourism, agriculture are fiercely competing

MRM 2009 © ANIMA-Invest in Med www.invest-in-med.eu 17 Example of real estate and urban generation z Ambitious urban projects (metropoles) } Re-buildingspace of CBDs, new towns, technoparks etc. } Real estate: over-représented (Gulf, mid-tech…) z A dual space management } Dynamism for private or commercial small space (house, office) –high profitability, intensive care } Weakness of collective approach concerning the public wide (urban planning, utilities, transport, maintenance,etc.) z Strong trend towards seashore concentration } Serious long term problems (land, traffic, water, soils, etc.)

MRM 2009 © ANIMA-Invest in Med www.invest-in-med.eu 18 The turn for Southern shore to be consumed? Source: Joannon/Tirone 2001

MRM 2009 © ANIMA-Invest in Med www.invest-in-med.eu 19 B. Foreign direct investment

MRM 2009 © ANIMA-Invest in Med www.invest-in-med.eu 20 FDI flows to Med-10: soft landing?

z ANIMA= announced FDI flow, UNCTAD- US$m FDI flow, ANIMA, €m Nb. of projects investment 770 via 755 722 800 70 000 68 165 company 657 700 projects 60 000 56 725 600 (micro- 50 000 59 021 45 000 economic 55 051 1 500 view) 3 6 40 000 z UNCTAD 8 400 325 3 = money 30 000 35 547 250 30 045 300 flows 167 recorded 20 000 12 737 200 9 786 by Central 10 000 10 093 100 Banks 8 941 0 6 225 0 (macro- economic 2002 2003 2004 2005 2006 2007 2008 view)

MRM 2009 © ANIMA-Invest in Med www.invest-in-med.eu 21 FDI performance per country Source ANIMA 2006-2008 Flows in €m Average FDI/ Destination Flow 2006 Flow 2007 Flow 2008 Pop. 2008 3 years capita Israel 13 850 4 035 3 253 7 046 6 426 679 1 096 € Malta 296 46 305 216 401 880 536 € Cyprus 152 32 1 081 421 788 457 534 € Libya 374 4 574 3 059 2 669 6 036 914 442 € Lebanon 4 425 279 270 1 658 3 921 278 423 € Jordan 3 235 2 765 1 209 2 403 6 053 193 397 € Tunisia 3 887 3 329 1 490 2 902 10 276 158 282 € Turkey 14 310 14 148 20 055 16 171 71 158 647 227 € Egypt 15 935 22 204 4 551 14 230 80 264 543 177 € Syria 4 674 2 029 1 062 2 588 19 314 747 134 € Algeria 2 280 5 214 1 989 3 161 33 333 216 95 € Morocco 5 280 2 714 1 480 3 158 33 757 175 94 € Palestinian Auth. 289 8 187 161 3 965 443 41 € Total MED-10 68 165 56 725 35 547 53 479 275 698 330 194 € Total MED-13 68 987 61 376 39 991 56 785 275 698 330 206 €

MRM 2009 © ANIMA-Invest in Med www.invest-in-med.eu 22 Recent economic trends z Growth } According to World Bank limited growth of 3.9% (vs. previous forecast of 5.9%) expected in the MENA region in 2009 z Med hit by the global crisis } Weaker oil revenues } Tighter credit conditions } Reduced demand for the region’s exports, including tourism } E.g. 50,000 jobs lost in textile export sector in Morocco 2008 z Cancellation of numerous programmes –two examples: } Nissan to postpone Tanger Med car ‘world plant’ } Emaar, Nakheel or Damac projects cancelled in several places z However the region might suffer less than others } Some countries are relatively protected (Algeria) } Cheap oil and low inflation benefit to several countries… } Europe often considers Med as a recourse

MRM 2009 © ANIMA-Invest in Med www.invest-in-med.eu 23 Main FDI flows into Med Source ANIMA Asia & Other Other MED* Europe Emerging countries =Turkey, Israel, 2003-2008 87.5 € bn 23,8 € bn Cyprus, Malta 10,8 €bn 42,3 € bn 30,7 10,5 R n HE €bn €b OT * 2,5 ED 25,6 M €bn €bn 19,6 € bn MAGHREB CK 10,4 RE €bn 16 CH Mds MA € 4,8 €bn 42,1 6,2 €bn €bn

