62241 April 2011. Number 39 MENA’S NON-OIL EXPORT PERFORMANCE IN THE LAST DECADE Elena Ianchovichina 1 goods and services accounted for 38 percent of GDP – a ratio slightly lower than only East Introduction: The political events reshaping the Asia’s, yet they are insignificant as a share of MENA region underlines that the key to total output in the GCC countries,3 and political stability and renewed growth is going especially in the developing oil exporters. to depend on enabling more inclusive political Furthermore, the temporary movement of and economic paths. Exports and especially people to deliver services abroad is of non-oil exports will play a key role in particular importance in oil importing countries developing the robust and inclusive growth where remittances account for a high share of model that the region needs to secure its future. income. Figure 1. Export Revenue by Type of Background: Exports of non-oil goods and Exports (% of GDP, 2008) services play a much smaller role in MENA 70% than in other regions. In 2008, MENA’s share of exports of non-oil goods and services in GDP 60% was just 16 percent compared to 44 percent in 50% East Asia and 22 percent in South Asia, and 40% lower even compared to the shares of LAC and 30% SSA (Figure 1). These statistics are not surprising since about two thirds of the 20% countries in MENA are net oil exporters, but 10% the imperative to address employment 0% challenges in MENA calls for a special focus on SSA EAP ECA LAC SAS MENA Oil Non GCC GCC the state of nonoil exports. Importers oil exporters The regional picture hides big differences in the Nonoil goods and services Oil and gas Remittances contribution of non-oil exports of goods and services within MENA – in particular, between Source: Comtrade for goods, UN Services Trade Statistics oil importing and oil exporting countries. 2 In for services, and World Bank for remittances. the oil importing countries, non-oil exports of Non-oil Export Performance Varies Greatly 1 Elena Ianchovichina, Lead Economist, Middle East and North Across MENA: The non-oil export performance Africa Region, The World Bank. This Quick Note is based on of MENA countries has been assessed by findings from the MENA Economic Developments and Prospects Report available at http://siteresources.worldbank.org/ comparing countries’ nonoil exports with their INTMENA/Resources/MENAEDPMARCH7web.pdf. estimated potential to export goods and 2 The group of oil importing countries includes Egypt, Tunisia, Morocco, Lebanon, Jordan and Djibouti. The group of developing 3 oil exporters includes Algeria, Iran, Iraq, Libya, Syria, and The GCC countries are Bahrain, Kuwait, Oman, Qatar, Saudi Yemen. Arabia and United Arab Emirates (UAE). services, while adjusting for the presence of GCC oil exporters have made virtually no natural resources and the capacity to export. progress in diversifying their merchandise Nonoil exports of goods and services of oil exports, although the UAE and Qatar have importers and the GCC countries are found to made advances by expanding and diversifying be at potential, but the situation for the services exports.4 developing oil exporters is much weaker than for the other two groups (Figure 2). Oil exporting countries mostly export processed industrial products and primary and Developing oil exporters’ non-oil exports are, processed food items (Figure 4). Capital goods on average, only one fifth of predicted levels. such as machinery and equipment represent a This weak performance pulls down MENA’s tiny share of merchandise exports. By contrast, average to 80 percent of predicted levels. The oil importers have more diverse exports. They four countries with weakest export export a mix of industrial, food and other performance among the 71 middle-income consumer items, including parts and countries in the sample are Algeria, Iran, components, and to a smaller extent, capital Yemen, and Saudi Arabia. Those with strong goods such as machinery and equipment. performance include UAE, Bahrain, Jordan, Tourism and transport are the main sources of Tunisia and Morocco (Figure 3). The rest of the export revenue in the service sector (Figure 4). fifteen MENA countries appear to be In the GCC the communication sector is underperforming as well. another major source of export revenue. Figure 3. Export Concentration in Developing Figure 2: MENA Underperformed Relative to Its Regions Nonoil Export Potential in the Period 1998-2007 1.2 12,000 0.35 FDI Inflows (on average per country millions 1 10,000 0.3 Herfindhal Index on Exports (excluding Oil 0.8 0.25 8,000 0.6 0.2 $US) 6,000 0.4 0.15 products) 4,000 0.2 0.1 0 2,000 0.05 Oil Importers GCC countries Developing Oil MENA 15 Exporters 0 0 1995 2000 2005 1995 2000 2005 1995 2000 2005 1995 2000 2005 1995 2000 2005 1995 2000 2005 1995 2000 2005 Source: Staff calculations of export potential is based on the Africa Asia ECA Latin America Oil Importers Developing oil GCC oil following estimated regression: PCNOX =-181.09+0.2* exporters exporters FDI inflows Herfindahl PCGDPPPP-0.185*PCNatRes, sample size is 71, Adj R2=0.54, where PCNOX stands for per capita exports of Source: Gourdon (2009). Herfindahl index is a flow- nonoil goods and services, PCGDPPPP is the value of the weighted concentration index H = (∑(sk)2-1/n)/(1-1/n), where PPP GDP in per capita US$, PCNatRes is the value of per sk is the share of export line k in total exports, and n is the capita resource-based exports in US$. The data has been number of