Middle East and North Africa2007 Economic Developments
and ProspectsChallenges and Opportunities
for the UAEMustapha K. NabliChief Economist
Middle East and North Africa RegionWorld Bank
Dubai, June 5 2007
2006 was another year of robust economic growth in MENA
• Strong economic growth in MENA for the fourth year in a row
• Growth driven by oil revenues, ongoing recovery in Europe and policies broadly in the right direction
• GDP in MENA (exc. Iraq) increased by 6.3 percent up from 4.6 percent in early 2000s
But significant differences among sub-groups and countries
• Resource poor labor abundant grew by 5.6 percent
• Resource rich labor abundant grew by 4.3 percent
• Resource rich labor importing grew by 7.5 percent
Regional growth steps up to 6.3% in 2006
2
4
6
8
1996-1999 2000-2003 2004 2005 2006
RPLA
RRLA
RRLI
MENA excl IRQ
Source: National Agencies and World Bank.
real GDP growth, percent
General step-up in growth for MENA oil exporters in 2006
real GDP growth, percent
0 3 6 9 12
IranSyria
RRLAYemenAlgeria
QatarUAE
LibyaRRLI
BahrainOman
KuwaitSaudi
20052006
Source: National agencies and World Bank estimates.
On a per-capita basis much better performance than in the past
• Per-capita growth was 4.2 percent, the highest level recorded in at least two decades, up from 1.7 percent in 1990s
• MENA’s per-capital income is now growing at 75 percent of the rate attained by other developing regions, up from 61 percent in the 1990s.
Surge in oil revenues underpins growth of MENA exporterscrude oil and product revenues $bn [left]; oil price, WB $/bbl [right]
50100150200250300350400450500550
2002 2003 2004 2005 200625
30
35
40
45
50
55
60
65RRLA revenuesRRLI revenuesOil Price
Source: UN Comtrade, IMF, IEA, World Bank.
There is a shift in domestic demand in favor of investment
• The contribution of gross investment to growth almost doubled in 2006 to 4.1 GDP growth points
• Private investment as a share of GDP reached almost 16 percent and is increasing for all sub-groups
• FDI is low but growing particularly in resource poor countries
• Imports of capital goods significant
Private investment as a share of GDP
10
11
12
13
14
15
16
2000 2001 2002 2003 2004 2005 2006Source: National Agencies and World Bank.
RPLA
RRLA
RRLIMENA
Fiscal balances improved but not everywhere
• Fiscal deficits for resource poor countries declined from 6.7 percent of GDP in 2005 to 6 percent of GDP in 2006. Lebanon, WBG and Djibouti deficits expanded.
• Fiscal surpluses for resource rich labor importing countries improved to 25. 8 percent of GDP. All improved.
• But for resource rich labor abundant countries they declined to 3.1 percent of GDP.
-10
0
10
20
30
40
50
Kuwait UAE RRLI Saudi Oman Algeria RRLA Iran
2005
2006
Source: National Agencies and World Bank. *selected economies.
RRLI fiscal surplus continues at high levels
fiscal balance as a share of GDP %
Labor markets are more dynamic
• High economic growth has gone together with:
– Strong employment creation– Declining unemployment rates– Strong labor force growth– Increasing labor force participation rates,
particularly among women
Summing up MENA’s labor marketstory, 2000-2005
Includes: Algeria, Bahrain, Egypt, Iran, Jordan, Kuwait, Morocco, Qatar, SaudiArabia, Tunisia, United Arab Emirates, West Bank and Gaza.
2.8
3.6
4.55.1
0.0
1.0
2.0
3.0
4.0
5.0
6.0
WAP LF JOBS GDP
Unemployment declining
• Between 2000-05 MENA’s aggregate unemployment fell from 14.3 to 10.8 percent (for the 12 countries in the sample)
• This took place at the same time that the region is experiencing the crest of the labor force growth path
Most progress in the largestcountries
0
5
10
15
20
25
30
35BH
R
QTR
SAU
EGY
MO
R
IRN
TUN
ALG
KWT
UAE
JOR
WBG LB
N
YMN
IRQ
2000 2005
Falling unemployment rates
Increasing unemployment rates
What kind of new jobs?
