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Comparative Regional Economy: Central Asia, Middle East and North Africa

* Some parts of this note are borrowed from the references for teaching purpose only.

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Comparative Regional Economy <Lecture Note 4R > 12.04.30

Semester: Spring 2012 Time: Monday 2:00-5:00 pm Class Room: 115 Professor: Yoo Soo Hong Office Hour: By appointment Mobile: 010-4001-8060 E-mail: yshong123@gmail.com

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I. Central Asia

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Central Asia

• Armenia• Georgia• Azerbaijan• Kazakhstan• Kyrgystan• Tajikistan• Turkmenistan• Uzbekistan

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Physical Characteristics

1

Georgia

6

Caucasus and Central Asia

Population Density in Central Asia

Linguistic Geography of Central Asia

Central and West Asia and North Africa: Major Features

- Dry climates and the Muslim faith dominate in this region.

- More than sixty percent of the world's oil reserves are found here.

- The Fertile Crescent was one the major domestication hearths extending from the Levant to the Persian Gulf. Crops originating here include figs, grapes, dates, and olives.

- Home to three of the world's major religions: Judaism, Christianity, and Islam.

- Water is the most important resource in the area and population is concentrated where water is found. Water is not only the basis for life, but for the social organi-zation of the village.

- The Middle East is one of the world's shatterbelts and a focal point of conflict.

Twelve countries in this region have populations of 10 million people or more.

– Iran, Turkey, and Egypt have more than 60 million;

– Iraq, Afghanistan, Uzbekistan, Morocco, Saudi Arabia and Algeria have populations that range between 24 million and 32 million.

– These countries have populations that range between 10 million and 20 mil-

lion: Syria, Yemen, Kazakhstan, and Saudi Arabia.

– Western Sahara, Qatar and Bahrain are the smallest countries in population with 0.3 million, 0.6 million and 0.7 million people, respectively.

CA: Introduction

- Central Asia is a large, compact, landlocked region within the Eurasian land-mass.

- Until 1991, other than the Soviet Union, the region contained only two coun-tries, Mongolia and Afghanistan.

- Soviet Union’s breakup added several more independent countries to the re-gion.

- Historically, Central Asia has been weakly integrated into international trade networks.

Geopolitical Framework: Political Reawakening

Partitioning of the Steppes

- Before 1500, Central Asia was a power center

- Mobile (horseback) armies threatened sedentary states

- Gunpowder and effective hand weapons changed the balance of power

- Russia and China gained control of the region

Manchu (Chinese) conquest 1644

Russian Empire in the 1700s

Concern over British influence in the area

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- Central Asia was dominated for many years by Russia and China.

- This region is now emerging as a separate entity.

- It has a rugged terrain, and was historically pastoral - Today, presence of fossil fuels is generating interest, but construction of pipelines is needed. - Collapse of political and economic systems in early 1990s

- Warfare, armed conflict have damaged economies and infrastructure.

- Afghanistan is especially troubled, and emerged as a focus of world interest in September 2001.

Development in Central Asia

Central Asia Under Communist Rule

Soviet Central Asia - Soviets inherited Russian Empire’s domain United territories together into Soviet Union Created a series of “union republics” (Kazakhstan, Uzbekistan, Turkmenistan, Kyrgyzstan, Tajikistan, Azerbaijan) Sowed the seeds of nationalism, nation-states

The Chinese Geopolitical Order - After China reemerged as a unified country in 1949, it reclaimed most of its old Central Asian territories Movement into Xinjiang and Tibet

Current Geopolitical Tension - Strife in Western China Repression of Tibet, and local opposition to Chinese rule Border of China and India still contested Chinese control of Xinjiang Uygur opposition War in Afghanistan before September 11, 2001

1978: Soviet-supported military “revolutionary council” seized power

- Marxist government began to suppress religion

- Russian invasion U.S. and Saudi support rebels Soviets withdrew in 1989

War in Afghanistan before September 11, 2002 - 1995–1996 rise of the Taliban - Taliban founded by young Muslim religious students - Closely associated with the Pashtun ethnic group

Imposed an extreme interpretation of Islamic law consistent with Pashtun culture - Other Afghan ethnic groups opposed the Taliban - The Roles of Russia, Iran, Pakistan, and Turkey - Russia has armed forces in Tajikistan, and transportation routes cross Kazakhstan - Iran is a major trading partner, and offers access to ports - Pakistan supported Taliban; now supports the U.S. - Turkey has close cultural and linguistic connections

Islamic Fundamentalism?

- Many other Central Asian Nations were concerned that Islamic fundamentalism could affect their nations.

- Islamic movement rose in Uzbekistan (IMU)

- After September 11th balance of power shifted

- U.S. with British assistance launched a war against al-Qaeda and the Taliban government.

- Bombing campaign and support of Northern Alliance

- Defeated the Taliban and began a process of forming a new Afghan governmen.t

- Fighting continues, and U.S. forces remain in Afghanistan.

International Dimensions of Central Asian Tension

Abundant Resources, Devastated Economies

The Post-Communist Economies

- Many Central Asian industries relied heavily on subsidies and oil from the Soviet Union.

- Today, no Central Asian country could be considered prosperous.

