Euro-Med Growth and Trade Integration: can we talk of a cost of the non-Mediterranean? by Agence Française de Développement

November 2013 /

No 7

Macroeconomics and Development

Introduction This paper revisits the debate on EuroMediterranean integration to reassess its observed and expected impact on the economic growth of the South and East Mediterranean countries (SEMCs). Since the 1990s, the SEMCs and the European Union (EU) have been engaged in a process of trade liberalisation under the Barcelona Agreements, which were meant to promote economic convergence between the two shores of the Mediterranean through the creation of a vast free trade area. As a first step, Euro-Med bilateral trade agreements put in place a gradual and asymmetrical dismantling of tariff barriers for SEMC industrial exports to the EU (goods that already enjoyed preferential access to European markets). The broadly accepted results of this process are somewhat mixed (Jarreau, 2011). Although the opening up of markets has helped to introduce macroeconomic discipline (mainly regarding inflation and budget deficits), it has not gone hand in hand with an upward climb of the SEMCsâ&#x20AC;&#x2122; growth paths. Their virtually unchanged export structure, the high concentration and rigidity of their production apparatus are symptomatic of a structural weakness regarding their competitiveness.

Euro-Med Growth and Trade Integration: can we talk of a cost of the nonMediterranean? Emmanuel Comolet (comolete@afd.fr), Nicole Madariaga (madariagan@afd.fr) Mihoub Mezouaghi (mezouaghim@afd.fr) Economists at the Agence FranĂ§aise de DĂŠveloppement

The fragmentation of the South Mediterranean markets, continued trade protection of services and agricultural products, persistent economic rents, the size of the public sector, red tape and cumbersome regulations are all constraints to a virtuous Euro-Mediterranean integration that would drive economic growth. Would greater trade openness, chiefly through better resource allocation and a reduction in economic rents, be beneficial?

Table of contents In this sense, there would be a “cost of the nonMediterranean” or, in other words, an opportunity cost to not completing the liberalisation of the regional trade, which would thus cause a loss of potential economic growth for each member country [ 1]. This hypothesis, very widely circulated by the international institutions and deeply embedded in the economic policies of the SEMCs, is nonetheless debatable. A review of the historic trends of trade between the SEMCs and European countries and the long-run simulation of their future trends seem to show that this “cost of the non-Mediterranean” is relatively low. Drawing on innovative empirical research and partnered by the Centre d’Etudes Prospectives et d’Informations Internationales (CEPII – Center for International Prospective Studies), in the first section of this paper, we will show that the logic of SEMC integration into global trade takes precedence over that of their regional integration, leading to a dilution of the EuroMediterranean link. In the second section, we use four liberalisation scenarios to underline how trade openness would have a weak macroeconomic and sectoral impact. To conclude, in the final section, we will identify a number of lessons to be learnt and question the growth policies of the SEMCs.

1 / EURO-MED TRADE LIBERALISATION HAD LIMITED MACROECONOMIC AND SECTORAL IMPACT DURING THE 2000S 1.1. The effects on economic growth 1.2. Sectoral effects 1.3. Euro-Med trade relations weakened by globalisation

2 / A DEEPENING OF EURO-MED TRADE LIBERALISATION ALONE WILL NOT INCREASE THE SEMCS’ GROWTH POTENTIAL 2.1. Choice of trade liberalisation scenarios 2.2. Limited growth potential 2.3. Uneven effects on economic diversification 2.4. Marginal impact of SEMC regional integration

3 / CONCLUSIONS AND OUTLOOK 3.1. The cost of the non-Mediterranean turns out to be less than expected 3.2. The need to rehabilitate the State’s role 3.3. Redefining long-run growth levers

APPENDIX LIBERALISATION SCENARIOS LIST OF ACRONYMS AND ABBREVIATIONS REFERENCES

[1] Analogy to the “cost of the non-Maghreb”, which according to World Bank studies would have a real opportunity cost leading to a loss of 1 to 2 percentage points of Gross Domestic Product (GDP) for each country.

1 / Euro-Med trade liberalisation has had limited macroeconomic and sectoral impact during the 2000s 1.1. The effects on economic growth The aggregate SEMC trade flows with the EU increased very sharply between 1995 and 2008, particularly from 2002 to 2008. The rise is seen both for exports and imports. Export values to the EU more than tripled in five of the eight countries considered (cf. Figure 1).

Figure

Likewise, imports saw a substantial rise, but to a lesser extent (cf. Figure 2). The global crisis nonetheless interrupted this dynamic from 2008, creating a reverse trend. The slowdown of growth in the European countries weighed heavily on exports from the SEMCs and some countries such as Algeria, Turkey and Egypt saw their goods exports fall back to their 2005 level.

Figure

Export values to EU25 (base 100 in 1995)

Import values to EU25 (base 100 in 1995)

600

500

400

300

200

100

0 1995

1997

1999

2001

Tunisia Morocco Israel Jordan

2003

2005

2007

2009

Egypt Algeria Lebanon Turkey

Source: computations based on data from the World Trade Database, BACI.

1995

1997

1999

2001

Tunisia Morocco Israel Jordan

2003

2005

2007

2009

Egypt Algeria Lebanon Turkey

Source: computations based on BACI data.

/ Euro-Med Growth and Trade Integration: can we talk of a cost of the non-Mediterranean? /

However, the uptrend over the whole period is to a large extent due to the increase in commodity prices, as the changes in volume are much more modest. [ 2] An analysis of market share (in value) in the SEMCs and in the EU also puts the apparent trade dynamic between the two regions into sharper perspective. On one side, SEMC market share in the EU, which does not exceed 5%, has remained at the same level since 1995 (cf. Figure 3). At the same time, some emerging countries have deepened their access to the European market, doubling if not tripling their market

Figure

share over the same period. On the other side, although the EU remains by far the Mediterraneanâ&#x20AC;&#x2122;s biggest partner with 45% market share in 2009, it has lost 10 percentage points since 1995 (cf. Figure 4). This fall-off has been to the advantage of emerging countries like China and Russia, whose market share in the decade starting in 2000 exceeded that of the Mediterranean countries in their intra-SEMC trade (respectively 9.4% et 4.8%, against 3.5% of their imports in 2009).

Figure

Market share in EU25 (%)

Market share in the SEMCs (%)

60 50

20 10

1995

1997

1999

2001

2003

2005

2007

Turkey

MED 7

Russia

China

Japon

United States

2009

0 1995

1997

1999

2001

2003

2005

2007

2009

Turkey

MED 7

Russia

China

Japon

United States

EU (right scale)

Source: computations based on BACI data.

