Excellencies, ladies and gentlemen:
Good evening. I would like to start by thanking the German authorities and business community for inviting me to speak at this Broader Middle East and North Africa (MENA) Finance Conference.
The MENA region is a significant area of work for the OPEC Fund for International Development, an international development finance institution based in Vienna, Austria . The region is also home to most OPEC Fund member countries, which established our institution in 1976 to reinforce their financial cooperation with other developing countries, and promote South-South solidarity. The time for this intervention being limited, I shall confine my remarks to the most important developments in the areas of trade, aid, and investment as prerequisites for regional growth.
As you are aware, the MENA region is a vast area of strategic geo-political and economic importance. Regional GDP growth rose from 3.3% in 2002 to 5.1% in 2003 - its strongest performance since 1991 - driven mainly by a sharp upturn in growth in oil exporting countries. Output growth is estimated to be sustained at about 5% in 2004 and roughly 4% 2005, reflecting continued strong oil production, and a pickup in non-oil activity. Oil accounts for about two-thirds of the MENA region's GDP, and remains the single most important source for economic growth and development for 13 out of its 24 countries and territories. Oil and gas account for the bulk of export revenues in these countries, which makes them vulnerable to external shocks. Although the region’s share in the global oil production declined between 1970 and 2003, MENA country producers continue to command the lion’s share of globally-traded oil. This stood at 48% in 2003. Five of them were among the top 10 oil exporters in 2002. This situation will likely continue in the foreseeable future given their large proven reserves and spare capacity.
Excellencies, ladies and gentlemen:
The MENA region has enormous potential, which remains largely unrealized. Progress is hindered by daunting social challenges, the most salient of which is the need to create jobs for a rapidly growing work force. Over two-thirds of the region’s population is under thirty, and unemployment averages 15%. Much of the job growth will have to come from the private sector, emphasizing the need for policy makers to press on with reforms to enhance institutional and human capacity building, establish an enabling environment for economic growth and diversification, and promote trade and investment integration.
The region is extremely large and diverse in terms of development levels and per capita income. Being in transition, a number of countries require unobtrusive technical assistance, while others need financial assistance, including official development assistance (ODA) and private capital flows, or enhanced trade opportunities. This leads me to issues of partnership and responsibilities.
Net official flows to the MENA region - consisting of ODAand borrowing - rose to an estimated US$1.6 billion in 2003. Nonetheless, the level of external assistance falls short of the target 0.7% of GNP for ODA adopted in 1970, and the financing required to reach the United Nations poverty reduction (and related millennium development) goals.
At the OPEC Fund, we believe our role is to support the development aspirations of beneficiary countries and thus arrive at the most effective contribution through dialogue with the sovereign authorities. To assist the region’s development efforts, the Fund makes available concessional public sector loans and grants for technical assistance, research, and emergency aid. Most of this financing has been committ ed to developing the infrastructure required for fostering growth and development. Our preferred method is to work in partnership and co-financing with other DFIs, such as the World Bank and the European Investment Bank, the co-organizers of this important conference. The Fund also encourages growth and employment creation in the private sector through a separate Private Sector Window.
OPEC Fund resources are additional to those made available by Fund member countries through a number of other bilateral and multilateral channels. Our member countries have voluntarily allocated part of their revenues from oil – a finite commodity - through several bilateral, regional and multilateral channels to help accelerate growth and reduce poverty in developing countries as an early sign of global social responsibility, and a genuine token of solidarity.
The combined gross domestic product (GDP) of the Arab world (or the vast majority of the countries in the MENA region) is modest. At US$604 billion, it is little more than that of Spain (US$599 billion), and only a quarter of that of Germany . Their average GNP per capita of about US$ 2,500 places Arab countries in the category of low middle income countries. Nonetheless, Arab national and regional DFIs had together made available a cumulative total of US$81.3 billion in development financing as the end of 2003. More recently, Arab countries have further provided more than US$1 billion in disaster relief to support the victims of the devastating T sunami that hit South Asia late December 2004, in addition to the financing they provided through national campaigns for the collection of voluntary contributions from the public .