- Kazakstan is most developed

- Uzbekistan has second-largest economy

- Kyrgyzstan is aggressively privatizing former state-run industries

- Turkmenistan has a large agricultural base

- Tajikistan most troubled of former Soviet republics

- Mongolia, industries not competitive enough in the global market, and it has a meager agricultural base

The Post-Communist Economies (cont.)– The Economy of Tibet and Xinjiang in Western China– Chinese portions of Central Asia have fared better than the rest of the

region– Tibet is one of the world’s poorest places.– Tibetans provide for most of their basic needs.– Xinjiang has large mineral wealth and oil reserves and productive agri-

culture sector as well– Economic misery in Afghanistan: It is the poorest country in the region

with almost no economic development.– Afghanistan suffered nearly continuous war starting in late 1970s.– By 1999, it was the world’s largest producer of opium.

Central Asian Economies in Global Context

- Overall, Central Asia is not well connected.

- Afghanistan is tied to the global economy through its export of illegal drugs.

- In former Soviet areas, most of the connections remain with Russia.

- Former Soviet republics are developing ties with Iran, Pakistan, Turkey, and China.

- U.S. and other Western countries are drawn to the region by oil and natural gas deposits, but construction of pipelines is necessary.

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GDP

COUNTRY GDP (bil. US$)

Kaza-khstan

57.1

Kyrgyz Re-public

2.5

Tajikistan 2.3

Ukraine 86.1

Uzbekistan 14.3

Azerbaijan 13.2

Sources: The World Bank (2009)

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GNI Per Capita

COUNTRY GDP (US$)

Kaza-khstan

2,930

Kyrgyz Re-public

450

Tajikistan 330

Ukraine 1,540

Uzbekistan 530

Azerbaijan 1,270

Sources: The World Bank (2009)

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Openness and Major Exports

Exports/ GDP(%)

Major Exports

2006 2007

Kazakhstan 51 49 Oil, minerals, iron and steel, grain

Kyrgyz Rep 42 45 Gold, cotton

Tajikistan 23 21 Aluminum, cotton

Turkmenistan 72 63 Gas, cotton

Uzbekistan 38 40 Cotton, gold, gas

Source: World Bank World Development Indicators

Southwestern Asia

Armenia

Azerbaijan

Georgia

Kazakhstan

KyrgyzRepublic

TajikistanTurkmenistan

Uzbekistan

Oil and gas exportersOil and gas importers

Caucasus and Central Asia

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Estimate Projection

Armenia 3.3 5.9 9.6 13.2 13.9 10.1 14.0 13.4 13.7 10.0

Azerbaijan 11.0 11.1 9.9 10.6 11.2 10.2 24.3 30.5 23.4 20.0

Georgia 3.0 1.9 4.7 5.5 11.1 5.9 9.6 9.4 12.0 8.0

Ukraine -0.2 5.9 9.2 5.2 9.6 12.1 2.7 7.3 7.6 5.5

Kazakhstan 2.7 9.8 13.5 9.8 9.3 9.6 9.7 10.6 8.5 5.1

KyrgyzRepublic 3.7 5.4 5.3 0.0 7.0 7.0 -0.2 3.1 8.2 6.8

Mongolia 3.2 1.1 1.0 4.0 5.9 10.1 7.3 8.6 9.9 8.6

Tajikistan 3.7 8.3 10.2 9.1 10.2 10.6 6.7 7.0 7.8 4.1

Turkmenistan 16.5 18.6 20.4 15.8 17.1 17.2 9.6 9.0 11.5 12.0

Uzbekistan 4.3 3.8 4.1 4.0 4.2 7.7 7.0 7.3 9.5 7.5

Sou

th C

au

casu

s &

Ukr

ain

eC

en

tral A

sia

Eurasia: Growth in real GDP 1999-2008

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Business Environment in Eurasia

Strong economic performance in both Central Asia and South Caucasus/

Ukraine regions

Wide economic growth disparities and fluctuations across countries

FDI levels and growth still relatively low

- Average FDI per capita up to 6 times lower than South East Europe or CEE

- Average FDI growth a third lower than regions like South East Europe

- Limited FDI diversification in most countries

Need to improve business climate to attract investment and develop the private

sector further

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Estimate Projection

Armenia 122 104 70 111 121 217 252 340 455 482

Azerbaijan 510 149 299 1,048 2,353 2,351 458 -1,301 -5,201 -1,997

Georgia 62 153 80 122 335 420 529 1,115 1,585 1,400

Ukraine 489 594 769 698 1,411 1,711 7,533 5,737 9,218 8,000

Kazakhstan 1,468 1,278 2,861 2,164 2,213 5,436 2,123 6,630 5,100 4,680

Kyrgyz Republic 38 -7 -1 5 46 132 43 182 224 167

Mongolia 34 40 43 78 132 129 258 290 324 688

Tajikistan 21 24 10 36 32 272 55 66 70 80

Turkmenistan 125 131 170 276 226 354 418 731 804 820

Uzbekistan 121 75 83 65 70 187 88 195 262 311

FDI Levels 1999-2007 (in US$ million)

FDI increased 4 times for CA and time for SCU

Average annual growth rate of 20% since 1999 (23% for SCU, 18% for CA)

SEE: 29% for the same period

Sou

th C

au

casu

s &

Ukr

ain

eC

en

tral A

sia

Source: EBRD Transition report 2007

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Savings (% of GNI, 2007)

Country

Gross sav-ings

Consumption of fixed capi-tal

Net National Savings

Azerbaijan 49 10 38

Kazakhstan 32 15 17

Kyrgyz Repub-lic

12 10 2

Tajikistan 4 7 -3

Ukraine 26 12 14

Uzbekistan 40 8 33

Source: The world Bank (Data& Statistics)

