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STABLE ECONOMIC
GROWTH
The year 2006 was marked by some major new developments including a
state visit of the president to the UK, privatization programme
moved ahead with sale of state-owned bank, Credit Populaire
d’Algerie (CPA) and the year also saw a successful repayment of the
country’s foreign debt.
The largest country in the Maghreb, Algeria’s financial and economic
indicators improved during the mid-1990s, in part because of policy
reforms supported by the International Monetary Fund (IMF) and debt
re-scheduling from the Paris Club. Algeria’s finances have benefited
from an increase in oil prices and the government’s tight fiscal
policy, leading to a large increase in the trade surplus and
reduction in foreign debt. The Paris Club agreed that the successful
repayment reflected Algeria’s economic recovery.
Increases in the production and prices of oil and gas over the past
decade have led to exchange reserves reaching $80 billion. The
government began an economic reform programme in 1994, focusing on
macroeconomic stability and structural reform. These reforms aimed
at liberalizing the economy, making Algeria competitive in the
global market, and meeting the needs of the Algerian people. In
2004, the government announced a $55 billion spending programme to
improve national infrastructure and social services; subsequent
announcements have increased the proposed programme to $120 billion.
Economic Overview
Rich in oil and gas, Algeria has benefited from recent high energy
prices. The hydrocarbons sector is the backbone of the Algerian
economy, accounting for roughly 60% of budget revenues, nearly 30%
of GDP, and over 97% of export earnings. Algeria has the
seventh-largest reserves of natural gas in the world (2.7% of proven
world total) and is the second-largest gas exporter; it ranks 14th
for oil reserves (2006).
Its key oil and gas customers are Italy, Germany, France, the
Netherlands, Spain, the United Kingdom, and the United States.
Algeria implemented a stringent macroeconomic stabilization
programme, which has been particularly successful at narrowing the
budget deficit and at reducing inflation from of near-30% averages
in the mid 1990s to almost single digits in 2000.
Algeria’s economy has grown by more than 5% in each of the past five
years, posting 5.6% growth in 2006. The government pledges to
continue its efforts to diversify the economy by attracting foreign
and domestic investment outside the energy sector.
Priority areas are banking and judicial reform, improving the
investment environment, partial or complete privatization of state
enterprises, and reducing government bureaucracy. The government has
privatized certain sectors of the economy and embraced joint venture
investment opportunities with traditionally state owned and operated
entities. In 2001, Algeria concluded an Association Agreement with
the European Union, which was ratified in 2005 by both Algeria and
the EU and took effect in September of that same year. The
government is working toward accession to the World Trade
Organization.
Currently, Algeria is running substantial trade surpluses and
building up record foreign exchange reserves. Oil and gas exports
stood at $51.75bn in 2006 and accounted for 97. 98% of all exports,
according to figures released by the country’s Centre National de l
Informatique et des Statistiques (CNIS).
Investment opportunities are particularly evident in the gigantic
oil and gas industries. Prospects appear even more impressive in gas
with proven reserves of over 4.5 trillion cubic metres, which gives
Algeria the sixth largest reserve in the world. The hydrocarbons
sector in Algeria is characterized by a world-class oil and gas
infrastructure.
The Maghreb’s outlook is certainly a bright one. Reforms undertaken
over the past few years have contributed to macroeconomic stability
and strong economic growth.
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LIBERAL
ECONOMY
Djibouti’s economy depends largely on its proximity to the large
Ethiopian market and a large foreign expatriate community. Its main
economic activities are the Port of Djibouti, the banking sector,
the airport, and the operation of the Addis Ababa-Djibouti railroad.
Since 2001 on, Djibouti became a magnet for private sector capital
investment, attracting inflows that now average more than $200
million. It has also significantly improved its finances,
maintaining reserves, and generating a growth rate in 2006 of
approximately 4.5%. Djibouti has become a significant regional
banking hub, with approximately $600 million in dollar deposits.
Agriculture and industry are little developed, in part due to the
harsh climate, high production costs, unskilled labour, and limited
natural resources. The arid soil is unproductive; 89% is desert
wasteland, 10% is pasture, and 1% is forested. Services and commerce
provide most of the gross domestic product. Djibouti’s most
important economic asset is its strategic location on the busy
shipping route between the Mediterranean Sea and the Indian Ocean.
Roughly 60% of all commercial ships in the world use its waters from
the Red Sea through the Bab-el-Mandeb strait and into the Gulf of
Aden and the Indian Ocean. Its old port is an increasingly important
transshipment point for containers as well as a destination port for
Ethiopian trade.
Djibouti became the only significant port for landlocked Ethiopia,
handling all its imports and exports, including huge shipments of
U.S. food aid in 2000 during the drought and famine. In 2000, Dubai
Ports World took over management of Djibouti’s port and later its
customs and airport operations resulting in significant increase in
investment, efficiency, activity, and port revenues.
The Addis Ababa-Djibouti railroad is the only line serving central
and southeastern Ethiopia. The single-track railway - a prime source
of employment occupies a prominent place in Ethiopia’s internal
distribution system for domestic commodities such as cement, cotton
textiles, sugar, cereals, and charcoal. In March 2006, the
Governments of Ethiopia and Djibouti (which co-own the railway)
selected the South African firm COMAZAR to manage the line. They are
still in negotiations over the management agreement. In addition,
the European Union is considering a $100 million project to upgrade
a portion of the rail line.