The trends in market shares indicate that the EuroMed trade liberalisation has not had the expected results on trade between the two regions. Quite the opposite, in fact. Not only did their respective market shares not improve, but they also tended to decline due to the effect of stronger international competition from emerging countries and countries with low labour costs. Geographical proximity does not seem to have had any decisive impact on EuroMediterranean trade integration.

Similarly, the positive impact of trade openness on the SEMCsâ&#x20AC;&#x2122; economic growth failed to materialise, as is shown by the absence of economic convergence with the European countries. The only country that seems to have engaged on a convergence path narrowing the gap between their GDP per capita and that of the EU since the early 2000s (cf. Figure 5) is Turkey and, to a lesser extent, Tunisia. This evolution is nonetheless limited as the Turkish and Tunisian GDPs per capita amounted to barely 50% and 30% respectively

[2] Export and import volumes stagnated in most cases and show a significant rise only for Algeria and Turkey (a doubling of trade over the period).

ÂŠ AFD / Macroeconomics and Development / November 2013

1/ Euro-Med trade liberalisation has had limited macroeconomic and sectoral impact during the 2000s

of European GDP per capita in 2011. The other SEMCs – except for Lebanon – experienced no convergence, despite a slight reduction in the gaps at

Figure

the end of the period (cf. Figure 6). Their GDP per capita remained under 30% of European GDP per capita.

Figure

GDP/pc PPP* of the Med countries (2005 constant USD, in % of the average GDP/pc of EU25)

GDP/pc PPP of the Med countries (2005 constant USD, in % of the average GDP/pc of EU25) 50

50 40

0 0 1995

1997

1999

2001

2003 2005 2007 2009

2011 1995

1997

1999

2001

2003 2005 2007 2009

Lebanon

Jordania

Algeria

Morocco

2011

Tunisia

Turkey

Egypt

* PPP: Purchasing power parity. Source: WDI, authors’ computations.

Source: WDI, authors’ computations.

1.2. Sectoral effects A first look at the changes in SEMC market shares in the EU by sector (cf. Figure 7) and of the EU’s in the SEMCs (cf. Figure 8) shows that the SEMCs were able to consolidate their positions in some export sectors from 1995 onward. Conversely, the EU’s market shares in the SEMCs declined over the period in all sectors of activity. For the SEMCs, the sectors that consolidated their export market shares are capital goods, agricultural products and other manufactured products. Yet, the

market share increase in these three sectors was not sufficient to offset the sharp drop observed in the textile sector. SEMC textile exports to the EU were adversely affected by competition from Asia, particularly China, Pakistan and Bangladesh following the removal of the Multi-fibre Arrangement in 2005 (World Bank, 2006a). Overall, SEMC market share in the EU was down in the industrial sector taken as a whole. This trend indicates, at the very least, the industrialisation process is losing impetus, which translates into a loss of competitiveness in their traditional specialisations and the inability to redeploy their comparative advantages in new industries.

/ Euro-Med Growth and Trade Integration: can we talk of a cost of the non-Mediterranean? /

Figure

SEMC market share in EU25, by sector (%)

EU25 market share in the SEMCs, by sector (%)

60 20

30 20

5 10 0

0 Textiles

Agriculture

Mining

Other Manuf.

Metal products

Capital goods

Other Manuf.

Metal prod.

Textiles

1995

2002

2009

Agriculture

Mining

Note: The sectors are broken down as follows: textiles, capital goods, metal products, other manufacturing products (agri-food products, chemicals, plastics, wood products, leather…), mining, agriculture.

Source: computations based on BACI data.

An analysis of the determinants of the trade flows helps to explain the decline of SEMC shares in the EU market. The CEPII-AFD study (2012) uses a gravity model based on Baier and Bergstrand (2009) to analyse the impact of trade agreements between the SEMCs and the EU between 2001 and 2007 (cf. Box 1). This econometric tool is widely used in the economic litera-

ture to analyse the determinants of bilateral trade. A first original contribution of this study was to dis aggregate the trade into three main sectors (agricultural, agri-food – distinct from the other branches of the industry – and manufacturing) so as to reveal the differentiated sectoral effects.

1/ Euro-Med trade liberalisation has had limited macroeconomic and sectoral impact during the 2000s

Box

The gravity model

The gravity model or equation is an empirical relationship that explains trade between two countries by their economic mass and the distance separating them, by analogy with Newton’s universal law of gravity. This empirical relationship is very widely used for international trade as it provides some of the most stable and robust econometric results. In its “augmented” version, the gravity model may also include barriers to trade other than geographical distance. Apart from the bilateral barriers (such as customs barriers) affecting bilateral trade, Anderson and van Wincoop (2003) have also identified what they call “multilateral resistances to trade”, which correspond to barriers vis-à-vis the rest of the world and which are experienced by every country. The underlying idea is that the lower the bilateral costs and the higher the opportunity cost of trading with the rest of the world, the more two countries would trade with each other. Thus two countries experiencing “high resistance to trade” with the rest of the world will trade more between themselves than will those countries with better access to the rest of the world. In other words, the aim is to capture the possible diversion effects on the trade between two countries resulting from the trade agreements that either country has signed with the rest of the world. Baier and Bergstrand (2009) simplify the inclusion of the multilateral barriers identified by Anderson and Van Wincoop by proposing an original and straightforward econometric approach. Using this simplified approach, the CEPII-AFD study (2012) estimates a gravity equation augmented by variables measuring tariff barriers at both bilateral and multilateral levels. We will see below that multilateral tariff barriers can have a strong impact on SEMC bilateral trade with the EU.

The results show that, overall, the Euro-Med trade openness policies (measured by the lowering of bilateral barriers between the EU and the SEMCs) had little effect on their bilateral trade flows between 2001 and 2007. A more nuanced picture of this finding is nonetheless provided by a sectoral breakdown of their trade patterns. In fact, trade liberalisation between the two regions brought greater benefit to exports from the agricultural and agri-food sectors than those

from the manufacturing sector (cf. Figure 9). This disparity can be largely explained by the fact that the trade openness effects on the manufacturing sector mainly happened prior to and at the very beginning of the period analysed. Thus from 2001 to 2007, export growth in the manufacturing sector did not exceed 5%, and was even negative in the case of Turkey (-1%).

