## A MERCANTILE MIDDLE EAST

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### Overview
- The Middle East and North Africa (MENA) region accounted for just 7.4 percent of total trade in 2022.
- The region exhibits high export concentration in a narrow range of products and partners, limited economic complexity, and low participation in global value chains.
- Commodity-dependent MENA nations have made gains in diversification as measured by the Global Economic Diversification Index.

### Trade patterns and openness
- MENA total trade in goods as a percent of GDP (openness indicator) was 65.5 percent in 2021.
- Intra-regional trade is low:
  - 17.8 percent of total trade is intra-regional.
  - 18.5 percent of total exports is intra-regional.
- The six oil-exporting GCC nations (Saudi Arabia, Bahrain, Oman, Qatar, Kuwait, and the United Arab Emirates) account for the bulk of intra-regional trade.

### Constraints to intra-regional and global trade integration
- Regional fragmentation, violence, and wars since the mid-1990s and the Arab Spring in 2011 have contributed to low intra-regional trade.
- The share of intragroup exports in the Arab region, excluding the GCC, has remained below 2 percent of their trade flows.
- Services trade is underdeveloped:
  - MENA services trade has ranged between 4 and 6 percent of global services trade in the past two decades.
  - OECD countries account for more than two-thirds of global services trade.
  - Within MENA, the GCC accounts for the bulk of services trade, concentrated in lower-value-added sectors like travel (and tourism) and transportation.
- Restrictive policies limit services trade entry, including sectors dominated by state-owned enterprises (for example, telecommunications) and high fees/license requirements in professional and transportation services.
- Nontariff measures in MENA:
  - MENA nations apply more, and more restrictive, nontariff measures than any other region; these almost doubled between 2000 and 2020.
  - Lack of uniform standards, pervasive red tape, and corruption compound trade barriers.
- Trade facilitation and infrastructure deficits:
  - MENA underperforms on trade facilitation measures, with wide disparities across the region.
  - Quality of trade- and transportation-related infrastructure is significantly lower in non-GCC MENA nations.
  - Excessive port “dwell times” (delays of more than 12 days) occur in some MENA countries.
  - Algeria and Tunisia delays average about 20 days versus less than five days in the United Arab Emirates (among the top three globally).
- Business and investment barriers include cumbersome licensing processes, complex regulations, and opaque bidding and procurement procedures.

### Diversification, recent shocks, and structural change
- The pandemic highlighted the need for diversification of products and partners and new supply chain development.
- GCC members have pursued policies and structural reforms to diversify away from fossil-fuel dependence, including increasing labor mobility and opening capital markets across borders.
- Trade and export composition shifts:
  - Saudi Arabia increased focus on medium- and high-tech exports, which rose as a share of overall manufacturing exports to almost 60 percent right before COVID from less than 20 percent in 2000.
- The war in Ukraine stressed food-importing MENA nations:
  - Ukraine and Russia accounted for a third of global wheat exports.
  - Lebanon and Tunisia were importing close to 50 percent of their wheat from Ukraine.
- GCC diversification efforts include development of free zones and special economic zones to attract investment into higher-value-added and higher-tech manufacturing, renewable energy, fintech, and artificial intelligence.

### GCC as an engine for regional integration
- The GCC can catalyze regional trade integration by lowering barriers, improving trade infrastructure, and diversifying regional economies.
- Potential GCC-led initiatives:
  - Investments in hard infrastructure and trade-related infrastructure and logistics.
  - Development of an integrated GCC power grid, with a GCC renewable-energy-powered electricity grid that could extend to Europe, Pakistan, and India.
  - Pursuit of globalization as a regional group through new trade and investment agreements, foreign aid, and direct and portfolio investment.
  - Accelerated free trade negotiations with key MENA partners (including Egypt and Jordan) and Asian partners (including China and South Korea).
  - United Arab Emirates signing comprehensive economic partnership agreements with India, Indonesia, and Türkiye covering services, investment, and regulatory aspects of trade.
- Geopolitical context:
  - Ongoing disengagement from long-standing regional conflicts and diplomatic openings (for example, the Abraham Accords) reduce geopolitical risks to promoting regional trade and investment.

### Policy recommendations and concrete steps forward
- Trade policy and regulatory reforms:
  - Reform trade policies to dismantle restrictive nontariff measures, complex regulations, corruption, and logistical roadblocks.
  - Implement a new generation of trade agreements that include knowledge-intensive services to support export diversification and women’s economic empowerment.
- Regional integration measures:
  - Integrate MENA trade infrastructure (ports, airports, logistics) with the GCC to lower costs and facilitate intraregional trade.
  - Implement the GCC Common Market, invest in digital trade, lower tariff and nontariff barriers, and reduce restrictions on trade in services.
  - Facilitate greater mobility of labor and enhance financial and capital market linkages.
- Deep trade agreements and standards:
  - Develop deep trade agreements between the GCC and other MENA countries covering nontariff measures, direct investment, e-commerce and services, labor standards, taxation, competition, intellectual property rights, climate and environment, and public procurement (including mega projects).
- Aid and implementation support:
  - Shift from traditional foreign/humanitarian aid toward an “aid for trade” policy to help partners implement trade-boosting reforms, improve logistics infrastructure, and facilitate the movement of goods.

### Key statistics and facts (as presented)
- 7.4 percent — MENA region's share of global trade (2022).
- 65.5 percent — MENA total trade in goods as a percent of GDP (2021).
- 17.8 percent — intra-regional trade as a share of total trade.
- 18.5 percent — intra-regional trade as a share of total exports.
- Below 2 percent — share of intragroup exports in the Arab region, excluding the GCC.
- 4 and 6 percent — range of MENA services trade as a share of global services trade over the past two decades.
- More than two-thirds — OECD share of global services trade.
- Nontariff measures in MENA almost doubled between 2000 and 2020.
- More than 12 days — definition threshold cited for excessive “dwell times.”
- Algeria and Tunisia average about 20 days dwell time; United Arab Emirates less than five days.
- Almost 60 percent — Saudi Arabia’s medium- and high-tech exports as a share of manufacturing exports right before COVID.
- Less than 20 percent — Saudi Arabia’s medium- and high-tech exports as a share of manufacturing exports in 2000.
- A third — share of global wheat exports accounted for by Ukraine and Russia.
- Close to 50 percent — share of wheat imports from Ukraine for Lebanon and Tunisia prior to disruptions.

*Source: Nasser Saidi and Aathira Prasad, “A Mercantile Middle East,” F&D, September 2023.*

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_Source: https://www.imf.org/-/media/files/publications/fandd/article/2023/september/saidi-prasad.pdf_