• Mostly created in the private sector as public employment demand slows down
• New jobs primarily in services and agriculture
• Productivity remains low but some promising sings of more employment within sectors with raising productivity
Most new jobs are in the privatesector
Contribution to total employment growth (in percentage points)
-0.1 -0.2
2.2
2.3
3.7 3.2
1.9
4.2 3.6
0.3
0.20.4
2.5
-1
0
1
2
3
4
5
6
7
MO
R
IRN
SAU
JOR
EGY
ALG
Work at HomePrivatePublic
The services sector has been leading jobcreation except in Morocco and IranContribution to employment growth (in percentage points)
1.9 1.9 1.4
-1.4
0.5
1.5
0.6
0.82.1
1.9
2.53.6
1.4
0.9
0.00.4
0.3
0.40.8
0.1
2.5
-2
-1
0
1
2
3
4
5
6
7W
BG
MO
R
TUN
IRN
EG
Y
JOR
ALG
Agriculture Industry
Services Work at home
Quick Update on The United Arab Emirates Economy
UAE recent economic performance remains strong
46%46%42%44%Oil share of exports151.1118.790.253.9Total Merchandise Exports bn $
69.855.038.123.5Oil (crude & refined) Exports bn $
as % GDP
16.115.79.98.6Current Account Balance
27.020.610.58.9Overall Fiscal Balance
19.721.824.932.3Fiscal Expenditures46.742.435.441.1Fiscal Revenues 89.791.086.975.8Exports (Goods & Services)
9.78.59.77.1Real GDP Growth2006 e200520042000-03
UAE and the Developing World (2006)
3.78.26.44.04.02.3Real GDP per capita Growth
1.97.00.819.932.016.1Current Account (% GDP)
1.9
6.4
ECA
-1.1
9.1
EAP
0.713.725.927.0Fiscal Balance (% GDP)
5.06.27.49.7Real GDP Growth
LACMENAGCCUAE
Is this a new era of opportunities?(1) Global prospects
• Positive prospects for oil revenues
• Positive global growth prospects
• Asian potential
Favorable Oil Market Conditions likely to persist in near term
• Oil prices expected to stay high gradually declining to $50/bl by 2009 (WB average)
• World oil demand growth increasing to 2% by 2009 (up from 1% in 2006)
• But non-OPEC supply share expected to increase
WB average oil prices
0
10
20
30
40
50
60
70
2000-2004
2005 2006 2007 2008 2009
World Bank avg oil price
Growth in oil demand
-1
-0.5
0
0.5
1
1.5
2
2.5
3
3.5
4
2000-2004 2005 2006 2007 2008 2009
Perce
nt
World demand OECD demand Developing demand
-1
1
2
3
4
5
6
7
8
1980 1983 1986 1989 1992 1995 1998 2001 2004 2007
Global Economic ProspectsWeaker but still robust
Real GDP annual percent changeForecast
Developing
High-income
2009
Developing ex. China & India
Developing countries GDP growthstill robust
0
2
4
6
8
10
12
2000-04 2005 2006 2007 2008 2009
Developing countries China Other East Asia and Pacific Europe and Central Asia
US Libor rates to remain around 5 percent
0
1
2
3
4
5
6
2000-04 2005 2006 2007 2008 2009
US Libor - 6 months US 10 year T-note
Is this a new era of opportunities?(2) Domestic country prospects
• Progress on economic reforms – Private sector investment– Exports and integration into the global
economy– Diversification of production/exports
• But weaker than in the rest of the world
Business Environment Index: UAE behind other MENA countries
0102030405060708090
UAE KSA Oman Yemen Kuwait MENA OECD
2006 rank (100 = best) 2003-2006 Reform Index (100 = most improved)
Mixed Results for Business ClimateDoing Business 2006
05
10152025303540455055606570758085
Start up (number ofprocedures to
register)
Closing businesscost (% of estate)
Registering property(% of value)
Cost of start up(%GNI per capita)
UAE GCC MENA High Income World
Governance Reform Indices
• Historically, oil booms delayed implementing deeper reforms
• Today, early signs show mixed results with respect to governance reforms in UAE 100 reflects most efficient (best ranked) or best reformer.