/ Euro-Med Growth and Trade Integration: can we talk of a cost of the non-Mediterranean? /

Net change in imports to SEMCs from EU25, 2001–2007 (%)

Agriculture

Agri-food

Manufacturing

- 41,4 %

Turkey

↓

Israel

-20 Algeria

-20

Egypt

-10

Lebanon

-10

Tunisia

Turkey

Israel

Algeria

Egypt

Lebanon

Jordan

Morocco

Jordan

Net change in exports from SEMCs to EU25, 2001–2007 (%)

Tunisia

Figure

Morocco

Figure

Note: the estimated net changes subsequent to the lowering of tariff barriers between 2001 and 2007.

Source: CEPII-AFD (2012).

On the other hand, export growth in the agricultural sector, and even more in the agri-food sector was substantial. The effects on the agri-food sector are particularly homogeneous: except for Tunisia, whose exports dropped by 10%, all the SEMCs saw their agri-food exports rise, up to 14% in Lebanon and 27% in Jordan. The impact of openness on agricultural exports generally benefited the SEMCs, but the results are very heterogeneous: certainly, agricultural exports went up by 11% in Lebanon and 13% in Egypt but, at the same time, they fell by 15% in Morocco and 6% in Jordan. These mixed effects are mainly explained by the fact that EU tariff reductions depend on the country and the product. In fact, there were still numerous exceptions to tariff reductions in force in the agricultural sector, since the preferential

agreements for agriculture covering the whole of the Euro-Mediterranean area had not yet been negotiated or signed. On the other hand, imports from the EU to the SEMCs increased very little overall (cf. Figure 10), with the exception of Morocco (+18%) and Algeria (+12%) in the manufacturing sector, and Tunisia (+8%) in the agricultural sector. EU exports seem to have suffered from trade diversions linked to the trade agreements signed between the SEMCs and third countries, either on a bilateral basis (with the United States) or within a regional framework ( Greater Arab Free Trade Agreement – GAFTA – and the Agadir Agreement).

1/ Euro-Med trade liberalisation has had limited macroeconomic and sectoral impact during the 2000s

Euro-Med trade relations weakened

1.3. by globalisation

As we mentioned in Box 1, an original contribution of this study is the inclusion of “multilateral resistance” (Anderson and van Wincoop, 2003). Trade agreements with other countries or groups of countries may reduce the impact of the Euro-Med agreements on bilateral trade between the SEMCs and the EU due to a trade diversion effect. They may also produce the opposite effect and intensify trade by creating higher trade flows. This would be the case, for example, if tariff barriers between the EU and Mexico were reduced to a lesser extent than those between Morocco and the EU. The EU-Mexico agreement could then indirect ly boost the level of Morocco’s exports to the EU, over and above the direct effect of the Morocco-EU agreement.

third countries is integrated, the net change in the trade of manufactured products is shown to have decreased.

Figure

Direct and indirect effects for the SEMC manufacturing sector from 2001 to 2007 (%) Imports from EU25

Exports to EU25

80 60 40 20 0 -20 -40 Israel

Turkey

Algeria

Egypt

Jordan

Lebanon

Tunisia

Morocco

Israel

Turkey

Egypt

Algeria

Jordan

Lebanon

Tunisia

-60 Morocco

Agreements with third countries can thus generate negative or positive externalities. Bensassi et al. (2012) show that the level of trade created between trading partners may be halved or even cancelled out by indirect effects. In this respect, two types of effects need to be measured: (i) “direct” effects directly linked to the bilateral trade agreements between the SEMCs and the EU, and (ii) the “indirect” effects linked to agreements with other trading partners. The sum of “direct” and “indirect” effects makes it possible to measure the net effects of trade liberalisation.

Direct Indirect

Source : CEPII-AFD (2012).

The results of the study show that the “indirect” effects of agreements recently signed with partners outside the Euro-Med region have very often offset the effects of SEMC-EU bilateral agreements. This is particularly visible in the manufacturing sector where the net effects of Euro-Med trade openness were weak for two reasons. Firstly, the effect of trade liberalisation faded out since it mainly occurred at the beginning of the period, generating limited direct and indirect effects with respect to SEMC exports to the EU (cf. Figure 11). Moreover, when the direct effects were stronger for EU exports to the SEMCs, the indirect effects almost entirely cancelled out the gains of trade openness due to trade diversion resulting from the SMECs’ other trading partners, and doubt less to the declining competitiveness of European exporters. Overall, when the impact of trade agreements with

In the agricultural and agri-food sectors, the effects are more mixed. Figure 12 shows that, in the agricultural sector, the net effects on SEMC agricultural exports are primarily due to significant positive (Lebanon, Egypt) or negative (Morocco, Jordan) effects of EU tariff changes over the 2001–2007 period: Lebanon and Egypt are the only countries in the Euro-Med area to have benefited from EU tariff reductions in this sector (-3% on average); Morocco and Jordan, on the contrary, saw substantial increases in agricultural tariff barriers imposed on them by the EU (on average +7% and +4% respectively). Moreover, apart from Turkey, agreements signed by the EU with non-Euro-Med partners had an overall positive impact on SEMC exports, due to the EU’s

/ Euro-Med Growth and Trade Integration: can we talk of a cost of the non-Mediterranean? /

relative increases in its trade protection barriers vis-àvis its other trading partners: these either partially offset the direct negative effects (Tunisia, Morocco, Jordan), or reinforced the positive effects (Lebanon, Egypt). In addition, the agreements with non-EuroMed countries had an amplifying effect on SEMC exports to the EU, particularly in the case of Lebanon and Egypt. Conversely, the indirect effects on EU exports to the SEMCs systematically evolved in the opposite direction to the direct effects, revealing that the competitiveness brought into play by the agreements signed between SEMCs and third countries had an impact on EU exports. Certainly the direct effects of the Euro-Med agreements are globally positive (except those with Turkey and Israel). However, the agreements concluded with non-Euro-Med partners have weakened (Tunisia, Algeria), if not cancelled out (Morocco, Egypt) the direct effects of the bilateral Euro-Med agreements.

