2. Contents
• How We Got Here
• Reasons for Optimism
• Reasons for Caution
• What to Expect in 2017/18
• Long-Term Outlook
• Regional Outperformer: Morocco
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How We Got Here
2011 Still With Us
• Increased Security Risk
• Loss of Confidence
• Slowdown in Trade Partners
• Lack of Focus on Reforms
• Weak Capital Inflows
Chart: GDP per capita, PPP, avg. % change y/y
Chart: Average Real GDP Growth % y/y
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
2009 2010 2011 2012 2013 2014 2015 2016
0
1
2
3
4
5
6
Algeria Egypt Morocco Tunisia World East Asia Africa
2001-2010
2011-2015
• Headline GDP Growth Trended Lower
• Real Incomes Stagnated
• Regional Underperformance
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Eye of the Storm?
Regional BoP Crisis
• Wider Deficits + Smaller Capital Inflows
• Falling FX Reserves
• Weaker Exchange Rates Inevitable?
• EGP Devaluation
• TND & DZD Depreciations
• MAD Liberalization
Chart: USD Exchange Rates: Algeria & Tunisia
Chart: FX Reserves, USDbn, chg Dec 2016 vs Dec 2010
1.5
1.7
1.9
2.1
2.3
2.5
2.7
70
80
90
100
110
120
May-12 May-13 May-14 May-15 May-16
DZD (LHS)
TND
-60
-50
-40
-30
-20
-10
0
10
Tunisia Morocco Algeria Egypt
• Stage is now set for a recovery
• Global, Regional & Domestic greenshoots
• Time to lay foundations for longer term
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Reasons for Optimism
1. Global Growth Gains Momentum
Chart: Brent Crude, $
Chart: IMF Real GDP Growth Forecasts
0
0.5
1
1.5
2
2.5
3
3.5
4
World U.S. Euro U.K.
2016
2017
2018
0
20
40
60
80
100
120
140
May-12 May-13 May-14 May-15 May-16
• Cyclical recovery in investment and trade
• U.S. monetary policy normalization
proceeding gradually
• Oil prices higher, but not by much
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Reasons for Optimism
-20
-15
-10
-5
0
5
10
15
20
25
Jan-12 Oct-12 Jul-13 Apr-14 Jan-15 Oct-15 Jul-16
Tunisia
Morocco
2. Brighter Outlook for Exports
Chart: Exports to Eurozone, % of total
Chart: Exports, % y/y (3mmavg)
0
10
20
30
40
50
60
70
80
Morocco Algeria Tunisia Egypt
• More competitive currencies
• Stronger growth in trade partners
• Past reforms bearing fruit
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Reasons for Optimism
3. IMF a Key Anchor
Country Type USDbn Tenor
Egypt EFF 12.0 3 years
Tunisia EFF 2.9 4 years
Morocco PLL 3.5 2 years
-18
-16
-14
-12
-10
-8
-6
-4
-2
0
Morocco Algeria Tunisia Egypt
Chart: C/A Deficit, % of GDP
• Key source of external finance
• Underpins reform agendas
• Strengthens confidence
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Reasons for Optimism
4. Agricultural Rebound
Chart: Importance of Agriculture Sectors
Chart: Agricultural Sector, % y/y
0
5
10
15
20
25
30
35
40
Morocco Algeria Tunisia Egypt
% of GDP
% of Employment
-15
-10
-5
0
5
10
15
20
25
Q111 Q411 Q312 Q213 Q114 Q414 Q315 Q216
Morocco Tunisia
• Volatile contributor to growth
• 2017 looks set for a rebound
• Key source of employment
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Reasons for Caution
1. Security Risks Still Elevated
0
20
40
60
80
100
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Morocco Algeria
Tunisia Libya
Egypt
Less Risk
More Risk
• Regional Issues
• Spillovers from Libya
• Most important determinant of growth?
• Impact on tourism has been severe
• Confidence, Policy Trajectory, Trade
Source: World Governance Indicators. Political Stability and Absence of Violence
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Reasons for Caution
2. Public Opinion Now Matters
Chart: Public Sector Wages
Chart: Youth Unemployment Rate, %
0
10
20
30
40
50
60
Morocco Algeria Tunisia Libya Egypt World
0
5
10
15
20
25
30
35
40
Egypt Tunisia Morocco
% of Spending
% of GDP
• Pressure for public sector employment
• Risk of delays/reversals to reform agendas
• No guarantees of ‘business-friendly’ policies
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Reasons for Caution
3. Reform Momentum Still Absent
0
50
100
150
200
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Morocco Algeria
Tunisia Egypt
Less Reform
More Reform
Source: World Bank Ease of Doing Business Rankings
• Most of MENA moved backwards
• But, the IMF can help
• 2017 could be a key year
• Morocco improved 60 places since 2010
• Global outperformer
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What to Expect
2017/18 Holds Out Promise
Chart: Real GDP Growth Forecasts, % y/y
0
50
100
150
200
250
300
Morocco Tunisia Algeria Egypt
Power & Water Transport
Real Estate Oil & Gas
Manufacturing Mining
Chart: Key Projects by Sector, USDbn
0
1
2
3
4
5
Morocco Algeria Tunisia Egypt
2016
2017
2018
• Growth will hit multi-year highs
• Investing in the basics
• Power & Water, Transport
• Positive news on the political front
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Long-Term Growth Potential?
80-100
60-80
40-60
20-40
0-20
• Population
• Market Size, Growth in Labor Force, etc.
• Economic Backdrop
• GFCF, Public Debt, etc.
• Fundamentals
• Urbanization Rates, National Savings, etc.
• Social Indicators
• Internet Penetration, Literacy, etc.
• Political Risk
• Risk of violence, Political stability, etc.
• REFORM MOMENTUM
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Morocco Remains an
Outperformer
Chart:% of GDP (5y avg)
Chart: Growth in Labor Force Size, 10y avg, % y/y 0
0.5
1
1.5
2
2.5
3
3.5
0
5
10
15
20
25
30
35
Morocco Algeria Tunisia Egypt
GFCF FDI (rhs)
-2
-1.5
-1
-0.5
0
0.5
1
1.5
2
2.5
Morocco Algeria Tunisia Egypt
• Demographic picture is mixed
• Large population, low GDP per capita
• But labor force shrinking
• Economic fundamentals relatively sound
• Only investment-grade credit in region
• Automotive and Aeronautics
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