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Sustaining the Recovery and Looking Beyond and Looking the Recovery Sustaining MIDDLE EAST AND NORTH AFRICA REGION MIDDLE EAST AND NORTH AFRICA REGION ECONOMIC DEVELOPMENTS & PROSPECTS, JANUARY 2011 ECONOMIC DEVELOPMENTS & PROSPECTS, JANUARY 2011 Sustaining the Recovery and Looking Beyond Sustaining the Recovery and Looking Beyond ISBN 978-0-8213-9889-0 THE WORLD BANK THE WORLD BANK MIDDLE EAST AND NORTH AFRICA REGION ECONOMIC DEVELOPMENTS & PROSPECTS, JANUARY 2011 Sustaining the Recovery and Looking Beyond THE WORLD BANK © 2011 The International Bank for Reconstruction and Development/The World Bank 1818H Street, NW Washington, DC 20433 Telephone: 202-473-1000 Internet www.worldbank.org E-mail [email protected] All rights reserved. This volume is a product of the Chief Economist’s Office of the Middle East and North Africa Region. 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ISBN: 978-0-8213-9889-0 DOI: 10.1596/978-0-8213-9889-0 Cover photo: © Gettyimages Table of Contents Acknowledgements...................................................................................................................................ix Foreword...................................................................................................................................................xi Abbreviations......................................................................................................................................... xiii Executive.Summary................................................................................................................................xvii Part.I:.Sustaining.the.recovery.................................................................................................................1 Chapter.1.. MENA.is.recovering.from.the.Crisis,.but.Slowly................................................................3 MENA’s recovery has been driven by the global rebound and, to varying degrees, by domestic stimulus ............................................................................................4 MENA labor Markets remained relatively unscathed by the crisis but Impacts differed between countries ......................................................................................................8 Job losses in the gcc countries were steep but affected mainly expatriate workers .............................................................................................................................9 The impact of the crisis on oil importers’ labor markets was mild .........................................10 Chapter.2.. MENA’s.recovery.is.Proceeding.in.an.uncertain.global.Economic.Context................... 13 Financial Market volatility reflects the unusually uncertain global outlook .............................14 The outlook for gcc countries is Tied to the outlook for the global Economy ..........................17 Most developing oil Exporters are vulnerable to oil price shocks and volatility .......................25 oil Importers’ recovery depends on developments in Key Markets, Notably the Eu ..........................................................................................................................................31 Part.II..Looking.Beyond.the.recovery.and.Beyond.Oil..........................................................................37 Chapter.3.. MENA.remains.uncomfortably.dependent.on.the.Capital-Intensive.. Oil.Sector.............................................................................................................................39 MENA’s Non-oil Exports of goods and services are below potential due to developing oil Exporters’ underperformance ...............................................................................44 MENA has opened up and diversified its Exports ............................................................................46 services are an Area of relative strength for MENA .........................................................................49 Market Access is more of an Issue for oil Importers than oil Exporters .......................................54 MENA countries are less successful than other developing Economies in penetrating Foreign Markets .............................................................................................................55 iii Sustaining the Recovery and Looking Beyond – A Regional Economic Developments and Prospects Report Chapter.4.. What.are.the.Major.Constraints.to.MENA’s.Nonoil.Exports?........................................... 61 protection in developing MENA is high, largely due to NTMs.......................................................61 Tariff and Nontariff protection rates vary widely Across MENA ...................................................62 Intra-regional Trade stagnated and Intra-Industry Trade remains limited ...............................65 MENA’s services sector is heavily protected .....................................................................................69 other Factors hurting MENA Firms’ competitiveness .....................................................................75 Access to finance is limited, especially for small enterprises ..................................................79 governance issues impede reform implementation, raise uncertainty and lead to uneven playing field ...................................................................................................82 skill shortages in the gcc states are an acute but old problem .............................................83 A focus on technology is central to MENA’s efforts to improve competitiveness ...............................................................................................................................83 Chapter.5.. What.Should.Countries.do.to.Improve.Nonoil.Export.growth?.......................................93 What Did We Learn? Summary of Key Findings ........................................................................... 93 Are reforms Implemented by countries Addressing the Major constraints? ...............................96 Statistical.Annex.................................................................................................................................... 101 references.............................................................................................................................................. 117 List.of.Boxes box 1: The dubai world debt restructuring .............................................................................................................21 box 2: How is the overall trade restrictiveness index calculated? .......................................................................55 box 3: Nontariff measures – definitions and state of knowledge .........................................................................63 box 4: Intra-industry trade (IIT) index .....................................................................................................................68 box 5: Measuring restrictions affecting trade in services ......................................................................................72 box 6: Tunisia’s national innovation system: achievements, challenges and vision ........................................90 List.of.Tables Table 1: Demand-side sources of growth in MENA .................................................................................................4 Table 2: MENA countries’ fiscal space in 2008 ........................................................................................................6 Table 3: Debt restructurings in the gcc, 2008–2010 ...........................................................................................24 Table 4. Impact of a wheat price hike in gcc oil exporters ................................................................................26 Table 5: MENA fiscal space in 2009 .........................................................................................................................27 Table 6: Impact of a wheat price hike in developing oil exporters.....................................................................29 Table 7: Impact of a wheat price hike in oil importers .........................................................................................33