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Competitiveness

Barriers to FDI

High perception of risk for business transactions

Administrative barriers to foreign direct investment

Relatively weak institutional development, slow pace of economic, legal and institutional reforms (implementation gap)

Underdeveloped physical infrastructure

Weak regional cooperation, including limited intra-regional trade

Competitive Assets

Endowment in natural resources

Low cost and productive labor force

Process of internal and external liberalization, particularly under the European Neighborhood Policy

Macroeconomic stabilization, high growth rates and good prospects for the long term sustainable growth FDI in energy infrastructure as a catalyst forFDI in related sectors

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The Global Recession’s Impact on CA

- Kazakhstan, the country most integrated into the global economy and potentially most harmed by the global crisis, is the country best-prepared for negative financial and trade effects.

- Uzbekistan and Turkmenistan have foregone economic benefits from global integration, but by the same token are relatively insulated from external shocks other than commodity prices.

- The Kyrgyz Republic is in an intermediate position, but its major export commodity, gold, often does well during recessions and 2008-9 has been no exception.

- A more significant transmission for the poorer countries is migration, and the direst negative impact is through the reduced flow of remittances to Tajikistan, the poorest country in the region.

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Different Central Asian Economies

Divergent Paths

- Despite strong similarities in culture, history and economic structure, their tran-sitions from Soviet central planning ranged from the most rapidly liberalizing (the Kyrgyz Republic) to the most non-reforming (Turkmenistan) of all former Soviet republics.

- By the turn of the century, when the transition from central planning was essen-tially completed, the Central Asian countries had created vastly different eco-nomic systems. These differences had important implications for economic stability during the 1990s, for long-term growth prospects in the 2000s, and for the impact of the global economic crisis that gathered pace in 2008-9.

- The Central Asian countries are open economies in the sense that inter-national trade is important, but they have all been suspicious of integra-tion into the global economy and have embraced globalization to varying degrees.

Integrating Central Asia into the World Economy

 Source: OECD/IEA,(2007)

- China and India next to other Asian Pacific players will draw Central Eurasia into closer economic orbit diversifying oil and gas markets.

- If this accords with internationally accepted governance norms and economic disciplines this trend will impose new rigor and business models on existing investment and trade patters.

- Market rigidities characterize investment and trade patterns in today’s Eurasian gas scene; fragility and fragmentation despite plentiful economic opportunities that are yet to be unlocked…

- Asian Pacific interests in Central Eurasia may prompt further Euro Atlantic investment to integrate Central Asian trade and investment flows globally with the Euro Atlantic as well as the Asian Pacific; the two global energy consumption growth poles.

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Globalization and Central Asia

Open but not integrated Economy

- Kazakhstan as the richest and most developed economy in the region has the most com-plex relations to globalization, but even there suspicion of losing autonomy (reflected in the slow progress of WTO accession negotiations) has limited the degree of globalization of the Kazakhstani economy.

- The main channels of globalization, and hence for contagion from the global economic cri-sis, run through (1) the financial sector, (2) trade, and (3) migration and remittances. The last is important because hundreds of thousands of workers from Tajikistan and to a lesser extent the Kyrgyz and Uzbekistan are working abroad and their prospects will be directly influenced by economic conditions in Russia and elsewhere.

Trade and Openness

- The Central Asian countries have high export/GDP ratios except for Tajikistan whose ratio would be much higher if exports of labor services were included Despite efforts to diversify their economies by using revenues from energy, mineral or cotton exports or through import-substituting policies or other measures, the Central Asian countries’ exports remain heavily concentrated in a small number of commodities.

US Interest in Central Asia

Collapse of the Soviet Union to 9/11

- Revolved around the three broad themes of political and economic reform, se-curity, and energy

- Securing and dismantling nuclear stockpiles was the most pressing security concern

- Promotion of democracy

Post 9/11

- Stopping the threat of terrorism became the top priority for the US in Central Asia, and US secured bases in Central Asia to prepare for military actions against Afghanistan

- US seeks to allow Central Asia to sell its energy at global market price, to help the region maintain its independence and to prevent Russia from establishing economic hegemony over Central Asia

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- The period between September 11, 2001 and summer of 2003 marked the high point of US influence in Central Asia.

- US influence began to decline in 2005 following the ejection of US forces from air base in Uzbekistan following US criticism of Uzbek authorities’ han-dling of the events in Andijon

- US emphasis on democratization and its explicit links between political re-form and economic aid have alienated many Central Asian leaders

- Anti-American sentiment rose after American-led invasion of Iraq, perceived as American campaign against Islam

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Relationship between China, Russia, and Central Asia

Important trade partners

- Russia remains Central Asia’s leading trade partner. Trade between China and Central Asia increased 10 times from $500 million in 1992 to $5 billion in 2004 (12 years)

- Russia secured two agreements for natural gas pipeline in 2007 with three countries, dou-bling its imports of gas from Central Asia

Strategic Partners

- Shanghai Cooperation Organization (SCO), mutual-security organization founded in 2001 by the leaders of 6 countries: China, Russia, Kazakhstan, Kyrgyzstan, Tajikistan, and Uzbekistan

- Russia’s energy agreement provide it with increased leverage over Central Asia, as well as Europe.