In the agri-food sector, the differentiated direct and indirect effects on SEMC exports to the EU are similar to those observed in the agricultural sector (cf. Figure 13), except that the net effects (direct and indirect) are higher overall (Graphs 9 and 10): net creation of exports in almost all the countries, except Tunisia, [ 3] on average account for 9.8% of total agri-food exports over the 2001–2007 period, compared to 7.4% in the agricultural sector. [4] The most pronounced increases can be explained by the direct consequences of the EU’s large tariff reductions vis-à-vis Jordan (-12% on average), Lebanon (-6%), Egypt and Algeria (-3%). More significantly, agri-food exports from Morocco, Turkey and Israel, impacted by modest EU tariff increases (less that 2% on average), saw an overall rise between 2001 and 2007 resulting from a differential effect of tariff changes vis-à-vis the EU’s other trading partners (cf. Figure 13).

Figure

Direct and indirect effects for the SEMC agricultural sector from 2001 to 2007 (%) Exports to EU25

Direct and indirect effects for the SEMC agri-food sector from 2001 to 2007 (%)

Imports from EU25 Imports from EU25

Exports to EU25

40 30 20 10 0 -10 -20 -30 -40 -50

Source : CEPII-AFD (2012).

Indirect

Direct

Israel

Source : CEPII-AFD (2012).

[3] Tunisia has been subject to EU tariff increases in the agri-food sector that are much higher than those in the agricultural or manufacturing sectors. [4] This second average includes Tunisia, Lebanon, Egypt and Israel, which are the only countries to have seen a net increase of their agricultural exports.

Turkey

Egypt

Algeria

Jordan

Lebanon

Tunisia

Indirect

Morocco

Israel

Turkey

Egypt

Algeria

Jordan

Lebanon

Tunisia

Morocco

Israel

Turkey

Egypt

Algeria

Jordan

Lebanon

Tunisia

Morocco

Israel

Turkey

Egypt

Algeria

Jordan

Lebanon

Tunisia

Morocco

80 60 40 20 0 -20 -40 -60 -80

2/ A deepening of Euro-Med trade liberalisation alone will not increase the SEMCs’ growth potential

Similarly, although Tunisian exports suffered from the direct effects of a substantial tariff rise, these were partly offset by the tariff increases vis-à-vis the EU’s other trading partners. The indirect effects of agreements signed with nonEuro-Med countries translate into a drop in EU exports to the SEMCs despite large tariff reductions granted by the latter. This analysis of direct and indirect gains highlights the importance of the multilateral dimension in the EuroMed trade relations. Although the direct effects of tariff changes are essential, notably in the agricultural and agri-food sectors, the effects of Euro-Med integration cannot be measured without taking into account the agreements signed by each of the parties with third countries. Thus, looking more closely at SEMC exports to the EU, the effects of tariff reductions applied to the SEMCs were sometimes amplified by the less favourable changes in EU tariffs vis-à-vis third

countries (this is the case for Lebanon, Egypt and Algeria). But, above all, some countries such as Tunisia and Morocco, and even more so Israel and Turkey, were able to offset direct losses linked to EU tariff increases in the agricultural and agri-food sectors, thanks to these indirect effects. These findings show that the multilateral trade ties of both partner regions have a significant impact on Euro-Med trade. Bensassi et al. (2012) thus show that a tariff reduction between two partner countries only brings gains over time since the partner countries protect themselves from competition ( i.e. indirect effects) by regularly renegotiating new preferential trade agreements. Given the importance of the indirect effects on Euro-Mediterranean trade, all of the agreements concluded by the EU and the SEMCs must be taken into account to a greater degree in the framework of bilateral negotiations to ensure that they are adapted to regional integration.

2/A deepening of Euro-Med trade liberalisation alone will not increase the SEMCs’ growth potential 2.1. Choice of trade liberalisation scenarios In this second section, we present the results of a simulation of deepening trade liberalisation between the two shores of the Mediterranean (Euro-Med openness) and between the SEMCs (Med-Med openness) to assess its potential impact on long-run economic growth.

Here, the impact of trade policies is analysed using a computable general equilibrium model so as to reconstitute, following a shock to relative prices, not only intersectoral relations at country level, but also at aggregate level (cf. Box 2). A change in relative prices subsequent to a lowering of tariff barriers modifies not only the allocation of factors of production between the different sectors but also, by extension, the country’s macroeconomic performance.

/ Euro-Med Growth and Trade Integration: can we talk of a cost of the non-Mediterranean? /

Box

Use of the MIRAGE model

With a general equilibrium model, all interactions between the goods and services markets as well as the factors of production in each country can be taken into account in order to assess the effects of trade openness on welfare, production and trade. The dynamic is determined by the change in exogenous variables (population trends, labour supply, natural resources, growth of total factor productivity) and by the endogenous accumulation of capital. To represent a country’s economic structure, this type of model uses detailed data from a double-entry accounting framework known as the Social Accounting Matrix. The model used in this study is the MIRAGE model developed by the CEPII. This is a multi-sector and multicountry model (34 sectors and 23 countries/regions). The SEMCs are examined in the following way: Egypt, Morocco, Tunisia, Turkey, Algeria/Libya, Rest of the Middle East. Some of these countries have been aggregated on account of the statistical limits of the data source, Global Trade Analyses Project (GTAP), used to calibrate the model. The results for those countries analysed individually are thus more robust. The MIRAGE model is calibrated using the degree of trade openness observed in 2004, with projections up to 2025. In other words, the projections are based on the tariff levels observed for the baseline year 2004. Four trade openness scenarios, presented below, are compared to a baseline scenario that assumes an unchanged situation in trade relations between the EU and the SEMCs, and among the SEMCs. EU tariff barriers to SEMC industrial sectors imports are close to 0 in 2004. They are over 20%, and remain high, in the agricultural and agri-food sectors. Services are to a large extent highly protected. The four scenarios make it possible to assess the impact of a deepened trade openness in the main economic sectors (industry, agriculture and services). The effects of trade liberalisation mainly stem from gains in the allocation of resources, the accumulation of capital, terms of trade and welfare. [ 5]

With regard to political and social constraints, four credible reference scenarios of liberalisation have been chosen: [ 6] (i)

scenario 1 “Euro-Med liberalisation”: complete Euro-Med trade liberalisation for industrial goods and partial liberalisation for agricultural products (excluding sensitive products); [ 7]

(ii) scenario 2 “Euro-Med + Med-Med liberalisation”: scenario (i) + partial Med-Med trade liberalisation for industrial goods and agricultural products (excluding sensitive products); (iii) scenario 3 “liberalisation of services”: scenario (ii) + partial Euro-Med liberalisation for services; (iv) scenario 4 “multilateral liberalisation”: scenario (iii) + complete liberalisation for goods with third countries.

