Report on the euro-mediterranean partnership 2005 - Femise

FEMISE REPORT ON THE 

EURO-MEDITERRANEAN PARTNERSHIP 

2005 

Analysis and Proposals of the 

Euro-Mediterranean Forum of Economic Institutes 

Samir Radwan, Economic Research Forum, Egypt 

Jean-Louis Reiffers, Institut de la Méditerranée, France 

Coordinators 

June 2006 

This text has been drafted with financial assistance 

from the Commission of the European Communities. 

The views expressed herein are those of the authors 

and therefore in no way reflect the official opinion of 

the Commission. 

Institut de la Méditerranée 

C A I S S E D E PA R G N E 

PROVENCE - ALPES - CORSE 

FEMISE 

2005






Coordinators 

June 2006 


This report was produced with financial support from the Commission of European Communities. The 

opinions expressed in this <strong>Report</strong> are those of the authors only and do not necessarily reflect the opinions 

of the Commission of European Communities.

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Main redactors : 




June 2006 

Frédéric Blanc Institut de la Méditerranée, France 

Nathalie Grand Institut de la Méditerranée, France 

Maryse Louis Economic Research Forum Egypt 

Yasmine Fahim Economic Research Forum Egypt 

List of the main Femise researches used in this report: 

FEM 21-31 : «Promoting Competitivness in the Micro and Small Enterprise Sector in MENA», leaded by Faculty 

of Economics and Political Sciences, Cairo University, coord. Alia El-Mahdi, in collaboration with INSEA 

(Morocco), Bogazici University (Turkey), Consultation and Research Institute (Lebanon) ; December 2005 

FEM22-02 : «Impact of Liberalization of Trade in Services: Banking, Telecommunications and Maritime Transport 

in Egypt, Morocco, Tunisia and Turkey», leaded by Bilkent University, Center for International Economics, 

coord. Sübidey Togan in collaboration with Faculty of Economics and Political Science, Cairo University. 

(Egypt), INSEA (Morocco), University of Tunis (Tunisia) ; December 2005 

FEM22-06 : «The Informal Economy Employment Impacts Of Trade Liberalisation And Increased Competition In 

Export Markets: The North African Textile, Clothing And Footwear Sector», leaded by Federico Caffè Centre, 

Roskilde Univeristy Denmark, coord. Bruno Amoroso, Andrea Gallina, in collaboration with CREAD (Algeria), 

INSEA (Morocco), University of Sussex (United Kingdom), University of Tunis, Tunisia ; October 2005 

FEM22-07 : «Integration and enlargement of the European Union, lessons for the Arab region», Center for 

European Studies, Faculty of Economics and Political Science, Cairo University, coord. Naglaa El Ehwany, 

November 2005 

FEM22-20 : «Flexibilité du travail et concurrence sur le marché des biens et services : impact sur les conditions 

de travail et le développement du secteur informel en Algérie, au Maroc et en Tunisie», leaded by ROSES, 

université de Paris I, coord. Gérard Duchêne, Boris Najman, in collaboration with CREAD (Algeria), CREQ 

(Morocco) et ISTIS (Tunisia) ; November 2005 

FEM22-22 : «Identification des effets sur la croissance et l’emploi des mécanismes d’ajustement micro-éconbomique de 

l’offre face à l’ouverture», leaded by CEFI, université de la Méditerranée, coord. Patricia Augier, Michael Gasiorek, in 

collaboration with INSEA (Morocco), Sussex University (United Kingdom) ; September 2005 

FEM22-34 : «Les perspectives de changement sectoriel dans les pays méditerranéens: quels secteurs de croissance 

après l’industrie légère?», leaded by CEPII, coord. Agnes Chevalier, Jean-Raphael Chaponnière, and 

Marc Lautier, in collaboration with CARE-Université de Rouen (France), CEPN-Université de Paris 13 (France), 

ESSEC Tunis (Tunisia), Hebrew University Jerusalem (Israel), Granada University (Spain) ; July 2005 

FEM22-36 : «Obstacles to South-South Integration, to trade and to foreign direct investment: the MENA countries 

case», leaded by CATT-Université de Pau, réseau EMMA, coord. Jacques Le Cacheux, in collaboration with 

Granada University (Spain) ; October 2005 

FEM22-39 : «South-South Trade Monetary and Financial Integration and the Euro-Mediterranean Partnership: 

An Empirical Investigation», leaded by Institute of Financial Economics, American University of Beirut, Dir. 

Simon Neaime ; June 2005 

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June 2006 

Members of the Steering Committee: 

Samir RADWAN Economic Research Forum Egypt 

Jean-Louis REIFFERS Institut de la Méditerranée France 

Nuhad ABDALLAH Academic Unit for Scientific Research ( AUSR) Syria 

Sergio ALESSANDRINI Université de Modène Italy 

Aziz Al KAZAZ Deutches Orient Institut University of Hamburg Germany 

Bruno AMOROSO Federico Caffe Center Roskilde University Denmark 

Slimane BEDRANI CREAD Algeria 

Gérard DUCHENE Université de Paris XII France 

Mahmoud EL JAFARI Al Quds University of Jerusalem Palestine 

Alia EL MAHDI MSA Université-Le Caire Egypt 

Michael GASIOREK Sussex University United Kingdom 

Alejandro LORCA CORRONS Universidad Autonoma de Madrid Spain 

Samir MAKDISI Institute of Financial Economics Am. Univ. in Beirut Lebanon 

Tuomo MELASUO University of Tampere TAPRI Finland 

Jan MICHALEK Department of Economics Université de Varsovie Poland 

Cherif MONDHER ESC Sfax Tunisia 

Seyfeddin MUAZ Royal Scientific Society Jordan 

Lahcen OULAHJ Université Mohammed V Morocco 

Yilmaz ÖZKAN Center for Mediterranean Studies Turkey 

Khalid SEKKAT Université Libre de Bruxelles Belgium 

Alfred TOVIAS Leonard Davis Institute of International Relations Israel 

Meine Pieter Van DIJK UNESCO-IHE Institute for Water education Netherlands 

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CONTENTS 

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . p.1 

I- The enterprises facing the opening . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . p.5 

1. Small entreprises, a new panacea? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . p.5 

2. The liberalisation–employment relationship from the point of 

view of small enterprises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .p.12 

3. Determinants of behaviour: informality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .p.17 

4. Behaviour Adjustments of enterprises and jobs . . . . . . . . . . . . . . . . . . . . . . . . . .p.20 

II- Adjustment of sector specialisations to modify dynamics . . . . . . . . . . . . . p.24 

1. A specific industrial path . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .p.24 

2. The impact of industrial strategies on the liberalisation-employment relation . . . . . .p.26 

3. The textile, revealing industrial sector dynamic . . . . . . . . . . . . . . . . . . . . . . . . . .p.32 

4. Services, relay opportunities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .p.46 

III- Regional integration: time for choices . . . . . . . . . . . . . . . . . . . . . . . . . . . . p.59 

1. Current international integration of MPs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .p.59 

2. European integration, a model for regional initiatives in the South . . . . . . . . . . . . .p.67 

3. Migrations in the Mediterranean: the road for Deeper integration . . . . . . . . . . . . .p.80 

Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .p.91 

Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .p.93 

Annexes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . p.97 

Socio-economic Indicators of MPs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .p.99 

Macro-economic Indicators of MPs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .p.100 

FDI inflows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .p.101 

Trade relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .p.102 

Modelisation of the impact of a South-South agreement . . . . . . . . . . . . . . . . . . . . .p.103 

Modelisation of the impact of a North-South agreement . . . . . . . . . . . . . . . . . . . . .p.104 

Modelisation of the impact of a multilateral liberalisation . . . . . . . . . . . . . . . . . . . . .p.105 

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INTRODUCTION 

The Mediterranean Region is once again 

at a turning point. Ten years ago, the 

Barcelona process had created a new 

framework for North–South cooperation, 

which also laid the foundations for 

South–South integration, and charted 

the way to build peace and prosperity. 

The present transition to a neighbourhood 

policy, in turn, creates opportunities 

and challenges. It is in this framework 

that Femise should examine the 

results obtained and identify the requirements 

for a successful neighbourhood 

policy. 

With regard to the results obtained up 

to the present, the Femise report, written 

in February 2005, on the ten years 

that have elapsed since the Barcelona 

process, took stock of the first ten years 

after Barcelona, at the economic level. 

It is true that these results did not meet 

expectations, nor were they able to 

make the needed modifications to the 

dynamic process in the Mediterranean 

countries, so as to give impetus to visible 

changes in the daily lives of stakeholders. 

However, the conclusions of the 

report focused on the following facts: 

√ There are two incontestable and 

positive facts that will serve as presuppositions 

in this report. The first is that 

a macroeconomic discipline has been 

achieved, which preserves the major 

Coordinators 

June 2006 

-1- 

macroeconomic equilibriums indispensable 

to building a new dynamic process 

in these countries. It should be emphasised 

that these achievements are not 

only reflected in figures (cf. <strong>Report</strong> 

2005), mainly in budgets, balances of 

payments, or inflation levels, which protect 

the future, give the Mediterranean 

countries time to make the necessary 

modifications and allow Europe to think 

up effective support tools, but they are 

also and no less importantly, now rooted 

in the expectations of stakeholders, 

mainly non-locals. It is suffice to say, 

that even among the most conservative 

institutions, which evaluate countries in 

the world according to different criteria, 

the great majority of Mediterranean 

Countries are high on the list in terms of 

economic regulation. 

√ The second positive point, which 

also gives us hope in the future of Euro- 

Mediterranean partnership, is the almost 

unfailing support that civil society in 

Euro-Med countries has given the process. 

Paradoxically, even harsh judgments, 

made on the occasion of the 

tenth anniversary, indicate a form of 

irritation with a promising tool, which 

is tardy in producing concrete results. 

Today, this is what should be a priority: 

how can the efforts of the two coasts of 

the Mediterranean be made visible. How 

to make visible: actions taken as part of 

association agreements and the positive 

effects of the considerable adjustments.

In brief, help the stakeholder to seize the 

impact of this process in their daily lives, 

rather than just the institutions. 

√ On the other hand, internal factors, 

(the enlargement of Europe, continued 

regional conflicts) and external 

factors (evolution of the WTO, involving 

a generalised open economy policy, 

which has diminished developments in 

the MPs and the opening up of China, 

mainly within the context of multi- fibre 

accords), and, at times, unforeseeable 

and at others, ignored factors have weighed 

heavily on the Euro-Mediterranean 

dynamic process. To manage these consequences, 

macro economic stability 

alone will not be enough. It may be an 

indispensable foundation, but it should 

be completed by impetus-giving elements. 

The ILO annual international 

report on world employment indicators 

emphasises that economic growth alone, 

will not be enough to meet global job 

needs. 

The idea of partnership was that by 

combining macroeconomic stability 

with a liberalisation strategy, through 

the establishment of a free trade zone 

with Europe, the Mediterranean countries 

would have the basic elements for 

development, to which the effects of 

induced investments would automatically 

be added. Such effects would be 

improved competitiveness in production, 

sector specialisation and development, 

and improvement of regional relations 

among the south Mediterranean countries, 

which would place them in a 

better position in the dynamic process. 

The international community has not 

failed to emphasise this and has modified 

its expectations for the region and 

as a result, increased the movement. 

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It should be noted that this mechanism 

has been overestimated, as most of the 

expected automatic relations have hardly 

progressed. 

Our report is intended to continue this 

research. First, it takes macroeconomic 

stabilisation for granted, without reconsideration, 

especially as 2005 has been 

marked by the energy crisis, which has 

made it too early to reach final conclusions 

At the same time, it is part of 

the perspective of the inadequate equilibrium 

achieved at present, since the 

pace of resolving the job problem is not 

satisfactory. 

The idea, therefore, is to identify the initial 

and present conditions that the stakeholders 

encounter, the specific reasons 

that have led to the inadequate dynamic 

process promised by the association 

agreements, while trying to highlight 

elements that could modify the growth 

paths and social adjustment forms. This 

question had been posed by Femise 

in its last rest research programme. It 

had raised the question of the supply 

capacities of the MPs in response to the 

demand generated by the liberalisation 

strategy, which was the maximisation of 

the induced investments, expected when 

the process was put in place. 

In this report, and on the basis of several 

research studies, we shall adopt as a 

hypothesis, the sources of a new dynamic 

process in the renewed performance 

of stakeholders, in the first place, in 

the network of enterprises, as they are 

the establishments that will provide the 

jobs that are absolutely necessary to 

the equilibrium of the region. However, 

these enterprises develop in a special 

historical background, which can only

e modified slowly and has many cons- 

traints. Therefore, in the second place, 

we should identify these constraints, 

which result from the sector structure 

of these enterprises, mainly in terms 

of opportunities. We should look for the 

terms of specialisation and the opportunities 

that can generate a better circle. 

This impetus may be well supported in 

the framework of regional agreements. 

This, in fact, is the very idea of Euro- 

Mediterranean partnership. Then, emerges 

the question of what type of North- 

South and South-South partnership 

would be consistent with the initial 1995 

objectives and the present geo-political 

developments. 

In the first part, the report discusses 

several surveys carried out by network 

teams and the specific processing of 

surveys on national enterprises, to better 

understand the performance of firms 

and the impact of liberalisation on them, 

particularly with regard to employment. 

Local industries are, to an extraordinary 

extent, still dominated by micro 

enterprises, which provide the better 

part of private employment. It is in their 

performance, constraints and perspective 

that we can find the dynamics of 

employment. The budgetary measures 

in the taxation policy of States make it 

imperative to understand performance, 

particularly with regard to distinctions 

made between the formal and the informal 

sectors which, in Femise Studies, 

appear to be more blurred than previously 

thought. 

The second part will make an analysis 

by sector of the economy of MPs, with 

emphasis on textiles. It is now clear 

that improved supply, which is indispen- 

-3- 

sable in view of the job constraints in 

MPs, can not automatically result from 

the adoption of a liberalisation strategy. 

Specialisation and the dynamics of the 

profession, at the European and international 

levels, are among the main conditions 

of competitiveness and durability 

of the enterprises. 

In the Euro-Mediterranean region, the 

present situation of Mediterranean countries 

is largely due to the fact that the 

two basic sectors of the economies of 

these countries (in 1995 and at present) 

are, on the one hand, agriculture, 

which for a long time has been marginalised 

in agreements and it is only now 

that it appears on the agenda, and on 

the other, the textile-clothing industry, 

which has been drastically disrupted by 

the end of the multi-fibre agreements 

and the opening up of China. 

To address the question of how a new 

dynamic process that is more suited to 

the needs of the MPs can be launched, 

will inevitably lead us to the question 

of agriculture, a subject that has been 

discussed by Femise in 2003 and which 

will not be dealt with in this report. 

The question of what comes after textiles, 

or at least after 2005, also arises. 

Specialisation options, whether they are 

dictated by a forced adaptation to the 

changed conditions of competitiveness 

at the national and regional levels, 

or by industrial policy strategies, are 

not without effect on employment and 

growth in each country. 

As Femise has already pointed out, the 

MPs should find their place in the most 

dynamic external markets, an adjustment 

which remains to be done by most 

of them.

However, the competitiveness of export 

enterprises in MPs can not be an end in 

itself in view of the employment problem 

in these countries. In addition to 

working in sectors that generate rapid 

economic growth, specialisations of MPs 

should allow for sufficient absorption 

of employment, or at least, enough to 

maintain present unemployment levels. 