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Caspian & Central Asian Oil Fast Forward On Its Own Momentum

- East meets West in Kazakhstan- New western outlets in place new outlets reach towards China- Rising Central Asian oil production calls for more

 Source: OECD/IEA (2007)

Central Asian Geopolitics

A Closer Look at the Speed Recovery

Real GDP Growth (percent change from a year earlier)

Per-capita Disposable Income to Recover by 2011

...except in Armenia,

Georgia, and the Kyrgyz Re-

public

Sources: IMF, World Economic Outlook; and IMF staff calculations.

Need to Tackle High and Rising NPLs in Some Countries

Nonperforming loans(Overdue by 90 days or more, unless otherwise noted; percent of total loans)

Source: National authorities.¹Overdue by 60 days or more.²Overdue from 1 day to 270 days.³Overdue by 30 days or more.

Georgia

Armenia

AzerbaijanUzbekistan

Turkmenistan Tajikistan Kyrgyz Republic

Kazakhstan

Russia

Belarus

Kazakhstan

Belarus-Kazakhstan-Russia Customs Union

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Challenges Beyond the Crisis

- Growth, development, and poverty reduction

- Fiscal and external sustainability

- Financial deepening and strengthening monetary policy instruments

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On the Back of High Oil Prices, the Recovery Continues

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Strong Fluctuations in Oil Sector GDP, Non-Oil Re-mains Steady

CCA Economic Outlook

The region is being hit by external shocks.

- Contraction in world economy, esp. Russia

- Declining commodity prices

- Drying-up of capital inflows

Current account positions have weakened

Fiscal balances are worsening, and public debt is rising

Growth will drop sharply in 2009 and recover gradually in 2010

Inflation is falling

Capital Inflows Are Drying Up.

-20

-10

0

10

20

30

AZE UZB TJK ARM TKM KGZ KAZ GEO

200720082009 (proj.)

Net Private Capital Flows (In percent of GDP)

Current Account Positions

Current Account Balance(In percent of GDP)

Gross International Reserves 1/

1/ March 2009 data includes SBA purchases of $249 million (Armenia) and $250 million (Georgia).

-25

-20

-15

-10

-5

0

5

10

15

20

GEO ARM KGZ KAZ TJK UZB AZE TKM

In months of next year's imports (March 2009)

Change (in percent, June 2008 - March 2009)

-16

-8

0

8

16

2004 2005 2006 2007 2008 2009

CCAOil & gas exportersOil & gas importers

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Growth in the Region

Real GDP Growth (In percent)

-2

0

2

4

6

8

10

12

14

16

2000 2002 2004 2006 2008 2010

CCA

Oil & gas exporters

Oil & gas importers

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Recovering Slowly in 2010

Proj. Proj.2006 2007 2008 2009 2010

CCA 13.1 12.0 6.3 0.9 5.0Armenia 13.2 13.8 6.8 -5.0 0.0Azerbaijan 30.5 23.4 11.6 2.5 12.3Georgia 9.4 12.4 2.0 1.0 3.0Kazakhstan 10.7 8.9 3.2 -2.0 1.5Kyrgyz Republic 3.1 8.5 7.6 0.9 2.9Tajikistan 7.0 7.8 7.9 2.0 3.0Turkmenistan 11.4 11.6 9.8 6.9 7.0Uzbekistan 7.3 9.5 9.0 7.0 7.0

Real GDP Growth(Annual percentage change)

Caspian Oil Production Growth and Diversity

Caspian provides bullish growth, Complements stable MENA and Russian volume with incremental volume and added diversity

0

500

1000

1500

2000

2500

3000

3500

4000

AZERBAIJAN KAZAKHSTAN TURKMENIST

kb/d

 Source: OECD/IEA,(2007)

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II. Middle East or MENA

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ME and NA Region

Middle East and North Africa

- The Middle East and Africa forms a huge economic zone with a total population of some1.1billion people (2005).

- When the global economy was hit by an upsurge in resource prices, Middle East and African countries have attracted attention from around the world for their rich reserves of crude oil, rare metal and other natural resources.

- The income level in the region as measured by per-capita nominal GDP widely varies from country to country.

- The population growth rate is high across the region, with most countries continuing to post annual growth around 2%.

- The employment situation in the region is severe, and the unemploy-ment rate is far above 10% in most African countries and in some oil-producing Middle East countries.

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54

Arab World Economies by Stage of Development

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Gulf Economies in the Global Competitiveness Rank-ing

Source: Arab World Competitiveness Report 2011-2012

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Levantine Economies in the Global Competitiveness Ranking

Source: Arab World Competitiveness Report 2011-2012

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A Diverse Region: Three Major Country Groupings

- Resource-poor, labor-abundant (RPLA) or emerging economies: Egypt, Jordan, Lebanon, Morocco, Tunisia, West Bank and Gaza Population: 124 Mill. GDP: $US 225 billions

- Resource-rich, labor-abundant (RRLA) or transition economies: Algeria, Iran, Iraq, Syria, Yemen

Population: 168 Mill. GDP: $US 400 billions

- Resource-rich, labor-importing (RRLI) or rich economies: GCC (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, UAE) +Libya

Population: 40 Mill. GDP: $US 666 billions

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GDP per capita ($2005 Value)

RRLA

RRLA

0 5000 10000 15000 20000 25000

GDP/Cap. $US

GDP/Cap $ US PPP

59

GDP per capita ($PPP2005 Value)

