Mustapha K. Nabli - North Africa Bureau of Economics Studies Intl (NABES) ERF 24th Annual Conference The New Normal in the Global Economy: Challenges & Prospects for MENA July 8-10, 2018 Cairo, Egypt

1. ERF 24th Annual Conference
The New Normal in the global economy: challenges
and prospects for MENA
Cairo, July 8-10, 2018
Panel session 3: Toward a growth agenda for MENA under the “new
normal” in the global economy
Mustapha K. Nabli

2. Main Messages
MENA countries did not benefit much from the strong global expansions of
the 1990s and 2000s:
• They were not sufficiently open and integrated into the global economy
• They lacked dynamism to take advantage of the available opportunities
The reverse is true as well: Assuming there is a New Normal (which is more
controversial these days?) with slow growth of output and trade and low
interest rates globally in the future; the impact on MENA countries is likely
to be limited overall.
The key to future growth prospects are domestic considerations.

3. Introduction and Outline
Illustrate by focusing on Growth in 4 non-major oil exporters, lower
middle-income countries: Egypt, Jordan, Morocco, Tunisia.
Will not consider oil wealth, prices and income !
1. Recent growth experience and stylized facts
2. New demographics, Employment and Growth prospects
3. The New Normal and prospects labor productivity growth:
i. Capital accumulation
ii. Structural transformation

4. On Data
• GDP growth, Investment: World Development Indictors, World Bank
• Employment growth: ILO estimates, sometimes very different from
national data (Morocco)
• Demographics: UN 2017 projections update

5. Recent growth experience: main stylized facts
Similar growth dynamics in Egypt, Morocco and Tunisia during 1992-2010:
 Average GDP growth of 3.7-4.7 % per year
 High employment growth: 2.0-2.9% per year
 Low labor productivity growth of 1.1-2.2 % per year
Jordan experience very different: with extremely high growth driven by
high labor force and employment growth, but very low productivity growth
A negative correlation between employment growth and productivity
growth: coefficient -0.55 for all countries, -0.25 for 3 countries excluding
Jordan.
Strong employment growth associated with low quality jobs!

6. GDP growth decomposition: 1992-2010
0,00
1,00
2,00
3,00
4,00
5,00
6,00
7,00
GDP Labor force Empoyment Labor productivity
Growth 1992-2010
Egypt
Morocco
Tunisia
Jordan

7. Negative correlation between employment
and productivity growth
-2,00
-1,00
0,00
1,00
2,00
3,00
4,00
5,00
0,00 2,00 4,00 6,00 8,00 10,00
Laborproductivitygrowth
Employment growth
Employment and productivity growth

8. Growth prospects 2016-2035:
employment growth and demographics
Looking forward next 20 years 2016-2035 and comparing to 2001-2010, labor force
and employment growth slow down in all countries, assuming continued trends in
female labor force participation, and constant unemployment rates:
If productivity growth continues as before: lower overall GDP growth by 1-2.2
percentage points.
But we cannot assume same rates of productivity growth as before in view of
negative correlation with employment growth!
Change in growth
2016-2035 comp 2000-2010
Labor forceEmployment
Egypt -1,27 -0,95
Morocco -0,66 -1,18
Tunisia -0,88 -1,20
Jordan -2,09 -2,24

9. First policy implication
Largest potential for gains in terms of labor force and employment
growth from increased Female Labor Force Participation
A rate of increase of FLFP by 10 points over 20 years (achieved by
Turkey in 10 years: 2006-2016) would allow a gain in employment
growth ranging from 0,3 to 0,5 points per year.
An active strategy to increase FLFP is major policy agenda:
 Improved public transportation for women
 Conditions of work in the private sector
 Child care facilities.

10. The post-uprisings period
Comparing the Post-uprisings period with previous ten years:
• GDP growth declines by more than half in Egypt, Tunisia and Jordan
• General decline in labor force and employment growth
• Big decline in labor productivity growth
GDP Labor force Empoyment Labor productivity
Egypt -2,17 -1,93 -1,89 -0,27
Morocco -0,96 -0,33 -0,99 0,03
Tunisia -2,44 -0,32 -1,11 -1,33
Jordan -3,61 0,03 -0,25 -3,36
2011-2015 comp 2001-2010
Change in growth

11. The post-uprisings period
-2,00
-1,00
0,00
1,00
2,00
3,00
4,00
5,00
GDP Labor force Empoyment Labor
productivity
Growth 2011-2015
Egypt
Morocco
Tunisia
Jordan

