Overview

The Middle East and North Africa (MENA) region is in turmoil.  Syria, Iraq, Libya and Yemen are in conflict, causing untold damage to human lives and physical infrastructure.  Fifteen million people have fled their homes, many to fragile or economically strapped countries such as Jordan, Lebanon, Djibouti and Tunisia, giving rise to the biggest refugee crisis since World War II.  The current turmoil in Yemen has set that country’s development back several years. Blockades and repeated cycles of violence have made Gaza’s unemployment rate the highest in the world and with Gross Domestic Product at only 40 percent of its potential. Countries undergoing political transitions, such as Egypt, Tunisia, Morocco and Jordan, are having to address security concerns over growth-promoting policies. The relatively peaceful oil exporters, such as Algeria, Iran and the GCC, are grappling with low oil prices alongside chronic youth unemployment and undiversified economies. On a positive note, the political consensus around the constitution in Tunisia, and constitutions and legislation in Morocco, Jordan and Egypt that give greater rights to women and protect freedom of expression and information, indicate that citizens are increasingly engaging in policymaking.  

ECONOMIC OUTLOOK

Alongside disappointing global growth in the first two quarters of 2015 and the possibility that the June forecast of 2.8 percent growth for the year may have to be revised downwards, economic prospects in the Middle East and North Africa (MENA) region remain mixed. Growth in MENA is expected to be about 2.9 percent in 2015, slightly higher than last year’s 2.6 percent, but considerably below the 4-5 percent growth the region enjoyed from 2000-2010.  The main reasons for the continued, sluggish growth are: prolonged conflict and political instability in Syria, Iraq, Libya and Yemen; terrorist incidents in places like Tunisia that hurt tourism; low oil prices that are dragging down growth in oil exporters; and the slow pace of reforms that is standing in the way of a resumption of investment. The continuation of sluggish growth will hurt the overall unemployment rate, now standing at 12 percent, and household earnings in the region. The group of oil exporters are estimated to grow by around 2.7 percent in 2015 with growth stagnating in developing oil exporters, at 1.4 percent. The Gulf countries could lose about US$215 billion in oil revenues, equivalent to 14% of their combined GDP, in 2015.  Growth for this sub-group is estimated at 3.2 in 2015, about half a percentage point lower than last year.  Fiscal deficits continue to mount, leaving the region with a deficit of 8.8 percent of GDP in 2015, higher than last year, and following three years of surpluses. 

The group of oil exporters are estimated to grow by around 2.7 percent in 2015 with growth stagnating in developing oil exporters, at 1.4 percent. The Gulf countries could lose about US$215 billion in oil revenues, equivalent to 14% of their combined GDP, in 2015.  Growth for this sub-group is estimated at 3.2 in 2015, about half a percentage point lower than last year.  Fiscal deficits continue to mount, leaving the region with a deficit of 8.8 percent of GDP in 2015, higher than last year, and following three years of surpluses.

Growth in developing MENA countries will be about 2.3 percent in 2015. While low, this figure is a full percentage point higher than the previous year, owing to better-than-expected growth in oil importers-- estimated at 3.7 in 2015 and 2016.

Among developing oil exporters, Iran’s economic prospects could improve following the nuclear deal signed on July 14, 2015 and the potential lifting of sanctions.  The eventual increase in Iran’s oil exports could boost economic activity and accelerate growth to an estimated 5.8% in 2016.

For those countries already in conflict, Iraq, Libya, Yemen, and Syria, economic prospects are grim. The ISIS insurgency and large military expenditures, not to mention low oil prices, have hit the Iraqi economy hard. Growth is expected to be about 0.5 percent in 2015, following a contraction of 2.4 percent in 2014 due mainly to the decline in economic activity in the areas occupied by ISIS.  Libya may see a slight rebound of 2.9 percent growth in 2015, following a major contraction of the economy over the last two years, as severe disruptions in the oil sector have interrupted oil exports, a major source of government and external revenues, in addition to the impact of cheap oil. 