USA/Canada Gulf & MENA 41,8 € bn 68,5€ bn A tetra-pole EU-Maghreb-Mashreq-Gulf MRM 2009 © ANIMA-Invest in Med www.invest-in-med.eu 24 Four profiles of investors z North-Europeans, Americans } Typically « off-shore » investments (energy, desalination) } Limited contacts with the country, limited spillovers z Continental Europeans (esp. latin countries) } Well-integrated (sub-contracting, relocation, partnerships) } More traditional sectors and more SMEs than average } Afraid by takeover of large conglomerates (prefer invest in capex) z Gulf investors } Looking for rent and high returns (oil, gas, real estate, mobile phone) } Quantity, but what about quality and sustainability? z Other emerging countries } Interested in resources (China, India, Brazil) } Basic industries (PWs, minerals, fertilizers, smellters, etc.) } No objections for major takeovers (>5,000 staffs) and restructuring

MRM 2009 © ANIMA-Invest in Med www.invest-in-med.eu 25 Major public infrastructure projects (examples)

Istanbul

Æ Gebze ÆBursa

Alger Cap Djinet Æ Radès Izmir Æ Skikda Tanger Med Deir Ez Zor Æ Arzew Æ Enfidha Lattakia ir Æ d East-West a g n motorway A i Beirut Casablanca - a a r s t Haifa Æ Port Said a d C e p Benghazi Safi – Hejjaz r s Æ Æ Alexandria ie h Æ railway g ig Railway projects n h a CairoÆ T Æ Soukhna Aqaba

Main port Port under development or projectÆ Main industrial concern Major road/railway

MRM 2009 © ANIMA-Invest in Med www.invest-in-med.eu 26 Major Med telecom deals For mobile networks, over €30 bn invested over 6 years !

Oger TeliaSonera Vodafone (Sweden) 2005 (UK) 2005 (S. Arabia) Purchase of Purchase of 2005 TurkCell € 2.5bn Telsim € 3.7bn 55% of Turk Telekom €5.1bn

+ Apax & partn. MTN (S. Africa) (UK) 2007 Ashmore 2005 Purchase of Acquisition of 35% (UK) 2007 Investcom €2.5bn Vivendi Dubai of Bezeq €1.1bn Acquisition of (France) Holding Israeli ECI Since 2004 (UAE) 2006 Telecom €400m Purchase of Acquisition of FT/Orange Maroc Orascom 35% of 2005 Telecom (Egypt) Tunisie Etilisat Acquisition of nd €4bn Telefonica 2006 2 Télécom (UAE) 40% of Jordan (Spain) 2005 mobile €1.8bn 2006 Telecom Acquisition of licence 2nd mobile the 2nd fixed (Djezzy) licence FT/Orange telephone line €2bn €2.3bn (France) Watanya license Watanya Since 2002 JV with Orascom (Kuwait) / (Kuwait) Qtel 2006 3rd MobiNil/ 3G (Qatar) mobile license /Cairo 2006 licence Orange Lab (R&D) Mobile (Nedjma) >€2bn license in €1.3 bn Palestine €0.4 bn MRM 2009 © ANIMA-Invest in Med www.invest-in-med.eu 27 Mobile & Internet Use 466 Mobile phone, million users 2006 Euro-Med n°1 Internet, million users 2006 595 Source: CIA World Factbook 247