The adaptation of industries to the new 

conditions of competitiveness, at the 

local and international levels, may arise 

from voluntary industrial policies or sector 

reform. In this transition, production 

factors are moved, leading to the loss of 

some jobs and the creation of others. For 

the MPs, the question of the final results 

is undoubtedly the most important. Over 

and above the industrial sectors, some 

services will assume major importance 

and their liberalisation is likely to modify 

some present processes. 

Third, the report deals with the question 

of regional integration, in terms of 

the potential contained for the regional 

integration of the South and the form 

Euro-Mediterranean and South integration 

can take. 

At the strictly economic level, it would 

be a mistake to think that the enlargement 

of Europe and more particularly, 

regional conflicts on the southern coasts 

of the Mediterranean, do not affect stakeholders’ 

expectations, and as a result, 

economic flow. With the establishment 

of the new neighbourhood policy, the 

shape of this integration will become a 

more pressing question. Should it be 

unilateral, multilateral or take the form 

of regional agreements between countries 

at the same development levels? 

Each of these options is expressed in a 

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specific way. A South-South integration 

would involve reallocation of specific 

factors that could be substantially different 

from those generated by integration 

with Europe, for instance. In view of the 

socio-economic situation of the MPs, 

they should not be allowed to shoulder 

the same readjustment costs several 

times. This leads to an in-depth consideration 

of the consistency of the different 

agreements. 

Then, there is the very under-estimated 

symbolic dimension: as we said in 

the introduction, the durability of the 

Euro-Mediterranean region cannot be 

conceived of without civil society. It is 

this support of civil society that will be 

the most important mainspring of a 

rapid transition, once the right directions 

have (finally) been defined. This is why 

it is essential that association agreements, 

partnership and neighbourhood 

policy should be strongly felt in the daily 

life of stakeholders. Then not only will 

European policy be the decisive factor, 

but also the regional policy of MPs. 

Finally, the 2005 annual report deals 

with aspects of migration. Partnership 

seeks to create a zone that maintains 

equilibrium, peace and prosperity that is 

to establish a de jure interdependence 

that will de facto link the two coasts. 

However, the disequilibrium between 

the possible circulation of financial flows, 

commodity flows and human flows, the 

latter being the most systematically restricted 

can only generate friction, economic 

reallocations that are not optimal 

and bring out the partial character of 

the present tool. It could be said that, in 

order to allow partnership agreements 

to be felt in daily life, to win over public 

opinion in the South and to have the sup-

port that will enable the acceleration of 

reforms, there should be developments 

in the possibilities of human flows. 

Furthermore, at the strictly economic 

level, time is needed to make substantial 

modifications in the anticipations of 

the international community, in terms 

of work in the MPs. This will continue 

to affect investment flows, especially as 

a subjective disadvantage will persist 

between them and the countries of the 

East (because a well known political project 

will continue) or with China (because 

its weight generates unequalled economic 

perspectives). In fact, the need for 

financial investments in small projects 

is important, as we shall see in the next 

part of this report. From this point of 

view, migration generates a resource: 

the funds that are sent back home by 

migrant workers (mainly in Europe), 

which leads us to think that they could 

be an important lever to enhance the 

growth paths. 

I- The enterprises facing the opening 

1. Small entreprises, a new panacea? 

Studying the performance of the MSE 

sector is not an easy task, as it requires 

facing (at least) two sets of challenges: 

(i) theoretical challenges, including definition 

problems, framework designing, 

etc; and (ii) practical challenges, since 

studying this sector means studying 

more than 90% of the enterprises that 

exist in a country, most of them are not 

only informal but also deeply integrated 

into the society that they are hardly 

located physically. 

The need to accelerate economic growth 

of most MPs has created the need to tap 

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new sources that would push those economies 

forward. Given the prevalence 

of the MSE sectors in economic activities, 

they could represent this endogenous 

power that, if given the adequate 

support, can contribute significantly to 

sustainable growth. The MSE sector can 

also contribute to the solution of the 

unemployment problem, be a channel 

of investment of small savings, and a 

source of enhancing the economies’ 

value added. 

It is against this backdrop that the idea 

of studying this sector has originated. 

Despite the many challenges that this 

would involve, it was thought worthwhile 

to attempt to provide adequate 

and targeted policies based on sound 

understanding of this sector’s dynamics 

if it is to realize its potential. 

With this belief, the FEMISE (together 

with several other international donors) 

have funded a large and pioneering study 

on the means to promote the competitiveness 

of this sector in four MPs: Egypt, 

Lebanon, Morocco and Turkey. The study 

is based on a field survey of 5,000 micro 

and small enterprises operating in each 

of those countries (3,000 in the case 

of Lebanon) and aims at understanding 

their characteristics, the impediments to 

their performance, their prospects and 

the determinants of their success. 

The main surveys of the MSE firms were 

conducted in the four countries between 

2001 (Turkey), 2002 (Morocco), and 

2003 (Egypt and Lebanon) followed by 

a follow-up survey (except in the case 

of Lebanon). The survey was based on 

filling questionnaires at the enterprise 

level, at the entrepreneur level, and at 

the household level.

The database of these surveys will allow 

better assessment of the performance of 

this sector and deeper understanding of 

its needs. 

A profile of the MSE sector in selected 

Mediterranean Countries 

The MSE sector, defined here as formal 

and informal enterprises employing 1- 

49 workers, represents the backbone 

of the activities of the MPs economies. 

This sector represents more than 90% 

of the enterprises, employing 60-70% 

of workers in these countries and contributing 

from 30-50% of the economies’ 

value added. 

97% of the enterprises (formal and 

informal) in Egypt, are micro and small 

(employing from 1 to 49 workers), the 

informal[1] ones constitute around 81% 

of this share. It is also to note that the 

informal female workers represent only 

14% of the whole informal workers 

community, which is a relatively modest 

share given that females constitute 50% 

of the population[2]. The MSE sector in 

Egypt employs 62% of total formal and 

informal workers (88% informal workers 

vs. 23% of formal). In Turkey this 

sector represents 99.4% of the total 

number of enterprises, most of which 

are formal since registering the firm is 

an obligation before setting up certain 

activities. This sector employs 73% 

of non-agriculture workers and contributes 

64.8% of total value added. In 

Lebanon, 96% of enterprises are either 

micro (88%) or small (8%) accounting 

for more than 50% of total employment. 

In Morocco, micro and small enterprises 

represent 99.6% of total enterprises, 

and represents more than 70% of total 

employment. 

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Determinants of Success of the MSE 

Sector 

Success of the MSE sector does not only 

depend on the good performance of 

the firm, or the education and training 

of the entrepreneurs. This sector does 

not function in a vacuum: macroeconomic 

and business environment has 

significant impact on the performance 

of the MSEs. Prospects of the MSEs, as 

reflected in the Egyptian and Turkish 

surveys, have been greatly affected by 

the recession that both countries were 

undergoing. One may argue that this 

reflects only a short temporary period 

that should not be generalized, but the 

fact that this sector is not meeting its 

growth potential still holds. In fact, both 

the performance of the firm and the 

macroeconomic environment in which it 

operates play a major role in the success 

or failure of this sector. 

In view of these conditions, this research 

programme adopted a combination of 

quantitative and qualitative approaches 

to data collection in order to capture 

both the context and dynamics of the 

issue within a national and comparative 

scope for the entire region. 

The coming section will discuss the 

determinants of success of this sector 

as identified by the entrepreneurs themselves 

in Egypt, Lebanon, Turkey and 

Morocco. This could make major contributions 

to the designing of policies in 

each of those countries. 

1. Formality[3] represents one of the 

major determinants of success of 

MSEs. The degree of informality varies 

depending on its definition and on the 

regulations. In some countries such

as Turkey and Lebanon, registration 

is a requirement before undertaking 

some activities. However, in Egypt, 

where being registered is not a requirement, 

it was found that 80% of the 

MSEs are informal. Being formal holds 

many benefits as it means better 

access to financial and administrative 

support, but most entrepreneurs find 

the procedures of registration very 

complicated, time consuming and 

expensive, relative to the potential 

gains it may achieve. 

2. The presence of MSEs in Clusters 

could, generally, provide an enabling 

environment that enhances efficiency 

of firms through existence of different 

production complementary entities. 

Being in a cluster ensures the exchange 

of knowledge and experience, 

and provides business inter-linkages 

between the firms operating in the 

same cluster community, which adds 

value to the performance of the firm 

through the growing social capital. 

Being in a cluster was found to be the 

top priority determinant of success for 

MSEs in Egypt. In Lebanon, however, 

the norm is reversed; MSEs that do 

not belong to a cluster achieve better 

performance levels. This is due 

to the nature of clusters in Lebanon, 

which consists mainly of firms in the 

same, or similar, line of business. As 

a result, a competitive environment 

arises, restricting profits, and thus 

performance. 

3. All studies of MSEs have showed that 

being a male entrepreneur means a 

better performance of the firm than 

being a female. Regardless of their 

education, training and experience 

(if any), female entrepreneurs are at 

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a disadvantaged position compared 

to males: they face more difficulties 

in the market, in getting education 

or training and in getting access to 

finance and other support services. 

Moreover, the woman’s role in the 

household limits her ability to work 

longer hours in her business. 

4. The existence of an enabling business 

environment that ensures good 

working conditions, the availability of 

specialized workers, access to financial 

and non-financial business services, 

enjoying fiscal incentives and 

limited competition from larger firms 

are regarded as essential tools to 

ensure the success of the enterprise. 

5. The success of MSEs depends on the 

educational attainment of its entrepreneurs 

and the training and/or experience 

he/she gained. It was found in 

Morocco, Lebanon and Turkey that the 

best performing firms are those that 

are owned by educated entrepreneurs 

who received more than 10 years of 

education. Contrarily, in Egypt, it was 

found that the years of education 

have no effect on the performance of 

the firm. 

6. Equally important than being educated 

is the formal vocational or technical 

training for entrepreneurs. In 

turkey only 10% of the entrepreneurs 

had formal technical or vocational 

education. In Egypt, the percentage 

of entrepreneurs who received technical 

education was 3.4% for the 

males and 2.9% for the females. 

In Lebanon, this percentage is 9% 

and 15% respectively. In Lebanon 

what matters most is not the vocational 

training (it had a negative

affect on the performance of the firm) 

but entrepreneurs who have training 

apprenticeship experience do benefit 

their firms, which record better performance 

levels. This is true in all 

countries under consideration because 

this type of training is specialized 

and thus can be particularly relevant 

to the field of the firm. 

7. Having access to financial resources 

constitutes an important determinant 

of the success and the sustainability 

of MSEs. As denoted by the entrepreneurs, 

it is considered one of the 

major challenges they face: financial 

institutions are not apt to lend small 

enterprises due to the high risk associated 

with lending small unknown 

entrepreneurs and high transactions 

cost linked with small loans. As a consequence, 

it was found in the survey 

conducted in the four countries that 

a very small percentage of entrepreneurs 

rely on formal loans to finance 

their businesses, while most rely on 

their own savings or other sources of 

finance. 

8. Another important determinant of 

success is the availability of the adequate 

infrastructure (such as roads, 

transportation, electricity, water, 

sewage, etc.) and also the access to 

Table X1: Sources of Finance for MSEs 

-8- 

some machinery and advanced technology 

(especially for firms working 

in the industrial sector) that would 

increase productivity and ensures 

the sustainability of growth. 

Assessment of Performance: A 

Case study of the MSE sector in 

Egypt 

In order to highlight the growth dynamics 

of MSEs in Egypt, a Growth Index 

was constructed (using the available 

data from the main survey (2003)), 

where data related to their performance 

was given in two points of time: 

survey time (2003) and one year earlier 

(2002). 

The Growth Index[4] is composed of four 

growth-indicating variables: (i) value of 

invested capital; (ii) space of enterprise 

(iii) number of workers; and (iv) value of 

used raw materials. The Index was derived 

based on the average change rate in 

the values of those combined variables 

at the survey time compared to the previous 

year. The growth-indicating variables, 

help in shedding some light on the 

dynamic change that occurred during 

this period. 

On average, the MSEs growth rate did 

not exceed 2.2% between 2002 and 

Source of finance Egypt Lebanon Turkey 

Inheritance 21.0 18.0 5.3 

Own savings 67.1 60.0 78.9 

Liquidation of assets 3.6 3.8 1.9 

Formal loans 3.5 4.2 0.6 

Informal loans 2.6 2.5 8.8 

Own remittances 0.5 5.5 0.1 

Source: Femise, from research n° FEM21-31

2003. The growth index showed that 

more than half (52.2%) of the MSEs 

did not grow within that year. Most 

of the remaining MSEs (28.5%) deteriorated 

and only 19% had registered 

some growth. While 17% deteriorated 

by more than five percentage points, 

only 12% grew with more than five 

percentage points. 

Testing the relationship between the 

growth index and some of the characteristics 

of the MSEs can assess the 

effect of those characteristics on the 

potential growth of the sector. The 

results showed: 

√ In terms of economic activity, firms 

working in the industry sector have 

achieved the highest average growth 

of 4.1%, compared to 3.8% growth 

in the services sector, and only 1.3% 

in the trade sector. 

√ On another front, it was found that 

15% of the MSEs working in the 

services sector witnessed a growth 

of more than 5%, while only 10% of 

the MSEs working in the industrial 

sector achieved this growth rate. 

√ In terms of size, data showed that 

small enterprises employing 5 to 9 

workers have achieved the highest 

growth rate of 4.75%, while those 

employing 10-49 workers have deteriorated 

with 1.3%. 

√ Data showed that while almost half of 

the micro enterprises (1-4 workers) 

-9- 

did not grow, 30% have deteriorated 

and only 18% have achieved some 

growth. 

√ The picture has somewhat changed 

when considering small firms (5- 

9 workers), where the percentage 

of firms that deteriorated is almost 

equal to those that have improved 

(25%). 

√ While most of the larger firms (80%) 

(10 to 49 workers) remained unchanged 

during that year, indicating that 

that kind of firms is more stable. The 

number of firms which deteriorated 

was larger than those that have 

improved, putting the growth rate 

of this group at the negative level 

(1.3%). 

√ In terms of invested capital, results 

showed that firms that have invested 

a capital between 5,000 and 20,000 

LE have achieved the highest growth 

rate of 4.4% while those that have 

invested less than 1,000 have achieved 

the lowest of almost 0.5%. 

√ One of the interesting results that 

were found is the one deriving from 

studying the relation between the 

growth index and formality. It was 

found that informal firms have achieved 

a higher average growth rate 

of 2.7% than those that are formal 

(1.1%). 

√ In terms of pattern of growth, it 

remains the same for formal and 

Table X2: Distribution of MSEs according to the index categories 

Growth Index value

informal firms: half of both categories 

remain unchanged (52%); almost 

28% of the firms (either formal or 

informal) deteriorated, and almost 

19% of them (formal or informal) 

achieved some growth. 

To summarize, the best performing firms 

in Egypt were those: 

1. working in the industrial sector; 

2. with a number of workers between 5 

and 9; 

3. with an invested capital between LE 

5,000 and LE 20,000; 

4. and informal. 

Prospects of MSEs 

It is clear that the performance of MSEs 

and the environment in which they operate 

play a major role in how the entrepreneur 

perceives the future of his firm. 

The study used a Future Prospects Index 

to measure the perception of the entrepreneurs 

in the MSE sector on how they 

regard the future of their businesses. 

The index was calculated based on data 

gathered from the main survey (2003) 

and after one year from the follow-up survey 

(2004) about the expectations of the 

entrepreneurs regarding specific issues 

related to the future of their firms. 