Principal exports from the region transiting Djibouti are coffee,
salt, live animals, hides, dried beans, cereals other agricultural
products, and wax. Djibouti itself has few exports, and the majority
of its imports come from France. Most imports are consumed in
Djibouti, and the remainder goes to Ethiopia and northwestern
Somalia. Djibouti’s unfavourable balance of trade is offset
partially by invisible earnings such as transit taxes and harbour
dues. In 2001, U.S. exports to Djibouti totaled $18.7 million, while
U.S. imports from Djibouti were about $1 million.
Banking
and Finance
Djibouti has one of the most liberal economic regimes in Africa,
with almost unrestricted banking and commerce sectors. It has an
expanding financial sector that offers basis for wealth generation.
This has been growing largely as a result of the stable and freely
convertible currency and absence of exchange controls. It is
economically dependent to an overwhelming degree on its position as
a free trade zone and key international transit port for the region.
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TIME FOR
PROFOUND REFORMS
Egypt is one of the largest economies in the Arab world and the
fifteenth most populous country worldwide. It’s rich in resources
and boasts thriving tourism and agricultural sectors. Its natural
resources include oil, natural gas, iron ore, phosphates, manganese,
limestone, gypsum, talc, asbestos, lead and zinc.
Egypt is going through a process of profound reforms, including an
ambitious privatization drive, which is starting to have a
measurable impact on the country’s economic performance and
resulting in increased levels of foreign investment.
In the latter part of 2006, the economy expanded at the rate of 7%
in part due to the global energy price loom, but also as a result of
the country’s broadening economic base and increased domestic and
overseas investment.
The year 2007 was the year of reforms according to the
business-oriented Egyptian government. According to IMF, the economy
was estimated to grow at 5.6% in 2006 and 2007. Appreciation of
Egyptian pound which helped reduce inflation fell considerably in
2006 to 4.1%. The Egyptian pound was allowed to strengthen in 2007,
and will appreciate further in 2008, in order to help stem rising
inflationary pressures. Significant investment’s in the country’s
infrastructure is anticipated through to 2008.
The currency will slowly weaken from 2009, as the Central Bank of
Egypt intervenes in the foreign-exchange market to maintain export
competitiveness.
The government will continue to press ahead with its economic reform
programme. The regime is seeking to foster sustainable economic
growth in order to raise living standards and generate employment.
Developing the private sector and deepening financial markets will
continue to be key elements of the process.
Economic growth is forecast to average 6.2% a year, slightly below
the growth rate recorded in recent years. This rate of robust
economic growth should continue to deliver steady, albeit
unspectacular, increases in employment. The current account will
remain in surplus, as services surpluses from tourism and Suez Canal
receipts will just offset Egypt’s large trade deficit.
In the past year, the cabinet economic team has simplified and
reduced tariffs and taxes, improved the transparency of the national
budget, revived stalled privatizations of public enterprises and
implemented economic legislation designed to foster private
sector-driven economic growth.
Despite these achievements, the economy is still hampered by
government intervention and bloated public-sector payrolls.
Moreover, the public sector still controls most heavy industry.
In sectoral terms, agriculture is mainly in private hands, and has
been largely deregulated, with the exception of cotton and sugar
production. Construction, non-financial services, and domestic
marketing are also largely private.
The important textile sector has a turnover of more than $3 billion.
Agriculture contributes nearly 14% to the GDP. With regards to the
country’s manufacturing industry, the food processing sector has
developed considerably and now contributes 17% to the GDP.
The Egyptian economy, however, relies heavily on tourism, oil and
gas exports, and Suez Canal revenues, much of which is controlled by
the public sector. The oil and gas sector accounts for approximately
12% of the GDP. Egypt’s export sectors, particularly its natural gas
industry – can look to very bright prospects ahead.
The vital contribution of the 173km Suez Canal to the national
income of the country is enormous.
Banking and Financial Sector:
Significant reforms in the banking and finance sector are also being
implemented. Banking is currently experiencing strong restructuring
with mergers of smaller banks and the provision of non-performing
loans through the establishment of credit bureaus. Egypt is now
committed to privatising public banks and disposing of its stakes in
joint venture banks.
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ON THE ROAD TO STABILITY
Historically, Iraq’s economy was characterised by a heavy dependence
on oil exports. But the Iran-Iraq war depleted Iraq’s foreign
exchange reserves, devastated its economy, and left the country
saddled with a foreign debt of more than $40 billion. After
hostilities ceased, oil exports gradually increased with the
construction of new pipelines and the restoration of damaged
facilities.
Iraq’s invasion of Kuwait in August 1990, subsequent international
sanctions, damage from military action by an international coalition
and neglect of infrastructure further reduced the economic activity.
The drop in GDP in 2001-02 was largely the result of the global
economic slowdown and lower oil prices. Per capita food imports
increased significantly. The occupation of the U.S.-led coalition in
2003 resulted in the shutdown of much of the central economic
administrative structure. The rebuilding of oil infrastructure,
utilities infrastructure, and other production capacities has
proceeded steadily since 2004 despite attacks on key economic
facilities and continuing internal security incidents. Despite
uncertainty, Iraq is making progress toward establishing the laws
and institutions needed to implement economic policy.
Iraq is entering a crucial period in its economic recovery. The
country’s economy is dominated by the oil sector, which has
traditionally provided about 95% of foreign exchange earnings.
Current estimates show that oil production averages 2.1million
bbl/day.
The Iraqi Government is seeking to pass and implement laws to
strengthen the economy, including a hydrocarbon law to encourage
development of this sector, a revenue sharing law to equitably
divide oil revenues within the nation in line with the Iraqi
constitution.