281 461

EU 27 307 252

129 137 EURO-MED 34

MEDA 10 ALENA CHINA 166

INDIA 156

60 58 8 MERCOSUR SADC

MRM 2009 © ANIMA-Invest in Med www.invest-in-med.eu 28 €64.1 bn €28.5 bn Investment fields per country 606 projects 374 projects 2003 2004 2005 2006 2007 2008 €1.7 bn 53 projects Israel Source: ANIMA- Software, Cyprus electronics, MIPO. Announced Banks, R&D Telecoms, Turkey investments services, agri-food Telecoms, automobile, banks, agri-food €11.2 bn Syria 10.2 bn 199 proj. Energy, tourism, 333 projects €6.0 bn €0.7 bn banks, €18.9 bn 46 projects 97 projects agri-food 688 projects Malta €10.2bn Jordan Tunisia Lebanon Drugs, Tourism, ICT 203 Tourism, Energy, cars logistics, real estate projects real estate, €18.9 bn aeronautics banks, banks, Morocco 431 projects telecom, services software Agri-food, textile €8.4 bn automobile services 104 projects aeronautics, €52.8 bn €0.6bn industrial 514 projects 21 projects sectors & ICT Algeria Energy, Palestine Au. Libya Banks, real estate, banks & Egypt ICT services Oil and gas, public works, Energy, services chemicals, banks, tourism MRM 2009 © ANIMA-Invest in Med www.invest-in-med.eu 29 Project concentration on Tanger Tanger Med Port 3. Maersk et PSA, gestion des terminaux 3 et 4 de Tanger Med II 4. CMA-CGM, 100 % de la Comanav (200 millions €) et +20% du terminal 1 6. Pizzorno Environnement, concession de gestion des déchets (39 M €) 8. ENOC/Horizon (consortium maroco-koweito-émirati), terminal 2 9. Notilia, conditionnement de produits de bricolage pour la grande distribution 12. Bourbon (France), concession des services de remorquage

Tanger city 7. Groupe Crit (intérim, France) ouvre une agence à Tanger

Tanger Med automobile cluster (14) 5. Renault-Nissan usine d'envergure mondiale (600 mln €) 13. Cover Car et 15. Trecar (Portugal) sièges auto 10. Premo (Espagne), usine de composants électroniques 16. Elloumi / Coficab (Tunisie), câblage automobile 11. Yazaki (équipementier, Japon), usine de composants 17. Delphi (équipementier, USA), délocalisation

MRM 2009 © ANIMA-Invest in Med www.invest-in-med.eu 30 FDI: from quantity to quality? z Ambiguous impact } First, recovery in terms of volumes (need for jobs!) } But a poor development model (sub-contracting, mass tourism, garbage plants…) } Limited & declining job creation (100,000 direct jobs /yr) } Creation of wealth, but limited redistribution, brain drain etc. z Contradictions economics vs. sustainability } The weaker an economy, the least it can dominate major operators } Southern rim = dominated space: obligation to accept both jobs and pollution… } Financial rules favour short-term projects ~ High interest rates penalising future positive cash-flows ~ Externalities poorly considered (predation of natural goods etc.) } The « new operators » often do not care about persons…

MRM 2009 © ANIMA-Invest in Med www.invest-in-med.eu 31 FDI: who are the investors in Med-10? z TNCs count for 64% and large companies for 28% z SMEs (8%) are mostly significant from Europe

2003 2004 2005 2006 2007 2008 Source ANIMA 2003-2008

30 000 €91.8 bn 25 000

20 000 €40.8 bn €30.5 bn 15 000 €29.6 bn

10 000 €15.9bn €8.6 bn 5 000 €4.4 bn € 2.5 bn € 0.3 bn 0 OECD MENA Transnational OECD Major MENA Major Major Co. OECD SME MENA SME SME from Transnational Transnational Co. from Co. Co. from emerging Co. Co. emerging emerging country country country

MRM 2009 © ANIMA-Invest in Med www.invest-in-med.eu 32 C. SMEs’ role in investment, wealth and job creation

MRM 2009 © ANIMA-Invest in Med www.invest-in-med.eu 33 SME development is a compulsory answer z If the Med countries are to close rapidly their gap Needed in terms with Europe, it will be via a combination of: of facilitating framework } Public projects such as Tanger-Med or Algerian highway FDI: 100 000 direct } Big projects developed by major companies & 300 000 indirect jobs/yr } Projects by existing SMEs able to move upwards Should create 2 } Projects by new start-ups Might create 0.5 to 1 million jobs/yr? million jobs/yr? } Unformal sector Will continue to play a major role z The benefits of SMEs } Grow faster, are more flexible and more innovative } Use labour as their first resource- SMEs= between 48% (Morocco) & 61% (Jordan) of total Med workforce z The biggest part of the yearly 3-5 million jobs to be created will result from SME development