The index measures the future prospects 

of the entrepreneurs based on the 

following factors: (i) employment; (ii) 

space of the economic unit; (iii) output; 

(iv)invested capital; (v) revenues; (vi) 

domestic sales; (vii) exports; and (viii) 

introducing new products[5]. 

It was found that in Egypt, Morocco 

and Lebanon most entrepreneurs 

-10- 

foresee no changes in their businesses. 

Entrepreneurs in Egypt had a more 

negative perception of the future of 

their businesses in 2004 survey than 

in 2003[6]. The negative expectations 

were quite definite on the number of 

the entrepreneurs who intend to leave 

the business or to decrease the number 

of workers, the value of assets, 

the output, the domestic sales and the 

revenues. While in Lebanon, the picture 

was completely different, with the number 

of entrepreneurs that expect the 

growth of their firms larger than those 

that expect contractions of their activities. 

High expectations were particularly 

perceived in output (42% expected an 

increase in output) and domestic sales 

(54%). In Morocco the picture was 

similar to that of Lebanon, where entrepreneurs 

that had good expectations 

about the future of their firms were 

larger than those with negative perceptions. 

The expectations were higher in 

terms of future production (39%) and 

revenues (49%). 

Policy recommendations 

It is not difficult to generalize the policy 

recommendations that should be used 

to promote the MSE sector, as the basic 

needs of this sector are more or less 

the same in all the MPs. However some 

country specificity reflecting the special 

conditions under which this sector 

operates, have to be considered. The 

recommendations should not only focus 

on the policies that would enhance the 

growth of the MSEs, but more importantly 

to improve on their effectiveness 

and the conditions under which they 

operate. It should be noted that the 

effectiveness of these recommendations 

is conditional on pursuing macroecono-

mic reforms pertaining to infrastructu- 

ral, fiscal, institutional, sectoral, and 

employment policies. 

√ It is important to differentiate between 

the micro and the small enterprises in 

designing the policies relevant to their 

growth. The two groups have different 

productivity schemes, different conditions, 

different growth perspectives 

and different needs. Policies targeting 

Micro enterprises should focus on promoting 

the productivity and efficiency 

by providing technical assistance 

programs especially in cluster communities. 

Whereas policies directed 

towards small enterprises, need to be 

more diversified containing financial, 

technical and marketing supports and 

export promotion programs. 

√ Policies should be directed to link 

this sector (specially the small ones) 

to larger firms. This sector could 

act as food industries, subcontractors, 

service/maintenance providers 

of goods or services produced by the 

larger companies. This sector can 

be considered the missing middle 

that could link between larger firms. 

One suggestion would be to give the 

large firms those links with micro or 

small ones, special incentives or tax 

exemptions. 

√ There is a need to provide an enabling 

business and institutional environment. 

This includes the need to 

simplify the registration procedures 

and to design special tax schemes for 

this sector as incentives that would 

encourage it to operate formally. Most 

of the informal MSEs, have a tendency 

to avoid growth beyond certain limits 

and/or prefer operating informally, 

-11- 

based on the fear of having to deal 

with public administrations, taxes, 

etc. Also there is a need to encourage 

MSEs to work in clusters so as 

to share the benefits of supporting 

counseling and services. 

√ As noted by most entrepreneurs in the 

four surveys, access to official loans 

is a very difficult, if not an impossible, 

task. Loans could be granted to 

specialized activities/projects based 

on market needs, while reducing the 

conditions and required guaranties. 

√ As reflected in the surveys, «on the 

job training» is considered the main 

(and sometimes the only) source of 

training. In order to promote this 

sector, more formal training schemes 

should be organized. Public training 

centers are not enough; there is a 

need to encourage NGOs and the 

private sector to invest in the establishment 

of new modern specialized 

training centers and/or finance renovation 

and management of the existing 

public training centers. 

√ More specialized policies should be 

made to promote women entrepreneurs 

who are put at a disadvantaged 

position: they are less educated, unskilled, 

untrained, they suffer from low 

productivity, low earnings, they have 

lower added-value; and have less 

access to assets and resources. 

√ The number of exporting MSEs is 

extremely low (if any). MSEs do not 

have the knowledge, experience or 

infrastructure required for exporting. 

In addition, training and counselling 

services on exporting, and the creation 

of specialized exporting enter-

prises capable of mediating between 

export markets and MSEs could be an 

effective way to promote an export 

culture among the MSEs. MSEs with 

export potential should be informed 

about foreign markets as well as 

foreign enterprises to enhance the 

possibility of an active cooperation. 

2. The liberalisation–employment 

relationship from the point of view 

of small enterprises 

The characteristics of small enterprises 

and employment, which are the 

main part of the industrial network in 

MPs, allow us to better understand the 

channels through which the expected 

benefits of an open economy can be 

transmitted. However, the impact on 

jobs should be defined in greater detail. 

That is to say, we should not only evaluate 

the global result, which has been 

modest, during the past ten years, but 

above all, the exact mechanisms that 

have led to this impact and which can 

lead to an improvement in potential 

consequences. 

This is what another study of Femise 

has attempted to do[7], on the basis 

of the annual survey of the Moroccan 

Ministry of Commerce and Industry 

covering the period from 1990-2002. 

The teams studied the process of creating 

and cutting jobs in the branches of 

the manufacturing industry, to obtain 

an exact understanding of the movement 

that is produced and that reflects 

the consequences of industrial adjustment. 

This does not allow an analysis 

at the sector level of the changes in net 

employment. The objective is to better 

understand the origins of employment 

reallocation (size, sector and activity 

-12- 

of enterprises, its ability to export, 

etc.), its weight in industry and in 

categories of industries. Heterogeneous 

enterprises have been identified as an 

important explanation for the job creation/cutting 

waves, which, in this case, 

are not directly linked to specific sector 

shocks or fluctuation cycles but to the 

performance of firms. Through this analysis, 

it was possible to understand the 

impact of an open economy on employment 

in Morocco employment, which 

was symbolised by Morocco’s adherence 

to the WTO in l995 and the signing of an 

association agreement with the EU. The 

analysis was also conducted on Turkey 

with a similar objective. 

An in-depth study of the Moroccan case 

revealed that the rigidity of its labour 

market was a less important obstacle 

than claimed by previous studies and 

that manpower mobility was rather 

high: 

√ In Morocco total net job creation 

was low (64,000 that is an average 

annual growth of 1.2% over that 

period), especially since 1998, in 

spite of great man-power mobility, 

demonstrated by the gross job creation 

figures (650,000) and gross 

job losses (586,000) and the feeble 

constraints contained in legislation 

(especially for firing). This is the factor 

that is often blamed. 

√ Job creation was quite regular. It rose 

to about 11.8% between 1990 and 

2002 (a 0.7 lower standard deviant) 

whereas job losses, were almost 

as high, (10.6) and more chaotic 

(1.9 standard deviant), which was 

consistent with the results obtained 

for other developing countries. This

can be explained by the fact that illustrated the impact of specialisation, 

job cutting, more than job creation, whose limits were beginning to produce 

is linked to the crisis. Furthermore, the results that were prejudicial to job 

the slowdown of net job creation 

would be the reflection of a stron- 

creation: 

ger elimination process rather than √ Sectors which absorbed most man- 

a drying up of the job creation propower, especially unskilled labour, 

cess (Table X3). 

namely the textile and leather industries 

(46.7% of total manufacturing 

√ Job creation was in 90% of cases the employment in 2002), chemistry and 

result of durable enterprises, which Parachemistry (19.4%) and food pro- 

was not the case for most other councessing industries (18.7%) have seen 

tries sampled in this analysis, but their contribution to total employ- 

these were also the enterprises that ment decline, a decade ago. The lat- 

cut the most jobs (57%), when they ter alone lost jobs in absolute terms 

reorganised their workforce (43% (Table X4). However, as the second 

were the result of bankruptcy). These part of this report will demonstrate. 

job losses were very variable and This may also be the case of the tex- 

fluctuated between 32.8% in 1999- tile and leather industry, as a result of 

2000 and 76% in 1993-1994. 

the end of the multi fibre agreement 

and the fact that these countries 

However, in addition to the perfor- have not prepared for this situation 

mance of firms, the case of Morocco (decline in investments, etc.). 

Table X3: Net and Gross flows of workforce in the manufacturing industry in 

Morocco. 

Years 

Gross 

Net rate of Gross rate 

Rate of 

rate of 

creation of creation 

reallocation 

destruction 

(NRC) (GRC) 

(RR) 

(GRD) 

1990-1991 3 12,3 9,3 21,6 

1991-1992 2,8 11,7 8,8 20,5 

1992-1993 2,2 12,3 10,1 22,3 

1993-1994 0,5 12,1 11,5 23,6 

1994-1995 1,7 11,7 10 21,6 

1995-1996 2,8 12 9,2 21,2 

1996-1997 2,9 10,9 8 18,9 

1997-1998 -2,4 10,5 12,9 23,4 

1998-1999 1,5 11,4 9,9 21,4 

1999-2000 -1,4 12,8 14,2 26,9 

2000-2001 0 12,9 12,9 25,8 

2001-2002 0,7 11,3 10,6 21,9 

Average 1,2 11,8 10,6 22,4 

S t a n d a r d 

Deviation 

1,8 0,7 1,9 2,6 

Source: Femise, from research n° FEM22-22 

-13

√ Electric and electronic industries were 

taking a more prominent position. 

Though they ranked only fifth in terms 

of total employment (5.6%), they 

were dynamic in job creation (22.7% 

between 1990 and 2002, of which 

-0.9% in 1990-1995 and 77.2% in 

1996 -2002). These figures were only 

surpassed by those of the textile and 

leather industries (81.9%). However, 

the role of this sector is still small 

and does not allow it to take over the 

leather and textile sector in the short 

term (Table X5). 

√ In the textile and leather industry, 

which was the main contributor to 

manufacturing employment, it was 

the clothing industry that gave impetus 

to job creation, while the textile 

industry lost steam. It was therefore, 

evident that the expected negative 

consequences of the end of the multi- 

-14- 

fibre agreements on Morocco were 

greater than an analysis by sector 

would have us believe. Moreover, this 

increasingly emphasised the inability 

of Morocco, unlike Turkey, as we shall 

see later, to develop an industry on its 

soil, which would enable it to capture 

part of the surplus (cloth can account 

for 60% of the price of an article of 

clothing), Another factor was the 

inability to control costs and delivery 

dates which would, in the short term, 

greatly strengthen the competition 

faced by firms. 

√ Finally, gross job creation came from 

enterprises, which had been established 

in the market for a long 

time (this was the case with 95% of 

the chemical-Parachemical industries, 

92% of the food processing industries 

and 92% of the mechanical and 

metallurgical industries). However, 

Table X4: Evolution of the contribution of manufacturing employment by sector 

Years 

Food processing 

industries 

Textile and 

leather 

industries 


Chemical and 

Parachemical 

industries 

Mechanical and 

metallurgical 

industries 

Electric and 

electronic 

industries 

1990 22,9 41,2 21,9 11,0 3,0 100 

1991 22,2 41,8 22,1 11,2 2,8 100 

1992 20,8 42,9 22,3 11,6 2,4 100 

1993 21,7 41,7 22,2 11,9 2,5 100 

1994 21,9 42,8 21,8 11,0 2,4 100 

1995 21,5 42,2 22,7 11,1 2,6 100 

1996 20,6 42,2 23,7 10,8 2,6 100 

1997 20,2 43,2 23,4 10,6 2,6 100 

1998 18,9 45,7 22,1 9,7 3,6 100 

1999 18,3 46,5 21,0 9,9 4,2 100 

2000 18,8 46,1 20,5 9,9 4,7 100 

2001 19,1 46,3 19,9 9,6 5,1 100 

2002 18,7 46,7 19,4 9,6 5,6 100 

Table X5: Sectoral contribution in net employment creation 

Years 

Food 

processing 

industries 

Textile and 

leather 

industries 


Chemical and 

Parachemical 

industries 

Mechanical and 

metallurgical 

industries 

Electric and 

electronic 

industries 

1990-1995 8,1 50,8 29,9 12,1 -0,9 100 

1996-2002 -46,3 154,1 -58 -27,1 77,2 100 

Whole -8,3 81,9 3,4 0,3 22,7 100 

Total 

Total

the contribution of newly established 

enterprises was greater than that of 

the less capitalistic textile and leather 

or electronics sectors. We shall again 

see the problem of access to financing 

for enterprises. Another factor that 

should be taken into consideration is 

the big enterprises’ ability to adapt 

to the changed competitive situation 

at the international level. Partnership 

agreements had not prepared them 

for this eventuality, since it was reflected 

in outsourcing and an international 

division of tasks but rarely in the 

emergence of industries in the MPs, 

or sufficient increases in value to sell 

a product with a local brand name on 

the European market. 

The Moroccan industry apparently, has 

still not initiated a transitional process 

towards a higher growth system, which 

would meet job constraints. It is still 

dominated by branches that employ 

unskilled labour and produce little added 

value. The emergence of a more skilled 

labour intensive industry with high added 

value has proved difficult and the open 

economy has not been much help in this 

process. It can therefore be noted that: 

√ The employment structure hardly 

evolves; unskilled labour in 2002, as 

in 1990, accounts for 51% of total 

employment, jobs requiring skilled 

labour and training levels are still 

stagnate at around 39% and 10% 

respectively. 

√ Workers’ movements are mainly at 

the level of constant qualification in 

the clothing industry at the expense 

of the textile industry; the movement 

of workers from an industry that is 

not very capitalistic to another indus- 

-15- 

try, which is capital intensive and 

skilled labour intensive is rare. 

√ Job creation is not the prerogative 

of export-oriented enterprises[8]. 

Those which are less export-oriented, 

or which only cater to the 

local market, have similar results 

with regard to this aspect. However, 

the former have higher reallocation 

rates than the latter and their gross 

job loss rates are high and very 

much affected by crises, but their 

ability to create jobs is greater and 

has progressed between 1990 and 

2002. (-3.8 points for the latter) 

Above all, the development of gross 

rates between 1990/91 and 2001/02 

seem to indicate that export industries, 

as expected, have succeeded 

more in standing up to competition, 

since gross job loss rates have 

considerably fallen. Conversely, 

non-export enterprises see their 

gross job loss rates increase with or 

without fluctuations. This, therefore, 

seems to confirm on the one hand, 

that the open economy can produce 

a positive shock of competitiveness, 

which is reflected by improvement 

of gross and net job creation possibilities. 

However, as predicted, it 

is accompanied by a negative effect 

on local enterprises (lower job creation 

rates and higher job loss rates) 

which, at the global level, (i) have 

a low net global impact, and (ii) 

threaten the dynamic process of 

job creation in the long term, which 

does not meet the needs of the MPs 

and will require actions to modify 

the present processes. 

√ Job reallocation rates are estimated 

at 22.4% (taking into account job

creation and job losses). This means 

that more than a fifth of the workforce 

is renewed every year. 

√ The heterogeneousness of firms inside 

this branch explains the volatility 

of job creation. Enterprises can 

be divided into two groups: durable 

enterprises with great mobility, but 

which create almost as many jobs as 

they lose and small enterprises that 

have been newly created and which 

have a large capacity for the absorption 

of workers, but they have a brief 

life–span and are rapidly changing. 

In Turkey[9], as in Morocco, short-term 

static effects on growth, related to the 

reallocation of resources in export-oriented 

sectors, which are exposed to international 

competition, should be limited 

-16- 

in general, and have a negative impact 

on employment. Dynamic effects, which 

bring a balanced long-term growth that 

is mainly due to technology transfers 

are supposed to dynamically activate 

employment, especially the employment 

of skilled workers and lead to productivity 

gains as is the case in the NICs in 

Asia. 