Last Updated: Sep 30, 2015

Given the ongoing fragility and conflict in the region, the World Bank Group has prepared a new regional strategy for the Middle East and North Africa. Instead of taking conflict and violence as given and working around it, this new strategy, entitled - "Economic and Social Inclusion for Peace and Stability in the Middle East and North Africa: A New Strategy for the World Bank Group"  - puts the goal of promoting peace and social stability in the MENA region at its center. The strategy is built around four pillars (“the 4 R’s”) that respond to both the underlying causes of conflict and violence as well as the urgent consequences though development interventions that foster inclusion and shared prosperity. The four pillars of the strategy are as follows:

  • Renewing the social contract – to generate a new development model that is built on greater citizen trust; more effective protection of the poor and vulnerable; inclusive and accountable service delivery; and a stronger private sector that can create jobs and opportunities for MENA’s youth;
  • Regional cooperation – particularly around regional public goods and sectors such as education, water, and energy so as to foster greater trust and collaboration across MENA countries;
  • Resilience - to refugee and migration shocks by promoting the welfare of refugees, internally displaced persons (IDPs), and host communities by focusing on building trust and building their assets; and
  • Reconstruction and recovery – through a dynamic approach that brings in external partners, leverages large scale financing, and move beyond humanitarian response to longer-term development wherever and whenever conflict subsides.

In implementing this strategy, the WBG will rely heavily on both deepening and expanding partnerships with national, regional, and global actors, especially the Islamic Development Bank. With respect to financing, the WBG will continue to expand its investment in the region, but in addition to our own funds, the core focus will be on leveraging and mobilizing global resources to meet the extraordinary financing needs of the region through innovative mechanisms. Finally, our knowledge work (including our growing RAS program) will be of prime importance in informing and mobilizing the support for the strategy and will lead (rather than follow) our lending.

RECENT LENDING AND ANALYTICAL WORK

IBRD/IDA lending for he MENA region increased from US$2.8 billion in FY14, to US$3.5 billion in FY15 and is expected to be US$3.7 billion in FY 2016. The World Bank Group has also mobilized extensive resources to support countries neighboring Syria. A number of analytical studies have been published recently addressing central themes in the region’s political transitions. Jobs or Privileges : Unleashing the Employment Potential of the Middle East and North Africa shows that policies that lower competition in MENA also constrain private sector development and job creation. Investment Climate Assessment: Fragmentation and Uncertainty, provides empirical evidence that political instability resulting from conflict, military rule, violence, political division, and lack of free movement and access to resources and markets remains the key obstacle to economic growth in the Palestinian territories. Over the Horizon: A New Levant identifies areas of economic complementarities among seven Levant countries and assesses untapped potential in investment and trade in goods and services. The Unfinished Revolution: Bringing Opportunity, Good Jobs, and Greater Wealth to all Tunisians is the Bank’s first comprehensive analysis of the Tunisian economy since the 2011 revolution. It concludes that reforms in the country’s investment and competition policies, financial system, labor laws, and agricultural policy could increase growth and bring quality jobs. 

The World Bank remains engaged in a wide variety of development work in the region but is also focusing on alleviating some of the challenges arising from the crisis gripping much of the region. In reconstruction, the Bank response to the war in Gaza was immediate with staff on the ground within weeks of the end of hostilities in August 2014 and resulted in US$41 million in emergency budget support, US$21 million towards reconstructing infrastructure services and US$8.5 million for the health sector provided before the end of the year. In Iraq the Dokan and Derbandikhan Emergency Hydro Power project added 148 MGW in hydropower and a Social safety net Information System developed with Bank support has resulted in savings of over US$30 million. In Energy, Djibouti’s Power Access and Diversification project provided electricity access to 4 percent of the population and two follow-up additional financing operations have been approved. On SMEs, Jordan’s MSME Development for Inclusive Growth project provided loans to nearly 4000 enterprises while providing 2000 jobs for the most disadvantaged segments of society. Egypt’s MSME Development for Inclusive Growth project had provided loans to 2800 enterprises in its first year in operation. Morocco’s Rural Roads II project rehabilitated 12,200 KM of rural roads by 2015. 

The World Bank Group has stepped up its partnerships with bilateral and multilateral donors, regional development banks, Islamic financial institutions and emerging country donors. Less traditional partnerships are just as crucial: one of the sharp lessons of the recent political awakening has been the urgent need to reach out more consistently and consult across a wide spectrum of society, including civil society, academics, NGOs, and the private sector.




PHOTO GALLERY
More Photos »