Section Four
1996 Regional PerspectivesMIDDLE EAST AND NORTH AFRICA
The Middle East and North Africa (MENA) region achieved a modest upswing in growth of gross domestic product (GDP) in 1995. Among the economies in which the Bank is active, Algeria, Egypt, Iran, Tunisia, and the West Bank and Gaza all achieved GDP growth ranging from 2.5 percent to 5 percent. Jordan and Lebanon both continued to do well, with growth in excess of 6 percent. Others fared less well. Morocco, hard hit by severe drought, suffered an estimated decline in GDP of over 6 percent. Yemen's GDP grew by just over 1 percent.
Recent developments. Restoring rapid, widely shared, and environmentally sustainable growth remains a top priority for the region. In addition, further progress toward a just and comprehensive peace will be crucial for securing region-wide stability and security on which increased investment flows and more rapid growth in turn demand. The past year has offered both opportunities and challenges in this respect.
Agreement was reached on the establishment of the new Middle East Development Bank, which would provide an additional development funding source for the region. The second Middle East/North Africa Economic Summit was held in Amman, Jordan; at the Summit, the Bank called for initiatives to develop the region's water resources to stave off the prospect of growth-threatening water scarcity. And the European Union (EU) launched a potentially far-reaching initiative for a Euro-Mediterranean Partnership and Economic Area, which envisages complete free trade in industrial goods between the EU and eight Arab countries by 2010. Tunisia and Morocco have already signed free trade agreements with the EU; negotiations are under way with Egypt, Jordan, and Lebanon, while preliminary discussions have been completed with Algeria and have begun with Syria.
The challenge of global integration. Accelerating regional and national growth rates will depend above all on MENA countries' capacity to match external opportunities with domestic policies and programs that ready them for greater integration into the wider global economy. The Bank's Global Economic Prospects for 1996 clearly indicate that the "fast integrators" among the developing countries have reaped substantial rewards from their participation in this process, while the slow or lagging integrators have fallen behind--and can be expected to continue to do so as the international investment flows that fuel growth increasingly reward the fast integrators and penalize the slow ones.10 The MENA region today faces the challenge of securing rapid integration based on maintaining macroeconomic stability; undertaking sometimes difficult outward-looking, private sector-oriented, and competitiveness-enhancing economic reform; and making complementary investments in the physical and human capital required for rapid and balanced growth.
The Bank's Operational Response
In recent years, MENA countries have increasingly turned towards the path of openness, reform, and private sector-based competitiveness, although some are moving faster than others or have gained from starting the process earlier than others. During the year under review, as in the past, the Bank has supported country efforts with both lending and nonlending services.
Promoting preconditions for rapid growth. Almost half of the year's $1,595 million of Bank and IDA commitments to MENA countries was devoted to macroeconomic stabilization and private sector and export-oriented reform. A $300 million Structural Adjustment Loan to Algeria is supporting the government's determined efforts to turn towards a market-oriented economy. These efforts include measures to further cut the budget deficit and move forward with privatization and public enterprise and financial sector reform. The Government of Yemen has responded to problems of inflation, unemployment, and budgetary and balance-of-payments deficits with a comprehensive stabilization and adjustment program, to be assisted by an $80 million IDA Economic Recovery Credit that will support macroeconomic stabilization; privatization; and trade, regulatory, and public enterprise reform--all essential building blocks for balanced private sector-led development.
Morocco and Tunisia were the earliest economic reformers in the region. Lending during the year has further deepened the Bank's commitment to both countries' reform efforts. In Tunisia, a $38.7 million loan for the Industry Support Institutions Upgrading Project will help Tunisian firms to integrate into the proposed Euro-Med Economic Area by strengthening the technical services provided to industry, including sectorally oriented technical centers and national metrology services. Morocco has a strong and diversified private sector, but its rapid further expansion is inhibited by a shortage of resources to finance private investment. A $250 million Financial Markets Development Loan, the first element of a proposed multiyear private sector-development lending program, is supporting a government policy package that will help liberate the financial system to serve private sector expansion needs more effectively.
Table 4-16 Two loans to Jordan during the year will help underpin the government's strategy for increasing the economy's outward orientation and integration into the global economy. Recognizing the constraints on growth represented by Jordan's small domestic market, the government plans to intensify its efforts to pursue a policy of private sector-led, export-oriented development. The $80 million Economic Reform and Development Loan is supporting a government policy package designed to promote new foreign and domestic investment and foster greater integration into world markets. To help speed this process, the government has also prepared an Export Sector Development Program, whose aim is to enhance the international competitiveness of Jordanian firms. The $40 million Bank-assisted Export Development Project will help to finance this program.