12. Growth Prospects (1):
Labor Productivity Growth is main factor
• Need to have at least doubling of labor productivity growth
• The prospects for lower employment growth should open the way for
higher labor productivity growth (observed negative correlation)
• Need more stability and less volatility
-1,50
-1,00
-0,50
0,00
0,50
1,00
1,50
2,00
2,50
3,00
Egypt Morocco Tunisia Jordan
Labor Productivity Growth
1992-2000
2001-2010
2011-2015

13. Growth Prospects (2):
Decomposing Labor Productivity
• Weak TFP growth: associated with weak structural transformation
• Strong Capital deepening impact: associated with strong within
sectoral productivity growth
• Human capital : not discussed here.

14. Growth Decomposition
TFP growth
2000-2010
Contribution
structural
transformation
2000-2010
Contribution
capital
deepening
2000-2010
Contribution
within sector
Prod growth
2000-2010
Egypt
(Morsy)
0,0% -0,8% 1,6% 2,4%
Tunisia
(WB)
1,2% 0,4% 1,1% 2,2%
Morocco 0,7% 2,4%

15. Growth Prospects (3):
Structural Transformation (a)
What scope for a greater contribution to growth?
Share of manufacturing in GDP peaked at around 20-22% and declining:
early de-industrialization has set in!
10,00
12,00
14,00
16,00
18,00
20,00
22,00
24,00
1981-1985 1986-1990 1991-1995 1996-2000 2001-2005 2006-2010 2011-2015
Manufacturing % GDP
Egypt
Jordan
Morocco
Tunisia

16. Growth Prospects (3):
Structural Transformation (b)
How can the New Normal impact the
potential for structural transformation?
Slower global growth driven by demography and slower
productivity growth in advanced countries and China
and changed financial conditions:
Head winds: Less dynamic international trade and
FDI may reduce scope for diversification and
upgrading of exports in emerging economies

17. Growth Prospects (4):
Capital Accumulation (a)
Recent experience
Capital deepening major contributor to labor productivity growth
• Largest contribution in Egypt and Morocco
• Not in Jordan due to high employment growth
• Note on capital stock data: from TED Conference Board.
-1,00
-0,50
0,00
0,50
1,00
1,50
2,00
2,50
Egypt Morocco Tunisia Jordan
Growth 1992-2010
Labor Productivity
Capital deepening
TFP

18. Growth Prospects (4):
Capital Accumulation (b)
Historically low investment rates
• Historically low investment and savings in all countries, e.g.
compared to China
0,00
5,00
10,00
15,00
20,00
25,00
30,00
35,00
40,00
45,00
50,00
EGY JOR MAR TUN ARB CHN
GFCF
1991-95
2006-10
2011-15

19. Growth Prospects (4):
Capital Accumulation (c)
The Moroccan recent experience
Interesting recent Morocco experience:
• Investment surge: investment rate increases + 7-8 points of GDP between
1996-00 and 2006-10, reaching more than 30% for a long period, similar to
« miracle » experiences;
• Capital deepening contribution to labor productivity growth increases from
0 points of percentage of growth during 1996-2000 to 2,8 points during
2006-2010;
• A limited increase in TFP growth from –O,5 to 0,3 points;
• Increase in investment mainly by public sector in infrastructure, investment
by private sector stable: 17% of GDP;
• Not sustainable! Savings did not increase at same rate, Fiscal and BOP
problems.

20. Growth Prospects (4):
Capital Accumulation (d)
How can the New Normal impact capital accumulation?
Slower global productivity growth and trade: no correlation between
global or EU growth and growth in 4 countries
Changed financial conditions with low interest rates and more
volatility: no or weak correlation between savings in Arab countries,
Europe or East Asia on investment in 4 countries of region (weak
impact of EU on Egypt)
Puzzling finding for Morocco: strong effect of savings in East Asia and
Arab countries on investment rate!

21. Growth Prospects (4):
Capital Accumulation (e)
future prospects
Is it possible to expect much higher rates of investment?
Limited impact of global factors and dominance of domestic factors
Lessons from Morocco: possible to increase investment, but by public
sector, not sustainable
Demography: dependency rates
Potential to increase private sector investment rate constrained:
• Attitudes: thrift
• Attitudes: trust
• Regional and domestic political instability

22. Growth Prospects:
Policy agenda for stronger Capital Accumulation
and Structural Transformation
Going beyond crony capitalism to an innovative private sector
Incentive systems which reward performance and innovation
Stronger competition to reduce rents and rent-seeking.