Middle East and North Africa Looks to Inclusive Future Growth

30/05/2011

There are historic opportunities for greater openness and citizen participation in economies across the Middle East and North Africa (MENA) that , if strongly managed over the transitions ahead, could see a significant boost to economic growth and living standards in the medium term, Global Arab Network reports according to a press statement.

This is the analysis presented today in the World Bank’s Regional Economic Outlook: MENA Facing Challenges and Opportunities. The report notes that current economic disruption in many MENA countries is translating into lower growth in the short term (now forecast at 3.6 percent for 2011 down from 5 percent) but that opportunities in the medium term offer new hope for an inclusive and sustainable development that has not before been seen in the region.

“The rich experience from countries that have undergone political changes suggest that short-term disruptions to economic growth and social tensions are inevitable,” said Shamshad Akhtar, World Bank Vice President for the MENA region. “However, transition offers an opportunity for countries to break with the past and set course in a newer direction. A first order of priority is to offer the right signals to restore public and private investor confidence which, in MENA, calls for ensuring respect and citizen dignity through inclusive social policies, a fundamental change in governance frameworks and swiftly restoring macroeconomic stability.”

The report finds that by the end of 2010, MENA countries had largely recovered from the global financial crisis, and growth rates had been expected to reach pre-crisis levels in 2011. Events in early 2011 which led to swift regime change in Tunisia and Egypt, and ongoing challenges in Bahrain, Libya, Syria and Yemen, have affected the short-term macroeconomic outlook and the status and speed of economic reforms in the region.

“The effects of reform tend to follow a J-curve, where things get worse before they get better. Experience from other countries which have made successful transitions has shown an initial decline of 3 to 4 percent in the first year but quickly recovering,” said Caroline Freund, Chief Economist for the MENA region.

“Also encouraging is that successful countries saw significant and fast improvements in voice and accountability, some of the very things that underpin the MENA uprisings. We need to learn from history’s successful transitions and carefully manage the short-term downturn which is where we are focusing our best efforts now. While the challenges are many, the opportunities are more.”

Freund said better rule of law will promote competition and political stability will attract investment, facilitating more rapid growth in a sustainable way. By the same token, more voice for civil society will prevent the unequal application of regulations, and can lead to more inclusive growth.

Examples of transitions to democracy in other parts of the world confirm that economic gains can be sizable. Typically, successful transitions are associated with higher levels of income growth in the decade after change than in the prior one. But, the short-run is challenging; investors typically wait for uncertainty to be resolved and it is inevitable that investment will be delayed. Signs of stability and reform are quick to be rewarded though and evidence from other countries shows that this dip in economic activity typically lasts a year, with growth quickly gaining momentum if the transition is strongly managed.

The report’s regional forecast of 3.6 percent growth for 2011, down from 5 percent expected a few months ago, is largely due to the sharp drop in Egypt’s and Tunisia’s economic activity, but also because of weaker growth in developing oil exporters in MNA. Gulf Cooperation Council (GCC) countries will maintain strong growth rates, expected to exceed 5 percent. Growth effects are sharply differentiated by country in MENA, depending largely on whether the country is an oil exporter or an oil importer and the degree to which unrest and political change has disrupted economic activity.

The report also notes that government spending is expected to rise in 2011 as governments move to expanding supportive policy measures and social transfers to reduce the burden of unemployment and counter high commodity prices. Partly because of these actions, but also because of rising fuel and food prices, inflation rates are expected to increase in many MENA countries in 2011.

“Expanding social measures during an uncertain period is understandable to protect the most vulnerable and to help maintain support for reform,” said Elena Ianchovichina, World Bank Lead Economist and author of the report. “But it is important that these measures be used to complement needed reforms and be targeted efficiently to the poorest and the most needy.”

The report considers prolonged instability resulting from unmet political and social aspirations and lack of clarity about political transitions to be the most serious risk to short-term economic growth in MENA.

The report also investigates the effect of high commodity prices on MENA countries. Impacts are country-specific and determined by dependence on food and oil imports, and the extent of the pass-through from international to domestic prices. While MENA includes some major oil exporters that are benefiting from oil price increases, it is also home to a number of countries that rely on imported oil. Importantly, because most MENA countries are highly dependent on imported food, particularly cereals, oils, and sugar, in the event of further food price increases, they face the risk of more malnutrition, increased import bills, higher domestic inflation, and worsened fiscal balances in cases when governments subsidize food. And new estimates of pass through from international food prices to domestic prices are presented for MENA countries.

“Food security is and will continue to be an important issue for Arab countries,” said Julian Lampietti, Lead Food Security Expert for MENA region at the World Bank. “Now is not the time to be complacent in addressing this with global wheat stocks low and with the Arab world importing one third of the world’s traded wheat.” There is considerable scope for reducing food price volatility in the MENA region through investments in infrastructure and logistics, he said, pointing to examples in the region where ongoing analysis is showing that there are ways to manage exposure to food price spikes and ensure a timely supply of dietary essentials.

