Saturday, August 30, 2014
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Integrating the Maghreb

RABAT – Tunisia’s “Jasmine Revolution” has thrown a spotlight on the consequences of stagnant economies and endemic youth unemployment for the region’s authoritarian Arab governments. Less noticed is a key factor contributing to this malaise: the inability of the Maghreb countries – Algeria, Libya, Mauritania, Morocco, and Tunisia – to increase their economic cooperation.

Indeed, the Arab Union estimates that the lack of regional integration costs each country two percentage points of annual GDP growth, while the African Economic Commission reckons that if a Maghreb Union existed, the five countries would each gain 5% of GDP. And the World Bank estimates that deeper integration, including liberalization of services and reform of investment rules would have increased per capita real GDP in 2005-2015 by 34% for Algeria, 27% for Morocco, and 24% for Tunisia.

These countries can no longer afford to wait. If they maintain the growth rates recorded over the past five years, it will take them more than two decades to reach the current per capita income of less wealthy OECD members Mexico and Turkey.

A dynamic single market would create investment opportunities for companies throughout the region. But today only 1.2-2% of the five Maghreb countries’ foreign trade is within the region. The key question is whether structural problems or institutional and political factors are hindering the development of intra-regional trade.

In economic terms, the negligible level of intra-Maghreb trade can be explained by factors such as small market size and low trade complementarity – the weak match, in other words, between exports and imports. The potential for intra-Maghreb trade seems to be constrained partly by the similarity of the economies of some countries, notably Morocco and Tunisia. For the two countries’ exports to the European Union, the Finger-Kreinin index, which measures trade similarities, is more than 70%.

Regional integration could contribute to higher growth in two ways. First, integration of the Maghreb would create economies of scale and boost competition, establishing a market of more than 75 million consumers – similar in size to several of the world’s most dynamic trading powers and certainly large enough to increase the region’s attractiveness to foreign investors. Second, regional integration would reduce “hub-and-spoke” effects between the EU and the Maghreb – effects that arise when a large “hub” country or region signs bilateral trade deals with several smaller countries.

The globalization of markets is acting as a powerful economic regulator of economies, but it is also destabilizing the world’s weakest zones. If the Maghreb countries fragment further into mutually hostile, protectionist entities, the only possible outcome is economic growth that is too slow to meet their populations’ expectations – already raised by the mounting contrasts in living standards north and south of the Mediterranean.

In the face of globalization’s growing challenges, the only force strong enough to harness the Maghreb’s enormous economic potential is shared political will. Otherwise, the region seems destined to become a porous economic and political space buffeted by uncertainty and instability. In an unstable world, an integrated Maghreb is both a necessity and an opportunity.

Yet many in the Maghreb – policymakers and the public alike – remain ambivalent about regional integration. So there is an urgent need to develop a political project that captures the imagination of the region’s peoples and leaders.

Nothing highlights the benefits of regional integration as starkly as major infrastructure projects that are of common interest to several countries. Joint transport ventures, for example, would have a strong political impact and maximum visibility, and would bring Maghreb citizens closer together physically and psychologically.

Energy projects also could be strengthened, given that energy needs are expected to grow even faster south of the Mediterranean than in Europe. Such projects would greatly boost integration of the Maghreb if they were accompanied by industrial projects based on gas as feedstock or as an energy source and jointly developed with EU partners. The region’s abundant gas resources should also be used to power desalination plants to meet the Maghreb’s enormous water needs.

Indeed, the region’s population explosion and rapid urbanization, along with the accelerating pace of tourism development, already means water scarcity is holding back growth. Development of water infrastructure is vital for the Maghreb, so if there is one issue that should unite the region, it is management and allocation of water resources.

The first order of business, however, must be to resolve inter-state conflicts, such as the Algerian-Moroccan dispute over the Western Sahara, which prevent the creation of a unified Maghreb. Otherwise, it will be difficult even to discern the outlines of a common future. And, without such a future, the economic despair that gave rise to the revolution in Tunis is unlikely to disappear.

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