0 20000 40000 60000 80000

RRLI

RRLA

RPLA

Max

Average

Min

60

Dramatic Poverty Reduction and Low Absolute Poverty

% of Poeple living below $1.25 a day

0

10

20

30

40

50

60

1981 1984 1987 1990 1993 1996 1999 2002 2005

MENA region All regions

% of People Living Below $2 a day

0

10

20

30

40

50

60

70

1981 1984 1987 1990 1993 1996 1999 2002 2005

MENA region All regions

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Varied Across Sub-regions and Countries

GDP per capita growth in the MENA region

-6

-4

-2

0

2

4

6

RRLI RRLA RPLA

1970s

1980s

1990s

2000s

ME Countries’ Economic Indicators

Real GDP Growth Rate Consumer Price Current Account/GDP

2007 2008 2009e 2010f 2007 2008 2009e 2010f 2007 2008 2009e 2010f

Middle east 6.2 5.4 2.0 4.2 11.2 15.0 8.3 6.6 18.1 18.3 2.6 7.9

Oil produc-ing

6.0 4.9 1.3 4.2 11.8 15.8 7.0 6.3 21.5 21.8 4.0 10.4

Iran 7.8 2.5 1.5 2.2 18.4 25.4 12.0 10.0 11.9 6.7 3.0 3.6

Saudi Ara-bia

3.3 4.4 -0.9 4.0 4.1 9.9 4.5 4.0 24.3 28.6 4.1 11.4

UAE 6.3 7.4 -0.2 2.4 11.1 12.3 2.5 3.3 16.1 15.7 -1.6 5.2

Kuwait 2.5 6.3 -1.5 3.3 5.5 10.5 4.6 4.4 44.7 44.7 29.4 35.3

Non oil producing

6.8 7.0 4.5 4.4 9.1 12.3 13.0 7.5 -1.6 -2.7 -4.1 -4.4

Egypt 7.1 7.2 4.7 4.5 11.0 11.7 16.2 8.5 1.9 0.5 -2.4 -2.8

Syria 4.2 5.2 3.0 4.2 4.7 15.2 7.5 6.0 -3.3 -4.0 -3.2 -4.3

Jordan 8.9 7.9 3.0 4.0 5.4 14.9 0.2 4.0 -17.2 -11.3 -10.0 -8.8

Lebanon 7.5 8.5 7.0 4.0 4.1 10.8 2.5 3.5 -6.8 -11.6 -11.3 -10.5

Israel 5.2 4.0 -0.1 2.4 0.5 4.6 3.6 2.0 2.8 1.0 3.2 2.4

%

Note: e means estimation, f means forecast Source: IMF.62

SSA Countries’ Economic Indicators

Real GDP Growth Rate Consumer Price Current Account/GDP

2007 2008 2009e 2010f 2007 2008 2009e 2010f 2007 2008 2009e 2010f

Sub Sahara 7.0 5.5 1.3 4.1 6.8 11.9 10.5 7.3 0.2 0.2 -3.7 -2.7

North East 10.4 8.7 5.4 6.0 11.2 18.7 21.0 7.4 -10.1 -8.1 -9.0 -9.2

Ethiopia 11.5 11.6 7.5 7.0 15.8 25.3 36.4 5.1 -4.5 -5.6 -5.6 -9.3

Sudan 10.2 6.8 4.0 5.5 8.0 14.3 11.0 9.0 -12.5 -9.0 -11.2 -9.1

Central 7.3 5.8 4.3 5.1 9.1 11.9 14.9 8.2 -4.8 -8.1 -8.9 -9.4

Congo D.R. 6.3 6.2 2.7 5.4 16.7 18.0 39.2 14.6 -1.5 -15.3 -14.6 -23.7

Kenya 7.1 1.7 2.5 4.0 9.8 13.1 12.0 7.8 -4.1 -6.8 -8.1 -6.3

Tanzania 7.1 7.4 5.0 5.6 7.0 10.3 10.6 4.9 -9.0 -9.7 -9.9 -9.1

Uganda 8.4 9.0 7.0 6.0 6.8 7.3 14.2 10.8 -3.1 -3.2 -5.5 -5.7

South 11.6 8.5 0.0 6.1 7.6 12.6 11.0 10.8 6.3 0.2 -6.3 -3.8

Angola 20.3 13.2 0.2 9.3 12.2 12.5 14.0 15.4 15.9 7.5 -3.4 2.2

Zimbabwe -6.9 -14.1 3.7 6.0 -72.7 156.2 9.0 12.0 -10.7 -29.5 -21.4 -19.9

Middle west 5.8 5.3 2.6 4.4 4.5 10.1 8.8 6.6 8.0 9.3 1.4 4.3

Ghana 5.7 7.3 4.5 5.0 10.7 16.5 18.5 10.2 -12.0 -18.7 -12.7 -15.4

Nigeria 7.0 6.0 2.9 5.0 5.4 11.6 12.0 8.8 -18.8 20.4 6.9 13.8

South Africa 5.1 3.1 -2.2 1.7 7.1 11.5 7.2 6.2 -7.3 -7.4 -5.0 -6.5

Non oil producing 5.3 4.7 1.4 3.3 6.3 10.8 8.9 5.7 -5.2 -7.1 -5.7 -7.3

Oil producing 7.8 6.1 2.2 5.1 5.5 9.4 9.4 7.8 14.8 14.9 0.9 6.2

Note: e means estimation, f means forecast Source: IMF.