Inflation has remained high due to the prevailing difficult security
situation and supply disruptions. The IMF is advising Iraq on its
spending priorities stating that fiscal policies on current spending
should be kept in check. Controlling inflation, reducing corruption,
and implementing structural reforms such as bank restructuring and
private sector development will be essential to Iraq’s economic
growth.
Foreign assistance has been an integral component of Iraq’s
reconstruction efforts. In December 2007, the International Monetary
Fund (IMF) agreed to renew a Stand-By Arrangement (SBA) for Iraq,
which provides a credit line to the Iraqi government of up to $744
million if needed.
The SBA also requires Iraq to undertake some economic policy
reforms. If Iraq fulfills the terms of the SBA, the country will
receive the final stage of Paris Club debt reduction. The new SBA
lasts for 15 months, through March 2009; the previous SBA began
December 2005 and ended December 2007.
In July 2006, the Government of Iraq and the UN began work to
formulate the International Compact with Iraq (ICI), a five-year
framework for Iraq to achieve economic self-sufficiency within its
region and the world.
The Compact domestically aims to work around the government’s
political and economic programme to restore the Iraqi people’s trust
in the state and its ability to protect them and meet their basic
needs. Internationally, the Compact establishes a framework of
mutual commitments to provide financial and technical assistance and
debt relief needed to support Iraq and strengthen its resolve to
address critical reforms and policies.
Iraq has also issued an appeal for potential international partners
to come forward with proposals for the industrial sector before
offering shares to the state-owned firms. The measure is part of its
privatisation plan with a vision to move towards a free-market
economy and end the government monopoly.
The ministry is also developing a 14-year investment plan for the
petrochemicals sector. The plan calls for rehabilitating existing
petrochemicals and fertiliser complexes by 2008 and introducing new
technology to the plants by 2012.
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PROMISING ECONOMIC GROWTH
Jordan’s efforts to build a modern and vibrant economy began under
HM the late King Hussein, and have been consolidated and accelerated
by HM King Abdullah II. During the last decade, Jordan’s economy has
been making steady progress through the implementation of
comprehensive economic reforms and restructuring programmes
supervised by the IMF and the World Bank. Furthermore, the
Government of Jordan has embarked on an aggressive reform strategy
reposition Jordan as a competitive player within the global economy.
Jordan is a small country with limited natural resources. Since
early 2003, Jordan has imported oil primarily from Saudi Arabia. In
addition, a natural gas pipeline from Egypt to Jordan through the
southern port city of Aqaba is now operational. The pipeline has
reached northern Jordan and construction to connect it to Syria and
beyond is underway. Jordan developed a new energy strategy in 2007
that aims to develop more indigenous and renewable energy sources,
including oil shale, nuclear energy, wind, and solar power.
Under King Abdullah, Jordan has undertaken a programme of economic
reform. The government has taken the initiative for the phased
elimination of fuel subsidies. In recent years, Jordan has also
worked to liberalize trade, joining the World Trade Organization (WTO),
signing an Association Agreement with the European Union (EU), and
signing the first bilateral Free Trade Agreement (FTA) between the
United States, Arab countries and Singapore.
The US-Jordan FTA will phase out duties on nearly all goods and
services by 2010. The agreement also provides for more open markets
in communications, construction, finance, health, transportation,
and services, as well as strict application of international
standards for the protection of intellectual property.
Jordan exported $6.9 million in goods to the U.S. in 1997, when
two-way trade was $395 million; according to the U.S. International
Trade Commission, it exported $1.33 billion in 2007, with two-way
trade at $2.19 billion. In 2007, Jordan’s economy continued to grow
but was hurt by high oil prices, leading to an unexpectedly high
budget deficit. Fuel subsidies were eliminated in 2008, and barley
subsidies are scheduled to be replaced by a programme that offsets
livestock rather than feed costs.
The United States and Jordan also signed in 2007 a Science and
Technology Cooperation Agreement to facilitate and strengthen
scientific cooperation between the two countries, as well as a
memorandum of understanding on nuclear energy cooperation. Such
agreements bolster efforts to help diversify Jordan’s economy and
promote growth, and at the same time lessen reliance on exports of
phosphates, potash, and recently textiles; overseas remittances; and
foreign aid. The low tax and low regulation Aqaba Special Economic
Zone (ASEZ) is considered a model of a government-provided framework
for private sector-led economic growth.
One of the most important factors in the government’s efforts to
improve the well-being of its citizens is the macroeconomic
stability that has been achieved since the 1990s. The rate of
inflation in 2007 was 5.7%; the currency has been stable with an
exchange rate fixed to the U.S. dollar since 1995 at JD 0.708-0.710
to the dollar. In 2007, Jordan negotiated a Paris Club debt buyback
agreement to retire at least $2 billion. This buyback will reduce
the percentage of external debt to GDP from 46% to 32%.
As an emerging market, Jordan offers great development potential and
promising economic growth. With its competitive advantages, Jordan
is an ideal springboard for access to regional and international
markets.
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HEADING TOWARDS
RECOVERY
Lebanon has a free-market, primarily a service-economy with services
sectors accounting for approximately 70 % of the country’s GDP; main
growth sectors include banking and tourism. According to the
Lebanese Ministry of Economy and Trade, Lebanon posted 5% real
growth in 2004, with inflation running at 3%. There are no
restrictions on foreign exchange or capital movement and practically
no restrictions on foreign investment; however, the investment
climate suffers from red tape, corruption, arbitrary licensing
decisions, high taxes, tariffs, and fees, archaic legislation, and a
lack of adequate protection of intellectual property.
