Phosphate for Arab Development: Can this be new oil? (by Abdallah Al Dardari and Sung Eun Kim)

Unfortunately, we are not living in a world where food is sufficient for every single person, and how to feed ever growing global population has always been an important issue in many countries to different extent. In 1950, the number of people living in the planet was around 2.5 billion, but it has jumped rapidly and now the number reaches over 7.1 billion. This seriously questions the availability and stability of food resources for all. Cultivating more land may be pursued, but the earth has limited space for agriculture, and most of arable land is already being used. As such, the world will gradually demand more fertilizers to produce more food in a limited space.

Phosphorus is one of the most important elements of fertilizers, and thus global demand for phosphate rock, the base material for phosphorus, will most probably increase in the future. Not just population growth, but also changing diet for more meat and increasing use of biofuels will demand more use of phosphorus based fertilizers. Phosphate, however, is a finite and non-renewable resource like oil, yet there is no alternative. Moreover, the global distribution of this important resource is heavily skewed to several countries, and thus it has a tremendous strategic importance although this has been rather neglected. Luckily, the Arab region is blessed with this resource, and the region is known to hold more than four fifths of the global phosphate reserves. Huge amount of phosphate reserves are reported particularly in North African Arab countries including Morocco, but several countries in West Asia also play important roles in the global phosphate market. China and the United States, followed by Morocco, are the largest producers of phosphate, but their domestic demand is large enough to limit their roles in global phosphate market. This makes the Arab region as the largest exporter of the resource including Morocco and Jordan, the largest and the second largest exporter respectively. Thus, the sector has the potential to greatly contribute to the regional economy.

There are, however, important challenges to count. In the long-run, global demand for phosphate will increase, but it can vary in the short and medium term due to changes in global crop prices, changes in policies for fertilizer subsidies, changes in taxation policies, and etc. Yet, the supply of phosphate rock is not very responsive to these changes as it normally takes quite a few years to increase supply capacity. As a result, global phosphate rock prices have fluctuated between below 50 US$ and over 400 US$ per ton in the last decade. Nevertheless, major producers and exporters of phosphate rock have not well coordinated their production, and there is no international organization like OPEC that decides production quotas for its members, even between Arab phosphate exporters. Furthermore, the dominance of India in phosphate import market threatens the ability of Arab phosphate exporters to maintain reasonably high phosphate rock prices. India alone imports over one third of the global phosphate trade, and India’s policy for fertilizer subsidies greatly influence the demand for phosphate. The export tax policy of China, the largest producer of phosphate rock, also makes the Arab exporters difficult to set plans and make decisions.

Thus, careful monitoring of market developments and coordination among countries are needed for the phosphate sector to give the real benefit to the regional economy. For this reason, ESCWA is considering to further study how the region can benefit and what should be done in developing and managing the phosphate sector. What do you think?

The Arab middle class: Key to successful transition (by Abdallah Al Dardari and Naren Prasad)

Recent newspapers, magazines and TV news channels have dealt with the a growing group of citizens such as “the Rise of Asia’s Middle Class”, “the new middle classes rise up”, “Lebanese middle class diminishing in size” or certain have asked “Why did the Egyptian Middle Class March to Tahrir Square”. This blog focuses on the middle class, in part because of their involvement in the social uprisings in the Arab region. These groups are increasingly economically and politically marginalized. The second reason we focus on the middle class is their economic and political importance. The middle class is an important category of interest not only because they are the main drivers of economic activity and, thus, vital to the economic development of any country, but also because they are an interest group which influences political and social life. In comparison to other groups, members of the middle class typically constitute a broader stratum of the population, including a wide range of professional, political, economic and social profiles. Often politicians count on the middle class as their main constituent and draw on them for substantial support for policy positions.

