Trade and integration — within the Mena region and with the rest of the world — will be critical to lowering poverty, empowering the poor, and igniting economic growth in the post-Covid era, according to the World Bank’s latest regional economic update.
The report, titled “Trading Together: Reviving Middle East and North Africa Regional Integration in the Post-Covid Era”, paints a comprehensive picture of Mena’s economic situation six months into the Covid-19 pandemic. It examines the lasting effects of the dual economic shocks from the spread of the coronavirus and the collapse in oil prices, and it recommends policy changes and reforms to build a new integration framework across the region.
"The Mena region was already lagging behind economically before the Covid-19 pandemic struck. Six months into it, we can see — with stark clarity — the severity of the devastation on lives, livelihoods, and region-wide prosperity," said Ferid Belhaj, World Bank Vice President for Mena.
"We are continuing to help Mena countries stop the spread of the disease and protect and care for their people. We will keep insisting on the need for Mena countries to give the highest priority to transparency, governance, the rule of law and market contestability, and to instil trust, promote the private sector, and build a new framework for the sustained regional economic integration that will make trade a powerful tool to alleviate poverty and expand access to opportunities for all."
The economic shocks of the pandemic and decline in oil prices
The dual economic shocks of the Covid-19 pandemic and decline in oil prices have affected all aspects of Mena’s economies, which are projected to contract by 5.2% in 2020 — 4.1 percentage points below the forecast in April 2020, and 7.8 percentage points worse than the forecast in October 2019. The latest data reflect an increasingly pessimistic outlook for the regional economy, which is expected to recover only partially in 2021.
Driven by lower oil export revenue, declines in other fiscal revenues, and the high expenditures required to respond to the pandemic, the region’s current account and fiscal balances in 2020 are forecast at -4.8% and -10.1% of GDP respectively, much lower than the forecasts from October 2019. Public debt is projected to rise significantly in the next few years, from about 45% of GDP in 2019 to 58% in 2022.
"The pandemic continues to inflict economic losses, and the poor and vulnerable are being disproportionately affected," said Ha Nguyen, Senior Economist and co-author of the report. "The growth outlook for 2021 suggests that a V-shaped recovery is unlikely, although the forecasts are fluid and subject to great uncertainty."
Trade and regional integration
According to the report, Mena’s integration — both within the region and with the rest of the world — was underperforming before the pandemic. This is due to economic reasons, such as poor logistics’ performance, inefficient customs, high infrastructure costs, the inadequacy of legal frameworks for investments, and disparate regulations that add up to high trade costs and have become non-tariff impediments to trade.
Challenges with logistics and the business environment impede Mena’s integration in regional and global value chains. Despite improvements in recent years, the Mena region underperforms in access to credit, which is lower than anywhere else in the world. Trading across borders is expensive and time-consuming: It costs, on average, $442 and 53 hours to comply with border requirements for exporting, which is three times more expensive and four times longer than averages in high-income economies.
"The challenges to overcoming the political and economic obstacles to Mena’s integration would be difficult in ordinary times, let alone in the midst of a pandemic and economic crisis," said Blanca Moreno-Dodson, Manager of the Center for Mediterranean Integration and leader of the report. "But the Covid-19 pandemic offers a great opportunity for Mena countries to rethink their social and economic policies and strengthen trade integration while reducing their oil dependency at the same time."
The report proposes a new trade integration framework that goes beyond reducing tariffs. Some of the suggestions it makes indicate that trade liberalization must be comprehensive and benefit all sectors, including agriculture and services.
The report also recommends focusing on trading regionally in sectors such as food security, health systems, renewable energy, and the knowledge economy.
It suggests creating a common Mena digital market so that Mena countries can improve both trade and digital connectivity, with broader markets in Africa and the Mediterranean. This should help increase productivity; coordinate efficient responses to the pandemic; and promote inclusive, resilient, and sustainable jobs in the region. – TradeArabia News Service