It should be pointed out that this modelling framework has two kinds of limits. Firstly, the scarcity of statistical data, their unreliability (notably for services) and the volume of informal trade among the SEMCs made it necessary to simplify the model specification. The main consequence of these statistical constraints was that the projection scenarios necessarily referenced 2004 as the baseline year, as this corresponded to the data of the most recent social accounting matrix. Secondly, the intrinsic limits of the MIRAGE model, owing to its specification assumptions, mean that the results need to be qualified. One can consider that static gains are overestimated due to the assumptions made on the competitive nature of the markets, which are considered to be perfect and undistorted [ 8] (i.e. optimal reallocation of resources and adjustments driven by relative prices). Additionally, non-tariff barriers, which may increase following a reduction of tariffs, are not adequately captured by the model. On the other

[5] Cf. CEPII-AFD (2012) for details on methodology. [6] We have chosen these four reference scenarios out of fourteen simulated liberalisation scenarios (cf. Appendix 1). These scenarios are sequentially tested. [7] The incorporation of a list of sensitive products, for which the initial level of protection remains unchanged, is due to the high probability that tariff barriers will be maintained by national authorities for highly protected sectors (for economic, social or political reasons). [8] With respect to the labour market, this assumption seems particularly questionable given the region’s very high unemployment rates.

2/ A deepening of Euro-Med trade liberalisation alone will not increase the SEMCs’ growth potential

hand, dynamic trade gains (stemming from increases induced by productivity, technology exchanges or learning effects) are underestimated, given that technology is treated as an exogenous variable (the impact in terms of product varieties and to a selection of the most productive enterprises is not estimated, which also leads to a underestimation of gains). In fact, computable general equilibrium models, by construction, find a positive correlation between the economic gains and the degree of trade openness, showing that multilateral liberalisation is always the most favourable option. In this sense, an analysis may be open to bias when it rests on the formulation of a discourse stating that market opening would necessarily produce the strongest impacts regardless of other realities that may influence the behaviour of public and private actors. The results must be interpreted with all other things being equal and in a context of perfect market equilibrium; this thus calls for a degree of caution and must not preclude analysis of the institutional determinants of the structural and sectoral dynamics of SEMC economies.

share in the European countries’ foreign trade. Apart from the oil-producing countries (Algeria and Libya), imports would also increase significantly, but generally to a lesser extent, than exports, which would have a positive impact on their balance of payments. Nonetheless, given the trade structure, which would remain unchanged, these countries would continue to be highly vulnerable to external shocks (mainly through commodity prices). Although SEMC export gains would be significant overall, it should be pointed out that those specifically due to exports to European markets would represent a smaller share, except in the case of Tunisia. In fact, export gains would be markedly higher vis-à-vis third countries with which the SEMCs have concluded trade agreements, thus reinforcing the diversion effect (and the weakening of the EuroMed relationship [ 9]) observed in the pre-2004 period.

Figure

Changes of total exports between 2004 and 2025 compared to the baseline scenario (%)

2.2. A limited growth potential 20 16

While market opening between the SEMCs and the EU in the pre-2004 period was limited to industrial goods and implemented asymmetrically (European markets being already largely open to industrial goods exports from the SEMCs), the liberalisation scenarios envisage reciprocal openness for agricultural products and for services.

12 8 4 0 -4 Tunisia

Such trade openness would translate into an increase in trade. The simulations show that four countries would see a significant rise in their exports compared to the baseline scenario, which simulates a halt in the trade liberalisation process post-2004 (cf. Figure 14): Egypt, Tunisia, Morocco and Turkey. Export earnings would be more pronounced in the agricultural and agri-food sectors. On the EU side, the knock-on effect on EU exports would be weaker owing to the relatively small size of the SEMC markets and their limited

EU Egypt Morocco Turkey Algéria Rest of Libya Middle East

Note: the results for the ROME group of countries are not significant given the group’s heterogeneous and composite character. Source : CEPII-AFD (2012).

[9] Meaning that the relations with non-Euro-Med partners have diluted the trade ties between the SEMCs and the EU.

/ Euro-Med Growth and Trade Integration: can we talk of a cost of the non-Mediterranean? /

Several factors may help to explain why the regionalisation dynamics remain weak despite the expected gains due to proximity. On the one hand, maintaining high non-tariff barriers â&#x20AC;&#x201C; which are not taken into account here â&#x20AC;&#x201C; would very strongly impact exports to European markets. On the other hand, the lack of productive foreign direct investment in the SEMCs limits the transfer of technology and capital from the EU. The lack of production integration through industrial subcontracting affects the trade integration dynamic,

GDP growth between 2004 and 2025 compared to the baseline scenario (%)

Scenarios

Algeria Libya

Egypt

Morocco

Tunisia

Turkey

GDP (real)

Beyond these trade logics, the simulation also showed that Euro-Med integration is strongly constrained by the structural and institutional limits that typify the SEMC economies. In this respect, a deeper regional trade liberalisation would not translate into significant gains in terms of economic growth (cf. Table 1).

S1 S2 S3 S4

-0,54 -1,85 -1,78 -3,39

-0,58 -0,05 0,47 -0,16

-0,78 -1,08 -0,68 -0,49

1,25 2,10 2,59 1,77

GDP (volume)

Table

marked by high inertia in the goods and services trade structure.

Rest of Middle East

-0,34 0,86 1,23 1,89

-0,09 -0,12 0,11 -0,53

0,05 0,04 0,09 -0,10

S1 S2 S3 S4

-0,06 -0,06 0,00 0,22

0,07 0,14 0,34 1,28

0,08 0,31 0,47 1,65

0,80 1,45 1,72 2,98

0,05 0,19 0,34 0,73

0,00 0,01 0,17 0,13

0,00 0,00 0,04 -0,01

Source : CEPII-AFD (2012).

In fact, Morocco, Egypt, Algeria and Libya would record modest GDP gains, and even in some cases a GDP loss, [ 10] in the three reference scenarios with a higher degree of regional trade integration. Only Tunisia, and to a lesser extent Turkey, would benefit from a stronger knock-on effect on economic growth, both for GDP in value and in volume. Incidentally, the pronounced difference between the effects on constant price GDP and those on current price GDP (notably for Morocco, Egypt, Algeria and Libya) is explained mainly by a more marked deterioration in terms of trade (an adverse differential between the price of exported goods and the price of imported goods).