%

63

64

Real GDP Growth in MENA

Syria

Egypt

Saudi Arabia

Tunisia

Algeria

Real GDP Growth in MENA

(Year) Source: MSRC( IMF)

65

GDP per capita in MENA

GDP per capita in MENA

Yemen Egypt Syria Tunisia Algeria Saudi Kuwait Qatar Arabia

Source: IMF( Estimation 2010)

0

(1000 dollars)

Major Oil Producing Countries (2009)

Major Oil Producing Countries

RussiaSaudi Arabia

USIran

ChinaCanadaMexico

UAEIraq

KuwaitVenezuela

NorwayNigeria

BrazilAlgeria

QatarOmanEgypt

SudanSyria

YemenTunisia

Source: BP

0 (million barrel/day) 66

Current Balance and Fiscal Balance in MENA countries

Yemen Tunisia Syria Egypt Algeria Saudi Qatar Kuwait Arabia

Source: IMF( Estimation 2010)

Current Balance: MENAFiscal Balance: MENA

Algeria Egypt Yemen Syria Tunisia Saudi Qatar Kuwait Arabia

Source: IMF( Estimation 2010)

（ GDP／％） （ GDP

／％）

67

FDI in MENA Countries

Saudi ArabiaTurkey

UAEEgyptQatar

LebanonLibya

SudanJordan

IranOman

MoroccoTunisiaAlgeriaBarren

SyriaIraq

YemenKuwait

FDI in MENA Countries

(billion dollars)Source: MSRC( based on UN reports 2005-2009 )

68

Demographic Changes in the World

Africa

69

70

Pakistan

Egypt

Iran

Sudan

Algeria

Morocco

Afghanistan

Iraq

Saudi Arabia

Yemen

0 50000 100000 150000 200000 250000 300000 350000

Population Size 2005 and 2050

2005

2050

Source: United Nations 2005

Economic Growth and Employment

CountriesReal GDP Growth Employment Growth

1999-2008 annual average % 1999-2008 annual average. %

Tunisia 4.8 1.2

Egypt 4.6 2.5

Jordan 6.9 5.2

Algeria 4.2 4.0

Yemen 4.0 4.5

Saudi Arabia 4.0 3.0

UAE 7.4 2.9

Kuwait 7.7 2.8

Barren 6.4 2.8

Qatar - 3.2

Oman 4.4 3.4

Source: IDB

71

Share of Proven Oil and Natural Gas Reserves by Region

Source: BP Statistical Review of World Energy (BP)

72

73

Economic Situation

- The Gulf Cooperation Council (GCC), having relatively high per-capita GDP due to crude oil export revenues, are promoting industrial diversification.

- In African countries, whose main industry used to be agriculture, the amount of per-capita crop production was low compared with the rest of the world despite the fact that a majority of African people lived in rural areas; consequently, their economic growth remained slack.

- Since the upsurge in resource prices, not only developed countries but also emerging economies like China and Russia have made active investment in resource develop-ment in Africa and, as a result, an increasing number of African countries have shifted from an economic structures dependent on agriculture to one centering on the devel-opment and export of natural resources and achieved rapid economic growth.

- The plunge in resource and food prices and the global financial crisis since the latter half of 2008 have posed a serious challenge for the economies of Middle East and African countries, which had been developing steadily, by shrinking the in-flow of foreign and causing a drop in export revenues.

74

III. North Africa

Real GDP Growth in Middle East and African Countries

Middle East/North Africa Sub-Saharan Africa

Source: World Economic Outlook Database April 2010

75

Real GDP Growth of Oil Exporters and Oil Importers

Source: World Economic Outlook Database April 2010

76

Fiscal Net Lending/Borrowing and Government Debt

Source: World Economic Outlook Database April 2010

77

West Asia (including GCC): FDI Inflows(Value and Percentage of Gross Fixed Capital Formation,1995-2008)

Note: GCC(United Arab Emirates, The Kingdom of Bahrain, The Kingdom of Saudi Arabia, The Sultanate of Oman, Qatar, Kuwait)

78

Africa: FDI Inflows(Value and Percentage of Gross Fixed Capital Formation,1995-2008)

79

80

FDI: Policy Development

- Since the late 1990s, there have been continuous legal reforms towards liber-alization in West Asian countries (including regulations governing the status of foreign firms), with the new legal environment becoming more favorable to for-eign investors. Changes have included more liberal entry, fewer performance re-quirements, more incentives, and more guarantees and protection for investors. The number of activities in which FDI is barred or restricted has been reduced, especially in the manufacturing sector, but also, increasing, in natural resources and services. This liberalization trend continued in 2008, with relevant policy mea-sures implemented in a number of countries.

- In Saudi Arabia, the business visa requirements have been eased and visas can be issued not only through Saudi embassies but also Chambers of Commerce. In order to facilitate foreign investments into Saudi Arabia, the Government set up 2 new one-stop-shop offices and allowed the Saudi Arabian General Investment Au-thority offices abroad to issue investment licenses to foreigners.  

- Kuwait, Jordan, Syria, Qatar, Oman and Turkey also have been liberalizing.

81

FDI: Prospects

Fall In Inflows, but A Possible Rise In Outflows

- FDI inflows to West Asia are expected to fall in 2009 as the impacts of the ongoing global economic and financial crisis cause a further drop in interna-tional trade and in key revenue sources, as well as a continued tightening of credit markets for investment projects. Preliminary data show a strong reduc-tion in net cross-border M&A sales in West Asia during the first half of 2009 (table II.12).60 However, accumulated reserves and brighter prospects for oil prices could have a positive effect on FDI to West Asia in the medium term.

