WorkShop 08: The World Financial and Economic Crisis and its impact on the Middle East and North Africa

The World Financial and Economic Crisis and its impact on the Middle East and North Africa

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Abstract

This workshop will examine the impact of the current economic and financial crisis on economies, financial markets and economic policies in the Middle East and North Africa. The impact of the crisis, policy responses and economic power shifts are bound to affect the MENA region both in the short run and in the long run. Given the diversity of the MENA economies, the impact of the crisis will differ across countries. We are broadly interested in the impact on types of economies that are oil dependent economies, foreign and migrant capital flows dependent economies, economies with a significant export sector, and countries that are financial centres and experienced real estate booms. The aim of this workshop is to study the impact of the crisis on trade, economic fluctuations, financial fragility, prospects for growth and social conditions, as well as on long term macroeconomic policies and developmental models in the MENA.

Workshop Description

We directed two workshops in the March 2007 8th Mediterranean Research Meeting and in the March 2009 10th meetings, both on monetary policy and central banking in MENA countries. The workshops were successful. The best papers from the 2007 workshop came out in a book in the Routledge Political Economy of the Middle East series (Monetary Policy and Central Banking in the Middle East and North Africa, eds. D Cobham and G Dibeh, 2009). The best papers from the second workshop will be out in a book, also in the same Routledge series, entitled Monetary Policy Frameworks and Strategies in the Middle East and North Africa, eds. D Cobham and G Dibeh, forthcoming 2010).
We now propose to hold a workshop at the 12th MRM that will investigate the impact of the current economic and financial crisis on the economies, financial markets and economic policies in the Middle East and North Africa.
The impact of the crisis, policy responses and economic power shifts are bound to affect the MENA region in both the short run and the long run. The severity of the crisis which many observers have called “The Great Recession” has started to impact MENA region countries adversely despite earlier optimism on the ability of the region to eschew the crisis (Tzannatoz, 2009). Tzannatoz (2009) identified four areas in which Arab countries were affected: reduced trade, decline in Foreign Direct Investment (FDI), drop in economic activity and diminishing workers’ remittances.
The MENA is a diverse region that that according to the World Bank classification includes the following countries: Egypt, Jordan, Morocco, Tunisia, Lebanon, Djibouti, West Bank and Gaza, Algeria, Iran, Iraq, Syria, and Yemen, Saudi Arabia, United Arab Emirates, Kuwait, Libya, Qatar, Oman, and Bahrain. The region’s countries can be classified into three groups: resource rich and labor scarce, resource and labor abundant and resource poor but labor abundant (Almonsour, 2008). These countries also differ in their GDP per capita, ranging from very high income countries like the largely small GCC states to low income major countries like Syria and Egypt. MENA countries may therefore respond to the world crisis in different ways. Some MENA economies can be sub-classified into oil dependent economies, foreign and migrant capital flows dependent economies, economies with a significant export sector and countries that are financial centres and experienced real estate booms.
First, the importance of oil in the economic development of MENA countries gives special importance for the consideration of the effect of world demand for oil on economic fluctuations in the MENA region. The current crisis has had a significant effect on oil prices. The price of oil fell from its peak price in July 2008 to much lower levels, causing a significant drop in public revenues. Of special importance, oil-driven booms and busts are not symmetric in their effect on the economy with boom effects being transitory while bust effects are persistent and have more long-run negative effects on the economy (Humphreys et al., 2007).
Second, many countries in the region depend on capital flows and migrant remittances, for example Lebanon, where international capital flows and migrant remittances play a major role in providing foreign currency to finance its persistent large trade deficits and in propping up the foreign exchange reserves of the central bank.
Third, a country like Tunisia, which has a higher standard of living than the MENA average and much higher than Egypt and Syria, depends significantly on its trade relations with the European Union (EU). The EU-partnership agreement that was signed by Tunisia in 1995 opened the large EU market for Tunisian exports. The current slump in the Euro zone and the EU countries may have large adverse effects on the Tunisian model especially if we take into account the persistent unemployment in Tunisia, which has hovered around 15% for decades, and the financial fragility of the Tunisian financial system where non-performing loans are around 20% (Boughrara et al., 2009).
Fourth, countries like the UAE (mainly Dubai) and Kuwait which have been badly hit by the crisis are also important in this respect. Dubai, which has become, in addition to Kuwait, a major financial centre in the region also suffered heavily as a result of the real estate crash where prices fell by more than 30% from their peak in September 2008.
We ourselves will write a background paper which will discuss the impact of the financial and economic crisis on the MENA region in its international context and relative to other regions, and provide some basic analysis of the impact of the crisis on different MENA economies. This paper will be circulated in advance to workshop participants, to enable them to avoid all going over the same basic material.
We are especially interested in papers that will address the above cases, as well as other case studies or MENA-wide studies that shed light on the potential effects of the world economic crisis on the MENA region:
1. Oil prices and prospects for growth and long-term investment in oil rich economies, both labour scarce and labour abundant economies
2. MENA trade with the world, including the effect of the crisis on countries in the Euro-Med partnership agreements
3. Economic fluctuations in MENA
4. Effects on unemployment, poverty and social conditions
5. Real estate crises in GCC countries, especially Dubai
6. Effects on migrant remittances in remittance-dependent economies
7. Financial fragility especially in GCC countries (e.g. Kuwait)
8. Effects on foreign direct investment and economic growth
9. Long term effects on macroeconomic policies in MENA
10. The impact on developmental models in MENA
11. The nature of financial markets and institutions in MENA countries and how they affected the impact of the crisis.

Our intention is that selected papers from the workshop will be published fairly quickly in a special issue on the crisis of the Review of Middle East Economics and Finance.

References

Almonsour, Abdullah (2008) "Capital Flight Accounting and Welfare Implications in the MENA Region," Review of Middle East Economics and Finance: Vol. 4: No. 2, Article 1. Available at: http://www.bepress.com/rmeef/vol4/iss2/art1.

Boughrara, A., Boughzala, M. and H. Moussa (2009) “Inflation Targeting and Financial Fragility in Tunisia,” in D. Cobham and G. Dibeh (ed.s) Monetary Policy and Central banking in the Middle East and North Africa, pp. 106-129, London; Routledge.

Humphreys, M., Sachs, J. D., and J. E. Stiglitz (2007) “Introduction: What is the Problem with Natural Resource Wealth?,” in Humphreys, M., Sachs, J. D., and J. E. Stiglitz (eds.) Escaping the Resource Curse. NY: Columbia University Press.

 
Kouame, A. T. (2009) “The Financial Crisis: Impact on the Middle East,” Development Horizons: World Bank Middle East Department-Lebanon.

Tzannatos, Z. (2009) The Global Financial, Economic and Social Crisis and the Arab Countries. ILO Publications.