The Turkish export promotion policy relied 

on an increase of subsidies accounting 

for 25% of commodity exports between 

1979 and 1990 (Table X7). Asian counties 

also resorted to such incentive measures, 

by linking the release of subsidies to the 

export performances of enterprises. This 

policy was part of the more global liberalisation 

movement (deregulation of the 

labour market, financial liberalization, 

convertibility of capital accounts etc.). 

Table X6: Employment creation and loss by the orientation of activities of enterprises 

Exporting Non exporting 

% of exporting enterprises 

GRC GRD GRC GRD 

1990/1991 50,8 11,2 11 13,8 7,9 

1994/1995 50,9 13 11,2 10,5 8,9 

1999/2000 54,4 15,4 16,2 9,5 11,6 

2001/2002 56,1 14,1 6,9 10 14,1 


Table X7: subsidies evolution for Turkish exports 1979-1990 (% of total exports) 

Direct 

subsidies 


Export credits Import tax 

exemption 

Discount on 

Total subsidies 

the VAT 

-1 -2 -3 -4 (=1+2+3+4) 

1979 11,0 9,9 0,3 0,0 21,2 

1980 5,6 14,9 4,2 - 26,7 

1981 9,1 13,0 3,3 - 27,4 

1982 15,1 10,8 3,6 - 31,5 

1983 17,4 10,5 5,6 - 35,9 

1984 17,3 5,9 2,0 2,0 27,2 

1985 10,0 2,0 5,1 2,0 19,1 

1986 9,9 4,8 8,6 2,6 25,9 

1987 8,6 2,9 6,7 4,3 22,5 

1988 7,6 4,8 6,6 4,3 22,5 

1989 5,5 8,8 7,7 5,9 27,9 

1990 4,4 9,2 7,7 6,2 27,5

The study revealed that in the case of 

Turkey, employment was: 

√ Positively related to production levels, 

but weak elasticity, (a 1% production 

rise increased employment by 0.44) 

came from the development of the 

informal sector, which has now reached 

about 50% of employment in the 

period from 1988-2003, 

√ Negatively dependent on the price of 

inputs, capital and investments made 

in the preceding period The adjustment 

of the production apparatus therefore 

weighed heavily on employment, 

√ The opening of the economy, evaluated 

up to the present, by import penetration 

ratios, did not seem to have 

had a significant impact on jobs in the 

manufacturing sector, even when an 

effect was detected, it was more likely 

to be a negative one. This confirmed 

the general results obtained for developing 

countries. 

Thus, in Turkey too, the expected possible 

effects of an open economy on 

employment have not yet been demonstrated. 

The extremely rapid development 

of informal employment however, 

makes the discouraging results relative. 

Furthermore, an analysis of specialisation 

reveals that Turkey is creating the necessary 

conditions for greater and more 

stable growth in the long-term, which will 

create jobs for the most skilled workers. 

3. Determinants of behaviour: informality 

The preceding observations, which we 

have made on the basis of several sur- 

-17- 

veys carried out by Femise on enterprises, 

statistical treatment of these surveys 

and national surveys on industries and 

analysis of employment growth, allow us 

to make the following conclusions: the 

feeble or even negative overall impact 

of an open economy on employment is, 

to a great extent, due to the operation 

conditions of these industries, especially 

with regard to financing; (ii) adjustment 

performance can be substantially 

different between the various sectors 

of a given country and from one MP 

to the other (cf. Morocco and Turkey). 

This underscores the role played by the 

expectations of local entrepreneurs; (iii) 

the incentives offered by public policies 

may lead firms to favour certain adjustment 

strategies over others. This in 

turn, has a differentiated impact on the 

increase of jobs that can be generated 

by opening competition. 

Of the different performances analysed 

in the previous parts, the movement of 

enterprises to the informal sector has 

often been emphasised as having an 

important role in what is to be expected 

of an open economy. This movement 

is often justified by the rigidity 

of the legal frameworks. However, it 

is difficult to distinguish between TWO 

different sectors, one formal and the 

other informal. As the next part of this 

report will show, enterprises “adjust” 

to a certain degree of informality with 

the development of the situation and 

according to their perception of their 

competitive environment. 

In the next part of this report, based on 

a Femise study which, in turn, was based 

on surveys[12], we show that the principle 

is that firms perceive the obstacles 

they must face and their performance

according to the institutional, political 

and legal conditions in their countries. 

With the intensification of competition 

and the hikes in oil prices we are faced 

with a “structure-management-performance” 

relation, which means that firms 

will adapt their adjustment strategies 

to the national context.. Performance is 

then the result of actions or strategies 

which are part of the internal structural 

constraints (technical characteristics of 

the firm, production and cost functions, 

organisational structure etc.), and external 

constraints (sector characteristics, 

competitive position of the firm etc.). 

On the basis of the survey conducted by 

the ROSES team, «governance» indicators 

and “competitive pressure” represent 

structural constraints. There are 

also two gauges of firms’ performance, 

one “synthetic” or global (growth of 

enterprise etc.) and the other, which 

reflects their results on the international 

markets. The results of assessing the 

impact of belonging to a given country 

on a firm’s performance and probity 

indicate that, if this impact is weak 

with regard to the overall performance 

of the firm, it is definitely weaker in 

its export capacity. Insofar as we have 

noted above, with the difference in job 

creation potential between local firms 

and export-oriented firms (in the case 

of Morocco) the role of the local context 

has again been emphasised. However, in 

addition to this simple result, far from 

being counter-intuitive, the interest of 

this study also lies in its identification 

of entrepreneurs’ reaction to corruption 

and informal/formal arbitration in the 

case of Maghreb. This enables us to pinpoint 

the role of enterprises in informal 

activity, when they choose to resort to 

corruption and how they see it. 

-18- 

Several determinants of informal activity 

have been identified by studies on 

the effects of institutional changes related 

to the transition towards a market 

economy, particularly in the countries 

of the East. Thus, enterprises can (i) 

refrain from declaring all their revenues, 

if taxes are too high and rules too 

strict, (ii) practise their activity in the 

informal economy, if the extortion to 

which they are subjected is proportional 

to their production or, if the cost of 

this opportunity is low (resulting from 

a weak institutional framework, which 

involves, for instance the inability to 

respect property rights or a high degree 

of discretion on the part of government 

representatives when they implement 

taxation systems, etc.) 

As regards the inclination to engage in 

active corruption, which is defined as 

the enterprises’ offer to corrupt, which 

is the result of factors that can be divided 

into two categories: those which 

are related to the institutional set-up 

(breach of laws especially in an environment 

that is not very competitive) and 

those which arise from the characteristics 

of the enterprises (enterprises that 

are not very competitive and are forced 

to break the rules of the game to survive, 

or according to the size and profitability 

of the firm, nature of its relation 

with the State etc). 

Several channels that affect the engagement 

in corruption by enterprises 

can be identified in the informal activities. 

First, with the growth of informal 

activity, the tax base is reduced which, 

on the one hand, means a rise in taxes 

and drives people to find ways to avoid 

taxes (bribes etc.) and, on the other, a 

fall in taxes, which are collected, means

a decline in public service which, in turn, 

leads to greater corruption and less 

protected property rights, (Johson et al, 

1998). Second, the degree of corruption 

in a country is inversely proportional 

to the benefits that can be reaped by 

developing countries by respecting the 

law. The more frequent the corruption, 

the greater the strategy aimed at eliminating 

the informal economy. This, as 

a way to elude the authority of corrupt 

officials, will therefore be more probably 

reflected by an increase in corruption. 

In this case, according to Vostroknutova 

(2003), reducing corruption should be 

the first priority. 

Trade liberalisation, conclusion of new 

agreements and increased competition 

usher in new opportunities, but they also 

bring constraints, mainly through the 

change in laws, which oblige the firms to 

adapt and modify their activities. 

The survey conducted by the Femise 

ROSES team on Algeria and Tunisia 

demonstrated that: 

√ The part of production concealed by the 

enterprise would be (i) much higher 

than the sum of supplementary payments 

demanded (more than a third) 

(ii) corruption was seen as an important 

obstacle to its activity, (iii) this 

would enable it to reduce its tax levels. 

Furthermore, if the enterprise was not 

competitive, it could develop its informal 

activity, so as to reduce labour 

costs and evade complex procedures. 

√ The shortcomings of the legal system 

also explained the level of informal 

activity, insofar as the interest in 

declaring the activity was to protect 

it. Enterprises could therefore resort 

-19- 

to corruption to guarantee the protection 

of their rights when the legal 

system was weak. If the authorities 

had little capacity to protect property 

or contractual rights, the opportunity 

cost of its activity in the informal economy 

diminishes. 

√ Petty or day-to-day bribes, given or 

taken, on which the smooth running 

of firms’ activities relied, weighed 

more heavily on the decision of enterprises 

to engage in informal activities 

than corruption designed to influence 

the content of regulations and laws, 

which was the reflection of a more 

long-term strategy. 

√ The more important the informal activities 

were, the more firms were driven 

to engage in the different forms 

of corruption. However, it was a two 

edged weapon, as enterprises then 

saw corruption as an obstacle to the 

expansion of their activities. 

√ Firms that found taxes to be constraining 

are less sensitive to the problem 

of corruption since additional 

taxes in this sense are relatively less 

expensive. 

√ Firms believed that they could get 

round the obstacle of laws that were 

too strict, not by weighing on the 

content of these laws and regulation 

(State capture) but by their application 

(administrative corruption). 

√ The stronger the market position of 

the enterprise, the less likely it is that 

it would engage in corruption. 

These results emphasised that there was 

a strong positive correlation between

informal activities and the perception of 

corruption; in whatever sense this word 

is used. 

They reinforced one another as has been 

observed in countries of the East, which 

were in a transitional stage. They also 

demonstrated that it was a matter of 

adjustment and optimisation to be able 

to compete at the national level. 

However, the practices of firms are, to 

a great extent dictated by the political 

context or their history. The political context, 

for instance, determines the inclination 

of firms to accept to be subjected 

to corruption. If, in the political context, 

corruption is systematically denounced, 

the extent of corruption, in which the 

administration and enterprises engage, 

will be reduced. However, with regard 

to the second element, we can mention 

the existing or past relations between 

the enterprise and the State. Analysis 

shows that the closer the enterprise is to 

the authorities, the less it considers corruption 

an obstacle to its development, 

probably because it can influence the 

content of law and regulations, without 

having to pay in return. On the other 

hand, a public enterprise certainly has 

less inclination to capture the State, 

but as it is sometimes relatively more 

exposed to corruption, it may suffer. 

With regard to economic policy recommendations, 

the results of this study 

emphasised that, in order to be effective 

in Algeria and Tunisia, a policy to combat 

the informal economy must go handin–hand 

with a policy to reduce corruption 

and improve the legal system, 

especially with regard to respect for contracts 

and property rights. Furthermore, 

it was imperative to modify the concept 

-20- 

that enterprises have of regulations. 

Regulations should not be considered 

as obstacles, and this was particularly 

so with taxes. In addition, to modifications 

of structures, there should be an 

educational campaign, should first be 

conducted to explain to enterprises the 

consequences of their choices. 

4. Behaviour Adjustments of enterprises 

and jobs 

The results of the open economy in 

MPs first provided for in the Association 

Agreements with the European Union 

are, on the one hand, dependent on 

strategies adopted by firms, that is to 

say, the manner in which they will face 

market developments and, and on the 

other, the development of these different 

markets for different specialisations. 

In this section we shall deal with 

the first point: 

An analysis of the liberalisation – employment 

relation should include three consequences 

that are expected as a result 

of increased trade: 

(i) Reallocation of the production factors 

in protected sectors to sectors 

exposed to foreign competition, 

which are supposed to offer higher 

return and salary rates; 

(ii) Reallocation of productive resources 

in a given industry, from less to 

more efficient stakeholders. From 

this point of view the firms are heterogeneous; 

(iii) A change in the strategic options 

chosen by firms in their adjustment. 

There are several options, such as 

profit or salary margin squeezes,

more frequent recourse to unskilled 

or temporary labour, and search for 

improved productivity or quality of 

products, etc. 

A Femise study tried to define these 

actions so as to evaluate the impact on 

the decisions of the existing industrial 

enterprises[10] on the liberalisation– 

employment relation, with liberalisation 

referring mainly to the development 

of tariff and non-tariff protection. The 

study identified the sectors, in which 

the modifications of intensive competition 

were more significant on the basis 

of a ratio of import penetration[11]. 

The industries affected were the leather, 

furniture and its accessories, rubber 

and other manufacturing industries 

in Turkey, as well as textiles, manufacture 

of metal objects, machines and 

their material, radio sets and equip- 

-21- 

ment, televisions and communications, 

the car industry and other transport 

materials. 

It seems that in the case of Turkey, 

and as demonstrated in theory, the 

industries facing increasing competition 

saw their production fall. (Figures 1, 

2, 3, 4), while total industrial production 

increased. Furthermore, the graphs 

for industry reveal a disconnection 

between production developments and 

employment, which is not corroborated 

by sector dynamics and, as a result, 

can be attributed to the specificities 

of the environment and actions of 

firms. In Morocco, this disconnection 

between total industrial production, 

production by industry and the production–employment 

relation in industries, 

which increasingly faced competition, 

was clearly less marked and the adjust- 

Figure 1: Evolution of production and employment for the whole industry 

Figure 2: Evolution of production and employment for the firms belonging to the 

most open to foreign competition sectors 

Turkey 

Production 

Morocco 


Morocco 

Turkey Production Ttl employmt 

Production Ttl employmt 

Ttl employmt Production Ttl employmt

ment was achieved by a fall in the that seem to have led to these results, a 

apparent productivity of work. 

competitive location in a given country. 

Other Femise studies have dealt with 

Increased competition can indeed lead 

firms to adopt different types of adjust- 

this aspect (see below). 

ment measures: they can play with the To identify the strategy adopted in each 

selling price (reducing input prices, country, the study then assessed the 

salaries and accepting profit mar- impact of liberalisation on employgin 

squeezes while increasing technical ment using an econometric fixed effect 

efficiency), or they may improve the approach to a sample group for the 

quality of their products and/or the 1993-2002 period or the 1995-2001 

quantity sold. The differences in the period in Morocco (when the various 

developments of actions by each indus- elements of employment were introtry 

and total industries, which appear duced in the analysis) and 1985-1990 

between Morocco and Turkey, probably for Turkey. 4 digit import ratios were 

arise from the strategic choices taken used along with the ad valorem ave- 

to adapt to the modifications required rage of customs duties, according to 

by competition: Turkey succeeded in the available data. 7 sub- samples of 

maintaining apparent and overall pro- firms were identified, according to 

ductivity through investment efforts, their characteristics: those which were 

while Morocco opted for a price policy most exposed to international compe- 

with a cutback in profits and production tition, those which, over a period of 

costs. However, there are other factors time, had seen their production inclined 

Figure 3: Evolution of apparent productivity for the whole industry 

Turkey App. Prodty Morocco 

App. Prodty 

Figure 4: Evolution of apparent productivity for enterprises of the sectors most open 

to foreign competitive 

App. Prodty Turkey Morocco 

App. Prodty 


-22

to increase or fall, those which expor- 

ted more than 25% of their production 

and those which exported less than 

25% of their production, enterprises 

which had a workforce of more than a 

100 employees in Morocco and 150 in 

Turkey, and those which had a smaller 

workforce. These estimates revealed 

that: 

√ The liberalisation-employment relation 

was globally weak and negative. 

This confirmed the results obtained by 

other teams working on other countries. 