Source: globalarabnetwork.com

Economic Recovery – Tunisia Investing in the Future

12/04/2011

As Tunisia continues its recovery from the global economic slowdown, efforts to drive growth in the country’s industrial sector are ongoing, with these achieving some success in early 2011. Statistics from the Agency for the Promotion of Industry and Innovation (Agence de Promotion de l’Industrie et de l’Innovation, APII) revealed a 9.7% increase in industrial investments in the first two months of 2011 compared to the same period in 2010, with the total value rising from TD420.1m (€213.27m) to TD460.9m (€233.99m), Global Arab Network reports according to OBG.

The APII registered 266 new projects in the sector in January 2011 alone, with these expected to create 5000 new jobs in segments such as food, electronics, leather and textiles. More are on the way, too: Dutch denim manufacturer Marathon, for instance, is planning to open a new factory in Kasserine this year that will create 1200 jobs.

In December 2010, with the six-year Industrial Modernisation Programme – a €50m EU-funded project to assist and support Tunisian businesses – expired, Tunisia began operating under a new €23m EU-funded scheme, the Business Competitiveness and Market Access Support Programme, to increase competitiveness and improve quality. Of those funds, €10m will be devoted to providing training and technical assistance to businesses and €9.1m will go towards improving management and infrastructure.

Textiles is the country’s largest manufacturing segment. It provides 44% of industrial jobs, employs 200,000 workers and accounts for around 5% of GDP. Total exports amounted to more than TD5bn (€2.6bn) up to December 2010, and there are an estimated 1752 companies in the textiles industry manufacturing goods entirely for export.

Around 84 foreign clothing labels are made in Tunisia. Textiles firms are concentrated along the eastern coastline, from Bizerte down to Sfax. The APII announced in January that Monastir alone, which has the highest concentration of textiles firms in the country at over 300, has attracted 13 such projects since the beginning of the year.

Tunisia is a leading exporter of textiles products and one of Europe’s major clothing suppliers, with 97% of its textiles exports going to the EU. It is one of the EU’s five top textiles suppliers, along with China, Turkey, Bangladesh and India. In 2010 sector exports were up 26% in value and 19% in volume compared to 2009. Imports of goods for the industry as a whole were up by 11.8% in value and 11.4% in volume.

The textiles trade took a hit in early 2011 due to the political turmoil, in line with other sectors, dropping 15.8% in January 2011 compared to January 2010. Company owners and workers mobilised to protect their businesses during the unrest, however, and the majority of facilities are now back working at their normal rate, with sales expected to gain momentum going forward. Benetton confirmed in early 2011 that its Kasserine factory is operating normally, and the company plans to increase production from 32m items in 2010 to 35m in 2011.

The gradual return to business as usual was reflected in figures for February, with textiles exports growing by 8.67% during the month, according to the Textiles Technical Centre (CETTEX), which is part of the Ministry of Industry and Technology.

Since the beginning of the year Tunisia’s textiles manufacturers have taken part in various conferences and trade fairs – such as Salon Zoom By Fatex in Paris and the TEXTILLEGPROM event in Moscow – and on March 3 CETTEX held a seminar on the economic prospects for 2011 in the textiles and clothing industries. In addition, the annual TEXMED trade fair will be held in Tunis in June.

CETTEX recently announced that it is putting in place a training programme to help businesses recruit qualified graduates to improve competitiveness and help graduates who have been unemployed for at least three years gain experience, as well as specialise in certain activities to increase their chances of finding a job. Through the programme, 80 graduates will receive theoretical and practical training over a period of six months.

In addition, trade union negotiations are being held to address stagnant wages and rising prices, although this is not expected to hamper investment. Wage increases will be implemented gradually, according to the director of the Export Promotion Centre, Abdellatif Hamam, who suggested an annual increase of 3-4%. As of July 2010 the minimum wage stood at €0.75 per hour.

Tunisia is gradually recovering from the effects of the global downturn. Economic growth was up from 3.1% in 2009 to 3.8% in 2010. Total exports had fallen by 17.6% in 2009 due to a decline in demand for manufactured goods, but in 2010 exports were up by 21%. Total foreign direct investment increased by 2.9% in 2010, mainly because portfolio investments were up from TD78.3m (€40m) in 2009 to TD252.7m (€128m) in 2010, according to the Foreign Investment Promotion Authority.

Investments in industry reached TD3.34bn (€1.7bn) in 2010, a 17.2% increase over 2009. Outside the energy segment, Tunisia hosts 3073 foreign industrial companies, which provide around 322,000 jobs. While it has not yet fully recovered from the twin effects off the global economic crisis and the political turmoil of early 2011, momentum is building and with continued backing from the government and a gradual improvement in economic conditions both at home and in key export markets in Europe, the country’s textiles business – and indeed its broader industrial sector – looks set for a bright future.

Source: globalarabnetwork.com

Brent crude at $118 on Libya, supply worries

8/03/2011

LONDON (Reuters) – Brent crude rose to $118 a barrel and U.S. oil hit the highest since September 2008 on Monday as fighting in Libya disrupted its supplies and renewed concern of wider disruptions in the Middle East.