MRM 2009 © ANIMA-Invest in Med www.invest-in-med.eu 34 A difficult challenge z Rough estimate } Reinforcement of thousands of existing SMEs, to be transformed every year into medium enterprises: modernisation, internationalisation } Creation of around 1 million new micro and small enterprises every year (more or less 5% of the existing stock of 20 to 25 million SMEs) } All will not succeed! z These companies } Will cover a wide range of activities } Will be spread all over the MED territory (despite some concentration in industrial areas) } Will be disseminated throughout specialties (eg. IT, agribusiness, services to companies, health etc.)

MRM 2009 © ANIMA-Invest in Med www.invest-in-med.eu 35 The specifics of local SMEs z Business traditions } Poorly transparent family management } Unclear governance rules, informal circuits, conflicts of interests } Preference given by owners to freedom over reporting } Companies living in the “local” time, not in the “global” time (reliability, respect for deadlines etc.) z “Traditional” SMEs } Lack of documentation, able to generate confidence from banks } Lack of internationalisation (in terms of standards, market etc.) } Weak capitalisation (equity) and minimised investments } Reluctance to lose control by opening their capital } Preference for recurrent production, limited innovation and risks z “New SMEs” } Often operate in novel sectors such as services & ICT } Immaterial assets } Lacking collateral and securities (buildings, equipment) } Start-ups are unattractive for a conservative banking industry

MRM 2009 © ANIMA-Invest in Med www.invest-in-med.eu 36 The recipe for more SME creation and development is well-known z Culture } Inoculating the passion for entrepreneurship and industry z A favourable environment } Education, facilities for companies, incubators, coaching, mentoring networking, retention of brains, provision of good infrastructure, efficient regulations z Removal the usual obstacles } Bureaucracy, red tape, lack of transparency, political interferences etc. z Specific attention to financing z Success stories and business promotion

MRM 2009 © ANIMA-Invest in Med www.invest-in-med.eu 37 FDI flows by SMEs z SME investment into MEDA in the range of €2 to 6 bn/year z Between 100 and 250 projects announced per year z Certainly the weakest segment in ANIMA’s statistics SME projects Total projects SME flows Total flows 829 791 778 80 000 800 696 70 000 68 987 600 60 000 61 376 50 000 400 332 40 000 39 471 39 991 255 30 000 234 186 12 780 136 163 20 000 200 9 810 100 107 4 657 3 478 6 151 10 000 908 1 969 0 2 102 0 2003 2004 2005 2006 2007 2008 Source ANIMA, over 3,681 FDI projects in €m, 2003-2008 (incl. Libya, Cyprus & Malta)

MRM 2009 © ANIMA-Invest in Med www.invest-in-med.eu 38 Source ANIMA–MIPO, over SMEs’ role in FDI 3,681 FDI projects, 2003-2008

z With €19bn invested into MEDA over 6 years (2003- 2008), they represent } 8.3% of inward FDI flows } But 25% of projects (in number) z In terms of origin of foreign SME investment } OECD (of which 80% EU) is the major SME-investor (€8.6 bn) } But MENA (Med+Gulf) is important for Machrek (€2.5 bn) z In terms of destination } 4 countries –Morocco (23%), Egypt (21%), Turkey and Israel (12,5% each) account for 70% of SME-FDI flows } Algeria is lacking SME investment (only 3% of Med total -pb. of market access?)

Source: World Bank entreprise surveys/ OECD reports MRM 2009 © ANIMA-Invest in Med www.invest-in-med.eu 41 The Med financial markets

z Still relatively weak in most countries, especially concerning the financing of industry z The banking sector is dominating } Cautious in providing loans to private companies z Limited hedging instruments developed by banks } E.g. derivatives, certificates, forward cover for currency exchange) z Other institutions also relatively underdeveloped } Credit rating agencies, business angels etc. z The landscape is rapidly changing } Numerous takeovers of domestic banks or networks by foreign banks } Rapid development of private equity funds

