Download Middle East and north Africa 2007 Economic

Middle East and North Africa
2007 Economic Developments
and Prospects
Job Creation in an Era of High Growth?
Challenges and Opportunities
Mustapa K. Nabli
Chief Economist
Middle East and North Africa Region
World Bank
Cairo, May 31, 2007
2006 was another year of robust
economic growth in MENA
• Strong economic growth in MENA for the
fourth year in a row
• Growth driven by oil revenues, ongoing
recovery in Europe and policies broadly in
the right direction
• GDP in MENA (exc. Iraq) increased by 6.3
percent up from 4.6 percent in early 2000s
But significant differences among
sub-groups and countries
• Resource poor labor abundant grew
by 5.6 percent
• Resource rich labor abundant grew by
4.3 percent
• Resource rich labor importing grew by
7.5 percent
Regional growth
steps up to 6.3% in 2006
real GDP growth, percent
8
RPLA
RRLA
RRLI
6
MENA excl IRQ
4
2
1996-1999
2000-2003
2004
2005
Source: National Agencies and World Bank.
2006
Diverse outcomes across resource
poor economies in 2006
real GDP growth, percent
Morocco
Egypt
Jordan
RPLA
Tunisia
Djibuti
2005
2006
Lebanon
WB/Gaza
-12%
-6
-3
0
3
6
Source: National agencies and World Bank estimates.
9
General step-up in growth for MENA
oil exporters in 2006
real GDP growth, percent
Iran
Syria
RRLA
Yemen
Algeria
2005
2006
Qatar
UAE
Libya
RRLI
Bahrain
Oman
Kuwait
Saudi
0
3
6
9
12
Source: National agencies and World Bank estimates.
On a per-capita basis much better
performance than in the past
• Per-capita growth was 4.2 percent, the
highest level recorded in at least two
decades, up from 1.7 percent in 1990s
• MENA’s per-capital income is now
growing at 75 percent of the rate attained
by other developing regions, up from 61
percent in the 1990s.
Surge in oil revenues
underpins growth of MENA exporters
crude oil and product revenues $bn [left]; oil price, WB $/bbl [right]
550
500
450
400
350
65
RRLA revenues
RRLI revenues
Oil Price
60
55
50
300
250
200
150
100
50
45
40
35
30
25
2002
2003
2004
2005
Source: UN Comtrade, IMF, IEA, World Bank.
2006
There is a shift in domestic demand
in favor of investment
• The contribution of gross investment to growth
almost doubled in 2006 to 4.1 GDP growth
points
• Private investment as a share of GDP reached
almost 16 percent and is increasing for all subgroups
• FDI is low but growing particularly in resource
poor countries
• Imports of capital goods significant
Private investment as a share of GDP
16
15
MENA
14
RRLI
13
RRLA
12
RPLA
11
10
2000
2001
2002
2003
2004
2005
Source: National Agencies and World Bank.
2006
Fiscal balances improved but not
everywhere
• Fiscal deficits for resource poor countries
declined from 6.7 percent of GDP in 2005 to 6
percent of GDP in 2006. Lebanon, WBG and
Djibouti deficits expanded.
• Fiscal surpluses for resource rich labor importing
countries improved to 25. 8 percent of GDP. All
improved but UAE
• But for resource rich labor abundant countries
they declined to 3.1 percent of GDP.
50
RRLI fiscal surplus
continues at high levels
fiscal balance as a share of GDP %
40
2005
2006
30
20
10
0
-10
Kuwait
UAE
RRLI
Saudi
Oman Algeria RRLA
Iran
Source: National Agencies and World Bank. *selected economies.
Labor markets are more dynamic
• High economic growth has gone together
with:
– Strong employment creation
– Declining unemployment rates
– Strong labor force growth
– Increasing labor force participation rates,
particularly among women
Summing up MENA’s labor market
story, 2000-2005
6.0
5.1
5.0
4.5
3.6
4.0
3.0
2.8
2.0
1.0
0.0
WAP
LF
JOBS
GDP
Includes: Algeria, Bahrain, Egypt, Iran, Jordan, Kuwait, Morocco, Qatar, Saudi
Arabia, Tunisia, United Arab Emirates, West Bank and Gaza.
Unemployment declining
• Between 2000-05 MENA’s aggregate
unemployment fell from 14.3 to 10.8
percent (for the 12 countries in the
sample)
• This took place at the same time that the
region is experiencing the crest of the
labor force growth path
Most progress in the largest
countries
35
2000
2005
30
Increasing
unemployment
rates
Falling
unemployment
rates
25
20
15
10
IRQ
LBN
WBG
JOR
UAE
KWT
ALG
TUN
IRN
MOR
EGY
SAU
QTR
BHR
0
YMN
5
What kind of new jobs?
• Mostly created in the private sector as
public employment demand slows down
• New jobs primarily in services and
agriculture
• Productivity remains low but some
promising sings of more employment
within sectors with raising productivity
Most new jobs are in the private
sector
Contribution to total employment growth (in percentage points)
7
Work at Home
Private
Public
6
2.5
5
4
1.9
3
4.2
2
1
3.7
3.2
2.3
-0.1
-0.2
0.4
MOR
IRN
SAU
2.2
0
3.6
0.3
0.2
ALG
EGY
JOR
-1
The services sector has been leading job
creation except in Morocco and Iran
Contribution to employment growth (in percentage points)
7
6
Agriculture
Industry
5
Services
Work at home
4
0.1
2.5
3
1.5
2
1
0.8
2.1
0.9
3.6
0.8
0.5
1.9
1.9
0.6
0.3
-1.4
1.4
1.9
0.4
0.4
0
-1
2.5
1.4
0.0
ALG
JOR
EGY
IRN
TUN
MOR
WBG
-2
Is this a new era of opportunities?
