EUROPEAN ECONOMY EUROPEAN COMMISSION DIRECTORATE-GENERAL FOR ECONOMIC AND FINANCIAL AFFAIRS OCCASIONAL PAPERS ISSN 1725-3209 N° 25 June 2006 European Neighbourhood Policy: Economic Review of ENP Countries by Directorate-General for Economic and Financial Affairs http://ec.europa.eu/comm/economy_finance Occasional Papers are written by the Staff of the Directorate-General for Economic and Financial Affairs, or by experts working in association with them. The “Papers” are intended to increase awareness of the technical work being done by the staff and cover a wide spectrum of subjects. Views expressed do not necessarily reflect the official views of the European Commission. Comments and enquiries should be addressed to the: European Commission Directorate-General for Economic and Financial Affairs Publications BU1 B – 1049 Brussels, Belgium This paper exists in English only. ECFIN/D/3 (2006) REP/53410 KC-AH-06-025-EN-C ISBN 92-79-01352-1 © European Communities, 2006 Foreword This is the second issue of the “European Neighbourhood Policy: Economic Review of ENP Countries”.1 It reflects ongoing work in the Unit “Economic Affairs of Mediterranean Countries, Russia and the New Independent States. Economic Aspects of the Neighbourhood Policy” in the Directorate for International Economic and Financial Affairs (DG ECFIN).2 This report does not necessarily reflect the official views of the European Commission. In addition to country-specific sections on the main economic developments in 2005, this 2006 issue focuses on economic growth in the ENP countries. The analysis presented in this Occasional Paper is part of the ongoing monitoring of economic developments in the ENP countries. It is intended to be one of the technical inputs for the assessment by the European Commission of progress in the implementation of the economic aspects of the ENP Action Plans. The country chapters are structured along the main areas of reform: macroeconomic developments, trade liberalisation and economic opening, business climate, public institutions and public finance management, and social development and poverty. This Occasional Paper has been prepared by a team led by José Leandro and Andreas Papadopoulos including Arno Bäcker, Enrico Gisolo, Frank Ø. Hansen, Inmaculada Montero Luque, Agnieszka Skuratowicz, Sirpa Tulla and Lucio Vinhas de Souza. Max Watson provided analytical advice. Klaus Regling and Antonio de Lecea provided management support and offered valuable suggestions. Sophie Bland and Cecilia Mulligan reviewed the report. The authors are grateful to the following persons for their useful comments: I. Hoskins, G. Krause (DG AIDCO), G. Bochicchio, B. Brunet, G. Busini, D. Cullen, A. Herdina, B. Kotzinger, B. Martens, C. Wagner, R. Wissels, S. Zehe (DG RELEX), G. Berends, C. Rames, M. Villani, R. Zarnauskaite (DG TRADE), J. Gabriel de Santana Correia (Delegation Algeria), J.F. Moret (Delegation Armenia), B. Stacher, G. Tsitsopoulos (Delegation Egypt), E. Olmos Llorens (Delegation Morocco), A. Fontana and F. Ferrandes (Delegation Syria), O. Popruga (Delegation Ukraine), M. Gallagher R. Guilford (Delegation West Bank and Gaza), C. Zaman (ISMF project, Syria) and Y. Hamzayev (ILO, Azerbaijan). Coordinating editor: Frank Øland Hansen European Commission BU-1 -1/196 B - 1049 Brussels Tel: +32 2 299 18 63 Fax: +32 2 295 76 19 E-mail: [email protected] 1 Libya, although an ENP country, has not been included in this issue due to the fact that there are no formal relations with the EU. Russia is not an ENP country, but has a strategic partnership with the EU, based on four "common spaces", including an economic space. Russia is included in this issue, not least because of its economic importance for the CIS region. 2 Previous DG ECFIN publications on ENP and Mediterranean countries are available on the Europa website at: http://ec.europa.eu/economy_finance/publications/occasionalpapers_en.htm. - iii - Contents Page Foreword ....................................................................................................................................iii Contents...................................................................................................................................... iv List of tables, boxes and charts.................................................................................................. v Acronyms..................................................................................................................................viii Part A. Thematic Issues Economic growth in the European Neighbourhood Policy countries.................................... 2 Part B. Country Analysis Algeria........................................................................................................................................ 39 Armenia ..................................................................................................................................... 45 Azerbaijan ................................................................................................................................. 52 Belarus ....................................................................................................................................... 59 Egypt .......................................................................................................................................... 66 Georgia ...................................................................................................................................... 73 Israel .......................................................................................................................................... 79 Jordan........................................................................................................................................ 86 Lebanon ..................................................................................................................................... 93 Moldova ................................................................................................................................... 100 Morocco ................................................................................................................................... 107 Russia....................................................................................................................................... 113 Syria ......................................................................................................................................... 121 Tunisia ..................................................................................................................................... 128 Ukraine .................................................................................................................................... 134 West Bank and Gaza .............................................................................................................. 140 - iv - List of tables, boxes and charts Tables Page Economic growth in the European Neighbourhood Policy countries Table 1: Contraction depth and length ................................................................................... 8 Table 2: Growth in demand components.............................................................................. 10 Table 3: GDP growth rates and components, Mediterranean neighbours........................... .11 Table 4: GDP growth rates and components, Eastern neighbours ....................................... 13 Table 5: Country risk ratings (December 2005)................................................................... 20 Table 6: Important civil or external conflicts ....................................................................... 21 Country specific tables Table: Algeria: Main economic indicators ....................................................................... 44 Table: Armenia: Main economic indicators ..................................................................... 51 Table: Azerbaijan: Main economic indicators.................................................................. 58 Table: Belarus: Main economic indicators....................................................................... 65 Table: Egypt: Main economic indicators.......................................................................... 72 Table: Georgia: Main economic indicators ...................................................................... 78 Table: Israel: Main economic indicators .......................................................................... 85 Table: Jordan: Main economic indicators ........................................................................ 92 Table: Lebanon: Main economic indicators ..................................................................... 99 Table: Moldova: Main economic indicators................................................................... 106 Table: Morocco: Main economic indicators................................................................... 112 Table: Russia: Main economic indicators ...................................................................... 120 Table: Syria: Main economic indicators......................................................................... 127 Table: Tunisia: Main economic indicators ..................................................................... 133 Table: Ukraine: Main economic indicators .................................................................... 139 Table: West Bank and Gaza: Main economic indicators...............................................