Coping with ‘dual shock’ in MENA

‘Many will be pushed into poverty’

❑ MENA’s intraregional integration should lead to increased trade flows with European and sub-Saharan African partners. The time is right to revise regional mechanisms for strategic cooperation, particularly in the context of existing trade liberalization agreements. The African Continental Free Trade Area (AfCFTA) offers an opportunity for MENA and sub-Saharan Africa to simplify and harmonize their non-tariff measures — especially the restrictive export-related measures and technical barriers. Real income gains from full implementation of the AfCFTA have been conservatively estimated at 7 percent by 2035. MENA countries directly participating in the AfCFTA, such as Morocco, Egypt and Tunisia, could each gain around 5 percent.

Meanwhile, there are opportunties for cooperation in an EU-MENA-Africa axis. The shift of specific MENA countries toward their African neighbors should be continued, and merits increased attention from the European Union. Trade ties between Maghreb countries and countries in the Sahel and West Africa could help promote stability and support African economic integration — a goal in the EU guidelines for a new EU-Africa strategy. Better infrastructure links between North African countries and the rest of the continent would contribute to the integration agenda.

MENA countries can cooperate on trade within the region and on the broader rules-based multilateral systems. Trade reforms can be “intelligent” by taking into account not only specific technical matters but also political economy considerations, in order to increase regional cooperation and stability. The effectiveness of policies will depend on the role of regional institutions, as well as the involvement of small- and medium-sized enterprises and civil society in decisionmaking processes.

Trade

Overall, leveraging regional integration to enable domestic reforms as a steppingstone to enhance global integration could become a new source of growth, jobs, and stability in the MENA region. To succeed, a new MENA trade integration framework would include the following pillars:

A balance between political and economic objectives to ensure agreements do not fail.

Trade liberalization that benefits all sectors, including agriculture and services, with reforms that cover all regulatory areas of mutual interest, including trade facilitation, standards and conformity assessment, investment protection, government procurement, and competition policy.

Simultaneous behind-the-border reforms pursued with closer collaboration within MENA, but also with Europe and Africa.

An emphasis on advancing the private sector by exploiting complementarities between trade promotion and private sector development. Technical assistance from MENA partners in the context of South-South exchanges should be explored in the agreements as a means to enhance trust.

Clear rules and effective implementation. This would require reinforcing supranational institutional mechanisms to regulate, monitor, and implement trade integration provisions.

CHAPTER I: Coping with a Dual Shock in the Middle East and North Africa

Chapter I Takeaways:

■ The Middle East and North Africa (MENA) faces both a Covid19 pandemic and a collapse in oil prices, affecting nearly all aspects of the region’s economies.

■ The region is projected to contract 5.2 percent in 2020; 4.1 percentage points lower than the growth forecast of April 2020, and 7.8 percentage points lower than that of October 2019. The output losses are expected to recover only partially in 2021. The forecasts, however, remain uncertain.

Crisis

The crisis has disproportionately afflicted vulnerable populations. Many will be pushed into poverty. Public assistance helps mitigate the impact.

■ In the short-run, countries could consider tailoring policy responses. The priorities include non-therapeutic interventions; support to the private sector and vulnerable households; reducing fiscal leakages; and securing financing. In the medium-run, to restore growth, the priorities include institutional reforms that would reshape the role of the state, promote fair competition, enhance the adoption of digital technology, and regional integration, the focus of this report. I.1 The Dual Shock

Countries in the Middle East and North Africa (MENA) face both a Covid-19 pandemic and a collapse in oil prices. The novel coronavirus that causes Covid-19 — has spread globally. The virus has infected many millions of people and caused more than a million deaths.11 See worldometer.com

The virus spread first to Iran and then widely to other countries in the MENA region (see Table I.1, which contains data as of September 13, 2020). The number of cases per capita in Qatar and Bahrain appear higher than in the rest of the region, but that is partly because the two countries have done much more testing than most others in MENA. The measures of infection are severely limited because they are contingent on testing capability. The low level of infections in fragile countries — such as Libya, Syria and Yemen — is almost certainly misleading, reflecting a lack of testing capability that results in severe underreporting of the spread of the virus. As of mid-September 2020, the rate of new reported cases has gone down for many MENA countries (such as Qatar), but has picked up for others.

Impact

The ability to contain the virus depends in part on the strength of public health systems — including testing and contact-tracing capabilities — which tend to be relatively weak in MENA countries. Under these circumstances, the need for transparency and freer information flow is pervasive and the region risks dramatic consequences if it does not expeditiously address both during this health crisis.22 See Arezki and others (2020) for documentation of the lack of transparency and data disclosure and its economic and social impact in the MENA region.

Countries in the region fare poorly in the Global Health Security (GHS) Index, which measures preparedness for epidemics and pandemics.

MENA ranks last among the world’s regions in two components of the index that are critical to fighting a pandemic: “epidemiology workforce” and “emergency preparedness and response planning.” Many MENA countries have had limited public health financing for decades. According to data from the countries such as Egypt and Iraq spend 5 percent or less of their government budget on health as of 2017, which reflects the effects of significant fiscal constraints on the health sector. Meanwhile, most countries in the region do not have universal public health insurance. Even households with insurance in countries such as Egypt and Morocco face high outof-pocket medical costs because of a lack of prepaid risk pools — a significant problem during a pandemic. The situation is expected to worsen with Covid-19, as demands on the health sector increase sharply. Nevertheless, there is substantial quality and preparedness in some MENA health systems; those in the Gulf Cooperation Council (GCC) — Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and United Arab Emirates — are much better prepared than others. They have done substantially more testing and are having initial successes in reducing infections.