When Is the Right Time for Maghreb Integration?
Report from private sector offers recommendations
Jean R. AbiNader, MATIC
September 3, 2014
One of my initial reactions to the US-African Leaders Summit was noticing the seeming lack of integration between North and sub-Saharan Africa (SSA) when it came to the initiatives announced by President Obama. At a time when foreign assistance resources are declining globally and the lack of African cross-border trade and investment remains limited, there seems to be space for more emphasis on enabling the private sector to “grow Africa.” This was a primary message from Miriem Bensalah Chaqroun, President of the Moroccan Federation of Businesses (CGEM), who noted that multilateral and regional organizations agree that this can only be achieved if governments heed the advice of the private sector regarding what needs to be done to free up the growth-promotion environment in Africa. Greatly reducing tariff and non-tariff barriers, promoting transnational infrastructure projects linking markets across borders, and business-labor-capital friendly regulations are some of the more obvious elements in a comprehensive growth strategy. These are among the issues targeted by King Mohammed VI as part of his “economic diplomacy” in Africa, echoing his calls for strengthening North-South ties on the continent.
This line of thinking brought me back to a report issued this past spring “Making the Case for Maghreb Business in Times of Change,” which is a background report and action plan for “A private sector strategy for a Maghreb Initiative of Commerce and Investment (IMCI).” The report highlights that the countries of the Arab Maghreb Union (AMU) – made up of Algeria, Libya, Mauritania, Morocco, and Tunisia– have very little intra-regional trade, similar to other regions on the continent. In addition, although the AMU countries may have squabbles among the members, as there are in East and Central Africa, the private sectors continue to advance projects for aligning commercial interests across the region.
If it is the common wisdom, documented in multiple studies, that the private sector – formal and informal businesses, labor, and civil society – produces more jobs annually than governments, then there is a compelling logic that the private sector is a central stakeholder in facilitating economic growth.
Enter the Union of Maghreb Employers (UME)
Regardless of political obstacles, employers associations in the AMU have historically been pioneers in promoting inter-Maghreb dialogue for growth. After continued roadblocks due to political conditions, in 2007, CAP (Algeria), LBC (Libya), UNPM (Mauritania), CGEM (Morocco), and UTICA (Tunisia) decided to establish the Maghreb Union of Employers (UME). Its goal is “Creating a predictable and growth-friendly regional business climate that would result in a double benefit: expanding trade and investment inside the Maghreb and promoting stronger economic ties with its neighborhood and global markets.”
The report, released at its annual meeting in Marrakech, takes into account the impact of the Arab Spring and presents recommendations for strategic steps in meetings the region’s needs for growth, opportunity, and jobs. The report highlights several troubling phenomena: the youth bulge requiring large number of new jobs for entrants into the economy; rapidly growing urbanization that is often unregulated and poorly accommodated; and desertification literally eroding the agricultural sector. These conditions have resulted in a growing informal sector, stagnation in labor productivity, and a mismatch between education and employment opportunities.
Structural Challenges in the Economy
Among the structural issues across the Maghreb, the report notes the “lack of trade complementarity,” in that there is a very low level of intra-regional trade, since most economies of the Maghreb are small markets with limited export diversification. The report also notes that there is “little integration into global production chains limiting the expansion of high value added manufacturing activities.” An associated problem is that trade patterns are largely driven by “proximity.” More that 60 percent of the region’s trade and investment is tied to the EU, and this dependence is a source of economic vulnerability, as was obvious during Europe’s economic downturn. As important when addressing global markets is the “lack of product diversification.” Aside from some progress in Morocco and Tunisia, the Maghreb has not expanded much beyond core commodity exports and some manufacturing of new products to export.
Another area for remediation is the negative impact of tariff and non-tariff barriers, such as excessive delays, paperwork, closures, and customs procedures that raise the cost of business and “limit the competitiveness and quality of products.” These obstacles to the free movement of goods, the lack of free movement of labor and capital, and the lack of cross-border infrastructure to speed shipments and transportation combine to hold back the region’s economic integration, “fragment regional value chains and impedes the diversification of the product base.”
After presenting a summary of the benefits and rationale for deeper integration, the report breaks out recommendations in three broad areas: connect markets through cross-border private-public partnerships on crucial infrastructure development; dismantle obstacles by identifying a limited number of “pilot sectors” where all five countries can agree on a deeper cooperation agenda; and encourage investment, particularly by ensuring that skilled workers are available to attract foreign and domestic investment. Each area is broken down by timelines and expected results that clearly indicate the intense interest of the private sector in playing a role in furthering economic development in the Maghreb. This report is definitely another tool for the region’s governments by which to develop their national strategies with a “Maghreb dimension.”