Economic Integration in the Maghreb: the Path to Prosperity, A Commentary by Rodrigo de Rato, Managing Director, International Monetary Fund

June 15, 2005

Economic Integration in the Maghreb: the Path to Prosperity
A Commentary
by Rodrigo de Rato
Managing Director, International Monetary Fund
Published in L'Economiste (Morocco)
June 15, 2005


My first trip to the Maghreb as Managing Director of the IMF let me see first-hand the challenges that the region faces, its great potential, and the contribution that the IMF can make. Creating jobs and boosting economic growth are high on the national policy agendas in the countries I visited—Algeria, Morocco and Tunisia. Clearly there are important steps that each country can take on its own. But I believe a new approach to policy making, focused on deeper integration within the region is key to making rapid gains in prosperity throughout the Maghreb.

The Maghreb economies have made important strides over the past two decades. Financial and economic stability was established during the 1980s and the 1990s under government reforms supported by the IMF. Stable macroeconomic conditions have been maintained over the last few years. As a result, these economies have seen some growth and have made some progress in reducing poverty.

But, throughout the region, economic growth has remained below its potential, unemployment is still much too high, and poverty remains pervasive. This suggests that there are important constraints on the economies that need to be addressed. What are these and what can be done?

The economies of Algeria, Morocco and Tunisia share many features. In all three countries, agriculture is important; the state dominates the economy to varying degrees; and external trade regimes generally remain quite restrictive, despite more open trade with the European Union. The greatest structural difference is that Algeria is predominantly an oil-exporting country, while Morocco and Tunisia are more diversified.

The IMF sees the slow progress in opening these Maghreb economies to multilateral trade and investment as a key obstacle to achieving higher growth rates and reducing high unemployment. The Maghreb countries represent relatively small, fragmented markets, whose best chance for development lies in openness and integration. In practice their restrictive trade regimes and cumbersome investment regulations have discouraged domestic private investment and attracted only limited amounts of foreign direct investment, outside the hydrocarbon sector.

The countries of the region are aware of the benefits of more open economies. They have established Association Agreements with the European Union and have concluded trading arrangements among themselves. But at present, these arrangements are not being fully exploited. Bilateral trade among the three countries accounts for a tiny fraction (less than 2 percent) of each country's total trade and remains well below potential. Their fragmented markets are also an incentive for European and other foreign investors to locate their operations in Europe to benefit from economies of scale and to export to each country under the separate bilateral trade arrangements with Europe.

Greater regional economic integration would yield important benefits. It would create a regional market of more than 75 million consumers, similar in population size to many leading trading nations. It would bring efficiency gains and make the region more attractive for foreign investors. And, most important, the complementary economic structures of the Maghreb countries would create opportunities for mutually beneficial trade within the region.

To take greater advantage of the potential of the EU Association Agreements and the Wider European Neighborhood, it is in the Maghreb countries' interest to facilitate trade among themselves as well as with the European Union. They should build the institutions that are necessary to pursue common goals and share best practices, including in banking reform, tax reform, and capital account liberalization. To this end, stronger efforts are needed to coordinate economic, institutional and legal reforms within the region, for instance by strengthening the secretariat of the Arab Maghreb Union and its regional cooperation mechanisms. The Wider European Neighborhood also provides a forum for harmonizing the Maghreb's institutions and legal frameworks with European standards.

The IMF can help in a variety of ways. It can play a catalytic role in the dialogue among the Maghreb countries to help them benefit from each others' experiences. Through its policy advice, it can help them move forward with economic reforms important for the region, and can assist them in implementing the Wider Europe Neighborhood initiative. The IMF's annual "Article IV" consultations are the main vehicle for this advice, and these consultations are supplemented by technical assistance at the request of the authorities.

Increasingly, the IMF is developing a regional perspective in its activities, and discussions are frequently held on regional issues. In order to promote discussion of integration within the region, during my visit I proposed to the authorities of Algeria, Morocco, and Tunisia that the IMF organize a regional seminar on trade facilitation in the Maghreb countries in Algiers in November 2005.

The Maghreb has the opportunity to be a trailblazer for the Middle East and North Africa region and other developing countries. Few countries have achieved success without adopting an outward orientation in their policies, and even fewer have achieved sustained growth without establishing strong trading and investment links with their neighbors.

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