Policy Contribution Issue n˚10 | 2017 Europe’s role in North Africa: development, investment and migration Uri Dadush, Maria Demertzis and Guntram Wolff Executive summary Africa’s population is projected to reach almost 2.5 billion by 2050. Migration from Afri- URI DADUSH (uri.dadush@ ca to the EU is relatively stable, at around 500,000 migrants per year, or 0.1 percent of the EU bruegel.org) is a Non- population, yet irregular immigration into the EU has increased recently. Resident Fellow at Bruegel Development is often seen as the way to reduce migration but the development-migra- tion nexus is complex. At low levels of development, migration might increase with rising Maria Demertzis (maria. GDP per capita. This applies to most of sub-Saharan Africa. [email protected]) is Deputy Director of Bruegel By contrast, North African countries are among the continent’s more developed econ- omies. Their geographical positions make them natural partners for the EU. The region is diverse but political instability has been a common feature that in recent years has hindered GuntRam Wolff economic development. Cyclical factors and deep-rooted structural weaknesses have also (guntram.wolff@bruegel. contributed to weak economic performance. Conditions for business are relatively poor and org) is Director of Bruegel trade barriers in some sectors have prevented integration either between these countries or into global value chains. We propose five ways in which EU policymakers can contribute to development in North Africa and build partnerships on trade, investment and migration. Paper prepared for, and presented at, the informal ECOFIN meeting of EU finance ministers in Malta on 8 April 2017, with the title Boosting private investment in North Africa and beyond: what role for European Institutions? The authors are grateful to Enrico Nano and Filippo Biondi for excellent research assistance. 1 Introduction Africa is the continent with the fastest growing population in the world. Its population is projected to be more than twice its current level by 2050, reaching almost 2.5 billion, which would be 25 percent of world population. Population growth is very high in sub-Saharan Afri- ca, while population growth in the North African countries (NAC, consisting of Algeria, Egypt, Libya, Morocco, Tunisia) has slowed with sharply falling fertility rates. Still, the population of NAC is projected to grow by some 100 million over the next 35 years (see Table A1 in annex). Higher GDP growth in Africa is a necessary condition for alleviating poverty. It also represents an opportunity for the EU. It is imperative for Africa to accelerate its develop- ment to be able to improve living conditions for its rapidly increasing population. For the EU, Africa is a geographically close market, which is in need of much investment. With more growth, there would be more opportunities, including the opportunity to contribute to the green and sustainable development of the continent. Contributing to the development of Africa is a priority for global policymakers. Sub-Saharan Africa has an average GDP per capita in purchasing power terms of $3500, or only about one tenth of the EU’s average GDP per capita. The G20 has been working on a ‘compact’ for Africa to support private investment and growth on the continent. The EU is playing a lead role in this global effort, partly motivated by the desire to contain immigra- tion. The focus is certainly strongly influenced by the increase in ‘boat’ immigrants. Irregular border crossings from Africa have increased significantly in the last few years and are now about 200,000 per year. Migrants from Africa come predominantly from sub-Saharan Africa (Figure 1). Figure 1: Frontex detections of irregular border crossings of African citizens into the EU 200,000 180,000 Libya Algeria 160,000 Egypt 140,000 Morocco 120,000 Tunisia 100,000 Rest of Africa 80,000 60,000 40,000 20,000 0 2009 2010 2011 2012 2013 2014 2015 2016 Source: Frontex, accessed in March 2017. Note: Data refers to detections of illegal border crossings rather than the number of persons, as the same person might cross the external border several times. However, there is currently no EU system in place able to trace each person’s movements following an illegal border crossing. Therefore, it is not possible to establish the precise number of persons who have illegally crossed the external border. Overall, legal migration from Africa has been rather stable. Figure 2 shows the number of EU residence permits given to migrants from Africa1. The numbers have fallen by almost 30 percent (29.4 percent) since 2008. In particular, immigration from Morocco has fallen substantially. Some of the migrants that have arrived in an irregular manner (as measured in 1 Note that the data shown in the figure is not really comparable to the 2016 border crossings, because to obtain a residence permit there is a delay and data on permits is available only up to 2015. 