Thus, in the case of Morocco, a 

ten point tariff reduction resulted in 

a 1% fall of employment in industry, 

but it could reach 3%, if the enterprise 

was big or export-oriented. This 

effect was still more marginal in the 

case of Turkey, since a 10% rise in 

import ratio was reflected by 0.3 job 

loss, and only certain types of firms 

were affected (big firms or firms with 

falling production). 

√ A crucial element in the liberalisation-employment 

relation in Morocco 

was that of the exchange rate policy 

with falling employment (mainly 

temporary). It could go up to 7% 

in reaction to a 10% real appreciation 

in exchange rates. Firms, which 

were most vulnerable, were obviously 

those which were export-oriented. 

However, this effect was not systematically 

negative in Turkey. This 

can be explained by the considerable 

volume of imported inputs in production, 

whose costs were reduced when 

the exchange rates were appreciated. 

This increased the productivity 

of commodities and employment. 

(+2.5%+3.5% for a 10% appreciation 

in exchange rates). 

-23- 

√ Adjustments of the workforce have 

been made, to meet the changed 

conditions of competition or money 

value. In Morocco, this was achieved 

through more frequent recourse to 

temporary employment, and particularly 

unskilled labour. This movement 

was not obvious in industry as a 

whole, but in certain industries, which 

have reconsidered the management 

options of their job structures. 

√ In the case of Turkey, there were two 

elements that have weighed heavily 

on the liberalisation–employment 

relation. The first was positive, the 

margin achieved, when it was positive, 

could enable a 0.8% to a 1.3% 

increase in employment for a 10% 

appreciation in the exchange rate. 

The second was negative: a 1% overall 

improvement of productivity could 

lead to a 2.8% decline in employment. 

It would be worth knowing if 

such a development of productivity 

was possible. It was the result of capital 

intensiveness which, if increased 

by 10%, would reduce employment 

by 1%, even if the investment, in 

itself, improved employment (+0.4% 

to +1.2% for a 10 % appreciation). 

To conclude this part on the behaviour 

of firms in their day-to-day operations 

and the impact of the open economy on 

employment, we should emphasise the 

following: 

√ The liberalisation policy, which almost 

all the Mediterranean countries have 

adopted, has changed the competitive 

context which local firms will have 

to face. The open economy policy, 

whether it is multilateral in origin 

(WTO) or regional (the Association

Agreements) therefore not only has a 

macro-economic content, it also has 

a micro-economic impact. In reaction 

to changes in the context of competition, 

firms have resorted to different 

strategies, which arose from their 

need to develop their activities (or at 

least to survive) and from the possibilities 

they have through their local 

context. 

√ These activities, here as elsewhere, 

were reflected by actions on usual 

levers, mainly investments, margins 

and jobs. From this point of view, 

the choices made by Mediterranean 

countries, with regard to employment 

and investment, were not in line with 

micro-economic needs. (cf. for instance 

the textile-clothing industry in 

Morocco). 

√ As regards the public actions to be 

taken at this level, various surveys 

on different but connected and complementary 

subjects, which were 

made on several countries (Algeria, 

Egypt, Lebanon, Morocco, Tunisia and 

Turkey), have confirmed the priorities 

already emphasised by Femise. These 

priorities were: improving conditions 

to make firms competitive, especially 

with regard to basic services in 

financing and communications, which 

would allow enterprises access to 

financial resources and enable them 

to export at the lowest cost, providing 

training to develop the necessary 

skills to upgrade all types of industries, 

streamlining administrative 

procedures that are still complicated 

and opaque, so that enterprises could 

perceive positive consequences for 

the greatest “formalisation” of their 

activity. 

-24- 

Finally, another important point was 

that the behaviour of firms was dictated 

by the general developments in their 

sector, international dynamics and evolution 

of the laws regulating this sector. 

This aspect is dealt with in the following 

part, first by highlighting the specific 

aspects of Mediterranean countries in 

the course of their industrial development, 

then by examining in detail the 

exemplary dynamics of the textile-clothing 

sector, and by pointing out future 

opportunities, mainly in the services 

sector, and in particular, those which 

were referred to above. 

II. Adjustment of sector specialisations 

to modify dynamics 

1. A specific industrial path 

An analysis of a country’s specialisation 

cannot be ignored in any study on the 

effects of the liberalisation strategy, 

whatever its origin, (changes in the 

provisions of an agreement, admission 

of a new member to the WTO etc.). In 

this first part, we should obtain a better 

understanding of the ongoing industrialisation 

process in the MPs to make a 

first assessment of their ability to confront 

the shock of competition. 

At the end of the 1960s, all the MPs had a 

comparative advantage in primary commodities. 

However, the structural adjustment 

policies, devaluation of exchange 

rates and the liberalisation policy of the 

1980s led them to develop new comparative 

advantages, modify their specialisation 

and reallocate the factors of production. 

Economic development is in fact 

a process of improving productivity that 

is based on a sound investment dynamic 

process and growth[13].

History has shown us that this process 

is invariably associated with structural 

change in production and employment, 

from agriculture towards industry, and 

then gradually between different branches 

of the manufacturing industry. 

Though it may not be linear, this 

development is systematically oriented 

towards a prolongation of output 

diversion. The interpretation of 

the principle underlying the growing 

division of labour, as an evolution of 

the industrial structure to increasingly 

intensive branches of intermediary 

goods, enables us to construct a typology 

of three groups of branches in 

the manufacturing industry. The formalisation 

of industrial development 

and gradual movement of the centre 

of gravity from simple labour-intensive 

production (IPS-L) towards simple 

capital intensive production (IPS–C) 

then towards intermediary goods (IPC) 

- intensive production, defines the 

standard path of industrialisation. This 

path has been successfully tested in 

the long dynamic processes of the big 

industrialised countries. An empirical 

examination reveals that the long processes 

of sector change were geared 

towards the same general tendencies. 

They fell within these limits, which were 

identifiable and they were convergent. 

They therefore defined a sequence, 

which generally characterized the evolution 

of the industrial structure. From 

England at the beginning of the 19th 

century to South Korea and Taiwan in 

the last third of the twentieth century, 

all the industrialisation processes have 

followed this path of sector sequence. 

However, national rhythms were not 

identical. The later industrialization was 

in coming, the steeper the slopes and 

the more rapid the structural change. 

-25- 

The confrontation of structural change 

in industries in the MPs with this standard 

sequence of industrialization since 

the early 1960s generally indicated an 

evolution of the meaning of development 

in the wrong direction. The lowering 

of the IPS-L may seem to have 

conformed to the historical sequence, 

but the main particularity of the regional 

industrial dynamic process was the 

stagnation of the IPC at a low level. 

This movement to the rear of the 

industrialisation process was particularly 

obvious in Turkey, Morocco and, 

to a lesser extent, Jordan. The most 

modern IPC industries remained marginal 

or were relatively decreasing, 

whereas the support industries for an 

industrial takeoff (IPS-L) still represented 

a considerable part of manufacturing 

production. The dynamic process 

of structural change seemed relatively 

better orientated, if weak, in Egypt. As 

Israel was a case apart, Turkey represented 

the only real difference to 

the regional trend. Its industrialization 

sequence was close to those of South 

Korea and Taiwan, but with a 25 year 

gap between them. 

A comparison with other developing 

regions emphasised the countertendency 

nature of developments 

in the Mediterranean region. The 

industrialisation process in the NIC2 

(Thailand, Malaysia, Indonesia and 

the Philippines) and also in China 

followed the same historical path of 

industrialisation, but with a time gap 

between them. Industrial growth may 

have been slower in South West Asia, 

but the same sequence of structural 

change, at a slower pace, could be 

observed.

This age-old orientation of industrialisa- the speedy industrial transition of MPs, 

tion was also observed in Latin America, which seemed relevant but the direction 

in spite of the slow pace of industrial 

modernization and the “lost decades”. 

to be taken. 

The MPs were therefore, the only coun- 2. The impact of industrial strateter-tendency 

case in this sample. The gies on the liberalisation-employ- 

hypothesis of a late start seemed less 

relevant than that of structural inertia. 

ment relation 

In the early 1970s, the Mediterranean The hypothesis, often put forward by 

countries had more advanced industrial Femise, was that this inertia was partly 

structures than the NIC2: Since then, due to the desire to preserve employ- 

only the Mediterranean has been chament, by favouring relatively labourracterised 

by a stable hierarchy in the intensive industries. This objective might 

three groups of industries. The fact that seem perfectly rational and might well be 

the IPC was not adopted led us to con- tenable in a closed economy. However, 

clude that there was a poor division of it was not only difficult to uphold in the 

labour and insufficient building of new long term, but it was also inconsistent 

industrial skills in the past four deca- with the present general movement 

des. In fact, it was not the question of towards liberalisation in the MPs. On the 

contrary, in this con- 

Table X8: Employment coefficients by principal industrial 

sectors[15] 

text, present speciali- 

Sectors 1985-1995 1995-2001 1985-2001 

sations seemed coun- 

FPI 0,5 1,0 0,5 

terproductive in terms 

Indonesia 

CPCI 

EEI 

0,6 

0,5 

1,2 

1,0 

0,8 

0,5 

of jobs, as a compa- 

MMI 0,4 1,5 0,7 

rative analysis made 

TCI 0,5 1,9 1,0 

in a Femise study 

Total 

FPI 

0,5 

0,7 

1,3 

1,1 

0,7 

0,8 

showed[14]. This 

CPCI 0,7 1,1 0,7 

study was concerned 

Malaysia EEI 

MMI 

0,5 

0,5 

0,9 

1,1 

0,5 

0,6 

with the consequen- 

TCI 0,4 1,1 0,4 

ces of the choice of 

Total 0,6 1,0 0,6 

specialisations in the 

FPI 

CPCI 

0,6 

0,5 

1,1 

1,1 

0,7 

0,6 

areas of growth and 

EEI 0,6 1,3 0,7 

jobs for five countries 

Morocco MMI 

TCI 

Total 

0,4 

0,6 

0,5 

1,2 

1,3 

1,1 

0,5 

0,7 

0,6 

(Morocco, 

Turkey, 

Tunisia, 

Malaysia, 

FPI 1,0 0,9 0,9 

Indonesia) in the 

CPCI 

EEI 

1,4 

1,4 

1,2 

1,9 

1,6 

2,7 

period from 1985- 

Tunisia MMI 1,0 0,9 0,9 

2001 (which was 

TCI 0,8 1,3 1,1 

divided into two sub- 

Total 

FPI 

1,1 

0,4 

1,2 

1,0 

1,3 

0,4 

periods 1985-1995 

CPCI 0,3 1,1 0,3 

and 1995-2001). It 

Turkey EEI 

MMI 

0,3 

0,3 

1,2 

1,1 

0,4 

0,3 

compared the results 

TCI 0,4 1,2 0,4 

in terms of growth 

Total 0,3 1,1 0,4 

and jobs in the sec- 

Source: Femise, study FEM22-22, ONUDI 2005, author’s calculation tors of the economy, 

-26-

so as to establish a typology of sectors 

that best addressed the difficulties met 

in MPs. 

Generally speaking, the 1995-2001 

period was more favourable for the 

creation of jobs in the Mediterranean 

countries and Asia. This proved that 

this was not due to the effect of “trade 

integration with the EU”. Job coefficients 

in Morocco, Tunisia and Turkey were 

more similar in the second period, while 

they were more different in the first. 

Tunisia led the group with coefficients 

that were higher than 1 and were slightly 

improving (Table x8). The sectors, 

which generated most jobs were the 

same in the three MPs (the electric and 

electronics industry (EEI), the textileclothing 

industry (TCI) and the chemical 

and Parachemical industry (CPCI)). This 

meant that they had similar specialisations, 

which were different from those 

found in Asian countries, while, in the 

Asian countries specialisations differed 

from one country to the other. In 

Indonesia, the sectors, which created 

most jobs, were the mechanical, metallurgy 

and machinery industries (MMI) 

and the food processing industry (FPI). 

However the contributions of each sector 

to net job creation and added value, 

seen in perspective, emphasised that 

(table X9): 

√ The strategies of Asian countries 

were to develop relatively more technology 

and skilled labour–intensive 

sectors. This enabled them to capture 

part of the international market, 

while keeping sectors that had 

a big capacity to absorb manpower 

(Rizwanul, 2003). Indonesia overcame 

the crisis, which had dealt a 

-27- 

severe blow to the TCI and the MMI, 

which continued to play an important 

part in job creation. It preferred to 

build sectors, such as the electronics 

and chemical sectors, which 

are playing an increasing role as an 

impetus to growth and job creation. 

Malaysia, on the other hand, opted 

for a much more rapid restructuring. 

It supported electric and electronics 

industries, which now have a key role 

in the absorption of employment and 

the creation of wealth (80% of job 

creation). 

√ Tunisia had adopted a strategy that 

was more similar to that of the 

Asian countries. It preserved the 

textile-clothing sector, in which it had 

a comparative advantage and which 

had created many jobs, but it also 

reoriented its specialisation towards 

the FPI and the EEI, while disengaging 

itself from the CPCI. Similarly, 

Turkey relied on and strengthened its 

comparative advantages in the TCI 

sector, which continued to play an 

important part in job creation. It also 

tried to diversify its industry, particularly 

the CPCI and the MMI. 

√ There was a gap in the MPs, especially 

in Morocco, between employment 

systems and the sectors, which gave 

impetus to growth. The 1985-1995 

specialisation structure demonstrated 

that the TCI created jobs, while the 

CPCI, the FPI and, to a lesser extent, 

the TCI created wealth. The changes 

resulting from the Barcelona process 

were reflected in a diversification of 

the sectors that promoted growth, 

such as the EEI and the MMI. The 

capacity of those industries to absorb 

manpower is the weakest.

Another study conducted by Femise[16] 

analysing the transformation of manufactured 

exports confirmed these results. 

The comparison between the evolution 

of the manufactured exports of MPs and 

those of the emerging countries, mainly 

the two generations of NIC and China, 

revealed that exports had played a 

very modest role in the Mediterranean. 

The differential between their export 

dynamism and the average of developing 

countries increased, even though 

the association agreements offered the 

MPs privileged access to the European 

Table X9: Sectoral contributions* 

Indonesia 

Malaysia 

Morocco 

Tunisia 

Turkey 

-28- 

market. This quantitative approach was 

completed by an analysis of the «quality» 

of exports from MPs, in a dynamic 

and comparative perspective, which 

relied on the construction of a synthetic 

indicator (IRX). Export Catch up 

Indicator. The export catch up indicator 

synthesised the level of sophistication of 

exports from each country and, in every 

period, marked that level on an international 

scale, which moved from the least 

to the most performing. The calculations 

of this indicator were not based on the 

characteristics of the product, but rather 

Employment creation Value Added 

1985-1995 1995-2001 1985-2001 1985-1995 1995-2001 1985-2001 

FPI 15% (-68%) 12% 17% (-8%) 20% 

CPCI 31% 50% 34% 29% (-15%) 33% 

EEI 5% (-32%) 4% 7% (-5%) 7% 

MMI 11% 28% 13% 27% (-30%) 26% 

TCI 37% 22% 37% 20% (-42%) 13% 

Total 100% 100% 100% 100% (-100%) 100% 

FPI 5% 18% 6% 8% (-5%) 7% 

CPCI 33% (-12%) 32% 35% (-47%) 30% 

EEI 37% 82% 42% 34% 100% 44% 

MMI 18% (-27%) 16% 18% (-35%) 15% 

TCI 7% (-61%) 5% 5% (-14%) 4% 

Total 100% 100% 100% 100% 100% 100% 

FPI 31% 15% 27% 39% 34% 39% 

CPCI 17% 17% 17% 30% 19% 30% 

EEI 1% 11% 3% 2% 24% 3% 

MMI 6% 16% 8% 10% 23% 11% 

TCI 45% 42% 44% 19% (-100%) 16% 

Total 100% 100% 100% 100% 100% 100% 

FPI 15% 2% 12% 16% 33% 17% 

CPCI 23% 17% 22% 36% 24% 36% 

EEI 4% 25% 9% 4% 26% 6% 

MMI 13% (-100%) 9% 10% (-100%) 9% 

TCI 45% 57% 49% 33% 17% 33% 

Total 100% 100% 100% 100% 100% 100% 

FPI 4% 1% 14% 5% 13% 

CPCI 13% 22% 19% 41% 43% 41% 

EEI 6% 4% 5% 6% (-100%) 5% 

MMI 0% 17% 11% 21% 24% 22% 

TCI 80% 53% 64% 18% 28% 19% 

Total 100% 100% 100% 100% 100% 100% 

* : Positive contributions to the absolute variation in employment and deflated VA. For information, the 

negative contributions are denoted in italic and parenthesis. 