Reform is between 2000-2006
Reform Index
2006 Rank
Reform Index
2006 Rank
47914990OECD
50505050World
MENA
UAE
63205749
8420865
Public sector accountability
Quality of public sector
administration
Is this a new era of opportunities?(3) Regional prospects
• Potential for matching of availability of investment funds (from oil exporters) and good opportunities for investment in non-oil exporters?
• The UAE appears to be leading in this process?
Record flows of foreign direct investment to the region during 2006
$ billions
0
5
10
15
20
25
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006Source: National agencies, IMF, UNCTAD, World Bank.
Note: RPLA = resource-poor, labor-abundant (countries).
Total FDI
RPLA FDI
But there are major challenges: (1) The employment challenge:
quantity vs quality of jobs
MENA will continue to face very high labor force growth in the near future
But they need to be better quality jobsHigh sustained economic growth will be
needed to meet labor force growth andtackle unemployment
How about the UAE?
But the job creation challengecontinues to be high
Labor force growth, MENA and other developing regions, 2000-2020.
EAP
ECA
LACSA
SSAMENA
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
2000-2005 2005-2010 2010-2020
% g
row
th p
er y
ear
Job creation needed to reach different goals for employment rates
68
81
99
0
20
40
60
80
100
120
Current scenario: 60 percent EU current: 64 percent EU goal: 70 percent
Employment rates by 2020
Jobs
nee
ded
by 2
020
Is there a trade-off between quantity and quality? Labor productivity growth and job growth in subsectors, Ireland, Tunisia, and Morocco
-4
-2
0
2
4
6
8
10
12
14
-6 -1 4 9 14Productivity growth
Empl
oym
ent g
row
th
Ireland 1995-1999: positive relationshipTunisia 1997-2001: negative relationshipMorocco 1999-2003: negative relationship
Labor Market in the UAE
7.89.5
8.08.0
GDP Total growthGDP non-oil growth
9.0Employment growth
39(2005)
36(2000)
26(1990)
Female LF participation
2.32.87.67.0Labor force growth
2.02.36.75.7Population growth
2010-2020
2005-2010
2000-2005
1990-2000
But there are major challenges: (2) Medium term: Managing a soft
landing?• Has the economy been overheating?• Softening of growth needed?• Managing the financial risks: financial
bubbles, real estate bubbles
GCC equity markets stabilized but showing little new dynamic
MSCI-price indices in USD June-01-2006=100.
40
60
80
100
120
140
160
180
Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07Source: Morgan-Stanley through Thomson/Datastream.
GCC
Saudi Arabia
Kuwait
UAE
All emerging markets
But there are major challenges: (3) Longer term: Managing the oil
revenues?• Oil revenues are likely to remain high due
to oil market conditions• Investment vs. consumption of the windfall
revenues• Productive investment and transformation
of oil wealth into other sustainable wealth• Diversifying inside and outside the region:
– The Arab region– The Asia potential
Potential offered by the globalization of corporate finance
• Equity finance
• Bond finance
0
15
30
45
60
75
2002 2003 2004 2005 2006
$ billions
OtherCountries
China
Record expansion in IPO transactions led by China
$71 billion
Capital raised through Initial Public Offerings (IPOs) by companies in developing countries
0
20
40
60
80
100
120
140
1998 1999 2000 2001 2002 2003 2004 2005 2006
Corporate
Sovereign
$ billions
Bond issuance by developing countries
$88 billion
$43 billion
Corporate bond issuance now exceeds sovereign borrowing