2 Policy Contribution | Issue n˚10 | 2017 the Frontex data) are not yet recorded in these statistics. The more recent increase in people arriving in boats is related to greater efforts to rescue people at sea2. The two data sources partially double count so that one cannot just add the Frontex data to the Eurostat data. Overall, the number of migrants coming to the EU from Africa seems to be about 500,000 per year, or roughly 0.1 percent of the EU population. Migration from North Africa is falling. North Africa does not play a significant role in irregular border crossings. Figure 2: First residence permits in EU28 to African citizens by citizenship 600,000 Libya Algeria Egypt Morocco 500,000 Tunisia Rest of Africa 400,000 5.0% 6.1% 9.1% 300,000 24.9% 200,000 100,000 53.5% 0 2008 2009 2010 2011 2012 2013 2014 2015 Source: Eurostat, table migr_resfirst, accessed in March 2017. Note: data refers to the number of first (unique) residence permits granted in an EU28 country to African nationals during the reference year, disaggregated by citizenship, with a minimum duration of 3 months. Economic development is a critical objective but is not a panacea to reduce migration. The EU and other institutions often refer to development as the key to reducing migration into the EU3. But determinants of emigration and immigration are complex. Demographic pressures, youth unemployment, job opportunities in the country of destination, the growth of migrant networks and the desire to reunite families all play roles in migration. The recent recession in Europe certainly played a significant role in reducing immigration numbers, as have tighter immigration restrictions. With rising incomes in sub-Saharan Africa, emigration numbers are likely to increase at first. A significant literature has established that below certain GDP-per-capita levels, an increase in income will increase emigration. Clemens (2014) establishes that up to $7000- $9000 GDP per capita (PPP), increases in GDP increase emigration. The data shows that emigration only starts to fall at higher GDP-per-capita levels. Of 47 sub-Saharan countries for which data is available, only seven are currently above the $9000 GDP-per-capita level (PPP), while 39 have levels below $7000. If a 2 percent annual per capita growth rate is assumed, by 2030, 35 countries would still be below that level. The population of these countries would increase to 1.05 billion4. By contrast, North African countries are now in an income range where rising incomes might reduce the incidence of migration. All five North African countries have 2 This has effectively increased the number of people attempting to cross. See EPSC, https://ec.europa.eu/epsc/ sites/epsc/files/strategic_note_issue_22_0.pdf. 3 See, for example Mogherini (2017) ‘Opening remarks at debate on managing migration along the central Medi- terranean route’, February, available at https://eeas.europa.eu/headquarters/headquarters-homepage_en/19755/ Opening%20remarks%20by%20the%20HRVP%20Federica%20Mogherini%20at%20the%20debate%20on%20manag- ing%20migration%20along%20the%20Central%20Mediterranean%20route. 4 This calculation is for illustrative purposes only because long-term growth projections are uncertain. Nevertheless, the 2 percent real growth rate per capita is often labelled an ‘iron law’, see for example Barro (2015). 3 Policy Contribution | Issue n˚10 | 2017 income levels at or above the threshold5. Reduced incidence of migration does not neces- sarily mean fewer migrants over the next few years because the population is growing and other factors are at play, such as improved economic conditions in Europe. However, it does mean that, provided a deterioration in political stability is avoided and provided the region’s economies continue to grow, large-scale migration from North Africa might become a thing of the past. The rest of this paper focuses mainly on development in North Africa. The countries of North Africa are direct EU neighbours whose economic and political stability is of great importance to Europe. They remain origin countries for migrants, especially young people who cannot find jobs, and they are major transit countries for migration from sub-Saharan Africa. We consider North Africa a gateway between Africa and Europe. We therefore discuss the current economic and political situations in the countries of North Africa and make a number of policy proposals to European leaders. 2 The current state of the North African economies The NAC economies are diverse, making generalisations hazardous. The countries that span the southern coast of the Mediterranean share Arabic as the principal language and Is- lam as the principal religion. But they are otherwise diverse. Egypt, Morocco, and Tunisia still have large parts of their populations in agriculture (as much as 40 percent in Morocco) and depend on a variety of service and manufacturing activities, remittances and tourism for their foreign exchange.