- According to UNCTAD’s World Investment Prospects Survey 2009–2011, FDI prospects in West Asia seem more favourable than those reported in the previous survey. Of the total respondents to the latest survey, 45% expected an increase in FDI during the period 2009–2011 (compared with 32% for the period 2008–2010 of the previous survey), 47% expected no change (com-pared with 67%), and 8% expected a decline (compared with almost no re-spondents in the previous survey) (figure II.15).

82

- Outward FDI flows from West Asian countries, largely originating from GCC countries, are expected to increase, as the global economic and financial crisis offers new investment opportunities for cash rich companies and investment funds. They can take advantage of their rela-tively strong financial position to buy companies weakened by tight credit markets at discount prices.

- Some of them have already begun to make acquisitions that support their national economic development objectives. Particularly active in doing so is the Government of the Abu Dhabi Emirate.

- In addition, some of them are planning to expand their operations abroad.

83

Development of Manufacturing Industry in North Africa

- North African countries are notable in that: they have relatively high per-capita GDP compared with sub-Saharan countries; are geographically close to Europe, being located on the opposite site of the Mediterranean Sea; and have a gradually-developing manufacturing industry.

- For North African countries, whose main industries used to be natural resources and agriculture, industrial diversification was a challenge.

- However, their manufacturing industry is now developing. This is presumably supported by the fact that the wages in North African Countries are regarded as relatively low amid the rising waged in Eastern Europe. From the trend in imports by Morocco, Tunisia, Egypt, Ethiopia and Algeria, it is clear that their imports of machinery have increased significantly, suggesting that the manufacturing industry is these countries is gradually growing.

Comparison of wage level in East Europe and Africa

84

Changes in Machinery Imports of Five Countries in Africa

85

Improvement of Business Environment in North Africa

- In North African countries, the business environment is also improving gradually. In the global rankings of countries in terms of business friendli-ness included in “Doing Business in the Arab World 2009” , a report com-plied by the World Bank, even Tunisia, the highest-ranked country in North Africa, is placed as low as 72nd. However, the business environment in the region is improving, as exemplified by the reduction of the corporate tax rate from 35% to 30% in Morocco in 2008 and the abolition of the minimum paid-in capital for limited liability companies in Tunisia.

- North African countries are trying to achieve market integration through FTAs with the United States, European countries and GAFTA and in-crease their attractiveness as a base for exports to their FTA partner coun-tries.

86

Number of Cell Phone Subscription in the World

87

Political Economy in MENA

□ Slow and Hesitant Transformation to A New Social Contract since the 1980s

- From public sector to private sector driven: Emergence of private sector

- More open economies: slow external liberalization

- Towards more liberalization and deregulation of markets

- More diversified economies

- Continuation of many old redistributive policies (subsidies)

- Continued limited political voice and participation

88

Failure to Meet Many Critical Challenges Requires Deeper Institutional Change

- Employment challenge

- Higher expectations by a younger and more educated population

- Pressures of globalization

- Critical water and environmental challenges

□ Critical Institutions which Need to Change- Transition to institutions with less prevalence of “personal exchange” both in

the political and economic domains

- Economic institutions with strong private property rights, less rent-seeking, more open markets, rules-based government regulation and intervention

- Political institutions with greater voice and accountability

89

Political Power in MENA

90

Various Risks the Instability in Egypt Brings to the Region

Current situation in Egypt Current situation in Middle East and North Africa

Spread of Egyptian problem and geopolitical risk

Political Issues -Military regime gained na-tional support and took power after the 1967 Six-Day War-But, increasing discontent with Mubarak’s human right and undemocratic practices

-Strong discontent toward pro-longed dictatorships -Increas-ing number of demonstrations spurred by information ex-changes on the Internet

-Additional democratic and hu-man rights movements are ex-pected-Fierce fight for political power will lead to political instability

Economic Issues -High unemployment rate and inflation-Economic stagnation and re-duced capital inflow, incom-plete economic reform led to high unemployment- High inflation due to high dependence on imported food

-Most countries in the region are suffering from high unem-ployment and inflation rate-Countries without oil are addi-tionally suffering from job cre-ation and adequate welfare system

-Political instability will lead to stagnation in the economic re-form-Investment from abroad will de-crease due to the instability

Foreign affairs Issues -peace treaty with Israel (79), ally with Israel and USA-contributed to peace in the Middle East by acting as liai-son between Arabic nations, USA, and Israel

-Israel, Saudi Arabia are main US allies in the region-While many countries are anti-USA and anti-Israel

-Changes in Egyptian foreign policies toward Israel could in-crease the tension between Ara-bic nations and Israel

Terrorism and Security -Effort to fight Radical Islamic forces and terrorism

-Collapse of dictatorship regimes will weaken the anti-terrorism ef-forts and pose threat to national security

91

Authoritarian Regime Dilemma

- Benefits from stronger private sector: more growth, greater wealth base to tax, ability to redistribute and satisfy supporters, minimize contestation

- Accrual of these benefits requires: inclusive broad-based private sector, lim-its on ruler’s discretion

- Risks to rulers: greater ability of private sector to organize and revolt against ruler

92

□ Improving Governance will be Critical to Move Forward on More Diffi-cult Reforms

- Region’s inability to tackle deeper and more complex reforms points to limi-tations of top-down approach of reform by decree

- Deeper economic reform cannot proceed without reform of incentive struc-tures in which reforms are embedded

- Governance reforms cannot be viewed as a separate agenda, to be pur-sued at its own pace, but integral to all other reforms.

