Typical street scene in Santa Ana, El Salvador. (Photo: iStock)
IMF Survey: Fresh Impetus Toward Maghreb Integration
September 12, 2007
- Maghreb region is growing at average 5 percent a year
- Trade and financial sector reforms are first steps in regional integration strategy
- Countries are focusing on role of private sector in growth, poverty reduction
The Maghreb region of northern Africa is enjoying broadly stable macroeconomic conditions and increasing prosperity.
Market stall in Marrakech, Morocco—one of Maghreb countries aiming to improve business conditions, foster private investment (photo: Marijan Murat/DPA)
EMERGING MARKET ECONOMIES
But per capita incomes are still below the levels in other emerging market economies. In addition to trade facilitation and financial integration, the region needs to make the private sector an engine for growth.
The Maghreb countries are preparing to give a new push toward regional integration at a conference in November to promote the private sector's role in generating growth. The conference, the third in a series aimed at fostering greater ties among the five Maghreb countries—Algeria, Libya, Mauritania, Morocco, and Tunisia—will seek ways to strengthen the business environment and foster private investment. The first two conferences covered trade integration and financial integration.
The five Maghreb countries are economically diverse and bound by a common heritage. They are at various stages of economic development and have different endowments of natural resources.
They can be broadly classified into three groups: major oil producers (Algeria and Libya), a low-income country that recently became an oil producer (Mauritania), and two emerging market countries (Morocco and Tunisia). Together, they form a bloc of more than 83 million people, populating an area roughly 50 percent larger than the European Union.
All five countries have undertaken important reform efforts over the past two decades and have made strides toward economic prosperity in recent years. The region enjoys broadly stable macroeconomic conditions (see table), and per capita incomes are on the rise.
In addition to ongoing reforms, the region's increasing openness—including in the context of separate agreements between the European Union and Algeria, Morocco, and Tunisia—has been a key factor behind these favorable developments.
More to be done
Although policies that favor private initiative and investment are starting to bear fruit in the Maghreb countries, per capita income growth still lags behind that in other emerging market economies. The region's leaders, exploring how they can further accelerate growth to reduce unemployment and raise living standards, identified greater regional economic integration as one avenue.
First, integration would create a large market, similar in population size to many leading trading economies, bringing efficiency gains and increasing the region's attractiveness to investors. Second, it would help stimulate trade flows by maximizing the expected benefits of existing bilateral free trade agreements, notably with the European Union, and create opportunities for mutually beneficial trade within the region.
Third, regional financial integration would provide a new impetus for financial sector reform, which in turn would help stimulate investment and facilitate broader financial integration. Finally, enhanced regional dialogue on policy issues would facilitate the dissemination of experiences and best practices within the region and create cross-fertilization for the ongoing reform effort.
Role of the IMF
Visiting the region in March 2005, IMF Managing Director Rodrigo de Rato proposed stepping up efforts toward regional integration and offered the institution's support. Discussions with the authorities identified three areas in which further progress would be key to deepening regional integration and enhancing growth prospects: trade facilitation, financial sector reforms and financial integration, and the role of the private sector.
The IMF co-organized three annual high-level conferences focusing on these issues. The first conference, on trade facilitation, was held in Algiers in November 2005; the second, on financial sector reforms and financial integration, took place in Rabat a year later. The third, on the role of the private sector, is scheduled to take place in Tunis in November 2007.
How trade facilitation helps
Integration with the global economy provides enormous opportunities in terms of investment, growth and economic efficiency, and strengthening trade flows among the Maghreb countries is an important first step toward deeper global integration. The countries have already made substantial progress in liberalizing their external trade.
In line with worldwide trends, bilateral and regional trade agreements have proliferated in the region. Dominant among these are the agreements that the European Union signed with Algeria, Morocco, and Tunisia.
Furthermore, all five Maghreb countries have demonstrated strong progress over the past few years in lowering tariff barriers. However, tariff protection is still high, averaging nearly 20 percent in the region (simple average tariffs based on most-favored-nation applied rates), roughly 10 percentage points above the world average.
Although the Maghreb countries are beginning to reap the benefits of trade liberalization, trade among them is still limited. Greater regional integration would foster trade among the countries and help reduce so-called hub-and-spoke effects, which create incentives for firms to locate in the "hub" (the European Union) because it gives them access to all the "spokes" (the five Maghreb countries).
Regulatory burden
One major obstacle to the development of regional trade is the relatively burdensome regulatory environment. The first regional conference thus focused on trade facilitation issues and agreed on a work program to promote trade within the region and with the rest of the world. A detailed action plan, entailing four main measures, came out of that conference.
• Activating the intra-Maghreb customs committee to reduce trade distortions and informal trade.
• Continuing customs reforms and developing a one-stop document processing system. Because of other administrative hurdles, customs reform alone may not reduce the delays that hamper trade. An important step toward trade facilitation would be to simplify administrative procedures and organize the transmission of relevant information and documents.
• Setting up a website with comprehensive and up-to-date information on trade regulations and taxation.
• Establishing a private sector-led monitoring unit on foreign trade in the Maghreb region.
Other measures that would boost trade in the region are the elimination of discriminatory tariff and nontariff barriers, extension of the tariff preferences accorded to the European Union on an intra-Maghreb basis, and adoption of Maghreb rules of origin based on the pan-Euromed system.
Financial integration
Efficient and well-integrated financial systems provide a vital underpinning for sustained growth. Financial integration in the Maghreb countries would help deepen financial markets, increase their efficiency, and enhance the economies' resilience to shocks. It can also catalyze the region's global financial integration. The second regional conference, focused on these issues, produced an action plan that aims to
• eliminate financial barriers to intraregional trade, including weaknesses in regional payment systems and lack of facilities to finance trade;
• streamline administrative requirements for trade-related banking operations;
• establish the Maghreb Bank for Investment and Foreign Trade to facilitate and promote trade and investment within the region;
• harmonize regulatory and supervisory frameworks and the payment systems; and
• improve coordination and cooperation between regional financial institutions and central banks and set up a website with comprehensive financial information.
Successful financial integration also requires maintaining macroeconomic stability; pursuing reforms, where needed, to modernize domestic financial sectors; and gradually liberalizing the capital account.
The Maghreb countries will focus on the third prong of their strategy to spur integration when they meet in Tunis later this year to discuss the role of the private sector—the important engine for higher and sustainable growth.
For further reading:
Tahari, Amor, Patricia D. Brenner, J. Erik De Vrijer, Marina Moretti, Abdelhak S. Senhadji, Gabriel Sensenbrenner, and Juan Solé, 2007, "Financial Sector Reforms and Prospects for Financial Integration in Maghreb Countries," IMF Working Paper 07/125 (Washington: International Monetary Fund).
Tahari, Amor, and Boileau Loko, 2007, "The Role of the Private Sector in Economic Development and Regional Integration in the Maghreb" (forthcoming).