 Who are the middle class? How to define and measure them? There is no agreement as how to measure the middle class. They range from wealthy urban professionals to village clerks and school teachers who have different values. In a recent paper, Abu-Ismail and Sarangi (2013), have proposed a methodology to measure the middle class. Yet another paper unlocks the intricate relationship between the State and the middle class which is generally mediated by social policies (Prasad 2014 forthcoming). The recently released Arab MDG Report (2013) showed that the Arab countries are at a crossroad of policy choices for an inclusive and sustainable development. Their success in political transition and economic development will mostly depend on the role of middle class in the region since they are instrumental in mobilizing support, in redefining the existing development framework and governance model and in renegotiating a new social contract in the region. In this respect, studying the middle class in the Arab region is imperative for understanding and providing guidance to a development framework in the transition process.

 

To respond to this challenge, ESCWA is trying to make sense of how the middle class could be assisted so that there is inclusive growth in the region. It is trying to crack the nuts and bolts of this important group: their importance in light of current developments in the region, their participation in the economic development, their roles in promoting economic development for poverty reduction, the impact of policy changes on them, policies that support them and policies that should be avoided. All these work will culminate into an ESCWA publication on the Arab middle class, which will attempt to answer two major questions: who are the Arab middle class and what has happened to them? (to be published in September 2014). More importantly, the report will argue that the path to regional stability and inclusive development will depend on what happens to the Arab middle class.

Arab Customs Union: A new venture or more of the same? (by Abdallah Al Dardari)

Silently, but surely, economic integration among Arab countries is edging towards a dramatically new phase in its 60 year history of small successes and grand disappointments. By January 2015 an Arab Customs Union (ACU) should be operational, creating a single economic border between the 22 members of the League of Arab States (LAS) with the rest of the world, paving the way for free flow of products, with zero tariffs between Arab markets. The Economic and Social Commission for Western Asia (ESCWA) estimates that the full implementation of this Arab summit resolution would lead to a dramatic boost of growth and employment in almost every Arab country. The corridors of the LAS headquarters in Cairo are bustling with experts and officials from member countries, with ESCWA’s technical assistance, working out the complex and difficult compromises needed to effectively launch the Customs Union on time. For despite the political will demonstrated by the Arab Development summit in Riyadh 2013, arriving to the launch date with agreement on all related issues remains a tall order. Arab countries have formerly liberalized exchanges of goods in 2005 through the full implementation of the Great Arab Free Trade Area (GAFTA). However GAFTA’s record has been mixed at best. Total Inter Arab Trade as percentage of total Arab foreign trade stayed at around 10 per cent, and according to a gravity model constructed in ESCWA, actual inter Arab trade remains less than 50 per cent of potential after almost a decade of free trade. Some Arab countries like Syria and Jordan dramatically increased exports to other Arab countries. Others like Egypt and Saudi Arabia also achieved net gains, albeit less than the former, while Maghreb countries remained insulated from the potential expansion of trade with each other and with other members of the LAS. Non tariff measure (NTMs), exception lists, stringent and unclear rules of origin were some of the reasons GAFTA did not fulfill its full desired impact. Therefore moving towards a full Customs Union without designed action plan that considers the lessons learned from GAFTA application and lays down an effective and practical approach to the new venture, would only mean more of the same. The lost opportunity cost would be tremendous. ESCWA is measuring that erecting an effective ACU, along with enhancing labor flows, infrastructure connectivity, and macroeconomic coordination could boost growth across the region by an average of 3 percentage points and reduce unemployment by more than 50 percent in five years. Hence the importance of an action plan that consists of detailed analysis of pitfalls of GAFTA, including NTMs and rules of origin, simulations of different tariffs structure for the ACU, with fiscal consequences of each scenario, and a clear and practical compensation mechanism for countries losing out on tariffs revenues. The last point is crucial since it raises vital questions: where tariffs would be collected? At the point of entry of goods or in the country where they are consumed? And how would the revenues collected at the point of entry redistributed to countries of final destination? More importantly is Arab administration capable of managing these complex systems in an effective and transparent manner? In view of these questions, January 2015 may seem too short a notice for kicking off such a dramatic venture. However, the opportunity is too great to miss, and the political and social challenges facing all Arab countries should encourage them to go the extra mile down regional integration. After all we are fully convinced that without integration, development in the region will always be constrained and sub optimal.