MRM 2009 © ANIMA-Invest in Med www.invest-in-med.eu 42 Domestic financing in Med countries Some benchmarks z Loans by commercial banks in Med-10 (2005, IIF): $23 bn z Equity traded in the stock market (Egypt, Morocco, Tunisia, Algeria, Lebanon, Jordan): $106 bn (AMF 2007) z Private equity volume: $5 bn (average 2006-2007, ANIMA) } Vs. EU-15: $47 bn (2005, EVCA) } Of which France $7.3 bn, $Italy 2.2 bn, Spain $2.7bn, Portugal $243 m z Early-stage venture capital } Almost nothing in Med except Israel } € 2.28 bn in EU-15 (2005, IFC) } € 3.47 bn in the US (2005, IFC)

In US$ Foreign Tourism Remittances Public Total Total as million Direct revenues by migrants development external % of Investment aid revenues 2007 GDP Year 2007 2006 2007 2006 Source UNCTAD WTO World Bk OECD Algeria 1665 200 2 906 209 4 980 3,8% Egypt 11 578 6 900 5865 1 458 25 801 20,2% Israel 9 998 2 792 1265 2520 16 575 10,2% Jordan 1 835 1 643 2 934 580 6 992 43,7% Lebanon 2 845 1 500 5 769 707 10 821 43,9% Morocco 2 577 6 300 5 700 1046 15 623 21,3% Palestine 21 50 598 1 136 1 805 42,0% Syria 885 2 300 824 27 4 036 10,7% Tunisia 1618 2 200 1669 432 5 919 16,9% Turkey 22 029 18 200 1200 570 41 999 6,3% MED 55 051 42 085 28 730 8 685 134 551 10,5% % 41% 31% 21% 6% 100%

Total to be considered with caution, since the various columns are relative to different years

MRM 2009 © ANIMA-Invest in Med www.invest-in-med.eu 44 The building of international bank networks z Bank privatisations and sales of existing networks in MED countries attracted international banks } Important deal flow in 2007 (115 projects for € 11 billion) and 2006 (104 projects for € 12.7 billion) -ANIMA FDI observatory z The most mature markets attract most of projects } Among the 10 largest amounts, 8 relate to Turkey and two target Egypt } The strategy is clearly to develop a wide customer base in countries becoming more and more bancarised } For instance, Morocco ~ Bancarisation rate to reach 60% by 2013, vs. 40% in 2007 ~ The number of bank branches to reach to 7 400 in 2013, up from 4 474 in 2007

MRM 2009 © ANIMA-Invest in Med www.invest-in-med.eu 45 Top Med bank & finance foreign investments 2005-2008 ANIMA 1. Turkey, 2006. Citigroup (USA). The US group gets a 20% share of Akbank, one of the major credit institutes in Turkey for USD 3.1 billion (€2,500m). 2. Turkey, 2006. Ethniki-National Bank of Greece (Greece). The Greek bank buys 46% of Turkish Finansbank for 2.3 billion euros (€2,300m). 3. Turkey, 2007. ING (Netherlands). Turkey's Oyak sold to the Dutch bank for 2.673 billion USD (€1,953 m). 4. Turkey, 2006. Dexia (France). The French-Belgian group to buy 75% of Turkish Denizbank for $2.44 billion (€1,900m). 5. Turkey, 2007. Ethniki-National Bank of Greece (Greece). NBG’s raises its participation in the capital of Finansbank to 89.44% (new investment of €1,646 m). 6. Egypt, 2006. San Paolo IMI (Italy). Sale of Egypt's Bank of Alexandria to the Italian champion for USD 1.6 billion (€1,613m). 7. Turkey, 2005. General Electric (USA). Turkish conglomerate Dogus Group to sell a 25.5 percent stake in Garanti Bank to a unit of General Electric for $1.556 billion 8. Turkey, 2005. UniCredito (Italy) and Koç Group buy 57 % stake for the Turkish bank Yapõ Kredi for €1.177 billion 9. Turkey, 2005. Fortis (Belgium) to buy 89.3% of Disbank stake for €985 million. 10. Egypt, 2007. Dubai Financial Group (UAE). The financial arm of Dubai Holding to acquire for 1.1 billion USD the 25% stake in EFG-Hermes that Abraaj Capital bought in 2006 (€804 m). 11. Turkey, 2007. National Commercial Bank (Alahli, Saudi Arabia) buys 60% of Türkiye Finans Katılım Bankasi, a great Islamic financial institution for 1 billion USD (€731 m). 12. Egypt, 2007. National Bank of Kuwait (NBK, Kuwait). After a successful bid for a 51% stake in Al Watany Bank, NBK eventually acquires a total 93.77% stake for extra 2.5 bn EGP (€689 m).