Lebanon embarked on a massive reconstruction programme to rebuild
the country’s physical and social infrastructure devastated by both
the long civil war (1975-90) and the Israeli occupation of the south
(1978-2000).
The government passed an Investment Development Law, signed the
Euro-Med Partnership Agreement with the European Union (EU) in March
2003, and worked toward accession to the World Trade Organization (WTO).
The negative impact of the 2006 war had a profound effect on the
economic results for 2007. Lebanon’s Finance Ministry estimated its
losses at nearly $1billion as a result of the eight-week war and
blockade. The budget deficit jumped to 40.54 percent of total
spending in 2006, compared to a deficit of 30.83 percent in 2005.
Infrastructure damage from the conflict was estimated at around $2.8
billion. Real GDP, which was expected to grow by 5-6 % in 2006, is
estimated to have contracted by around 5 %, which implies a loss of
income of over $2bn. Much productive capacity was lost and there has
also been a massive displacement of the population, including the
exodus of many professionals. Accordingly, the cost in terms of
foregone economic activity and income are likely to stretch well
beyond 2006.
The fiscal outlook for 2007 looked similarly difficult owing to the
residual budgetary costs of the war and the slow recovery of the
revenue base.
Banking and Finance
The Lebanese banking system once again proved resilient, and by end
of 2006, all of the deposits lost during the conflict had been
recovered. The ample liquidity cushion maintained by the central
bank and commercial banks going into the war played an important
role in preserving depositor confidence and the prompt financial
support of Saudi Arabia and Kuwait in placing deposits of $1.5
billion at the central bank early on in the conflict.
The International Monetary Fund (IMF) agreed to initiate a
Post-Conflict Programme and to assign a team to Lebanon to provide
technical assistance, to monitor the progress of reforms, and to
advise on international donors on the timing of aid delivery.
Plans for a new financial law to establish a capital market
authority are in progress with the Parliament and banking sector
reviewing the proposed new law. The new regulatory body is to take
over the oversight of the stock market currently performed by
central bank Banque du Liban. The new body will also seek to further
develop the equity and debt markets.
Banking plays a sizeable role in the Lebanese economy, with a
value-added estimated at 4.5% of the GDP in 2003. Privatization is a
key element of Lebanon’s overall economic strategy.
The UK is currently the sixth largest exporter to Lebanon, with UK
exports of goods valued at £212m in 2005.
The U.S. enjoys a strong exporter position with Lebanon, generally
ranking as Lebanon’s fifth-largest source of imported goods. More
than 160 offices representing U.S. businesses currently operate in
Lebanon. Since the lifting of the passport restriction in 1997, a
number of large U.S. companies have opened branch or regional
offices, including Microsoft, American Airlines, Coca-Cola, FedEx,
UPS, General Electric, Parsons Brinkerhoff, Cisco, Eli Lilly, and
Pepsi Cola.
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SEEKING FOREIGN INVESTMENT
Libya one of the largest countries of North Africa represents an
emerging market in close proximity to Europe. Concerning its
economy, Libya is making positive progress in integrating itself
within the global trading system embarking on a major economic
programme of development.
The country is a major producer of light crude oil. Libya is
currently going through a protracted reform process to radically
upgrade its industries, infrastructure, public services and methods
of doing business.
The government dominates Libya’s socialist-oriented economy through
complete control of the country’s oil resources, which account for
approximately 97% of export earnings, 75% of government receipts,
and 54% of the gross domestic product. Oil revenues constitute the
principal source of foreign exchange. Much of the country’s income
has been lost to waste, corruption, conventional armaments
purchases, and attempts to develop weapons of mass destruction, as
well as to large donations made to developing countries in attempts
to increase Qadhafi’s influence in Africa and elsewhere. Although
oil revenues and a small population give Libya one of the highest
per capita GDPs in Africa, the government’s mismanagement of the
economy has led to high inflation and increased import prices. These
factors resulted in a decline in the standard of living from the
late 1990s through 2003.
The government will continue in its efforts to encourage foreign
companies to invest in Libya, but will be noticeably successfully
only in the hydrocarbons sector. In part this will reflect its
determination to require foreign businesses in the country to hire
more Libyan workers.
Despite efforts to diversify the economy and encourage private
sector participation, extensive controls of prices, credit, trade,
and foreign exchange constrain growth. Import restrictions and
inefficient resource allocations have caused periodic shortages of
basic goods and foodstuffs.
Although agriculture is the second-largest sector in the economy,
Libya imports most foods. Climatic conditions and poor soils
severely limit output, while higher incomes and a growing population
have caused food consumption to rise. Domestic food production meets
about 25% of demand.
Economic growth will be strong based largely on rising output in the
hydrocarbons sector. This will be supported by increasing
investment, especially from abroad as Libya seeks to exploit its
hydrocarbons potential and aims to overhaul its dilapidated
infrastructure after decades of sanctions. After years of falling
prices, the strong economic environment is likely to keep inflation
at around 3%.
The fiscal and current accounts will remain comfortably in surplus
over the forecast period, as export volumes rise. However, with both
fiscal expenditure and the import bill set to increase rapidly, as
economic and infrastructure redevelopment continue apace, the fiscal
and current-account surpluses are expected to narrow over. In 2011
both the fiscal and the current-account surpluses will begin to
widen again, as oil prices increase.
The government has announced ambitious plans to increase foreign
investment in the oil and gas sectors to significantly boost
production capacity. The government is also pursuing a number of
infrastructure projects such as highways, railways,
telecommunications backbones, and irrigation.