Aid – including debt relief – and trade are mutually reinforcing. Development assistance needs to go hand in hand with efforts to create a fully inclusive and equitable world economy, as called for by world leaders in the March 2002 Monterrey Consensus. This will require structural and lasting changes at the global level, including enhanced market access in the framework of the ongoing Doha round of multilateral trade negotiations. The MENA region remains weakly integrated with the global economy, as evidenced by the IT knowledge gap or digital divide, and its relatively small share in global trade and FDI flows to developing countries. The region’s share in world trade declined from 9.6 % in 1981 to 3.2 % by 2002. If oil exports are excluded, this share dropped even further, to only 2.1 % in 2002, from 4.2% in 1981.
Both the Monterrey Consensus and the Doha Development Agenda recognize the importance of private capital flows, particularly FDI, for growth. The MENA region was the only developing region where private capital inflows did not rebound in 2003. FDI flows to the region dropped from almost US$3 billion in 2002 to US$2 billion in 2003, or only 1.5% of total FDI flows to developing countries. The region has had little success in attracting FDI, which remains the dominant source of external financing for developing countries, and which can be a catalyst for employment creation, skills transfer, and global integration. Political unrest impeded FDI to some MENA countries. Even in countries where the political situation was stable, and despite favorable regulations, FDI inflows remain small and targeted mainly to the extractive industries of a handful countries ( Saudi Arabia , Egypt , Tunisia , Bahrain , and Morocco ).
Excellencies, ladies and gentlemen:
As I just explained, countries in the MENA region stand ready to face the daunting challenges ahead by undertaking the necessary reforms. I shall illustrate these reform efforts with recent developments in two OPEC Fund member countries: Saudi Arabia and Algeria . These two countries together pursue three shifts: from rent to broad based productive economies; from state-led to market-oriented policies, and from import-substitution to export-led growth.Each country based its strategies on its own comparative advantages and circumstances.
Saudi Arabia turned in robust and broad-based growth of 4.3% in 2004, reflecting an expansion in both the oil and the non-oil sectors. A number of legal, financial and regulatory reforms were taken to stimulate growth and job creation in the non-oil private sector. These include the establishment of a Supreme Economic Council and Investment Authority, and adoption of a Foreign Investment Act, and privatization strategy. Saudi Arabia is likely to accede the WTO this year. The country is the second largest source of worker’s remittances in the world (after the U.S. ), with remittances totaling US$15.9 billion in 2002.
While still in an early stage of transition to a market-driven economy, the Algerian economy experienced an encouraging turn-around following the country’s return to security and political stability. Output growth reached 6% in 2004, underscoring an expansion in the hydro-carbon sector, a pick-up in domestic demand, as well as growth in the non-oil sector, including agriculture. In 2005, the government launched its second five-year Economic Recovery Program, totaling some US$50 billion.
I would like to recall that my purpose in reviewing reform efforts in these two countries is to gauge the likely developments in the MENA region as a whole in the near future. It is thus important to note that other countries in the region, including Egypt , Libya , Jordan , Tunisia , Morocco also embarked upon comprehensive reforms, which are well documented.
Excellencies, ladies and gentlemen:
The level of globalization reached by today’s world economy creates inter-dependencies which must be recognized. As I explained, countries in the region are committed to reform, partnership and international co-operation. Their strategic resources and geographic position across Africa and Asia and close to Europe call for neighborly relationships, and compel a global view. Realizing the region’s vast potential will, however, also require external assistance, which calls for full implementation of the commitments assumed by the global community.
The private sector – both domestic and foreign – will need to play an important part in generating growth and employment opportunities in the region. The interest of foreign companies, including the German business community, in the MENA region is encouraging in this respect. German companies have a good reputation in the MENA region, and could be strong partners in a long-term strategy aimed at realizing the region’s potential. Several countries in the region have acceded or are in the process of acceding to the WTO. Trade ties with Europe have been strengthened through the Euro-Med agreements, while intra-regional trade is being promoted through GAFTA (the Greater Arab Free Trade Area ) and several bilateral trade agreements.
Let us seize these and other available opportunities to foster long-term partnerships for development, which hold the promise of lasting growth, stability, and peace in the MENA region.
Thank you.