Growth Strategy for North Africa: A Regional Approach

• Author: Paul Chabrier
• Position: Director of the IMF's Middle Eastern Department

Although the North African countries made significant progress toward achieving financial stability under IMF-supported programs during the mid-1980s and the 1990s, growth in these countries has remained below potential. Notwithstanding the considerable efforts they have expended on education, Algeria, Morocco, and even the more successful Tunisia have not performed as well as countries that have become integrated with the world economy. For instance, during 1970-99, the average annual growth rate of real per capita GDP was slightly negative in Algeria, 1.5 percent in Morocco, and 3.2 percent in Tunisia. As a result, unemployment has increased from an average of 12 percent in 1990 to 18.8 percent by 2000, ranging from about 15 percent in Tunisia to 30 percent in Algeria. Poverty is pervasive: in the 1990s, the incidence of poverty actually rose in Algeria and Morocco, while it stagnated in Tunisia.

There are a number of reasons for North Africa's lackluster growth, including the modest pace of structural reforms and weak macroeconomic policies, which led to balance of payments and debt problems for Morocco in the late 1980s and Algeria in the early 1990s. A major contributing factor has been the slow progress made by these countries in opening their economies to trade and investment. The North African economies continue to be hobbled by their narrow export base. Moreover, bilateral trade between them is limited and well below potential; it accounts for only a small fraction of each country's total trade.

Taken individually, the North African markets are small and highly protected. With respect to trade in goods, protectionism takes many forms, including high tariffs, valuation problems, nontariff barriers (such as standards and regulations), and physical barriers at the borders. Independent business surveys show that private investors generally feel that the business environment in the region has many serious problems, such as excessive red tape and weak domestic institutions-particularly the legal and judicial systems. As a result, foreign direct investment (apart from that associated with privatization) remains at low levels. However, there is a paradox in the sense that foreign investors, once established in the three countries, report favorably on working conditions there.

Persistence of the current inadequate growth performance of these countries could disrupt the delicate social balance they have achieved, with potential ripple...