MRM 2009 © ANIMA-Invest in Med www.invest-in-med.eu 46 The new appetite for private equity z A strong acceleration in 2005-2007 (100 funds, US$15bn) z New resources for enterprises z But equity gap (50k€ -1.5 million €) and difficult exits… Amount raised (US$m) Nb. of funds created 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 10 000 50 45 42 45 Source: ANIMA- 40 40 Med Funds 36 Observatory 35 6 151 30 5 305 5 000 25 21 19 18 20 16 16 3 814 3 710 15 10 2 391 7 2 296 10 5 5 6 6 3 2 2 1 365 5 1 103 855 436 633 0 42 22 123 267 103 435 301 0

MRM 2009 © ANIMA-Invest in Med www.invest-in-med.eu 48 Financing shortages in Med z Financing is perceived as the main obstacle for SME development } Money exists, but is not necessarily made available or conveyed though the right channels } Good projects also do exist, but investors are not always aware of them z The equity gap } The private equity funds surveyed by ANIMA (MedFunds observatory) provide financing tickets from US$2 to US$ 12 million } It is difficult for a Med start-up company to raise capital in the €0.1mMediterranean /€1.5m range Charter for Enterprise) z Globally, the cost of financing represents a competitive disadvantage for SMEs } A better access to external finance (debt, equity and other financial instruments) would make it possible for enterprises to… ~ …leverage their capital base, spread and better manage financial risks ~ and grow faster than by using only internally generated funds (Euro-

MRM 2009 © ANIMA-Invest in Med www.invest-in-med.eu 49 Other financing gaps z Loans and small-scale finance are in short supply (especially for long maturities, local currency) } SMEs need relatively more working capital than majors } Cash facilities (overdraft etc.), interest rates, bank charges rransfers often dissuasive z Guarantees & project insurance often not applicable } Land registration or movable assets registration hinder SMEs from mobilising collateral } Credit information is also generally poor z Public aid to SMEs and start-ups is scarce } SMEs' equity endowment (tax reduction for retained profits) } Non refundable aid on capital } Interest subsidy or mutual guarantee schemes Public money spent for supporting credit guarantees systems has a high multiplying effect. One Euro may stimulate 30 euros investment in SMEs. UAPME

MRM 2009 © ANIMA-Invest in Med www.invest-in-med.eu 50 Few early stage instruments ANIMA MedFunds z PE funds by investment stage and country/region January 2008

Host region Host countries R&D Seed VC Growth LBO MENA 4 8 33 28 Euromed countries 3 1 Euro-MENA MEDA-11 1 2 7 5 MENA + emerging 3 4 Total Euro-MENA 5 10 46 38 Algeria 1 1 Libya 1 1 2 1 Maghreb Morocco 3 7 14 9

Tunisia 1 7 7 5 Alg./ Mor./ Tun. 3 7 9 Total Maghreb 5 19 31 24 Egypt 3 3 7 2 Mashreq Jordan 3 1 Lebanon 1 1 Total Mashreq 3 4 11 3 Israel 110 120 82 63 4 Other MED Turkey 1 4 8 3 Total Other MED 110 121 86 71 7 Total funds per stage/ Total funds 110/ 320 134/320 119/320 159/320 72/320

MRM 2009 © ANIMA-Invest in Med www.invest-in-med.eu 51 The creation of a Med Development Bank z Beyond the envisaged reinforcement of the FEMIP, a Med bank would mean } A strong signal to investors, boosting confidence (“the Mediterranean is now financially secure and reliable, you can fully invest there”) } Even with a modest ticket in projects (5 to 10%), a considerable impact over commercial banks } A stronger focus on private sector (cf. EBRD in Eastern Europe) and a better quality of projects, thanks to a critical mass of experts } The choice of a global development rationale (based on integrated and sustainable projects), rather than the limited approach of FDIs and investment funds (based on the individual profitability of each project) z There are however difficulties… } Shared decision with Med countries } Mobilisation of the billion euros in fixed assets corresponding to existing FEMIP portfolio } Lower quality of the new bank signature compared to that of EIB } Higher financing costs, new management costs etc.