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SERVICE SECTOR DRIVES ECONOMY
As a result of the relatively subdued economic growth, inflation
remains in single digits at 6% in 2008 and 5.8% in 2009. With the
real GDP reaching just 1.5% in 2007 before rising on the back of an
expansion in the mining and construction sectors to 6% in 2008 and
5.3% in 2009.
The government published a new poverty reduction strategy paper (PRSP)
for 2006-10, which aims to reduce the proportion of the population
who live below the poverty line from 47% in 2004 to 35% in 2010.
The democratisation process that brought Sidi Mohamed Ould Cheikh
Abdallahi to the presidency in 2007 has been praised, but the new
regime is still in its early stages and is expected to face mounting
political and economic challenges. Despite the change in political
leadership, the new administration will use the PRSP on the basis
for its development policies. The shorter-term macroeconomic policy
framework will be based around objectives set out in the three-year
poverty reduction and growth facility agreed with the IMF in
December 2006.
Although oil production will remain depressed, real GDP growth is
forecast to accelerate to 4% in 2008 and 5% in 2009, supported
largely by increasing activity in the mining and construction
sectors. High international prices for cereal and oil will continue
to generate inflationary pressure, which is expected to average 7%
in 2008 and 5% in 2009.
The technical difficulties that have affected the development of the
Chinguetti oilfield will persist, and oil output is forecast to
remain stable, at around 15,000 barrels/day (b/d) in 2008, before
increasing slightly to 18,000 b/d in 2009 as investment in new wells
increases production. The world GDP growth estimated (on a
purchasing power parity basis) will fall to 4.6% in 2008 and 4.7% in
2009. Growth in the EU, Mauritania’s main trading partner will
remain below the global level and is expected to slow from 2.7% in
2007 to 2.1% in 2008 and 2.3% in 2009.
Global demand for iron is expected to remain high in 2008 and as a
result, prices will rise to US$93.2/ tonne. However, increases in
supply will see a fall in the price to US$83.9/ tonne in 2009.
Economic Growth
Activity in the construction sector has been below expectation in
the first half of 2007, but been predicted to pick up in 2008, owing
to new momentum in donor-funded infrastructure projects. Despite the
negative effect that rising oil prices will have on transport
activities, the services sector will continue to be one of the main
engines of growth. Overall, real GDP growth will increase to 6% in
2008 and 5.3% in 2009 as economic activity picks up in the non-oil
sector. Although oil production and revenue will be lower, oil
receipts will continue to inject new funds into the country’s
banking sector combined with revenue from new mining projects which
will lead to an expansion in money supply that will create
inflationary pressures in 2008-09. Inflation is expected to average
6% in 2008 and 5.8% in 2009.
A widening of the Mauritanian current-account deficit will lead to a
decline in the value of the ouguiya to an average of UM260: US$1 in
2008 and will fall further to UM273: US$1 in 2009 as the dollar
weakens on international markets. The current account-deficit is
expected to be 11% of GDP in 2008, before rising to 12.1% of GDP in
2009.
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SEEKING TO
DIVERSIFY ECONOMY
Macroeconomic stability, coupled with low inflation and relatively
slow economic growth, has characterised the Moroccan economy over
the past several years. The government continues to pursue reform,
liberalisation, and modernisation aimed at stimulating growth and
creating jobs.
Morocco’s primary economic challenge is to accelerate growth in
order to reduce high levels of unemployment. While overall
unemployment stands at 7.7%, this figure masks significantly higher
urban unemployment, as high as 33% among urban youths.
Through a foreign exchange rate anchor and well-managed monetary
policy, Morocco has held inflation rates to industrial country
levels. Despite criticism among exporters that the dirham has become
badly overvalued, the country maintains a current account surplus.
The combination of strong foreign exchange reserves and active
external debt management gives Morocco ample capacity to service its
debt. Current external debt stands at about $17.9 billion.
The political environment is expected to remain broadly stable, but
the prospect of extensive social unrest, especially over price
rises, cannot be ruled out. The government continues to implement
measures to improve the country’s infrastructure.
The current government is continuing a series of structural reforms
begun in recent years. The most promising reforms have been in the
labour market and financial sectors and privatisation.
Morocco also has liberalised rules for oil and gas exploration and
has granted concessions for many public services in major cities.
Many believe, however, that the process of economic reform must be
accelerated in order to reduce urban unemployment.
Economic growth has been hampered by an over-reliance on the
agriculture sector. Agriculture production is extremely susceptible
to rainfall levels and ranges from 15% to 20% of GDP. Given that
almost 40% of Morocco’s population depends directly on agriculture,
droughts have a severe negative effect on the economy.
The bilateral Free Trade Agreement (FTA) between the United States
and Morocco in 2006 allowed elimination of tariffs on 95% of
bilateral trade in consumer and industrial products with all
remaining tariffs to be eliminated within nine years. The
negotiations produced a comprehensive agreement covering not only
market access but also intellectual property rights protection,
transparency in government procurement, investments, services, and
e-commerce. The FTA provides new trade and investment opportunities
for both countries and will encourage economic reforms and
liberalisation already underway.
The government will make some advances with economic reform, with
little progress due to limited resources, inefficient bureaucracy,
nepotism and corruption. Although economic activity will continue to
be intermittently hindered by the performance of the agricultural
sector, largely owing to periodic droughts, overall annual GDP
growth during the forecast period should be in the range of 4.6%.
This represents an improvement over historical growth rates, but is
still below the 7-10% levels that are widely regarded as necessary
to have a major impact on poverty and unemployment.
