Presented at the meeting of the MENA-OECD Working Group on SME Policy, Entrepreneurship and Human Capital Development on 23-24 September 2014.

1. Recent economic developments in the MENA region
Speaker: Mr. Antonio Fanelli
Senior Advisor, Global Relations Secretariat, OECD
Paris, 23 September 2014
Session 1

2. The economic growth in the MENA region has slowed down since the global financial crisis in
2008 and recent political events, leading to several internal and external imbalances.
Real GDP growth rate in GCC and Arab Countries in Transition (ACTs), 2000-2014 (annual change, in %)
2
10
9
8
7
6
5
4
3
2
1
0
2000-2002 2003-2005 2006-2008 2009-2011 2012-2014
GCC Arab Countries in Transition
Source: World Economic Outlook, April 2014. Data for 2013 and 2014 are projections. GCC countries include: Bahrain, Kuwait, Oman, Qatar, Saudi
Arabia, United Arab Emirates . Arab Countries in Transition include: Egypt, Jordan, Morocco, Tunisia, Yemen. Libya is not included in the graph.

3. Trade with ACTs has decreased during the financial crisis; exports are still stagnating…
3
80
70
60
50
40
30
20
10
0
Exports and imports of goods and services in the MENA region, 2005-2012 (in % of GDP)
2005 2006 2007 2008 2009 2010 2011 2012
Exports (in % of GDP)
Arab Countries in Transition GCC
70
60
50
40
30
20
10
0
2005 2006 2007 2008 2009 2010 2011 2012
Imports (in % of GDP)
Arab Countries in Transition GCC
Source: World Development Indicators. Libya and Yemen are not included in the graphs.

4. … leading to increasing current account deficits
4
Year-on-year export growth of goods and services and current account balance, 2007-2013 (in %)
0.32
-0.16
5
0
-5
-10
-15
-20
Egypt Jordan Morocco Tunisia
Current account balance (in % of GFP)
2007 2012
25
20
15
10
5
0
-5
-10
-15
2007-08 2008-09 2009-10 2010-11 2011-12 2012-13
Exports of goods and services (annual % growth)
Arab countries in transition East Asia & Pacific
Latin America & Caribbean OECD
Source: World Development Indicators. Libya and Yemen are not included in the graphs.

5. Investment has been significantly negatively affected.
5
FDI inflows to the MENA region, 2005-2013 (in USD billions)
100
90
80
70
60
50
40
30
20
10
0
2005 2006 2007 2008 2009 2010 2011 2012 2013
MENA total GCC Arab Countries in Transition
Source: UNCTAD. MENA transition countries include: Egypt, Jordan, Libya, Morocco, Tunisia, Yemen.
 FDI inflows in oil exporters remain low.
 Although FDI rebounded in 2012, inflows to ACTs remain unstable due to high perceived
risk/return profiles.
 Investment insecurity has even further skewed the sectoral composition of FDI towards natural
resources, which are more immune to political shocks, but have the lowest job creating potential.

6. Increasing youth unemployment and low female labour participation rates are key internal
challenges.
6
45
40
35
30
25
20
15
10
5
0
Youth unemployment rate (%)
Youth unemployment rate, 2009-2013 and labour force participation rate, 2012 (in %)
2009-2010 2012-2013
90
80
70
60
50
40
30
20
10
0
Labour force participation rate (%)
female male
Source: ILO and World Development Indicators. Data for Jordan is an average for unemployment rates for the 15-19 and 20-
24 age groups.

7. ACTs have large public deficits and increasing public debt…
General government structural deficit general government gross debt in Arab Countries in Transition (in % of GDP)
7
14
12
10
8
6
4
2
0
Egypt Jordan Morocco Tunisia
2010-2011
2012-2013
2014
General government gross debt in Arab Countries in Transition, 2010-2014 (in % of GDP)
100
90
80
70
60
50
40
Egypt Jordan Morocco Tunisia
Source: IMF World Economic Outlook, April 2014. Data for 2014 are projections; no data available for Libya and Yemen.
2010-2011
2012-2013
2014

8. … But some measures have been taken to reduce public deficits.
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• Egypt: On 5 July the government put into effect long-awaited increases in
prices for fuel and electricity (by up to 78%).
• Jordan: Fuel prices were raised in November 2012 and are now adjusted
on a monthly basis, in line with international price trends; A revised income
tax law is planned for 2014.
• Morocco: Subsidies on petrol and fuel oil were removed in early 2014;
reform of the pension system is planned.
• Tunisia: Since 2012 fuel prices were gradually increased; energy
subsidies are gradually phased out.
Challenges:
 Despite these efforts, fiscal deficits will remain high.
 Subsidy reforms, especially higher prices for food and fuel, may hit the
poorer spheres of societies harshly, if adequate social nets are not
established.

9. Crisis in Iraq, Libya and Syria cause further economic disruptions and negative spillovers at the regional
level. The recent Gaza conflict has led to economic disruptions in the territory.
 More than 3 million people are displaced in the MENA region, in addition
to more than 7 million internally displaced people, particularly in Iraq,
Syria and Gaza (UNHCR).
 Next to the humanitarian problems in the countries concerned, lowered
investor confidence undermines domestic and foreign investment in the
region.
 Major trading routes are disrupted, particularly in Syria, which has a
central geographical position in the region.
 Lebanon, Jordan and Turkey are directly affected by the Syrian/Iraqi crisis.
The Libya crisis also directly affects Egypt and Tunisia. Less affected are
GCC countries and Morocco.
9

10. The push to reform the business and regulatory environment has weakened.
10
Country ranking in Doing Business of MENA countries and OECD, 2010 and 2013
23
29
47 51
87
138
151
160
26
46 48
104
111
119
Sources: World Bank, Doing Business Indicators 2014; The World Bank: Doing Business 2010.
128
133
153
165
187
200
180
160
140
120
100
80
60
40
20
0
2010 2013

11. GDP per capita growth in ACTs is underperforming compared with other regions. MENA is
loosing ground in catching up with high-income economies.
2005 2006 2007 2008 2009 2010 2011 2012 2013
11
GDP per capita growth (in %) and ratio of real GDP per capita (in USD) of selected regions and OECD countries
(annual change, in %), 2005-2013
0.25
0.2
0.15
0.1
0.05
0
Ratio of real GDP per capita (in %)
Arab Countries in transition Latin America & Caribbean
East Asia & Pacific
8
6
4
2
0
-2
-4
2008 2009 2010 2011 2012 2013
Real GDP per capita growth rate (in %)
South East Asia Sub-Saharan Africa
Arab Countries in Transition
Source: World Development Indicators. In the left-hand graph South East Asia includes: Indonesia, Malaysia,
Singapore, Thailand, ; Sub-Saharan Africa includes: Angola, Ethiopia, Nigeria, South Africa. MENA transition
countries include: Egypt, Jordan, Morocco, Tunisia, Yemen. Libya is not included in the graph.

12. The implications for the future of SME Policy
• People’s expectations in the MENA transition countries
are that political transition will open the way for a better
future and increased prosperity;
• In the first phase of transition economic growth has
slowed down, unemployment has increased and
economic unbalances deepened;
• Strong economic growth has to return to underpin
political transition. The private sector should be the
driving engine;
• In the current circumstances what should be the
direction and the priorities of SME policy and broader
private sector development policies?
12