Source: Femise research FEM22-22

on the exporters of these products. They 

were inspired by a method which was 

first proposed by C. H. Kwan (2002) in 

another context. The export catch up 

indicator enabled us to measure the 

gap between the exportation structure 

of a developing country and that of a 

country, which had the most advanced 

exportation structure and how to narrow 

this gap. This is the countries’ export 

catch up dynamics. The application of 

this method to the structure of world 

trade since the mid 1960s again emphasised 

the particular position of Morocco 

and Tunisia. While Israel and Turkey had 

seen an evolution similar to that of the 

newly industrialised countries2, Tunisia 

and Morocco which had the same catch 

up indicator as the NIC2 up to the 

early 1970s, witnessed different developments 

.Their export catch up indictor 

fluctuated, but remained very low. 

This comparative approach was completed 

by a more fine-tuned analysis of 

diversification niches (level 4 of SITC 

that is a thousand jobs) between 1994 

and 2003. When we set aside exports 

related to exploitation of natural resources 

and textiles-clothing, niches became 

almost non-existent in Jordan and Syria, 

and rare in Egypt. A stable number of 

about ten could be found in Morocco and 

Tunisia, and about twenty in Turkey. With 

regard to demand, these niches were 

found in markets which were not very 

dynamic. In these segments competition 

between the Maghreb and Mashrek 

countries was weak, but it was strong 

between the MPs and Turkey. In the 

Maghreb, these niches were mostly for 

inter–company trade toward Europe. 

In this market the MPs were more 

in competition with East and Central 

European Countries than with Asia and 

-29- 

China. This confrontation and the predominance 

of inter-firm trade suggested 

that the diversification of MPs’ exports 

was halted by the irruption of the CEEC, 

which attracted massive European FDI in 

the 1990s. 

Other indicators confirmed these trends. 

The analysis of investment efforts, 

added value, employment and apparent 

productivity of labour revealed that the 

specialization resulting from liberalising 

and upgrading the economy did not put 

Morocco on a growth path, which would 

be consistent with its unemployment 

problems[17]. Graver still, there was 

a process of deskilling labour, which 

explained the growing difficulties faced 

by graduates in finding jobs. 

With regard to forms of sector adjustment, 

it should be noted that, in the case 

of Morocco, the ongoing process of specialisation 

in the electric and electronics 

industries did not lead to an up-market 

position. Employment and investment 

had greatly progressed at the beginning 

of the period, but the apparent productivity 

of labour and real salaries had 

considerably declined as of 1995. This 

was due to the fact that Morocco was 

mainly a sub-contractor in this sector. 

In Tunisia, on the other hand, employment 

had increased fivefold between 

1993 and 2001 for this very same sector. 

However, real salaries fell sharply and 

the progress of investment and added 

value was slow. 

The situation in Turkey was totally different 

as this sector generated a substantial 

and rapidly rising added value and 

offered the highest remuneration levels. 

Malaysia was in a similar position: progress 

in employment, added value and

investment, fall in salaries and increased 

labour productivity. The same applied to 

Indonesia, which trailed a little behind, 

but took the same course. 

As regards the textile-clothing industry, 

the important investments made 

in 1993 to 1996, did not reactivate the 

hoped for growth or added value, while 

salaries remained at their former levels. 

An up-market position would therefore 

be difficult to achieve especially in view 

of the disruption caused by the end of 

the multi-fibre accords. For Tunisia this 

meant either a considerable fall in salaries 

which did not promote investment 

or an improvement in apparent labour 

productivity, which was increasingly deskilled. 

Turkey on the other hand, found the 

way to achieve an up-market position: 

investment at a swift pace, which has 

not slowed down, and has even quickened 

in view of the possible adverse 

consequences of the end of the multifibre 

accord. Added value production 

and the apparent productivity of labour 

increased throughout the period and 

jobs were created for relatively more 

skilled workers. Indonesia presented a 

similar situation with investments that 

did not lag, stable salaries and apparent 

productivity levels and more jobs. 

In Morocco, investment mainly served 

the chemical and food processing industries. 

The former was a key sector of the 

Moroccan economy and maintained its 

job creation capacity and salary levels 

in spite of trends towards a fall in the 

apparent productivity of labour that followed 

the drop in added value, which, 

at the end of the period, was joined by 

a fall in salaries. Tunisia, because of 

the gradual exhaustion of its natural 

-30- 

resources, mainly petroleum, saw the 

importance of this sector decline (fall in 

salaries, added value, and investments, 

employment was maintained but apparent 

labour productivity was reduced by 

50%). 

In this area, Turkey relied again on its 

investments. This explained the good 

results in terms of added value and 

labour productivity, but it was not a very 

dynamic sector in terms of employment. 

Indonesia adopted the same type of 

strategy: investment fuelled by productivity 

and added value gains, but here 

the sector created employment. 

The food processing sector also suffered 

from a lack of dynamism as of the 

second half of the 1990s. Employment 

continued to increase slowly, but added 

value fell, dragging productivity with 

it. In this sector in Turkey and Tunisia, 

strong investments maintained productivity 

levels. Salaries greatly increased 

in Tunisia and were among the highest 

in Turkey. 

One of the few sectors in which investment 

efforts remained important at the 

end of the period was the mechanical and 

metallurgical industries. In spite of this, 

added value continued to decline, while 

employment and salaries increased. This 

proved that the investments were not 

sufficiently developed. The performances 

of Turkey or Malaysia were much better, 

because investment did not falter over 

all the period and added value increased 

at the same pace, while employment 

remained stable. 

The question that arises now is to find 

the result, in terms of employment, of 

these different industrial strategies in 

the context of trade liberalisation. From

this point of view, the job content of 

trade confirmed the fact that the Asian 

countries, which we have considered, 

had a completely different strategy than 

that adopted by the MPs. 

The former based their economic development 

on heavy and often diversified 

industrialisation. They thus protected 

their capacity to absorb unskilled manpower 

and increased their capacity to 

absorb more skilled workers. The strategy 

of the Asian countries consisted of 

the following elements: 

(i) On the one hand, the protection of 

emerging economies, which were 

intended to create opportunities to 

gain an up-market position, such as 

developing the electric and electronics 

industries. This renewed their 

comparative advantages and gave 

them a position in the more dynamic 

sectors at the international level. The 

human and financial requirements 

for the reorientation of specialisation 

were met, thanks to the firm 

commitment of the State, which also 

targeted the sectors that should be 

strengthened and expanded; 

(ii) On the other hand, the restructuring 

of traditional sectors by making 

investments, this, at times, could be 

very substantial. These investments 

often resulted in an up-market position, 

while maintaining job creation 

level. 

This industrial strategy preserved social 

cohesion and created opportunities for 

growth, so that the country could more 

easily absorb the structural adjustments 

related to internal macroeconomic constraints 

and international competition. 

-31- 

Thus, Indonesia preserved jobs for uns- 

killed labour in the textile and clothing 

industries, while developing the more 

capital and skilled labour-intensive chemical 

and electronics sectors. Malaysia, 

where the restructuring of industry was 

more advanced, followed the same path 

and now it can focus on the sophisticated 

electric and electronics industries, 

which have become sufficiently dynamic 

to create employment. The main concern 

of the intervention policies of these 

countries was to make the skills acquired 

in the educational system adequate 

to the industries’ requirements for qualified 

workers. 

As regards the MPs, there has been no 

improvement in trade-related jobs in 

the two sub-periods, with the exception 

of the textile-clothing industries. Turkey 

was in a relatively better position because 

of its investment behaviour. 

The great difference between the performances 

of the MPs and those of 

the Asian countries was partly due to 

the fact that the two groups of countries 

had different concepts of the role 

of industry in growth and, for both of 

them; the question of jobs was presented 

in different terms. The proof lay in 

the development of the tertiary sector, 

which followed and accompanied the 

development of industry, and influenced 

its activities (banking, consultancy to 

enterprises etc.) in Asian countries. In 

the MPs, the influence of the tertiary 

sector hardly reflected the stage of the 

country’s industrialisation. It was relatively 

disconnected and required a solution 

to the supply of unskilled labour. 

This position did not seem optimal even 

though it met short-term needs and 

assured the continuity of social order,

it eliminated the long-term capacity to 

absorb jobs and greatly affected the 

quality of manpower. 

The grave crises, which Turkey encountered, 

may have promoted these restructuring 

efforts by lowering opportunity 

costs, and giving it a big leap forward in 

the transitional process. For the MPs, the 

risk faced by the rest of the economy, 

because of the end of the multi-fibre 

accord with its induced investments, 

could oblige them to accelerate the 

pace of levelling the economy and find 

a strategy to develop new comparative 

advantages, since they had a stock of 

highly qualified manpower on the one 

hand, and could rise to an up-market 

position on the other, if they did not 

confine themselves to sub-contracting, 

which would not allow them to capture a 

big part of the income. The experience 

of the Asian countries or Turkey showed 

that a country could change its position in 

the international market, provided that it 

adopted firm industrial policies and there 

was a strong State commitment. 

This commitment might be to act as an 

investor, but then the question of maintaining 

the necessary equilibrium would 

arise. Then too, there was the question 

of breaking off with the former system, 

which we should admit, has proved its 

limitations. It could also move to actions 

in the firms’ behaviour, as we have 

seen in the first part. The stakeholders’ 

movement should be accompanied by a 

process that facilitated their day-to-day 

operations, so that they could adopt 

strategies that were consistent with 

national objectives. As we have seen 

earlier, the dynamics of the textile clothing 

sector was an excellent example of 

this point of view. 

-32- 

3. The textile, revealing industrial 

sector dynamic 

The textile-clothing industry sector has 

been the engine of development in many 

countries and continues to be of importance 

for developing countries. Within 

the EU, the share in value-added of textile-clothing 

(TC) in the manufacturing 

sector increased to 4% and absorbs 7% of 

employment. Italy, The United Kingdom, 

France, Germany and Spain produce three 

quarters of the EU textiles-clothing. A total 

of 200 billion Euros divided among 177 

000 enterprises employing more than 2 

million individuals[18]. The largest exporters 

of textiles are China, Italy, Germany, 

The Republic of Korea, Taipei, France, 

Belgium, Japan and The United Kingdom, 

while in the clothing industry, China, Italy, 

Germany, France, Turkey, Indonesia, The 

Republic of Korea and Thailand dominate. 

But, in the case of MPs, the stakes are 

high, firstly because of the historic role 

played by the sector in the industrialization 

of economies, then by its weight today 

in their industries, in their exchanges 

and above all in employment, and finally 

because at the time of the shock of a major 

opening, that is the end of the multi-fiber 

agreement. In two years time, this will 

entail transitional measures to be taken by 

the EU and the United States when they 

will have realized the potential quantitative 

impact. This sector is very symptomatic of 

the role that could be played by different 

industrial strategies, either by comparing 

MPs to Asian countries or MPs with one 

another. 

Expansion of the textile network 

Morocco and Tunisia were very open 

countries before their independence

whose national economy largely depen- 

ded on the importation of European pro- 

ducts in TC sector. The achievement of 

independence coincided with the implementation 

of alternative plans regarding 

exports that boosted investment. 41% 

of approved investments in Morocco 

were directed to textile-clothing in 1960. 

However, these plans rapidly indicated 

their limits and new measures were 

taken to promote the role of exports 

in growth. In 1972, Tunisia promulgated 

a law that established the status of 

exporting enterprise and provided fiscal 

advantages, while firms were encouraged 

to produce for the internal market 

which remained protected. Morocco 

followed the same course. Its structural 

adjustment programme of 1983 and 

promulgation of investment and exportation 

codes furthered the development 

of exchanges. 

The expansion of the textile-clothing 

industry in these countries benefited 

the movement of European delocalization, 

which originally stood at around 

30% of investments accomplished in 

Morocco after 1987 and the signing of 

the EU-Tunisia partnership agreement 

in 1976. This industry created 40% of 

new jobs in the Tunisian manufacturing 

sector between 1972 and 1981 and 48% 

in Morocco between 1980 and 2000. 

It accounts for 40% of manufactured 

exports in Tunisia in 1980, higher than 

the rate in Morocco or Turkey. 

The structure of the TC industry in the 

three Maghreb countries varies greatly. 

In Algeria, at the outset of the 1980s, 

the sector represented 30% of total 

industrial employment. Prior to privatizations 

which began in the 1990s, 

the textile sector was dominated by 

-33- 

public enterprises while private companies 

occupied a preponderant place in 

the garment sector. These two sectors 

fell into crisis as they were incapable of 

confronting the competitiveness brought 

about by privatizations. In 2001, the 

production of textiles stabilized by 25% 

of its 1990 level and clothing at around 

40%. Employment declined markedly 

until 2000. In the first stage of privatization, 

Algerian retailers demanded 

more and more foreign products, but 

this trend was reversed and domestic 

production augmented recently. In 

2002, the sector accounted for 4.4% of 

industrial production (hydrocarbons not 

included) whereas the private TC sector 

represented 9.9% of the value of production 

in 2003. 

Egypt followed a very different course. 

The industry developed thanks to the 

support of Bank Misr at the end of the 

War, with Misr Spinning and Weaving 

considered the largest enterprise in the 

Middle East, accounting for 25 000 

employees. Since 1945, the TC industry 

occupies a dominant position in the 

Egypt economy reaching 42.4% enterprises 

and 37% of jobs in the manufacturing 

sector. Since the nationalizations 

of 1960-1962 when only establishments 

of less than 200 employees remained 

private, the public sector dominated the 

textile while the private sector controlled 

the clothing industry (75% of exports). 

The textile industry is also very old in 

Turkey. Largely dependent on imports 

as long as it had not regained its customs 

autonomy, the country has, within 

the framework of the first five-year plan 

and Soviet aid, entrusted Sumerbank 

with the development of the TC sector. 

However, here the private sector was

above all active in the production of yarn 

and fabric (50% to 60%). 

Textile activity developed significantly 

after the Second World War, benefiting 

from the cotton boom as a result of 

the war in Korea, as well as incentives 

for investment in the context of import 

substitution policies and protection of 

the domestic market. It was only thanks 

to the open trade policy and promotion 

of exports that the clothing sector took 

off and its export performance reached a 

peak at the end of 1980s. In the 1990s, 

the privileged relations between Turkey 

and Germany and the perspective of a 

customs union with the EU promoted 

garment exports and supported and 

encouraged considerable efforts toward 

investment and the modernization of 

enterprises. 

