Development Perspectives from MENA Region - Essay Example

The global economy is currently witnessing serious problems brought by the unfolding crisis of energy, food, financial and economic. Dark prognoses have dominated headlines on the reducing global GDP (Gross Domestic Product), falling trade flows, and wage depreciation in addition to increase in the number of unemployed people. Protectionist measures have therefore been adopted in order to deal with the above issues for example one measure includes borrowing neighbour system which might have devastating consequences in reference to the political, social and economic stability in the long term. According to Allan (2001) these world crises have tackled regions with certain reasons following them such that most of the renowned economists had not anticipated the crisis and thus concluded that the models they used could not adequately explain the situation. It is for this reason that the governments of different nations, businesses, unions and institutions are now anxiously in search of solutions that will not only solve the problems but also prepare the entire global community for the future outcomes. The crises have several effects on the multilateral trading system and this has led to the regional dialogue on current and future challenges for multilateral trading system - Development Perspectives from MENA region. The discussion intends to connect various stakeholders found in the MENA region and is to be conducted through the exchange if analysis and information necessary in debating on several questions which include; what the above crises mean to the multilateral trading system and development perception of MENA region and what the pros and cons of WTO attainments of MENA countries comprise (Barnett and Rolando 2002). MENA region refers to the Middle East and North Africa which is mostly applied in business and academic scripts. The region covers Morocco to Iran and basically includes all the countries found in Arab Middle East and North Africa. Its population constitutes 6 percent of the world’s population. The region has enormous reserves of petroleum and natural gas that enable the region to be a major source of the global economic stability. Study show that the region has 60 percent of world’s oil raw materials as well as 45 percent of world’s natural gas.  It is true that MENA region is so diverse that it can not be referred to in generalised terms this is because it comprises of many countries with the common contributor for economic development. It is therefore not possible to talk of the region as being a peripheral place in the global economic system due to the raw materials it supplies to the entire world (Gardner 2003, p. 20). This region comprises of countries sharing a common heritage at several point of the economic development and consists of an enormous endowment of natural resources. In spite of the region involving itself in economic reforms and succeeding in ways of evading crises as well as achieving stability in the macroeconomic level, the economic performance 30 years ago has been below expectations. This study analyses the regions weak performances in relation to growth rate, the global economy and the employment opportunities in the region. The study also tends to examine the reasons that could have caused the above outcome and also proposes an agenda meant for reforming the region urgently. Oil wealth and a central arrangement legacy have contributed to influencing the region’s development and the formulation of strategies to meet the proposed reforms. The sharp increase in oil prises benefited the region more especially in the 1970s. The outburst of growth in the oil exporting countries reverberates in some countries with in the region by a high rise in work remittances, cash flows and trade. Hall and Charles (1999, p. 100) argue that though the gross capital formation was volatile, it maintained high rates of GDP and also improved the living standards of citizens in MENA region. According to Hoekman and Zarrouk (2000) there was also the growth of significant financial assets as the national reserves beat investments which were mostly experienced in those countries producing oil. The economic performance for the next 20 years weakened due to reduced growth rates thus resulted to few employment opportunities which was sought by the rapid increase in labour force. Pressure mounted on the economic reforms due to the weakening economic situations. The fiscal reforms involved the introduction of the Value Added tax (VAT), reducing on substitutes offered and effective management of public expenditure. The introduction of monetary policy instruments strengthened the framework as trade system were liberalised. The system also was positive on the foreign direct investment (FDI) whish made the exchange rates to be more flexible (Rodrik 2003). Countries such as Egypt, Morocco and Tunisia were the ones who first enjoyed growth rates in the region. Though recently the reform energy has relaxed, some microeconomic outcomes have progressively been positive in almost all the parts of the region. The financial crises which had affected some countries in the region were avoided. Moreover, most countries in the region have significantly reduced domestic and regional debts and the debt service has also reduced. The macroeconomic stability was maintained and the region failed to sustain growth rate. The growth rates have been low and unstable as compared to other developing countries. One major consequence that could have lead to these records includes the constant increase of unemployment which has been worsened by the increased population growth as well as labour force. Peridy (2005) describe that this population growth blew up the levels of the labour market with an increasing wave of job seekers that resulted to exhausting the economy. In connection to the regions records of growth and employment, there has been a fragile incorporation in the global economy. The past experiences show that those economies that hold on honesty as well as globalisation have a tendency of growing faster than those who adopt private growth strategies. In this case MENA’s performance has fallen thus