In search for a New Development Paradigm (by Abdallah Al Dardari)

In October 2011, in a world economists gathering in New York, I asked Joseph Stiglitz what he thought was the optimal economic policy for Arab countries in transition. His answer was short, crisp, and without hesitation "social market economy". I couldn't help lamenting over the ill fated attempt at going down that road in Syria during 2005-2011, ending with the worst humanitarian crisis of the 21st century. Since then ESCWA has been seriously and diligently engaged in looking at the pre 2011 Arab economic paradigm, in an attempt to understand its failures, shortcomings, and successes. This is an attempt to propose a new developmental framework that is democratic and inclusive and meet the aspirations of Arab streets. Fresh analysis of the Arab middle class and poverty indexing is central to this effort. Very rigorous and thorough household survey data analysis, combined with a multi, and cross dimensional definition of what is a middle class reveals a very interesting narrative of social mobility in Arab society. Combining economics, political economy, and political sociology benchmarking of social strata in the region, reveals and even explains the tremendous pressures for change that were wreaking havoc in Arab societies, without serious attention from decision makers (our next blog will focus on the Arab middle class). Next to understanding the Arab middle class, ESCWA is engaged in a challenging exercise of revisiting poverty. An Arab Multi dimensional Poverty Index is in the works, with the hope that economic and social policies in the near future could be symmetrical with the essential structures and dynamics of poverty, not a mere reaction to superficial symptoms of that challenge. Capturing the poor, the vulnerable and the middle class should serve as the basis for economic policies that put human dignity first. Economic policies of inclusive production and distribution, of decent jobs and human security, of equity and utility maximisation, along with profit maximization should be considered as a package. All of that in a context of regional integration and an east and south bound globalization. Dare I say are we talking about social market economy!!? I recently read Grzegorz W. Kolodko, Poland's former deputy prime minister and lead reformer, talking about the subject. In his words "in the long run a kind of social market system seems the only sensible option for the future of mankind". Instead of lamenting the past, ESCWA is forging ahead towards a sensible economic paradigm for the Arab region and beyond. There is no time to lose.

التصديق على الدستور التونسي و تعيين حكومة جديدة (بقلم عبد الله الدردري)

بعد ساعات من التصديق على الدستور التونسي و تعيين حكومة جديدة ، بدأ الدينار التونسي والبورصة بالارتفاع. ففي خلال يومين فقط، ارتفع سعر الدينار ما بين 2 و5 في المئة مقابل الدولار الامريكى واليورو، كما ارتفع مؤشر البورصة التونسية 3% إلى 4,515 نقطة، في إشارة واضحة إلى الثقة في العملية السياسية وقدرة الفريق الاقتصادي، الذي يشمل شخصيات بارزة على غرار الدكتور عبد الحكيم بن حمودة والسيد كمال بن ناصر والسيد الهادي العربي، على كسب الثقة واستئناف النشاط الاقتصادي والنمو وحشد التمويل الخارجي والاستثمارات. فهذه الحكومة وإن كانت انتقالية (حتى الانتخابات في ديسمبر/كانون الأول القادم) فإنها لن تكون بطة عرجاء على المستوى الاقتصادي. فهي قادرة على تسخير مزيج من الأدوات النقدية والمالية لتعزيز النمو وخلق فرص العمل. كما أنها ستسعى إلى وضع سياست محفزة للنمو تراعي في نفس الوقت التوازنات المالية. ولعلها قد تستلهم من السياسات المقترحة في مسح التطورات الاقتصادية والاجتماعية في المنطقة العربية 2012-2013 للإسكوا، كتدابير لخلق فرص عمل على المدى القصير فيجني شباب تونس ومؤسساتها المرهقة فوائد المرحلة الانتقالية. إلا أن هذا يحتاج إلى حشد دعم المانحين والمستثمرين العرب والدوليين للديمقراطية في تونس بأعمالهم، وأموالهم، وعدم الاكتفاء بمجرد الوعود. إذ يحتاج العالم، وخاصة العرب، إلى نقطة الضوء التي تأتي من البلد الذي انطلق منه كل شيء. فهذا الابلد قد حقق ما عجزت أن تخققه فرنسا هذه الأيام حيث وضعت تسوية اجتماعية كبرى بين النقابات العمالية وأصحاب الأعمال حجر الأساس لهذا الإنجاز التاريخي. وكما تصفها "لو موند"، إن هذه التسوية الكبرى، اللازمة لاخراج البلاد من أسوء حالة البطالة من أي وقت مضى، تفترض مسبقاً وجود ثورة ثقافية، لم تنجح فرنسا في انجازها بعد. ويبدو أن التونسيين، علمانيين وإسلاميين، عمال وأرباب العمل، يمينيين ويساريين، أنتجوا هذه " الثورة الثقافية" والتسوية الاجتماعية. وسنعمل مع تونس واثقين بأن يمكن ربما، وبأعجوبة، أن يطلع فجر اقتصادي عربي من المغرب.