MRM 2009 © ANIMA-Invest in Med www.invest-in-med.eu 52 RIFF, a project supported by ANIMA z RIFF –Regional Innovation Financing Facility z A Med matchmaking platform emerging companies ÅÆ financiers z Three components } A network of innovation and investment actors (incubators, technoparks, technology centres, funds, investors, business angels, innovation agencies), able to source interesting projects } A team of experts to be mobilised for coaching emerging enterprises (on how to prepare entrepreneurs to meet investor expectations) } One or several investment funds designed to invest small tickets in start-up companies z An important deal flow exists for high potential or innovative projects } Between 1 500 and 2 000 per year identified over the Med region } The project promoters do not know enough about financing opportunities } Most investment funds do not have the capacity to provide an efficient post-investment accompaniment

z To develop sustainable partnerships on the north and south rims of the Mediterranean } Euro-Med enterprises working in south-north or south-south synergy z To boost FDI and trade flows into the Mediterranean region } by making the Mediterranean an attractive and safe destination for world business z To implement a new model of co-operative economic networking between } EU and Mediterranean public or private organisations } Stakeholders concerned by business development

MRM 2009 © ANIMA-Invest in Med www.invest-in-med.eu 55 A wide MedAlliance to develop the region =Governement + Business+ Major allies Joining forces to develop the Mediterranean

z 1. Textile z 7. Vocational training z 2. ICT - information and z 8. Bank, finance, communication insurance technologies z 9. Infrastructure, z 3. Agrifood transport, logistics z 4. Mechanical industries, z 10. Energy electronics, automotive z 11. Social housing, urban industry regeneration z 5. Heavy & energy- z 12. Water and utilities consuming industries z 13. Great distribution z 6. Services to companies and industrial sub- z 14. Health and drugs contracting z 15. Intelligent tourism

MRM 2009 © ANIMA-Invest in Med www.invest-in-med.eu 57 Example of initiative (fictitious) MedGenerics Initial survey SWOT analysis, data, validate the concept z The ambition: Med assets (eg. growing market, research, clinical tests etc.) transform Euromed What are the means needed ? The obstacles ? (eg. market entrance, distribution circuits, IP rights) into the #1 platform for generic drugs Launch brainstorming workshop within 5 years Main stakeholders (eg. Health services, pharma groups, doctors, govts etc.) z 6 types of Identification of 3 work areas instruments to be used over 12 Technical Training for trainers Staff exchange assistance (Lebanon, Egypt): preparing Israel-Malta months to Tunisia offers to laboratories (possible branch (packaging interested by the sub- for new molecule z Leader: UTICA for drugs) regional market in x field) z Partners: CCI Beirut and Milan, Med BtoB Forum in the fringes of World Generics Symposium, 2009 Confindustria, A new offer to the industry: MedGenerics MaltaEnterprise, Results achieved GAFI Brochure, video clips, sales arguments etc.

MRM 2009 © ANIMA-Invest in Med www.invest-in-med.eu 58 Why initiatives? z inMed aim } We have to develop industrial niches (filières industrielles) which may bring a significant contribution to Euro-Med industrial future: aeronautics, agrifood, ICT, new textile etc. } 15 sectors and up to 100 promising sub-sectors (inMed fiche) } Some transversal issues (branding, diaspora, funding etc.) z The strategy } We cannot cover everything } We support winners } We need 10 success stories by 2011 z The programme funds a 1st stage } Sector overview, market research, workshop, matchmaking between partners, networking, communication, PR events etc.

z www.anima.coop z www.invest-in-med.eu z Laïla Sbiti, Chairwoman [email protected] z Bénédict de Saint-Laurent, General Delegate [email protected]

Invest and develop business in the Mediterranean