depriving many countries from enjoying all the advantages of globalisation (Kaufmann and Massimo 2003). Growth The economic performance of MENA region show that GDP has stagnated. This reveals the extensive weakness in the oil markets as those producers outside the region achieve market share at the cost of oil exporters in MENA region. The high population growth rate has also slowed the rate of GDP per capita. There has been a striking contrast in the growth of oil and non oil economies. During the booming years the oil producing countries grew in terms of real per capita. The dissimilarities in the instability of growth and demographic dynamics practiced by these countries have also brought about a resource curse .This can be explained as the plenty of the natural resource wealth which slows growth through producing an approval of the actual exchange rate got from oil related foreign exchange inflows this makes countries that do not export oil to be less aggressive and to reduce the size of the export sector. The cumulative economic growth in countries producing oil is dominated by growth in the oil sector. In these economies, oil and hydrocarbon products form 75 percent of the total number of exports (Al-Atrash and Yousef 2000). On the other hand, the sectors without oil have up till now to produce constant growth that will be high enough in order for it to soak up the rising numbers of competitors in the workforce. Low growth and the instability experienced in these economies can further be wound up by the increased fiscal policy. This is because the governments expenditure increase and decrease with the revenue gained from oil. This can further be explained by the lack of effective mechanical stabilisers which tend to mitigate the harshness of fiscal trends. Countries such as Iran, Oman and Kuwait which produce oil have attempted to attend to the procyclicality of the fiscal policies through the establishment of oil and stabilisation of funds (OSF). This accumulates oil receipts abroad and also sterilise foreign exchange inflows. Other countries in the region have opted to choose the fiscal management conduct which invests excess oil receipts. Unemployment Employment and the growth of an economic are closely related. This is because they form a nexus that is a major part in an economic strategy which helps to improve the region’s continued unemployment given the prevalence of young people in the region and its high rate of unemployment which currently stands at 15 percent. A study conducted showed that among the 16 countries, 60 percent of the regions population, 47 million jobs need to be created in the years 2004-2012. According to Zineldin (2002, p. 40) this system is introduced in order to keep the rapidity of upcoming competitors into the market. If 6.5 million jobs are created, unemployment will reduce by just 10 percent. This stance of employment in the region has become more demanding in the countenance of the extensive lack of jobs in states such as Iraq, Afghanistan and Gaza. Growth of employment depends not just on output but on the elasticity of employment in reference to output. This means the strength of growth. Over the last five years, two countries that is Qatar and Sudan has attained 6 percent of the real GDP which is required to maintain the growth of employment. Global Integration Several measures have rendered the MENA region as weak in the integration with the global economy. Investment does not exist any more due to the poor state of development of equity markets. There exist a delay in the global financial assimilation also tend to affect the region. The regional trade performance is also low though the oil exports maintain to be a primary cause of foreign exchange profits. As a result of this, the regional share in the global export market dropped as the share for the developing countries rose. Additionally, information technology led to the low rates since the links are the weakest in the entire world. Recently more people are using internet in the region but the standards are still low. It has always been difficult to generalise the performance of the entire MENA region this is because all the 24 countries have their own economies and experience. There are also difficulties in contrasting the oil producing countries in the region and those that do not produce oil. Generalisation also differs in countries that are aggressive in terms of implementing reforms and those that are less dynamic in chasing reforms. However, the economic formation of the region tends to display similar characters. Given the necessity of focusing on policy formation on the threats and opportunities faced by the entire region, it is also important to treat the region as a piece of analysis (Makdisi et al. 2003). There are various factors that affect the regions performance these are interrelated and characterise each and every country to contrasting extent and these include; one, is the low productivity and a high population grow the experienced in the region. The population growth rate increase annually by 2.5 percent. This is one of the highest in the world which is almost that of the Sub-Saharan Africa. Though the population is anticipated to reduce to 1.5 percent by 2015 the rate remains high and thus will be a major factor in slowing the growth of real GDP. Inefficiency in the factors of production for example labour and physical capital has lead to the low productivity in the region. Growth in output results from increased capital and labour, especially in countries that do not produce oil. Maintaining the living standards therefore seems to be difficult due to the high accumulation of labour and capital that are not followed by the positive growth in the TFP (Total Factor Productivity). Two, weak political infrastructure and institutional that slow down implementation of reforms and change in the region. Countries such as Morocco, Jordan, Libya and Tunisia have recently restructured their governments. These changes in the government often affect both the internal and the external factors such as the global economy, national reliability, democratic and economic transformation. These decisions are made by the heads of state. Government