The consequences of trade liberalisation vary depending on the SEMC. For oil-importing countries, the liberalisation of services would generate a gain in volume GDP proportionally higher than the liberalisation of agricultural products in Egypt and Turkey. In Morocco and Tunisia, the contribution of agricultural activities would on the other hand be relatively higher. The varyingly diversified initial production structure in these countries would lead to more efficient reallocation of resources and higher productivity gains, indicating a relatively stronger potential for growth in the agricultural, agri-foods and services sectors than in the industrial sector. Conversely, the oil-producing countries, whose economies are highly concentrated, would not benefit from growth gains in any of the liberalisation scenarios.

[10] Meaning that the relations with non-Euro-Med partners have diluted the trade ties between the SEMCs and the EU.

ÂŠ AFD / Macroeconomics and Development / November 2013

2/ A deepening of Euro-Med trade liberalisation alone will not increase the SEMCs’ growth potential

Mixed effects 2.3. diversification

economic

These results are closely related to the effect of liberalisation on production (re)allocation and sectoral recomposition. Three types of trajectory can be identified (cf. Table 2):

(i) Countries that appear to reallocate their production: Tunisia would experience a considerable reallocation with a shift from its production of primary products to agriculture, particularly agrifood, and to industry and services. This phenomenon of reallocating agricultural and primary products to industry is also seen in Morocco, but remains marginal in that the decrease observed in the agricultural and primary sectors does not translate into a corresponding increase of added value in the industrial sector. The low level of reallocation in Morocco is mainly due to the negative impact of preferential treatment being withdrawn. (ii) Countries whose production could diversify with trade liberalisation, as long as the increase in

Agricultural products

Primary products

Table

added value in one sector was not to the detriment of another: added value in Turkey would increase particularly in industry and services, and stagnate in the primary and agricultural sectors. In Egypt, added value in the agricultural and industrial sectors would increase equally, while added value would remain stable in the other sectors of the economy. This phenomenon of an overall increase in added value may reflect the diversification of these economies, potentially leading to productivity gains that are higher in Turkey than in Egypt, given the productive specialisations that would appear after an opening up of trade.

(iii) “Deindustrialising” countries: Algeria and Libya would engage in deindustrialisation and focus on exploiting primary resources (mainly hydrocarbons). Moreover, liberalisation scenarios would produce differentiated sectoral effects. Stronger EuroMed regional integration would lead to greater agricultural specialisation in Tunisia and Egypt, while weakening that of Morocco (undoubtedly as it would no longer enjoy the preferential advantage of privileged access to European markets, and would record much lower productivity gains in its agricultural processing industries).

Growth of the sectoral added value in 2025 compared to the baseline scenario (%)

Scenarios

Algeria/ Libya

Tunisia

Turkey

Rest of the Middle East

S1 S2

-1,52

8,69

-0,98

-0,49

0,39

10,07

0,19

10,01

0,42

5,06

4,50

8,88

0,52

-0,61 -0,31 -1,14

0,38

3,18

-1,11 -1,05

-0,01

-0,96

-0,25

-0,08

-0,03

-0,02

0,22

0,26 0,31

0,59

0,02

-0,03 -0,04

0,81

2,60

-0,34 -0,16 -1,49

-0,03

0,26

-0,98 -1,10 -0,13

0,63

1,56

0,10

0,00

Egypt

Morocco

-1,48

1,66 3,09

-2,55 -2,47 -4,00

0,43 0,08

•••/•••

/ Euro-Med Growth and Trade Integration: can we talk of a cost of the non-Mediterranean? /

Industrial products Services

Scenarios

Algeria/ Libya

-0,26

S2 S4

-3,71 -3,48 -6,59

S1 S2

S3 S4

Turkey

Rest of the Middle East

-0,15

0,10

-0,02

0,02

4,53

2,65

0,28

0,00

0,83

3,95

2,41

0,47

2,41

1,28

7,70

6,73

0,97

0,02 -0,21

-0,45

0,05

-0,24

2,24

-0,17

-0,06

0,05

-1,70 -1,58 -3,10

0,38

-0,10

3,73

0,90

-0,04

0,05

1,74

1,03

5,10

1,72

0,78

1,54

4,68

2,15

0,52 -0,20

0,12 -0,08

Egypt

Morocco

Tunisia

1,41

0,31

1,82

0,96

1,97

Source: CEPII-AFD (2012).

Marginal impact of SEMC

Figure

2.4. regional integration

There is a general consensus that the lack of SEMC market integration hinders economic growth in spite of attempts at regional integration, which, for various reasons, have not come to fruition (Arab Maghreb Union [AMU], Agadir Agreement, GAFTA). Indeed, the small size of each market is a strong deterrent for productive investment (foreign and domestic alike). To isolate the impact of inter-SEMC trade integration – independently of a deepened Euro-Med integration – one of the scenarios simulated the gains from a Med-Med trade liberalisation (cf. Appendix 1), including estimates for partial trade liberalisation for industrial goods (excluding sensitive products – scenario S2.e., cf. Appendix 1) and then partial trade liberalisation for agricultural products (excluding sensitive products – scenario S2.f.). Figure 15 shows these gains compared to those obtained for Euro-Med integration (scenario S1 presented above). The results indicate that, with the exception of Turkey, none of the SEMCs would benefit from Med-Med trade liberalisation.

Changes in exports to the other SEMCs in 2025 (%) 20 15 10 5 0 -5 -10 Turkey

Egypt

S2.e.

Tunisia

Morocco

S2.f.

Algeria Libya

Rest of the Middle East

Note: S2.e., S2.f. and S1 correspond to the liberalisation scenarios presented in the text.

Source: CEPII-AFD (2012).