Consumer price inflation will continue to be partly suppressed by
extensive government subsidies on basic goods, albeit a cost to the
budget. Nonetheless continued international oil price strength will
add to costs in Morocco, a net fuel importer. An unexpected
moderation of international non-oil commodity prices in 2010 should
partly mitigate imported inflation, but higher international
commodity prices or further bad harvests would pose upside risks.
The government is expected to start to liberalise the exchange rate
from 2009, which should boost export competitiveness. Rising
exports, remittances and service credits will offset an expected
rapid increase in the import bill and the current account is
expected to record surpluses from 2010.
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BOOMING OIL EXPORTS
Sudan’s economy is booming on the back of increases in oil
production, high oil prices, and large inflows of foreign direct
investment. GDP growth registered more than 10% per year in 2006 and
2007.
Sudan’s primary resources are agricultural, but oil production and
export have taken on greater importance. Sudan remains a net
importer of food. Problems of irrigation and transportation remain
the greatest constraints to a more dynamic agricultural economy.
Sudan’s limited industrial development consists of various light
industries located in Khartoum North. Although Sudan is reputed to
have great mineral resources, exploration has been quite limited.
Despite continued inflows of foreign direct investment and aid
inflows from Asia and the Gulf countries, Sudan’s current-account
deficit will widen further, to an average of 13% of GDP in 2008-09.
The humanitarian crisis in Darfur, exacerbated by growing tensions
in other areas of the country, will continue to complicate Sudan’s
international position in 2008-09.
Sudan’s leadership is keen to bolster its domestic position,
especially in the context of forthcoming elections in 2009. The
country continues to face a daunting task of countrywide
reintegration, regeneration and reconstruction, especially in remote
rural areas. These trends may prevent Sudan from achieving the goals
set out in its long-standing IMF reform programme, which in theory
commits it to reducing poverty by seeking to promote economic growth
against a background of macroeconomic stability.
Historically, the U.S; Netherlands; Italy; Germany; Saudi Arabia;
Kuwait and other Organisation of Petroleum Exporting Countries
(OPEC) have supplied most of Sudan’s economic assistance. Sudan’s
role as an economic link between Arab and African countries is
reflected by the presence in Khartoum of the Arab Bank for African
Development. The World Bank had been the largest source of
development loans.
Global economic growth which the Economist Intelligence Unit
estimates will have reached 5.1% in 2007 is forecast to decline to
around 4.8% in 2008 and further to 4.5% in 2009. The average price
of benchmark dated Brent Blend is estimated to have risen to US$ 70
barrel in 2007 is forecast to remain at similar level in 2008. OPEC
will also seek to keep prices relatively high through output
constraints.
Sudan produces about 401,000 barrels per day (b/d) (2005 est.) of
oil, which brought in about $1.9 billion in 2005 and provides 70% of
the country’s total export earnings.
The real GDP growth is estimated to have risen to around 13.3% in
2007, boosted by rising export volumes caused by the coming on
stream of new oil capacity. Oil will remain the principal driver of
economic growth in Sudan. Private consumption will continue to rise
strongly on the back of economic boom led by strong oil revenue.
Government consumption is projected to increase more rapidly as
commitments to promote regional economic development and
preparations for the 2009 elections.
The slower rate of increase in Sudan’s oil output is projected to
combine with ongoing strong demand for imports to bring real GDP
growth down to a healthy annual average of around 7% in 2008-09.
Consumer price reached around 9.4% early 2007 according to
provisional figures from the Bank of Sudan (the central bank) as the
dinar stabilized against the US dollar, prices will continue to rise
strongly and inflation is estimated to average around 8% in 2008-09.
However, China has become Sudan’s largest investor financing part of
a major economic boom in exchange exporting one-third of the oil
output.
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IMPORTANT PERIOD OF
TRANSITION
Syria is a middle-income, developing country with an economy based
on agriculture, oil, industry, and tourism. However, Syria’s economy
faces serious challenges and impediments to growth, including: a
large and poorly performing public sector; declining rates of oil
production; widening non-oil deficit; weak financial and capital
markets; and high rates of unemployment tied to a high population
growth rate.
As a result of an inefficient and corrupt centrally planned economy,
Syria has low rates of investment and low levels of industrial
productivity. Its GDP growth rate was approximately 2.9% in 2005,
according to IMF statistics. Agriculture, accounts for 25% of GDP.
The government hopes to attract new investment in the tourism,
natural gas, and service sectors to diversify its economy and reduce
its dependence on oil and agriculture. The government has begun to
institute economic reforms aimed at liberalising most markets.
Privatisation of government enterprises is explicitly rejected;
hence major sectors of the economy remain firmly controlled by the
government.
The Bashar al-Asad government started its reform efforts by changing
the regulatory environment in the financial sector. Although Syria
legalised private banking, controls on foreign exchange continue to
be one of the biggest impediments to the growth of the banking
sector. Syria’s exchange rate is fixed, and the government maintains
two official rates; one rate on which the budget and other official
transactions are based, and a second set by the Central Bank on a
daily basis that covers all other financial transactions. However,
black market for foreign currency is still active.
In addition, Syria failed to join an increasingly interconnecting
global economy. Syria has signed a free trade agreement with Turkey,
which came into force in January 2007, and initialed an Association
Agreement with the EU, which has yet to be signed.
Earnings from oil exports as well as remittances from Syrian workers
are the government’s most important sources of foreign exchange.
Experts generally agree that Syria will become a net importer of
petroleum not later than 2012. Syria exported roughly 200,000 bpd in
2005, and oil still accounts for a majority of the country’s export
income. Syria also produces 22 million cubic meters of gas per day,
with estimated reserves around 8.5 trillion cubic feet. While the
government has begun to work with international energy companies in
the hopes of eventually becoming a gas exporter, all gas currently
produced is consumed domestically.