reshuffles can either speed up or slow development in the MENA region. It is therefore important to consider if a country uses a democratic system or not. Those countries using this system can easily restore it and instil changes (Keller and Mustapha 2002). According to Dowrick (2003) changes in the government may tend to bring about corruption, lack of innovation and satisfaction. In the region, changes occur either due to scandals or resignations. They are also meant to reward the loyal countries and to punish the offenders. These changes affect the liberalisation rate in the short term as proposed reforms might be forwarded or abandoned so as to cope with the political situation of the present minister. It may also be difficult for the appointed official to obtain relevant information needed to speed up reforms. However, in the long term the changes in the political structure enhance development since the officials exert necessary power (Kuczynski and John 2003). Three, is that large public sectors which are also costly thus making the members in the region strain in achieving standardised living conditions. The other factor affecting performance is the inefficient and inequitable system of education that makes the citizen not to acquire enough knowledge that renders the get the right jobs. Ebrill et al. (2001) describe that there are also weak financial markets, high rate of trade restrictiveness and finally is the inappropriate exchange rate policies that tend to slow down development. The global financial collapse that was felt in 2008 mostly affected the MENA region due to their honesty in the international financial markets. The IMF report in 2009 showed crisis that had been transmitted through the slow methods of remittances and reduced exports. Klasen (2002, p. 200) show that the main problem affecting the region is lack of industrialisation in addition to highly depending on hydrocarbon exports. In the early years of the 21 century, the countries exporting oil in the region have benefited since the prices of oil increased thus increasing their liquidity and reserves. The countries economies grew to over 6 percent and almost 10 percent in Gulf countries. As a result of this increase, the per capita income doubled. This led to the spread of economic benefits to other countries in the region. The increased liquidity levels enabled the exporting countries to undertake various industrialisations, improved infrastructure and diversified market in the region. This resulted to the emergence of demand for employment and increased economic activities with significant benefits to the neighbouring countries. This led to a growth in the GDP of non-oil exporting countries as well as increase in the income levels (Berg and Anne 2003). In 2007, financial crisis for example the mortgage crisis emerged. According to Daher (2007) this spread rapidly to EU countries and later to the MENA region. In the beginning the impact was not felt as the region was not so exposed to the toxic assets which generated the banking crisis. Other economic issues were suffered such as the decreasing rate of immigrant’s remittances especially in the non-oil exporting countries in the region. This led to a decreased number of tourists. Tunisia for example needs to improve its private investments as well as the growth in productivity so as to attain the 6 percent growth and to improve employment opportunities. Since the countries economic sector is comprised of low- skilled workers, the opportunity for new entry in to the workforce will be limited. The major issue will be to encourage a steady change of sectors for instance value added and knowledge intensive. It will also involve increased investments in the technological sector (Easterly and Ross 2001, p. 200). In the past, the region has experienced progression especially in the execution of the macroeconomic reforms and in the movement towards the structural improvement. However, this pace has not tempted to tackle the structural issues nor the institutional and the government issues. It is therefore necessary to speed up the and to enlarge the action plan by including a essential re-evaluation of the states responsibilities in the economy. There should also be creation of the regulatory environment based on rules. More efforts are needed to speed up trade labialisation in terms of developing labour markets and also there is need to improve transparency, the quality of government institutions and the political structure. Caselli (2003) states that the region should also ensure a reasonable and open competition since these labour forces can create better opportunities to a more and efficient distribution of resources. The private sector should also be supported in terms of growth and innovation procedures. These developments will transform the investment climate that is critical in the growth of the economy, the emergence of job opportunities and the integration of the region to the global economy Das Gupta (2003). The oil-exporting countries ought to carry out fiscal policy by analysing the resource endowment s and their relevant effect on the interests of the entire region. The fiscal policy is meant to mitigate effects on the boom and bust economy particularly in the oil market. Though some countries have taken initiatives to delink the government expenditure from the current oil revenue, a broader advance is necessary in order to diversify the entire economy and to eradicate the obstacles hindering development. It will also be necessary to set up a contemporary tax policy with low rates. References Al-Atrash, H &Yousef, T 2000, Intra-Arab Trade is too little, IMF working paper, Washington. Allan, J 2001, The Middle East Water Question : hydro politics and global economy, London. B. Tauris. Barnett, S & Rolando, O 2002, "Operational aspects of fiscal policy in oil producing countries," IMF Working Paper 02/177. Berg, A & Anne, K 2003, "Trade, Growth, and Poverty:  A Selective Survey," IMF Working Paper 03/30. Caselli, F 2003, "The Missing Input: Accounting for Cross-Country Income Differences," in The Handbook of Economic Growth (New York: Elsevier Science), forthcoming. 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