2/ A deepening of Euro-Med trade liberalisation alone will not increase the SEMCs’ growth potential

The foremost explanation may be that there is not enough economic complementarity between the SEMCs to generate a ripple effect on trade flows and economic growth. The similarity of their production structures, on the one hand between oil-producing countries and on the other between non-oil-producing countries, severely limits the potential for intraregional trade. In this context, the relatively higher gains in Turkey provide an interesting insight, which echoes the results observed in sectoral reallocations. Only those countries following the path of advanced diversification would be able to benefit from greater trade openness between the SEMCs. Turkish exports to other SEMCs would increase particularly in the industrial sector. Beyond the simulation results, the impact of trade liberalisation depends on how diversified a country’s economy is initially. The greater the diversity of the initial production structure, the greater the likelihood that trade liberalisation will lead to a reallocation of resources to new production activities. Conversely, the more concentrated the initial production structure, the more trade liberalisation would tend to accentuate this. What does past experience of the SEMCs show us? Even the SEMCs whose initial level of diversification was relatively higher (Tunisia, Morocco, Egypt) have had their structural dynamics obstructed by specialisations in low value-added industrial activities that have remained static over recent decades. This activity “lock-in” has prevented them from moving up the

value chain into activities with higher technological content. Most of these countries are (historically) vertically integrated with the EU through inter-industry trade linkages that give rise to inflexible inter-company relations. The decline of these specialisations in a context of trade openness resulted in the erosion of their compe titive advantage in European markets during a period when a large part of their production fabric was exposed to fierce competition from cheap imports in their own markets. The analysis of the SEMCs’ structural competitive weakness has produced a shared diagnosis (World Bank, 2006 b ; Femise, 2007, 2012). There are many possible explanations for the SEMCs’ structural blockage: constraints to forming domestic productive capital (absence of large industrial groups, fragmented SME fabric), low employment rates, structural rigidity of the job market, unfavourable business climate (bureaucracy, inefficient administration, legal uncertainty, corruption), weak intermediation of financial markets and persistent rent-seeking. In addition, past consequences of trade openness in the SEMCs help shed some light on the simulation results. Structural competitive weakness, insufficient economic diversification and no upgrade in the value chain are undoubtedly all factors to be overcome for a virtuous regional trade liberalisation to be implemented.

/ Euro-Med Growth and Trade Integration: can we talk of a cost of the non-Mediterranean? /

3 / Conclusions and outlook 3.1. The cost of the non-Mediterranean

turns out to be less than expected

The impact of Euro-Med agreements has been analysed in an abundant literature that shows the weakness of the link between trade openness and growth in the SEMCs (Jarreau, 2011). The contribution of this CEPII-AFD study is mainly based on two methodological approaches. First, whereas most studies conduct an ex-ante assessment of trade liberalisation, this study aims to evaluate the observed effects taking into account not only the Euro-Med agreements but also all agreements between the SEMCs and third countries. Second, this study examines the expected effects of deepening trade liberalisation through various realistic scenarios. In particular, it attempts to identify the sectoral impacts of trade liberalisation, which are insufficiently dealt with in previous studies. Four conclusions may be drawn from this study’s findings: • while the Barcelona Process has so far not led to greater Euro-Med integration, the SEMCs appear to fall more within a trajectory of global trade integration; this integration has led to a weakening of the effects of the Euro-Med integration; • trade liberalisation would mainly benefit the agricultural and agri-food sectors; • a deepening of Euro-Med integration would not significantly raise the growth potential of SEMCs and would have a limited overall effect on economic diversification; • regional integration between the SEMCs would substantially increase the gains of Euro-Med integration, but this alone would not have a positive impact.

Overall, on this basis, it is difficult to deduce a meaningful “cost of the non-Mediterranean”. These conclusions should, however, be qualified depending on the country. Tunisia and Turkey would benefit from regional trade liberalisation more than the other countries, where the impact would be negative or barely positive. Both of these countries are characterised not only by economies that were initially more diversified, but also by measures that have accompanied the liberalisation of trade, in the form of policies to upgrade companies. A country’s capacity to develop and implement public policies in favour of structural reforms and long-run growth is a major differentiating factor.

3.2. The need to rehabilitate the

State’s role

This empirical evidence helps to feed the debate on the SEMCs’ paths to transitioning growth models. It may also be interpreted in light of current macro economic weaknesses brought on by the global crisis and even more by the political transitions facing some of these countries. Indeed, the inertia of the SEMCs’ economic structures should be put into a socio-economic context. First, growth is no longer able to absorb the huge influx of new entrants onto the labour market and, more generally, to reduce serious social problems. Second, although growth was more sustained during the 2000s, it was only weakly redistributive and its eco nomic gains were largely captured by private interests, mostly those close to policy makers. This deep-rooted crisis has triggered a strong social demand focussed on access to employment, equity and the fight against corruption.

2/ A deepening of Euro-Med trade liberalisation alone will not increase the SEMCs’ growth potential

This context combining heightened social tensions and political transition reveals the need for more government. Not a demiurgic State, but a State that will introduce mechanisms to redistribute wealth, combat systemic corruption and foster human and social development. Liberalisation, pursued indiscriminately since the 1980s, has crippled national capacities for public regulation, thus contributing to the collapse of the emerging middle classes, the rise of rent-seeking networks and the development of an informal economy. Certainly, democratisation cannot be disassociated from the existence of political checks and balances and the full expression of individual and collective freedom, but it must also be accompanied by a rebuilding of the State. Strengthening legal institutions, restoring public administrations, bolstering the social protection system and organising market regulation institutions will thus be major post-revolution challenges (Rodrik, 2009).

3.3. Redefining

long-run

growth

levers

Three lessons can be drawn to help reassess long-run growth policies. First and foremost, pro-growth policies cannot be defined on the basis of trade liberalisation alone. When some of the SEMCs (Morocco, Egypt, Tunisia, Jordan) entered into negotiations with the EU to extend trade agreements to services and agricultural products, what was the expected effect on economic growth? The export-led model – the cornerstone model for growth in emerging countries – has largely inspired pro-growth policies in the SEMCs since the 1990s. However, institutional and structural short comings have hindered the onset of a virtuous dynamic between trade and growth (Mezouaghi, 2010). Competitive weakness has gradually eroded their comparative advantages in the European market. In addition, trade openness has had limited effects on growth, since specialisations have locked production into activities with low added value or based on the

exploitation of primary resources. Without structural change in the productive base, trade liberalisation may increase vulnerability to external shocks and exacerbate social inequalities. Against this backdrop of competitive weakness, trade openness needs to be gradual in order to protect nascent industries and high-growth sectors by allowing them to accrue learning effects before any exposure to competition (Rodrik, 2001). Moreover, opening up trade stepwise would likely enhance the indirect effects of regionalisation, since the SEMCs would benefit from preferential access to the European market, compared to the EU’s other trading partners. Secondly, trade openness requires appropriate public policies in order to escape the “structural adjustment paradigm” that has led these countries to abandon policies for long-run growth since the 1980s. For the SEMCs, three types of major structural policies may have a lever effect on economic growth: (i) an industrial policy that would set out to identify and protect key sectors with added value and job creation potential (particularly in agro-industrial and service activities), and to foster technological innovation and learning effects that would encourage value chain upgrades in industrial activities (Hausmann and Rodrik, 2003), (ii) a policy to develop human capital that would align training systems with labour market needs in view of stimulating structural changes in the production base and easing social tensions (Amin et al. , 2012), and (iii) a proactive policy for public and private funding of the economy that would encourage the formation of national productive capital by facilitating private investment and modernising infrastructure. Thirdly, increasing the potential for growth means harnessing globalisation. High-growth countries all share the aptitude to dynamically integrate the global economy, to appropriate technologies and foster learning effects, introduce macroeconomic discipline and increase levels of investment by mobilising domestic savings and enhancing their attractiveness (Commission on