export lines. A drop in the index indicates a adjusted for re-exports. decline in the degree of export concentration. MENA’s Progress as the Economy Liberalized MENA has made a major shift towards the fast- and Exports Diversified: During the past growing markets of Asia (Figure 5). In 1998, 14 decade most MENA countries increased their percent of MENA’s non-oil merchandise openness and the average MENA share of exports went to Asia, but by 2008 this share nonoil merchandise exports in GDP rose from nearly doubled and reached 25 percent. The 7.5 percent in 1996-99 to 9.2 percent in 2006-08. switch has been particularly dramatic for All MENA oil importers also made progress in developing oil exporters, whose share nearly reducing the concentration of their merchandise export baskets (Figure 3). Only the 4 Note that exports of services are not captured in Figure 3. April 2011 · Number · 2 tripled from 12 percent in 1998 to 35 percent in Figure 5: MENA’s Nonoil Merchandise Export 2008. The move towards greater reliance on Destinations Asia was much less pronounced in the oil MENA importing countries, with the share of exports to Asia increasing from 8 percent in 1998 to 13 MENA 27% percent in 2008. RoW 10% RoW 15% MENA 29% USA USA 6% 4% Figure 4: MENA’s export structure 2008 Asia 14% EU 41% EU Asia 29% 25% Export of Non-Oil Goods 1998 2008 Food Source: Comtrade data Other oil exporters The shift towards Asia and other emerging Industrial markets is good news for MENA as these Oil markets are well positioned to drive trade importers Parts & growth in the future. Despite the shift away Components from the old continent, Europe remains the Capital most important export destination for MENA’s GCC nonoil goods. This reflects largely the fact that countries the EU received half of the oil importing Consumer countries’ exports in 2008. For the GCC oil exporters, nonoil exports destined to other 0% 20% 40% 60% 80% 100% MENA countries represented the largest share, Export of while for developing oil exporters, Asia became Services the most important destination for their nonoil merchandise exports. Food Other oil Services as MENA’s Area of Relative exporters Strength: In 2008, MENA’s share in world Industrial exports of nonoil goods and services was just 1.2 percent, up from 1 percent in 1998, and the Oil share grew at a pace comparable to the average importers Parts & for middle income countries (MICs) excluding Components China, largely due to the expansion of services Capital exports (Figure 6). During 1998-2008, MENA’s GCC share in world exports of services grew by countries nearly 30 percent compared to 15 percent for Consumer MICs excluding China (Figure 6). However in exports of nonoil goods, the situation is 0% 20% 40% 60% 80% 100% reversed with MENA’s share of exports of nonoil goods growing by 17 percent compared Source: Comtrade data for goods and UN Services Trade to 26 percent for the MICs other than China Statistics for services. (Figure 6).5 These results suggest that MENA firms exporting nonoil goods remain less competitive than firms in other MICs, but the opposite is true for MENA firms exporting services. 5 In this comparison we allow other MICs to benefit from exports of commodities other than petroleum. April 2011 · Number · 3 Figure 6. Growth in Shares in Global Exports level of existing export flows that actually Between 1998 and 2008 declined or disappeared, export growth would have been 50 percent higher in MENA, 59 percent higher in the GCC and developing oil exporters, and 39 percent higher in oil importers. For East Asia, the decline and disappearance of existing exports reduced export growth by just 30 percent. Contact MNA K&L: Emmanuel Mbi, Director, Strategy and Operations. MNA Region, The World Bank Regional Quick Notes Team: Omer Karasapan, , Roby Fields, and Hafed Al- Ghwell Tel #: (202) 473 8177 Source: COMTRADE data. The MNA Quick Notes are intended to summarize lessons learned from MNA and other Bank Knowledge and Learning activities. The Notes do not Regional nonoil merchandise export growth necessarily reflect the views of the World Bank, its was driven more by expansion of existing board or its member countries. products to new markets and new products to existing markets than by an increase of exports of existing products to existing markets. Growth at the extensive margin6 played a much bigger role in MENA than in other regions. This was especially true in the case of the developing oil exporters, whose extensive margin accounted for 82 percent of nonoil export growth during 1998-2008 – an outcome consistent with the spectacular shift in their nonoil export destinations. The dominance of the extensive margin can be explained partly by the decline or disappearance of exiting flows to some existing markets, notably Europe. MENA’s exports of existing products declined or disappeared at the highest rate in the developing world. Some of the reasons might be linked to increased competition from China and other emerging economies in specific markets such as the EU. China and other East Asian developing countries were able to scale up in a big way their existing exports in the EU and elsewhere. Indeed, East Asia’s intensive margin accounted for 82 percent of export growth in the past decade, compared to 45 percent in MENA. Had MENA countries been able to maintain the 6 The extensive margin captures the expansion of existing products to new markets and new products to existing and new markets. April 2011 · Number · 4