Supporting human development. Human development, broadly defined, is simultaneously an essential complement to, and a core component of, a national strategy for balanced growth and global competitiveness. Projects to support human development accounted for slightly more than one third of the value of lending to MENA countries during the year. An IBRD loan to Algeria and an IDA credit to Yemen are helping offset the adverse effects of these countries' adjustment programs on the poor by providing temporary employment in small public works activities. In Yemen, the $25 million Public Works Project is expected to create up to 10,000 manyears of labor-intensive employment in a large number of small-scale maintenance or extension programs. In Algeria, a $50 million Bank loan for the Social Safety Net Support Project is helping to launch an innovative pilot public works program that is expected to create nearly 20,000 manyears of temporary work in poorly served areas with high unemployment. The project has also been designed to strengthen Algeria's existing social safety net and support community-level testing of a new Social Fund and a possible microenterprise program. In Egypt, an IDA credit of $120 million is providing a second tranche of support to that country's Social Fund for Development (SFD), which is expected to create about 50,000 permanent jobs and about 20,000 temporary jobs annually between 1997 and the year 2000.
Worker training was the focus of two operations during the year, in Tunisia and Yemen. A $60 million loan to Tunisia for the Second Training and Employment Project is helping to make training services more demand-driven and responsive to employers' needs by moving to a system emphasizing enterprise-based training. Yemen's vocational training (VT) system is being upgraded and expanded with the help of a $24.3 million IDA credit, which is also supporting adult education and training programs focusing on women, special VT programs for the handicapped, and establishment of a largely employer-financed Skills Development Fund.
Despite heavy past investment, MENA countries' education and health services are still struggling to deliver high levels of literacy and adequate health care, especially to rural populations and women--and, in several cases, current provision can barely keep pace with rapid population growth. These issues were directly addressed in lending to Morocco and Egypt during the year. The Bank is supporting Morocco's innovative, multisectoral Social Priorities Program (SPP) with three linked loans--a $68 million loan for health (focusing on basic health care and safe motherhood/family planning); a $54 million loan for education (focusing on primary schooling, especially in rural areas and for girls); and a $28 million loan for rural employment-promotion through labor-intensive public works. The SPP is targeted at Morocco's poorest provinces, and will be implemented on a coordinated basis at the same sites so as to maximize its synergistic effects. In Egypt, the aim of a $17.2 million IDA credit is to strengthen the operational and strategic leadership capacity of the new Ministry of Population and Family Planning and promote family-planning services in currently underserved areas, particularly rural areas of Upper Egypt, where fertility remains high.
One other operation during the year was designed to ameliorate the lives of less well-off or vulnerable groups. The $100 million Emergency Drought Recovery Project in Morocco will address the devastating effects of last year's drought on the (largely poor) rural population by providing seeds and livestock feed, and by improving rural water supply. Over the longer run, the project is expected to begin the process of reducing the vulnerability of the rural population to severe drought through greater preparedness, better rural infrastructure, and improved management of natural resources.
Investing in infrastructure and environmental protection. The remainder of the year's lending focused on two other aspects of rapid growth--providing the infrastructure needed to support it and cleaning up the industrial pollution that can be one of its unintended consequences. Infrastructure investments included one transportation operation--a $37 million IDA credit for the Transport Rehabilitation Project in Yemen. This operation focuses on highway and airport rehabilitation works of high priority for the economy. It also includes assistance to the government in devising financial mechanisms to make the roads network self-supporting.
Efficient water-resource management and service delivery to consumers is a top priority for the region. Water scarcity not only creates severe health hazards and costs, but also has the potential to cripple economic growth prospects in many MENA countries. A $50 million loan to Lebanon is providing supplementary financing for the water and wastewater-rehabilitation components of the Emergency Reconstruction and Rehabilitation Project, approved in fiscal 1994. The supplementary loan will help reduce the health risks associated with contaminated water and is expected to encourage refugees to return to their towns and villages. The $40 million Second Sewerage and Water Reuse Project in Morocco will also have substantial health benefits--especially among the poor, since most sewerage extensions financed are to be in low-income neighborhoods--as well as help to ease water constraints by treating wastewater for safe reuse. Administrative capacity building and reform was the focus of the $20 million loan in support of the Administrative Rehabilitation Project to Lebanon, where restoring the basic capacity of public administration to function effectively is a national priority.
Finally, two of the year's operations addressed the need to clean up environmental "hot spots" where industrial pollution is threatening human health and essential natural resources. A $78 million loan to Algeria is addressing industrial air and water pollution by supporting hazardous emissions reduction and treatment of industrial wastewater. In Egypt, a $20 million IBRD loan and a $15 million IDA credit are supporting the Pollution Abatement Project, whose centerpiece is a Pollution Abatement Fund--to be established in the National Bank of Egypt acting as an Apex bank--that would finance loans and grants through selected local participating banks for industrial cleanup. (In the past, local financial institutions had not provided medium- and long-term financing for environmental investments because of a lack of technical capacity and familiarity with environmental lending.)