The TC is an essential component of 

industrial exportation in Jordan, Lebanon, 

Morocco, Syria and Turkey. Given the 

inability of most of these countries to 

create a network on national territory, 

it is equally an important position for 

imports. 

The TC continues to be the main component 

of the manufacturing sector and 

the major employer in Egypt, Morocco, 

Tunisia and Turkey. In Morocco, it contributed 

to creating 60% new manufacturing 

jobs since 1986 against more 

than 30% industrial jobs in Tunisia. It is 

a strongly feminized and informal occupation 

and the figures on employment in 

this sector are not reliable. Moreover, 

professionals in Turkey estimate that 

employment in the sector is five times 

higher than that which appears in the 

statistics. Another difficulty, it is difficult 

to evaluate production in as much as 

-34- 

certain enterprises[19], in this activity, 

often some of the largest in the country 

that generate considerable exports, are 

in close proximity with many SME. 

Major importance at the economic 

and social levels 

In Morocco as in Tunisia, the clothing sector 

occupies a central role in manufactured 

exports since the 1980s. Concerning 

Tunisia, since 1996, textiles represent 

more than half of exports in terms of 

manufactured products and in 2001, 

textiles, footwear and leather accounted 

for 48.5% of the value of total exports 

(this figure dropped to 42% in 2002). 

Morocco is in a similar situation: TC 

exports rose to 23% of the total value of 

manufactured exports in 1996 and 33% 

in 2001[20]. Regarding Algeria, the percentage 

is lower[21]. 

In the three Maghreb countries, within 

the textile sector, it is clothing that dominates 

in terms of value of production and 

employment. This structural element is 

significant since the clothing sector is 

more labour intensive than textiles in 

general, a matter that impacts the level 

of formal employment. TC production 

in Morocco rose to 15% of the value of 

manufactured goods but accounted for 

45% of employment in 2003. Tunisia 

is in the same situation where production 

in this sector represents one third 

of manufactured goods while absorbing 

more than half the employment 

and accounting for 7.1% of GDP (EIU, 

2003). 

It is necessary to underline certain characteristics 

of the TC sector in Maghreb 

countries that are an important part in 

informal employment and the conduct of

firms that resort to non-declared labour 

in order to reduce costs. The origin of 

difficulties related to competitiveness 

confronted by these countries lies in the 

cost of manpower which is significantly 

higher than that borne by their Asian 

competitors. In 2002, average wages in 

the textile sector in Morocco and Tunisia 

was nearly fivefold those in China and 

equivalent to those registered in certain 

eastern countries such as Slovakia, 

Estonia or even Turkey. With the end of 

the multi-fiber agreement and its impact 

on quotas imposed on Asian competitors, 

it was inevitable that Maghreb countries 

would suffer from competitive pressures 

and lay-offs. 

In view of the structure and employment 

conditions in the TC sector in 

Morocco, female employment prevailed 

as well as informal production, young 

employees and/or unmarried with a 

modest level of education without regular 

schooling and who were often only 

temporarily employed. In 1999, 61% 

of wage earners and 90% of household 

workers were women. Employers have 

a marked preference for single women 

with no family responsibilities and who 

are easy to train. According to Bouquia 

(2002), 59% of employees in this sector 

are below 25 years of age against 

45% of employees. Nonetheless they 

do have certain family responsibilities 

such as contributing to family expenses 

to a large extent. Temporary work is 

widespread in particular in SMEs. This 

structure of employment mainly results 

from the orientation toward exporting 

the activity of formal sector firms and 

dependence vis-à-vis orders coming 

from European distributors. The latter 

prefer calling upon geographically close 

companies since delivery delays have 

-35- 

to be brief (Belghazi). If a product is 

sold more rapidly than expected and 

restocking is necessary, firms based in 

Morocco are apparently capable of satisfying 

these constraints. 

Surveys undertaken for the Femise study 

indicate that if the labour force is relatively 

young in Morocco, this was not the 

case for Tunisia and Algeria where workers 

are mostly below 30 years of age. 

On the other hand, here as well, female 

employment is dominant. However, 

in Tunisia, where average per capita 

income is nearly two times higher than 

that in Morocco, women’s motivations 

to seek employment are more personal 

such as to earn enough money to buy 

their marriage trousseau. 

A revealing crisis that broke out 

before the end of the multi-fiber 

agreement 

Recent tendencies of Maghreb countries 

indicate that production began to decline 

at the beginning of the 1990s in Algeria, 

in 1999 in Morocco and 2002 in Tunisia, 

and that employment followed the evolution 

of production. 

The TC industry crisis appeared at the 

close of the 1990s in Morocco. Lay-offs 

began to take place. Revaluation of the 

Moroccan Dirham and uncertainties related 

to the end of the multi-fiber agreement 

engendered a decline in investments, 

more lay-offs as well as losses 

in some European markets. Expansion 

in employment in the TC sector suffered 

from unfavorable changes in demand and 

price. In the first half of 2005, Morocco 

registered a loss of 60 000 jobs whereas 

the workforce in 2002 stood at 202 000 

persons[22]. Morocco is also confron-

ted with problems in its own market, 

reflected in the drop in prices and this 

explains the disappointing performance 

of this sector. In the third quarter of 

2005, production of the clothing industry 

lost -8.9% as compared to 2004; 

the textile branch and leather reached 

-0.8% whereas it had progressed by 

5% in 2004. In the second quarter of 

2005, exports of ready-made clothing 

and hosiery yielded 10.8% and 17.9% 

respectively. This produced a reduction 

of -3.3% in value-added of “textile and 

leather”[23]. 

As for Tunisia, it overcame the 

slowdown which occurred during 1980s. 

Furthermore, growth in the sector surpassed 

that of manufactured exports. 

The country managed to preserve its 

share in the European market, which 

attained a peak of 6.1% in 1998 despite 

the arrival of new competitors (Morocco, 

Turkey, Eastern European countries). 

This is not the case since the end of 

the multi-fiber agreement which was 

followed by a wait-and-see approach, 

uncertainty, slow reforms while at the 

same time large exporting countries 

stepped up their investments. 79% of 

Tunisian enterprises of the sector produce 

only for export [24] and nevertheless 

find difficulty in keeping up with competition 

with Asian producers in foreign 

and domestic markets. 

As of 2005, the production of the TC 

sector faltered while the manufacturing 

sector in its totality progressed thanks to 

diversification toward automobiles and 

electronics. 

In Algeria, the sector entered into a 

crisis before the crises in Tunisia and 

Morocco following restructuring along 

-36- 

the way to a market economy. In the 

1980s, working conditions were relatively 

good, particularly in the public 

sector but less so for employees in the 

private sector especially SMEs where 

workers were replaced by apprentices 

or household workers in order to reduce 

production costs. In the 1990s, economic 

restructuring engendered a wave of 

company closures and reduced production 

(1500 enterprises were involved). 

Employment in this sector declined by 

60%, wages fell and occasional work 

increased. Legislation on working conditions 

(health and security norms, social 

coverage, working hours, etc.) was less 

scrupulously observed. In the same 

vein, paid holidays were abolished or 

reduced, training programmes abandoned 

and canteens or medical centers 

closed down. Workers were not declared 

and the practice of paying wages in cash 

spread. 

Fragility of the sector is essentially 

industrial 

The textile-clothing industry in MPs is 

very fragile, because, except for Turkey, 

it appears that: 

√ These countries were not able to 

forge a network, which is to establish 

direct relations with clientsretailers. 

Through networking, activities 

could be segmented and localized 

in different countries without 

seriously impacting the price of the 

final product insofar as the cost of 

transporting intermediate products is 

relatively low. The strategic variables 

here are the time of transport and the 

cost of stocking incurred by each contributor 

in the network. This explains 

increased externalizing of operations

of cutting and assembling that allow 

taking advantage of specific manufacturing 

in each location, both on a city 

scale or on the scale of one or more 

countries. 

√ Their companies were incapable of 

ameliorating their position in the 

value chain. The central position in 

the organization of the value chain 

in the textile sector is held by the 

distributor in that he controls the 

strategic variables which are conception 

of products and knowledge of the 

market. Hence it is at this level that 

more value is created (table x12). 

The price of an article can be three 

to fifteen times its price ex-factory. 

The difference is explained not by the 

quality of the fabric or a significantly 

higher time of execution but by the 

cost of promotion, distribution and 

“revenue” generated by the trademark. 

Moreover, inputs, such as the 

fabric which represents nearly 60% 

of the cost price of a garment, are 

the essential elements of a product’s 

competitiveness and not the cost of 

manufacture[25]. 

These are a few facts that indicate 

the method of organization of the TC 

sector which underlines the difference 

that exists between the enterprise that 

exports under its own local trademark 

and which controls and can capture a 

large share of the value, and the subcontractor 

who produces the same products 

for a foreign client who provides 

him with the model and fabric (table 

x12). Competitiveness of the former 

rests on factors other than cost (collection, 

fame), whereas the latter depends 

on cost and time required. A third actor 

can intervene between the first two, the 

-37- 

co-contractor who makes an article from 

fabrics he has purchased and whose 

competitiveness refers to his knowledge 

of the market for basic products. 

These two viewpoints, the value chain 

and the network, are not entirely dissociated 

from each other. The position 

that enterprises in a country can occupy 

along the value chain depends on the 

level of development of the network. 

The more an industry is diversified, the 

more an enterprise can easily find the 

raw material required in its country, the 

more co-contractor activities could be 

multiplied. 

The multi-fiber agreement and trade 

preference accords, while curbing immigration 

and stimulating the emergence 

of developing countries, have furthered 

the appearance of “specialized clothing” 

in neighboring European countries which 

in turn have permitted an increase in the 

export of European fabrics. Incoming 

products to the European market without 

customs tariffs must respect rules of 

origin. MPs, except Turkey, having had 

no right to install a network on national 

territory were obliged to import fabrics 

from Europe. 

However, this movement caused fragmentation 

of the market. The four principal 

exporters (China, Mexico, India, 

and Turkey) account for 38% of global 

exports followed by twenty countries to 

the tune of 1% worldwide. Examining 

the cost of wages, competitiveness and 

industrial performance of diverse protagonists 

indicates that positions occupied 

by some in the global market are 

artificial and solely maintained by the 

existence of the multi-fiber agreement. 

Countries that abolished quotas have

egistered a formidable concentration of √ countries whose exporters, essenti- 

their imports, hence the two following ally sub-contractors, have a radius of 

economic configurations: 

regional action (European or American 

market), but where the TC sector 

√ countries whose TC exporters are accounts for more than 40% of the 

present in all markets, who rely on country’s exports, even if its share in 

abundant and diversified national tex- added value is small (weak productitile 

offer; 

vity, unskilled jobs), and is one of the 

Table X10: Cost structure of clothing industry in several countries, 2001 (% of the 

production) 

Unqualified 

manpower 

Qualified 

manpower 

Capital Value-added Inputs Imported inputs 

Canada 25,9 5,0 10,2 41,2 58,8 19,8 

USA 21,0 5,8 5,8 32,6 67,4 13,8 

France 21,6 4,7 8,8 35,0 65,0 24,3 

Italy 14,3 3,1 16,4 33,8 66,2 13,5 

Japan 21,9 4,0 11,2 37,1 62,9 7,8 

Hong Kong, China 22,6 7,9 12,9 43,4 56,6 13,0 

Korea 15,0 2,9 4,7 22,6 77,4 15,9 

China Taipei 20,8 3,5 6,0 30,3 69,7 10,9 

China 18,2 2,5 12,2 32,9 67,1 6,7 

India 21,1 2,9 7,8 31,8 68,2 1,8 

Vietnam 9,0 1,2 3,8 14,0 86,0 40,4 

Czech Republic 21,1 3,2 9,9 34,1 65,9 28,9 

Morocco 14,6 2,1 10,9 27,6 72,4 37,9 

Source: Femise, study FEM22-34 

Table X11: Cost structure of textile industry in several countries, 2001 (% of the 

production) 

Unqualified 

manpower 

Qualified 

manpower 

Capital Value-added Inputs Imported inputs 

Canada 22,7 3,1 10,3 36,1 63,9 24,2 

USA 19,5 4,2 10,3 34,0 66,0 9,7 

France 13,8 3,7 7,2 24,7 75,3 22,0 

Italy 11,8 3,2 7,2 24,7 75,3 22,0 

Japan 17,6 6,6 7,0 31,2 68,8 11,2 

Hong Kong, China 9,0 3,9 10,8 23,8 76,2 5,8 

Korea 12,0 2,3 16,2 29,5 70,5 20,0 

China Taipei 10,4 3,3 8,3 22,0 78,0 10,2 

China 9,7 1,6 12,0 23,2 76,8 8,1 

India 17,8 2,8 6,7 27,3 72,7 4,0 

Vietnam 10,2 1,6 12,4 24,3 75,7 34,3 

Czech Republic 13,0 1,8 13,8 28,7 71,3 35,1 

Morocco 5,8 0,9 6,2 13,0 87,0 44,3 


Table X12: Value added in each step of the added values chain (from the fibers to 

the commercialization) 

Stage 

Shirt 

Fiber threading Weaving Making Distribution 

Unit 1kg 0,8 kg 4,85 m 2,1 shirts 2,1 shirts 

Value in USD 1 2,0 4,7 9,8 22,7 

Value-added (USD) 1,0 2,6 5,1 12,9 

% of final value 4% 5% 12% 23% 57% 

Trousers 

Unit 1 0,75 kg 2,3 m 2 trousers 2 trousers 

Value in USD 1 2,2 7,5 14,5 37,5 

Value-added (USD) 1,2 5,2 7 23 

% of final value 3% 3% 14% 19% 61% 

Source : Kurt Salomon Associates, in Textile Outlook international, January 2004, cited in Study Femise 

FEM22-34. 

-38

main industrial employers, is capa- 

ble of compensating the weakness 

of other exporters and drawing FDI 

(Bangladesh, Cambodia, Egypt, Syria, 

Tunisia). 

In terms of competitiveness, MPs blame 

several types of handicaps: 

√ They cannot compete in terms of 

wages with Asian countries where 

salaries vary between 50 (Myanmar) 

and 100 Euros (China) although they 

can do so with European countries 

(5% to 15% of European costs). 

√ They suffer from significantly unqualified 

manpower and its negative 

impact on productivity. 

√ Rigidity of the labour market hinders This phenomenon is due in particular to 

reallocation of manpower. 

the slackness of investments accompanied 

by increasing uncertainties regarding 

√ Evolution of real exchange rates wei- the magnitude of harmful consequences 

ghs on external competitiveness and caused by the abolition of the multi- 

the evolution of the US dollar has fiber agreement. The crisis in the tex- 

helped Asian countries in European tile-clothing sector in Maghreb countries 

markets. 

probably had a self-fulfilling dimension. 

Figures of machine purchases highlight 

Needless to say, they have the advan- this. Between 2000 and 2003, when 

tage of proximity to the European mar- China bought half of the yarn equipment 

ket, not that the cost of transportation (long fiber) sold in the world, and India 

is particularly low, but it still allows and Pakistan one quarter for short fiber, 

for better reactivity. Dispatching by air, western Europe acquired 18 000 looms 

Figures 5 and 6: textile-clothing investments in % of turnover (Tunisia and 

Morocco) 

-39- 

which represents an additional cost of 

1 Euro per article and which does penalize 

medium range or higher articles, 

can nevertheless undermine this advantage 

(10% of Chinese exports). Cultural 

proximity remains. 