Government officials acknowledge that the economy is not growing at
a pace sufficient to create enough new jobs annually to match
population growth. The UNDP announced in 2005 that 30% of the Syrian
population lives in poverty and 11.4% live below the subsistence
level. Syria has made progress in easing its heavy foreign debt
burden through bilateral rescheduling deals with its key creditors
in Europe.
Currently Syria is going through an important period of transition
as it undertakes a drive for reform that is embracing all areas of
its economy. Only recently Syria is witnessing greater transparency
in decision making seeing the adoption of modern business procedures
and undergoing a major restructuring of leading enterprises.
Banking and financial services have entered a process of
transformation and new measures in other sectors are being applied
in education, industry, health and the legal system. Key priorities
for Syria are to adopt a monetary policy, diversify the productive
base of its economy and attract more foreign investment.
Syria is aware of the need to generate new revenue sources as it is
endowed with only limited oil reserves which are likely to be
exhausted in the next two decades. Syria’s latest economic plan
which covers the period 2006-2010 was drawn up following an
extensive consultation process with wide sections of civil society
and the private sector.
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BANKING ON EDUCATION
Tunisia’s economy has emerged from rigid state control to mostly
liberalised. Tunisia now, has a diverse economy with agricultural,
mining, energy, textiles, and tourism and manufacturing sectors.
Manufacturing industries, producing largely for export, are a major
source of foreign currency revenue. Industrial production represents
about 28% of GDP and primarily consists of petroleum, mining
(particularly phosphates), textiles, footwear, food processing, and
electrical and mechanical manufactures. Textiles are a major source
of foreign currency revenue, with more than 90% of production being
exported.
Tourism is a huge source of foreign exchange too, representing about
20% of hard currency receipts. In 2006, 6.5 million tourists visited
Tunisia. Over the past five years, remittances from abroad averaged
1.61 million dinars (approximately 1.21 million USD) a year.
Domestic crude production is approximately 112,000 barrels per day.
Proven reserves are in the region of 300 million barrels. Tunisia
has one oil refinery in Bizerte on the north coast. Natural gas
production is currently about 3 million tons oil equivalent. Proven
reserves are about 2.8 trillion cubic feet, two-thirds of which are
located offshore. British Gas is the major developer of the natural
gas industry, and the largest foreign investor.
Economically and commercially, Tunisia is very closely linked to
Europe. Tunisia signed an Association Agreement with the European
Union (EU), which went into effect on January 1, 2008. The agreement
eliminates customs tariffs and other trade barriers.
EU member states also provide the bulk of foreign direct investment
(FDI). In May 2006 the Government of Tunisia announced that overall
its privatization programme had raised $1.9 billion, of which $1.4
billion was foreign capital.
The government still retains control over certain “strategic”
sectors of the economy (finance, hydrocarbons, aviation, electricity
and gas distribution, and water resources) but the private sector is
playing an increasingly important role. Tunisia is a founding member
of the World Trade Organization (WTO).
Banking Sector
Tunisia’s fiscal conservatism have earned it investment grade
ratings from a number of international institutions, although
Standard and Poor has noted that ratings on Tunisia are constrained
by its highly centralized political system and hence the need for
further structural reforms.
The Central Bank is moving from direct management of the financial
sector towards a more traditional supervisory and regulatory role.
Commercial banks are permitted to participate in the forward foreign
exchange market. The dinar is convertible for current account
transactions but some convertible dinar/foreign exchange account
transactions still require Central Bank authorization. The dinar is
traded on an intra-bank market. Trading operates around a managed
float established by the Central Bank (based upon a basket of the
Euro, the U.S. Dollar and the Japanese Yen). The stock exchange
remains under the supervision of the state-run financial market
council.
Tunisia has a relatively well-developed infrastructure that includes
six commercial seaports and six international airports.
Average annual income per capita in Tunisia is approaching $3000.
Tunisia’s goal of pushing per capita incomes into the middle
emerging market level calls for an average 6-7% growth rate instead
of 4-5%. In 2006, GDP growth was 5.2 %, but inflation spiked to 4.5
%, from 2 % the year before. Tunisia has invested heavily in
education and the number of students enrolled at university has
soared from 41,000 in 1986 to over 360,000. Providing jobs for these
highly educated people represents a major challenge for the
Government of Tunisia.
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ECONOMIC REFORMS
IMPLEMENTED
Yemen is currently making strides in economic transformation as it
moves to integrate within the world trading system. The oil and gas
sector remains the largest economic sector, accounting for around
30% of GDP, 23.6% of Government revenues and some 85% of the
country’s exports, according to IMF statistics. Yemen’s known oil
reserves are estimated around 2.5 billion barrels.
In addition, Yemen possesses mineral deposits of gypsum, granite,
marble, quartz, gold, zinc, lead, copper, iron and other minerals.
Total reserves of granite and marble alone are estimated to be 1.7
billion tonnes.
Yemen’s economy is highly dependent on oil production with the
country’s oil exports accounting for 70% of government revenues.
Yemen plans to invest some $12,600 bn on projects to boost the GDP
growth by more than 7% a year. Further economic reforms are being
implemented by Government to encourage foreign investment.
The government will seek to reform the business environment, in
particular the financial sector. With the country’s oil reserves
being steadily depleted, it will seek to quicken the pace of
exploration in unexplored areas, while working to diversify the
economy.