(1) Global prospects
• Positive prospects for oil revenues?
• Positive global growth prospects?
• Asian potential
Oil Market Conditions 2007-2009
• Oil receipts from 2004
amount to $1.25 trillion,
large portion held as int’l
reserves or invested
• Oil prices expected to
stay elevated but after a
gradual
softening
(~49$/B) by 2009
• However,
there
is
substantial
uncertainty
about the path of oil
prices, of oil supply, and
of oil demand.
70
60
50
40
30
20
10
0
20002004
2005
2006
2007
2008
World Bank avg oil price
2009
Weaker but still robust prospects
Real GDP annual percent change
Forecast
8
7
Developing
6
High-income
5
Developing ex.
China & India
4
3
2
1
-1
1980
1983
1986
1989
1992
1995
1998
2001
2004
2007
2009
Is this a new era of opportunities?
(2) Domestic country prospects
• Reforms starting to bear fruit?
– Private sector investment
– Exports and integration into the global
economy
– Diversification of economies/exports
• Higher sustainable growth spreading
beyond major oil exporters?
Table 1
Is this a new era of opportunities?
(3) Regional prospects
• Potential for matching of availability of
investment funds (from oil exporters) and
good opportunities for investment in nonoil exporters?
• Is this the time for progress on regional
integration?
Record flows of foreign direct investment to
the region during 2006
$ billions
25
20
Total FDI
15
RPLA FDI
10
5
0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Source: National agencies, IMF, UNCTAD, World Bank.
Note: RPLA = resource-poor, labor-abundant (countries).
But an era of major challenges:
(1) employment challenge: quantity
of jobs
MENA will continue to face very high labor
force growth in the near future
High sustained economic growth will be
needed to meet labor force growth and
tackle unemployment
But the job creation challenge
continues to be high
Labor force growth, MENA and other developing regions, 2000-2020.
4.0
3.5
% growth per year
3.0
SSA
MENA
2.5
2.0
SA
LAC
1.5
1.0
0.5
EAP
0.0
ECA
-0.5
2000-2005
2005-2010
2010-2020
Job creation needed to reach different goals for
employment rates
120
99
Jobs needed by 2020
100
81
80
68
60
40
20
0
Current scenario: 60 percent
Employment rates by 2020
EU current: 64 percent
EU goal: 70 percent
But an era of major challenges:
(2) employment challenge:
quality of jobs
• Is there a trade-off between quantity and
quality of jobs?
Labor productivity growth and job growth in
subsectors, Ireland, Tunisia, and Morocco
Ireland 1995-1999: positive relationship
Tunisia 1997-2001: negative relationship
Morocco 1999-2003: negative relationship
14
12
Employment growth
10
8
6
4
2
0
-2
-4
-6
-1
4
Productivity growth
9
14
Employment growth
Annual employment growth vs. annual productivity
growth, agricultural, industrial, and services
sectors, 2000–05
Employment
grew in
sectors
where labor
productivity
fell
Trendline excluding WBG
R2 = 0.55
9.0
Employment grew in
sectors with labor
productivity growth
EGY AGR
IRN AGR
ALG AGR
7.0
ALG SERV
IRN IND
5.0
JOR SERV
TUN SERVALG IND
SAU SERV
EGY NON-AG
WBG SERV
3.0 ALG SERV*
WBG AGR
MOR IND
SAU AGR
1.0
JORD IND
MOR SERV
TUN AGR
MOR AGR TUN IND SAU IND
IRN SERV
-15.0
-10.0
-5.0
0.0
5.0
JORD AGR
-1.0
Labor productivity growth
10.0
But an era of major challenges:
(3) risks of increased inequality?
• Inequality between countries in the region
• Inequality within countries
• Need for more modern social safety nets
for those who may not be sharing in higher
economic growth
• Risks for sustainability of reforms
But an era of major challenges:
(4) More global competitive
environment
• The emerging giants: India and China
• Risks of reversal to protection in the
advanced countries
• The European Neighborhood
More capital is going to East Europe and Central Asia
and to East Asia and Pacific regions
Total net private capital flows to developing countries
2000
Sub-Saharan
Africa
5%
South Asia
Middle East & 5%
North Africa
2%
2006
East Asia &
Pacific
15%
Sub-Saharan
Africa
6%
East Asia &
Pacific
28%
South Asia
6%
Middle East &
North Africa
4%
Europe &
Central Asia
26%
Latin
America &
Caribbean
47%
Latin America
& Caribbean
14%
Europe &
Central Asia
42%
But an era of major challenges:
(5) Managing the oil revenues?
• Investment vs. consumption of the windfall
revenues
• Productive investment and transformation
of oil wealth into other sustainable wealth
• Diversifying inside and outside the region
• Managing the financial risks: financial
bubbles, real estate bubbles
• Major implications for non-oil exporters