Ratification of the Tunisian constitution and the nomination of a new government (by Abdallah Al Dardari)

Hours after the ratification of the Tunisian constitution and the nomination of a new government, the Tunisian Dinar and the Tunisian stock exchange started appreciating. In just two days it gained between 2 and 5 percent against the US Dollar and the Euro, while the Tunisian stock exchange index appreciated by 3% to 4,515 points, in a clear sign of confidence in the political process and the ability of the economic team, with the likes of Dr Hakim Ben Hamouda, Mr. Kamel Ben Nasser and Mr. Hedi Lerbi, to  gain trust, resume economic activity and growth, and mobilize external funding and investments. This government (until elections in December), even if it is transitory, should not necessarily be an economic lame duck. It is capable of harnessing a mix of monetary and fiscal tools to boost growth and jobs. It will also seek to propose policies stimulating growth that take at the same time into account the financial balances. Perhaps it might also be inspired by the policies proposed in ESCWA's Survey of Economic and Social Developments in the Arab Region 2012-2013, like measures to create jobs in the short term that bring about transition dividends to weary Tunisian youth and enterprises. This however needs the rallying of Arab and international donors and investors to vote for democracy in Tunisia with their deeds, or more accurately their cash, not just words. The world, and specially Arabs, needs to see a glimpse of hope for real change coming from the country that started it all. Tunisia has just achieved what France these days is lamenting about: a grand social compromise between trade unions and entrepreneurs laying the ground for this historical breakthrough. As "Le Monde" puts it such a grand compromise, needed to pull the country of the worst unemployment situation ever, presupposes a cultural revolution, seemingly not happening in France. Tunisians, secular and Islamists, workers and owners, right and left seem to have produced that "cultural revolution" and with it the social compromise. We will work with Tunisia with confidence that, miraculously, an Arab economic dawn could possibly rise from the Maghreb.

اقتصاد عربي للعالم العربي: حان الوقت لنقلة نوعية (بقلم عبد الله الدردري)

لطلما كان أفق وجود اقتصاد عربي متكامل القضية المركزية لمحادثات التكامل الإقليمي في العالم العربي على مدى عقود. وبدوره وصف بأنه حلاً سحرياً وحلم منبوذ، يحتل التكامل الاقتصادي العربي مساحة غير معروفة على الساحة السياسة الإقليمية. وبعد مرور ستة عشر عاماً على اعتماد اتفاقية التجارة الحرة العربية الكبرى والقرارات والمبادرات المتعددة لدعم التكامل الاقتصادي التي لحقتها، من الصعب تحديد آلية دافعة لتحقيق التكامل الاقتصادي الإقليمي أو وضع مسار مشترك واقعي وفعال لتحقيق ذلك. يجب علينا أن نعترف بانقطاع الارتباطات الموجودة في البنية التحتية المتاحة والمعرفة التقنية اللازمة للتنفيذ والنهج السياسي الذي يحكم منهاج التكامل الاقتصادي في العالم العربي. ماذا يحمل المستقبل إذاً بالنسبة للاقتصاد العربي؟