Yemeni economic growth is expected to strengthen slightly as work
begins on new projects financed by both the government and the
London donor conference contributors. In addition, a large project
to construct two liquefied natural gas trains and plans to upgrade
and build new refineries should also boost investment growth.
The real GDP growth is to remain well short of the 7.1% target,
although it is expected to accelerate from an estimated 2.6% in 2006
to an average of 3.2% in 2007-08.
The World Bank also is present in Yemen, with 19 active projects in
2005, including projects in the areas of public sector governance,
water, and education.
Oil production was expected to decline in 2007 due to dwindling
reserves. Oil located near Marib contains associated natural gas.
Proven reserves of 10-13 trillion cubic feet could sustain a
liquefied natural gas (LNG) export project. A long-term prospect for
the petroleum industry in Yemen is a proposed liquefied natural gas
project (Yemen LNG), which plans to process and export Yemen’s 17
trillion cubic feet of proven associated and natural gas reserves.
In 2005, Yemen LNG signed two agreements for the sale of 4.5 metric
tons per year, the majority of which will be exported to the United
States and South Korea. Construction on the LNG export facility
began in September 2005, and it is expected to begin exporting in
2009.
With regards to oil sector in 2006, exports reached around 330,000
barrels per day (bbl/d), primarily to Asian markets. Yemen is small,
non-OPEC oil producer with proven crude oil reserves of 4 billion
barrels in 2006. High oil prices have also increased the country’s
expenditures on petroleum product subsidies, costing hundreds of
millions of dollars per year.
The rise in oil prices in 2007 offset declining oil production,
pushing total export earnings up by over 4% to US$7.6bn. However,
with oil output expected to fall next year, there is a possibility
that export earnings will decline slightly in 2008, to US$7.3bn.
Import spending is expected to grow strongly, reflecting Yemen’s
reliance on foreign capital goods for its gas and infrastructure
programmes, and rising international non-commodity prices in 2007.
This will drive up the import bill from US$4.7bn in 2006 to US$5.5bn
in 2008. As a result, the trade surplus remained steady in 2007 at
US$2.5bn, or 11.6% of GDP before narrowing to US$1.9bn in 2008.
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STRIVING TO REVIVE
BANKING SECTOR
The military intervention in Gaza during June to August 2006
inflicted damage to Palestine economy estimated by UNDP at $46
million across the various sectors. Initial damage assessed per
sector was $8 million to municipal infrastructure; $8 million to
energy; $23.5 million to agriculture; and $2 million to housing; and
$4.2 million to public buildings.
The Palestinian Authority (PA) is implementing prudent fiscal
policies and reforms in the context of an ambitious budget for 2008.
A strict government employment policy has been followed and utility
subsidies are being reduced. The Public Financial Management System
(PFMS) has also been strengthened, which will help control non-wage
spending. The 2008 budget builds on this progress and targets a
reduction of the recurrent deficit from 27 % of GDP in 2007 to 22 %
of GDP in 2008. It is considered that the reforms undertaken so far,
and the 2008 budget, represent a significant stride toward fiscal
sustainability.
While the Palestinian economy has fared better since the
re-engagement of the international community in mid-2007, it remains
constrained by Israeli restrictions on movement and access. Real GDP
in the West Bank and Gaza is estimated to have contracted by about
5% in 2006, with a further contraction in the first half of 2007.
The Palestinian government was confronted with a severe fiscal
crisis in 2006 mainly as a result of the imposition of sanctions
following the elections. Resources to fund the government’s
recurrent expenditures fell sharply.
The shortfall in resources was mainly the result of a sharp decline
in the Palestine Authority (PA’s) revenues. Out of an estimated $730
million in clearance revenues collected, preliminary estimates
suggest that only about $270 million was directly or indirectly
available to fund government spending. Reportedly, a significant
part of tax revenues was withheld by banks to help cover the
government’s debt servicing obligations.
According to the United Nations Development Programme (UNDP), as of
mid-2007, about 70% of households in Gaza and 56% in the West Bank
live below the poverty line. Inflation has risen reaching 11% up to
March 2008 from 4% in September 2007. The rise in Gaza was (16 %)
and in the West Bank (9%).
However, the banking sector demonstrated a significant advance when
Ramallah-based Arab Islamic Bank announced establishing its first
takaful company in Palestine. The company has already received 25%
of the required capital.
While bank deposits continued to grow, credit contracted. Deposits
increased by 4% in real terms in the year to December 2007, raising
the deposits-to-GDP ratio to about 90%. The growth in deposits
reflects continued deepening in bank intermediation and remittances
from the Palestinian Diaspora. However, total credit declined by 21%
in real terms in the West Bank and Gaza, with the decline more
pronounced in Gaza (47%) than in the West Bank (12%), reflecting
Gaza’s more depressed investment conditions. Some risks to banks’
balance sheets persist, due in particular to Gaza’s isolation and
its likely adverse impact on asset quality.
The Palestinian Monetary Authority (PMA) has stepped up
institutional reforms coordinating closely with the Bank of Israel (BoI)
to ensure continued smooth relations between Israel and West Bank
and Gaza. With substantial support from the IMF and World Bank, the
PMA has made considerable progress on internal reform capacity
building.
The total amount pledged at the December’s 2007 Paris donor’s
conference for 2008-10 at $7.7 billion, is significantly above the
Palestinian Reform and Development Plan (PRDP). For 2008, the
amounts disbursed are adequate to cover recurrent financing needs
for the first half of the year. However, adequate and timely
disbursements from donors and close coordination with the PA are
essential to prevent liquidity problems.
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DIRECTORY
OF ARAB BANKS & FINANCIAL INSTITUTIONS |
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