While the Libyan crisis has cut supply from a country that normally provides almost 2 percent of world output, the prospect of unrest spreading to larger producers such as Saudi Arabia is a far more bullish scenario for oil markets.

“The major risk remains the prospect of the political unrest spreading to the Gulf producing region,” said Caroline Bain, economist at the Economist Intelligence Unit. “However, even if there is civil unrest in Saudi Arabia, it is not a given that oil production will be affected.”

Brent crude gained $2.20 to $118.17 at 1122 GMT. U.S. crude was up $2.26 at $106.68, having earlier risen as high as $106.82, the highest since September 2008.

In Saudi Arabia, security forces have detained at least 22 minority Shi’ites who protested last week against discrimination, activists said on Sunday, as the kingdom tried to keep the wave of Arab unrest outside its borders.

Citigroup and Commerzbank raised their oil price forecasts on Monday and the latter is now looking for a Brent price of $120 in the second quarter, citing the risk that disruption could spread in the Middle East. Brent’s highest this year is $119.79 reached on February 24.

RISK PREMIUM HIGH

“Not only actual production losses but above all the threat of contagion spreading to neighbouring regions will keep the geopolitical risk premium at a high level for the time being,” Commerzbank said in a report.

The rally in prices has prompted the Obama administration to consider releasing emergency oil stockpiles as policymakers seek ways to contain a negative spillover to the world’s biggest economy.

There has so far been no formal response from the Organization of the Petroleum Exporting Countries, which has brushed off the need to meet before a scheduled gathering in June.

Libya, an OPEC member, usually produces 1.6 million barrels per day and its output has been cut by as much as 1 million bpd, according to the International Energy Agency.

Source : af.reuters.com

Libya’s Ghanem can’t say if unrest affecting oil production

22/ 02/2011

Shokri Ghanem, chairman of Libya’s National Oil Corp, said he didn’t know if unrest sweeping the North African nation has affected its output of crude.

“Until now, we don’t have any information,” Ghanem said when asked about any such impact on production. He spoke in a brief telephone interview from the country’s capital, Tripoli.

Al Jazeera, the Doha-based broadcaster, reported earlier that Libya’s Nafoora oil field had stopped producing because of an employee strike.

Libya has Africa’s biggest crude reserves and is the continent’s third-largest oil producer after fellow OPEC members Nigeria and Angola. It pumped 1.59 million barrels a day last month, according to Bloomberg estimates.

Foreign oil companies operating in Libya include BP, Eni and Statoil.

Saif Al Islam Qaddafi, a son of Libyan leader Muammar Qaddafi, called on protesters to engage in dialogue with the government or face a civil war that could jeopardise the country’s oil wealth. At least 233 people have died in Libya, with hundreds injured in the clashes between Qaddafi’s forces and anti-government protesters since February 16, according to New York-based Human Rights Watch.

Source: arabianbusiness.com

Analysis: OPEC, oil majors still cautious on investment

8/02/2011

(Reuters) – OPEC’s newly announced plans to spend billions of dollars on future supplies are unlikely to unleash a flood of oil on to the market as it maintains a policy of restraint and supporting prices for years to come.

At the same time, some of the biggest oil companies are investing less than before the 2008 oil price crash even though economic recovery is forecast to drive global demand to unprecedented levels.

OPEC Secretary General Abdullah al-Badri said this week the 12-member group would spend $155 billion on projects coming on stream between 2010 and 2014, which would add 12 million barrels per day (bpd) of gross production capacity.

But much of that is likely to go into maintaining output at existing fields rather than developing new ones. Top exporter Saudi Arabia spends billions each year to hold capacity where it is, said Paul Tossetti, senior energy adviser at PFC Energy.

“When you look at the Saudis, they’ve basically finished their incremental oil capacity increases,” he said. “I don’t see much in the way of OPEC capacity increases in the next few years, aside from Iraq.”

Among the world’s three largest fully publicly traded oil companies, Royal Dutch Shell (RDSa.L) and BP Plc (BP.L) are raising their spending this year but not to the levels the companies were spending before the 2008 crash.

Exxon Mobil (XOM.N) stands apart in that it increased its outlay through the downturn, although it has yet to announce investment plans for this year.

Shell said its cautious approach was based on a long-term view and sought to avoid the boom and bust of previous economic swings, when waves of new oil sent the price crashing.

“We aim to keep our investment levels relatively constant through the business cycle,” said Simon Henry, Shell’s chief financial officer, at a post-results news conference this week.

“One of the ways of losing money in this industry is to follow the cycle too much and invest more as the prices go up.”

DIFFERENT FOCUS

While the oil majors’ focus is relatively short-term, members of the Organization of the Petroleum Exporting Countries are concerned with maximizing oil revenues over the long term.

The influence of Saudi Arabia, in particular, derives from maintaining spare capacity that can be added or taken away from the market depending on the balance of supply and demand.

As he announced OPEC’s plans, Badri stressed the need for a customer base when deciding whether to increase capacity.

“If upstream investments are pursued without a careful consideration of global market conditions, the result could be a higher risk of idle spare capacity — and unnecessary costs to maintain this,” he told a London conference on Monday.

Source : reuters.com

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