Nonlending Services Are Diversified
Operational lending across the increasingly broad front exemplified by the year's record remains at the core of the Bank's support for strong and balanced economic growth in MENA countries. But just as the lending program itself is broadening to accommodate new needs, it is also being complemented by an increasingly diverse "product mix" of nonlending services, designed to expand the effectiveness of Bank support for governments' development efforts.
An innovative example of broadening the product mix of Bank services during the year was the first use of the Bank's guarantee function in connection with a MENA government bond issue on international markets. The bond, issued by the Government of Jordan with a World Bank partial risk guarantee in September 1995, was successfully oversubscribed, generating new private investment for the improvement of telecommunications services in Jordan. This was also the Bank's first guarantee operation in the telecommunications sector worldwide.
Table 4-17 An increasingly important and diverse component of nonlending services to MENA countries is Bank policy and analytical work aimed at helping governments refine and implement their national and sectoral development strategies. This work is of two main kinds. The first involves the preparation of broad-based country-assistance strategy (CAS) reports for each active borrowing country in the region, which form the basis of subsequent operational work and the ongoing policy dialogue between the Bank and national authorities. The second type of analytical work consists of policy and action-oriented reports on topics of priority concern to MENA governments. While this category of output still includes important traditional products such as country economic memoranda (two of which were prepared during the year, in a new series of MENA Economic Studies), it now embraces an increasingly diverse range of topical areas. Examples from the past year include reports on a framework for private sector development in Algeria, on private participation in infrastructure in Morocco, on transport strategy in Tunisia, and on issues arising for Egypt with respect to a European Union-Egypt Free Trade Agreement--along with an Environmental Action Plan for Lebanon, a Water Sector Review and a report on women in the labor force for Jordan, and a poverty assessment for Yemen.
Maximizing the development impact of operations in terms of timely results on the ground is critical for the credibility and grassroots effectiveness of the work of a development institution such as the Bank. Improving portfolio management, and conducting it in increasingly close partnership with (especially grassroots) local counterparts, therefore continued to be a top priority. Features of this effort included further acceleration of the pace and level of disbursements (as in Algeria), support for more effective implementation (as in Yemen), and portfolio restructuring and rationalization in several countries, both as a result of formal Country Portfolio Performance Reviews and on a project-by-project basis. As a result, the percentage of poorly performing projects in the portfolio is on the decline, and the percentage of projects completed on time in line with their objectives is on the rise. The Bank considers enhanced portfolio management as central to the most fundamental development indicator of all--concrete welfare gains for the citizens of MENA countries.
Table 4-18 Other steps taken to improve portfolio performance, and thus on-the-ground results, include insistence on policy improvements before executive board approval (actions on key policy measures are normally required prior to project appraisal, for example), use of "cluster" supervision to increase the cost-effectiveness of supervision (for example, in Yemen), more extensive use of local consultants (Tunisia), strengthening compliance with audit covenants (Morocco), and continued strengthening of resident missions and a shift of supervision responsibility to them (West Bank and Gaza, Egypt, and Yemen).
Finally, the Bank has continued to play an important role as a connector and catalyst of international partnerships for economic development in MENA. Partnership-promoting activities during the past year included traditional aid coordination work, involving convening and chairing consultative groups that bring together MENA governments and their donor supporters; newer aid-coordination functions, such as acting as the Secretariat for the Ad Hoc Liaison Committee for the West Bank and Gaza, and for the Joint Israeli-Jordan Steering Committee for the Jordan Rift Valley Development Program; continued active sponsorship of bodies as diverse as the multinational Mediterranean Environmental Technical Assistance Program and the Economic Research Forum (an intraregional network of economists and development practitioners); and working increasingly closely with bilateral and multilateral extraregional partners on activities ranging from cofinancing individual lending operations to supporting major initiatives that address critical problems (such as the MENA Water Partnership referred to earlier) or build potentially transforming new linkages between MENA countries and the outside world (such as the proposed Euro-Mediterranean Economic Area). As the region increasingly gains a foothold in the wider international economy, fostering productive partnerships will become increasingly central to MENA countries' prospects. The Bank expects to support partnership-building for prosperity in the MENA region still further in the years to come.
1996 Regional Perspectives
Africa
East Asia and Pacific
South Asia
Europe and Central Asia
Latin America and the Caribbean
Footnotes
10. World Bank. 1996. Global Economic Prospects and the Developing Countries 1996. Washington, D.C.
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