93

IV. Compari-son

Regional Comparison: SA and CA

Endowments and Economy

- CA is blessed with abundant valuable natural resources and agriculture whereas SA is agri-cultural resources. CA is land-locked and has broad desert areas. However, it is an important mediator in the ( old and new) Silk-road. SA is also a geographic mediator between Europe and East Asia.

- CA is faster in indusrialization than SA. Economic partners of CA are more diversified.

- In the long-run, SA will develop better than CA, because it has more manpower and loca-tional advantages.

Political Economy

- SA has more diversified culture and political regimes than CA. SA is more democratic.

- CA should attain a balance between national independece (e.g. the meaning of CIS) and peaceful international relations with super powers such as Russia, EU, China and US.

- SA should strengthen economic relations with East Asia.

94

Comparison of Political Economy of SA and CACentral Asia South Asia

Polity Presidency, Republic Presidency, Republic (Some Kingdoms)

Government Strong authoritarian Authoritarian Democratic, King’s rule

Natural Resources Oil, Mineral Agricultural

Population 40 million persons 1.4 billion persons

Human Resources Skewed Skewed

Recent GDP growth rate 8% 6%

GDP per capita Kazakhstan: $3000, Rest: Poor

Poor ($ 700)

Industrial Structure From primary to manufactur-ing

Agriculture dominant

ExportPrimary products(oil, gas, minerals), light products,

agricultural products

Agricultural products, manu-facturing products, s/w

International Relations Russia, China, US East and South Asia, US, China

95

FDI in Emerging Countries

China

Latin America

Middle East

South East Asia

North Africa

Source: MSRC( based on UN reports )

FDI in Emerging Countries(billion dollars)

(Year)

96

The Unemployment Rate in MENA

The Unemployment Rate in MENA

Source: MSRC( IMF)

(Year)

Jordan

Tunisia

Syria

Saudi Arabia

Egypt

97

Major Wheat Exporting and Importing Countries in the World

CanadaEurope

ArgentinaRussia

ChinaIndiaBrazil

Middle EastSouth East Asia

North Africa

(million ton)

Note: Estimation 2010-2011 Source: United States Department of Commerce

Major Wheat Exporting and Importing Countries

←Over Imports Over Exports →

98

99

SWOT Analysis of ME

100

Growth Performance by Region

101

Egypt and Arab Rep. at Glance:Poverty and Social

102

Egypt and Arab Rep. at Glance:Key Economic Ratios and Long-term Trends

Egypt and Arab Rep. at Glance: Structure of the Economy

103

104

Economic Growth: Mediocre and Volatile

GDP per capita growth I MENA and other regions(percent)

-2

-1

0

1

2

3

4

5

6

7

8

East Asia &Pacific

Europe &Central Asia

Latin America& Caribbean

South Asia Sub-SaharanAfrica

Middle East &North Africa

1970s

1980s

1990s

2000s

Corruption Perceptions Index in 2010

Ranking Country Score Ranking Country Score

1 Denmark 9.3 50 Jordan 4.7

1 New Zealand 9.3 50 Saudi Arabia 4.7

1 Singapore 9.3 54 Kuwait 4.5

4 Finland 9.2 59 Tunisia 4.3

4 Sweden 9.2 85 Morocco 3.4

6 Canada 8.9 98 Egypt 3.1

7 Holland 8.8 105 Algeria 2.9

8 Australia 8.7 127 Lebanon 2.5

8 Switzerland 8.7 127 Syria 2.5

19 Qatar 7.7 146 Iran 2.2

28 UAE 6.3 146 Libya 2.2

30 Israel 6.1 146 Yemen 2.2

41 Oman 5.3 172 Sudan 1.6

48 Bahrain 4.9 175 Iraq 1.5

Note: A higher score means less (perceived) corruption. CPI 2010 is based on13 independent survey .Source: Transparency International 105

References

ADB. 2009. “The Economics of Climate Change in Southeast Asia: A Regional Review” Asian Devel-opment Bank(Google, PDF)

Blank, Stephen. 2008. “ The Strategic Importance of Central Asia: An American View.” Parameters.

Geiger, Rainer. 2008. “OECD Eurasia Competitiveness Programme”. OECD.

Kelegama, S. and K. Pankh. “ Political Economy of Growth and Reforms in South Asia”.

Richard Pomfret. 2009. “Central Asia and the Global Economic Crisis”. EUCAM: EU-Central Asia mon-itoring.(Google, PDF)

Figures for Central Asia from The World Bank http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/ENVIRONMENT/EXTDATASTA/0,,contentMDK:21055287~menuPK:2998911~pagePK:64168445~piPK:64168309~theSitePK:2875751,00.html

Tajikistan information http://www.worldbank.org.kz/WBSITE/EXTERNAL/COUNTRIES/ECAEXT/KAZAKHSTANEXTN/0,,menuPK:361879~pagePK:141132~piPK:141107~theSitePK:361869,00.html

106

107

Bongaarts, John. n.a. ”Demography of the Middle East”. (PPT)

Nabli, Mustapha K. 2008. “Institutional Change and Development in the Middle East and North Africa”. (PPT, google)