/ Euro-Med Growth and Trade Integration: can we talk of a cost of the non-Mediterranean? /

Growth and Development, 2008). International competition will continue to exert strong pressure on the price competitiveness of goods and services, prompting multinational firms to reduce production costs by offshoring production lines or suppliers in countries able to provide this competitive advantage. The constraint of proximity will also continue to hold sway for goods and services requiring just-in-time supply chain management.

The SEMCs should, in this regard, (re)define their policy to promote investment attractiveness. This would encourage multinational firms to set up locally and would create spill-over effects on the economy as a whole (creating externalities). Specifically, this policy should target the formation of domestic productive capital and local learning capacity, which underpins the implementation of modern industrial processes and the mobilisation of a skilled labour force (Mezouaghi, 2009).

ÂŠ AFD / Macroeconomics and Development / November 2013

Appendix

Appendix 1 Liberalisation scenarios

Scenarios

EU-MED

MED-MED

Euro-Med liberalisation of trade in goods

Baseline scenario

complete liberalisation of trade in industrial goods S1.a.

complete liberalisation of trade in industrial goods

S1.b.

S1.a + partial liberalisation of trade in agricultural products (excluding sensitive products)*

S1.c.

S1.a. + complete liberalisation of trade in agricultural products

Med-Med liberalisation of trade in goods S2.a.

S1.b. + partial liberalisation of trade in industrial goods (excluding sensitive products)

S2.b.

S1.b. + complete liberalisation of trade in industrial goods

S2.c.

S2.a. partial liberalisation of trade in agricultural products (excluding sensitive products)*

S2.d.

S2.b. + complete liberalisation of trade in agricultural products

S2.e.

partial liberalisation of trade in industrial goods (excluding sensitive products)*

S2.f.

S2.e. + partial liberalisation of trade in agricultural products (excluding sensitive products)*

Euro-Med liberalisation of trade in services S3.a.

S2.c. + partial liberalisation of services **

S3.b.

S2.c. + partial liberalisation of services ***

S3.c.

S2.c. + complete liberalisation of services

S3.d.

S2.c. + complete liberalisation of services Multilateral liberalisation

S2.c. + complete liberalisation of trade in goods with third countries

In italics: reference scenarios * ** ***

sensitive products: 5% of the most protected tariff lines. large reduction of ad-valorem equivalents of tariff barriers (100% : communication; 50% : trade, transportation, financial services, insurance, business services; 0% public services). moderate reduction of ad-valorem equivalents of tariff barriers (60% : communication; 30% : trade, transportation, financial services, insurance, business services; 0% public services).

Source: Cepii-Afd (2012), The Cost of the Non-Mediterranean

/ Euro-Med Growth and Trade Integration: can we talk of a cost of the non-Mediterranean? /

List of acronyms and abbreviations

BACI

Base pour l'Analyse du commerce international (World Trade Database)

CEPII

Centre d’Etudes Prospectives et d’Informations Internationales (Center for International Prospective Studies)

GAFTA

Greater Arab Free Trade Agreement

GTAP

Global Trade Analyses Project

GDP

Gross domestic product

PPP

Purchasing power parity

SEMCs

South and East Mediterranean countries

European Union

AMU

Arab Maghreb Union

WDI

World Development Index

References

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FEMISE (2007), Assessing the Macroeconomic Effects of the Barcelona Initiative’s Liberalization Process , FEM31-10, available at: http://www.femise.org HAUSMANN, R. and D. RODRIK (2003), “Economic Development as Self-Discovery”, Journal of Development Economics, 72, pp. 603-633. JARREAU, J. (2011), “Economic Integration in the EuroMed: Current Status and Review of Studies”, Working Papers, 2011-07, CEPII. MEZOUAGHI, M. (2010), « La conversion inachevée des économies d’Afrique du Nord et du Moyen-Orient au modèle exportateur : quels enseignements dans un contexte de crise ? », Mondes en Développement, 2010/2, n° 150, De Boeck, pp. 135-152. MEZOUAGHI, M. (ED.) (2009), Les localisations industrielles au Maghreb : attractivité, agglomération et territoires, Karthala, Paris. NABLI, M. and M.A. VEGANZONES-VAROUDAKIS (2004), Reforms and Growth in MENA Countries: New Empirical Evidence, World Bank, Washington, D.C. RODRIK, D. (2009), “Industrial Policy: Don’t Ask Why, Ask How”, Middle East Development Journal, Vol. 1, Issue 1, Economic Research Forum, 1-29.

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References

RODRIK, D. (2001), “The Global Governance of Trade -- As If Development Really Mattered”, UNDP Background Paper, New York.

WORLD BANK (2006 b ), “The Impact of Regional Trade Agreements and Trade Facilitation in the Middle East and North Africa Region”, Policy Research Working Paper, No. 3837.

Design: Ferrari/Corporate – Tel. : 01 42 96 05 50 – J. Rouy/ Coquelicot. Production: Denise Perrin

WORLD BANK (2006a), Morocco, Tunisia, Egypt and Jordan after the End of the Multi-fiber Agreement: Impact, Challenges and Prospects? , World Bank, Washington, D.C.

MACRODEV (''Macroeconomics and Development'')

Director of Publications: Anne PAUGAM

This collection was launched by AFD’s Research Department to present the work produced in the field of development macroeconomics by AFD's Macroeconomic and Country Risks Analysis Unit (RCH/AMR) and AFD Group economists . It publishes studies that focus on countries, regions or development-related macroeconomic issues.

Editorial Director:

The analyses and conclusions in this document are the sole responsibility of the authors, and do not necessarily reflect the viewpoints of the Agence Française de Développement or its partner institutions.

Alain HENRY Translator: Gill GLADSTONE Agence Française de Développement 5, rue Roland Barthes – 75598 Paris cedex 12 Tél. : 33 (1) 53 44 31 31 – www.afd.fr