A troubling factor is the decline of 

the share of Maghreb countries in the 

European market since 1998: 5.4% in 

1998 against 4.9% in 2004 for Morocco, 

and 6.1% against 5.2% for the same 

years for Tunisia. These bad performances 

cannot be attributed to China’s 

progress in global markets following 

entry in WTO, or liberalization of certain 

exchanges of goods because these do 

not figure among the principal exports of 

these countries.

and Turkey 11 000, more than India, 

Bangladesh, Pakistan and Thailand put 

together. The effort exerted by Turkey is 

considerable despite the very grave economic 

crisis it was experiencing during 

this period. GDP lost 7%, 40% of stock 

was renewed. Egypt and Syria followed 

sluggishly while Tunisia and Morocco 

made very few investments. 

Consequences of the end of the 

multi-fiber agreement 

Exchanges in the TC sector are governed 

by the General Agreement on Tariffs and 

Trade of the 1st of January 2005, which 

put an end to the system of import 

quotas, which had been in force for 40 

years. Liberalization of textile exchanges 

that was so dreaded is a reality today to 

which MPs, like the EU and the United 

States must adapt. Undoubtedly, in the 

face of the immediate opposition engendered 

by the first effects of the end of 

the multi-fiber agreement, quotas on 

Chinese imports were temporarily reintroduced 

in spring 2005. MPs also obtained 

a supplementary delay of two years 

to restructure this sector and prepare 

to confront Asian competitiveness. After 

January 2008, the only protection that 

will remain will be a tariff of 12.4% in 

the case of the EU (with a maximum of 

13.4%) and 12.8% for the United States 

(with a maximum of 29.7%). 

The consequence of raising quotas on 

European industry is a very tangible setback 

for its exports in terms of yarn and 

fabric which will climb to nearly 15%. 

For the United States and the EU, the 

danger is not so much an invasion of 

their markets by products manufactured 

in China than the significant reduction 

of their yarn and fabric exports. These 

-40- 

products feed clothing industries in central 

Europe, southern Mediterranean and 

Central America who are subjected to 

the full blast of competing Chinese 

goods. The evolution of European and 

American yarn and fabric exports are but 

the effects resulting from the difficulties 

confronting the industries of these countries. 

Regarding MPs, the new situation carries 

both risks because exchanges with 

textile industries of Maghreb with EU in 

particular were relatively well protected 

by this system as well as possible 

new opportunities which these countries 

should seize. This demands a considerable 

effort to adapt in the face of competitors 

who have belatedly, but more resolutely, 

engaged in the road to reform. 

Opportunities and risks can be measured 

by some figures. Bangladesh, Sri Lanka, 

Vietnam, Mauritania and Cambodia have 

registered rapid pace of growth in this 

sector. China was the top exporter of 

textiles-clothing during 1995-2002 and 

its share in the global market rose from 

22.5% to 30% in the clothing sector 

and 16% to 22% in textiles. On the 

other hand, numerous industries did not 

manage to adapt themselves and survive 

changes of competition. Clothes sector 

in Bangladesh could be the next victim. 

According to IMF report, the country 

could lose one quarter of its exports, 

i.e. at least 2.3 million jobs, after quotas 

are eliminated. North Africa, Turkey 

and eastern European countries could 

be evicted from the European market 

similar to Mexican and African producers 

from the American market. The rapid 

success of Cambodia, where garments 

were the leading manufactured product 

is equally at peril.

The impact of lifting quotas is often 

measured with a bias toward minimizing 

Chinese competitiveness. In fact, the 

measures are realized based on similarities 

between exportation structures 

of countries that enter into competition 

in EU markets, tilted, in the case of 

China by using data on clothing exports 

towards the EU which reflects the existence 

of quotas. In order to circumvent 

this problem, one can calculate the 

index by taking as reference China- 

Japan exchanges whose structure is not 

too far from that of the EU, but whose 

aggregate does not suffer from the same 

limits. It therefore appears that potential 

competitiveness of Chinese exports over 

those of MPs is formidable and that MPs 

compete among themselves by blocs 

(Morocco and Tunisia, but not Maghreb- 

Machrek and Turkey with MPs). However 

competitiveness is less strong with eastern 

European countries who are new 

members of the European Union. 

The effects expected of change are 

alarming by their importance, even if 

measures are always indicative. For 

example, it is expected that Morocco’s 

share in the European market will fall 

-41- 

from 5% to 4% in 2005 due to the rise in 

EU imports from Asia, in particular from 

China. However, the volume of textile 

exports in these countries is high and 

weighs upon the share of Moroccan and 

Tunisian value-added in total production 

and it does not allow the use of the 

currency devaluation weapon to boost 

international competitiveness. 

The experience of 2002 of significant 

growth of shares in the European market 

of eleven Chinese products affected 

by the lifting of quotas following China’s 

entry into WTO (+13% to 45%) is enlightening 

and heralds what will undoubtedly 

occur in 2 years time. On eight 

clothing products, China has registered 

astonishing progress and equally surprising 

drop in prices: -12% to -80% of 

unit prices in Euros (figures 6 and 7). 

This is the result of suppressing quotas 

that involve costs and the reform 

of Chinese industry as State owned 

enterprises lose their privileges, thereby 

permitting others to progress as well as 

reducing intermediaries. 

Recognizing that the TC sector was the 

motor for development of production, 

Table X13: competition indicator of textile-clothing sector, MP, new members, 

China, with figures of 2003 

Romania Tunisia Morocco Poland Czech Republic Egypt Syria China China* 

Turkey 0,5 0,6 0,7 0,5 0,6 0,7 0,8 0,3 0,8 

Romania 0,7 0,8 0,9 0,8 0,4 0,4 0,4 0,7 

Tunisia 0,9 0,8 0,8 0,4 0,2 0,3 0,6 

Morocco 0,9 0,8 0,6 0,5 0,4 0,7 

Poland 0,8 0,4 0,3 0,4 0,6 

Czech Republic 0,0 0,0 0,4 0,8 

Egypt 0 0,3 0,7 

Syria 0,2 0,6 

Source: Femise, study 22-36 

Note: The indicator used is called Cos Cos. To compare the structure of exports to the EU of clothing 

articles of a country i to that of a country j, we have considered the vectors Eik et Ejk for k=1,...,n 

(n being the 246 items of the HS nomenclature HS for clothing) that represent the exports of the two 

studied countries in this sector. The “distance” between these two vectors is obtained by calculating the 

cosines of their angles that varies from 0 (total dissimilarity) and 1 (total similarity).

employment and exportation, and given 

that socio-economic characteristics of 

the sector, the competitive shock resulting 

from changes in competition circumstances 

in international markets, 

can be translated as: 

(i) movement of manpower from the √ Because firms close down or down- 

formal to the informal sector of the size owing to ongoing restructuring, 

economy (SME-SMI and independent it is difficult to find a job in the same 

entrepreneurs), 

sector thereby prolonging the period 

of unemployment. Thus economic dif- 

(ii) a decrease in productivity of work as ficulties increase even if this is not the 

a result of transferring formal man- case with all workers. On the whole, 

power to sectors of exchangeable surveys confirm the results of other 

and non-exchangeable goods fol- studies whereby informal employment 

lowing a decline in hourly wages or is gaining ground in North Africa. 

working time, 

√ It is quite improbable that the clo- 

(iii) an evolution of wages that depends thing sector in the three countries can 

on capital intensity and qualification absorb workers who were fired during 

in diverse branches of production of the past years or who will be regar- 

SMEs. 

dless of the effectiveness of restructuring 

and possible improvements. 

A study undertaken by a Femise team Moreover, all that could be done to 

indicates, especially through its sur- further increase the competitiveness 

veys[26], that: 

Figures 6 and 7: rising of China share in EU imports 

and fall of unit prices 

√ Consequences of loss of 

Increase of the China share in EU imports And fall in unit prices (in euros) 

employment vary within and 

between countries according 

to structural characteristics 

of the three countries and 

their economic development 

standards but that insecurity 

rises. 

√ With regard to working conditions, 

the idea that there 

exists a clear dichotomy 

between formal and informal 

sector firms appears to 

be false. There exists a continuum 

of enterprises whose 

characteristics and conduct Source: Femise, study FEM22-34 

-42- 

are embodied in a manner to carry 

out their activity partly in conformity 

with formal legislations and regulations 

and at the same time seeks to 

bypass certain obligations, particularly 

those pertaining to employment.

and efficiency should be realized, 

according to the authors, a strategy 

to absorb the excess workforce in the 

clothing sector must be elaborated 

and promptly implemented. 

At the end of two years during which 

the EU will impose new quotas, as will 

the United States, Chinese exporters will 

have organized the rise of its range of 

products and converged their specializations 

with those of MPs. For the latter, 

it is imperative to exploit this respite in 

order to face the shock looming in 2008 

and which could mark the beginning of 

the end of textiles in MPs. 

How to manage textiles after Multifiber 

According to what preceded, the following 

question is naturally posed: is it 

possible to prepare a “soft landing” for 

the textile sector in MPs, to give time to 

identify activities of the industrial sector 

and services that could take over the 

employment charge from the TC industry 

as well as its export and productivity 

gains? The above mentioned study proposed 

the following policy recommendations 

whose beneficial effects could 

rapidly materialize: 

√ Maghreb countries must bear in mind 

three new elements to guide their 

restructuring strategy: firstly, changes 

in conditions of international 

competitiveness, secondly, a trend 

that is more and more marked in the 

EU, namely to concentrate its supply 

sources in Asia (China, India), finally, 

modification of the role of textileclothing 

producers, who are geographically 

close to the EU but whose 

cost of production is higher and who 

-43- 

must be capable of providing reduced 

series in very short time (mid-season 

production or need for restocking due 

to a greater demand than predicted, 

etc.). Meanwhile, it is necessary for 

EU countries to ensure the constant 

quality of their products. Therefore 

they will continue to impose stringent 

control on design and origin of inputs 

(mainly from outside North Africa). 

The level of production for export 

by North Africa will by virtue of the 

above, probably continue to be intensive 

in importation and will depend on 

the capacity of firms to satisfy new 

orders in brief periods, to diversify 

their production, and to move from 

one product to another. The ensuing 

constraints are that one will need to 

sub-contract certain activities as in 

Morocco’s case, and strengthen the 

tendency for occasional employment. 

This is also a characteristic of the 

Moroccan clothing sector. In Tunisia, 

where the majority of companies are 

used to produce for trademarks such 

as Levis and Lee Cooper, there is 

scope for enterprises with the means 

to meet a more punctual demand (as 

in Egypt and Jordan). 

√ As demonstrated by Morocco, development 

of niche production oriented 

toward the parties that generate relatively 

higher revenues in the European 

market is possible. Other countries 

should possibly copy this trend even 

if attaining this type of slot (niche) is 

not easy. Tunisia is actually experiencing 

problems in taking this turn due 

to lack of originality in production, a 

fear in changing entrepreneurs as well 

as delays in adopting modern management 

techniques (Zghal, 1999). 

The keys for succeeding in restruc-

turing the sector are: ameliorating 

the quality of products, by adopting 

innovative and modern management 

techniques. In this domain, the EU 

can assist firms in Maghreb countries 

(i) by helping to identify opportunities 

of existing niche markets (possibility 

to exploit specific knowledge and 

savoir-faire in embroidery and other 

decorative techniques destined to 

certain markets such as kaftans and 

leather clothes, embroidered marriage 

gowns, evening dresses utilizing 

European styles and embellished with 

traditional embroidery of MPs), (ii) 

by offering necessary funds to start 

joint EU-MED activities in the clothing 

sector, (iii) by encouraging innovation 

within SME-SMI, (iv) by assisting 

firms in Maghreb to undertake studies 

on EU markets, (v) by encouraging 

more efficient management via 

training programmes for Maghrebian 

entrepreneurs, namely in European 

companies (these programmes could 

be disseminated to all MPs and sectors). 

√ The fact that it should be relevant to 

intervene at the level of SMEs signifies 

that policies in favour of facilitating 

exchanges, acquiring competences in 

design and production, micro-financing 

possibilities, obtaining technical 

advice and encouragement to the 

groupings of enterprises could be 

very effective in the short-term; the 

objective of these initiatives is the 

development of SMEs in the clothing 

sector, but not only those. 

√ It will also be beneficial to promote 

knowledge of workers in the 

fields of design and productions in 

close cooperation with enterprises in 

-44- 

order to ensure jobs for all but not 

to create excessive personnel which 

is likely to increase unemployment. 

Tunisia already adopted initiatives 

in this regard by creating schools 

for technical education, particularly 

in design, specifically related to the 

textile-clothing sector. Training capabilities 

though are not fully exploited. 

Therefore, regional cooperation 

should be established for developing 

training institutions. 

√ An essential role that should be 

played by government if it wishes to 

assist enterprises in adapting to new 

competitive conditions is to simplify 

customs formalities. Responsiveness 

of firms in exportation is often hindered 

by administrative obstacles that 

delay passage through customs of 

imported intermediary goods used in 

the manufacture of these products. 

Morocco which is modernizing it customs 

in cooperation with the World 

Bank, must take into account this 

dimension. Consequently a study on 

the opinion of firms on the effectiveness 

of customs reform in Morocco 

will provide useful information for 

other MPs. 

√ Problems related to loss of revenue 

and employment suggest an extension 

of the period required to set up the 

free-trade zone with EU and Morocco 

from 3-5 years as was the case with 

Tunisia, provided that supplementary 

measures are taken to increase the 

capacity of the economy to respond 

to liberalization of exchanges. This 

delay will shelter Morocco from additional 

pressures on its competitiveness 

and will limit lay offs. Tunisia 

already obtained a delay and giving it

another is not pertinent because this 

will encourage firms and government 

to postpone restructuring, which is a 

necessity to face market realities. 

√ Strengthening education is necessary 

for the three countries at all levels. 

Their reforms should aim firstly at 

promoting adaptation capabilities and 

flexibility of manpower. That is to say 

possessing basic knowledge including 

in the domain of new technologies. 

At the level of secondary and higher 

education, an extension for professional 

apprenticeship and lifelong learning 

would be welcome. 

The project to establish a free exchange 

zone between the EU and MPs flagrantly 

lacks a clear-cut economic strategy for 

countries that need to liberalize. With 

time, predictions concerning rising revenues 

and employment in partner countries, 

that theoretically should ensue 

from liberalization and reform of national 

economic policies, proved to be 

overly optimistic. Few studies focused 

on analyzing the nature of competition 

that these countries could progressively 

come to bear in their principal 

export markets. Given the problems 

experienced by Morocco and Tunisia 

with their exportation keys, it is urgent 

today to elaborate realistic development 

strategies. This primarily means that 

they must understand that reform and 

investment in infrastructure are prerequisites 

but were unable to generate the 

dynamism required by these countries. 

Hence other ways and means must be 

devised. According to the team who 

undertook this study, these strategies 

should bear in mind the specificities of 

these countries in order to identify and 

exploit new export opportunities while 

-45- 

exploring possibilities of enhancing the 

expansion of intensive production at 

work in the domestic market. The latter 

aspect depends on the rhythm of expansion 

of the domestic market. Its rise 

will augment demand by the necessary 

proportion but it is difficult to control 

and it will in turn depend on the rhythm 

of expansion of intensive exportation 

at work (goods and services). It also 

depends on the EU’s will to contribute, 

for example by reducing restrictions on 

horticultural imports from Maghreb. It is 

equally necessary to improve quality and 

competitiveness of domestic products 

and to generate higher revenue for the 

domestic economy by acquiring technical 

training. 

In Morocco where significant but unexploited 

capabilities are available in the 

domain of water reserves (Yang and 

Zehnder,2002), restructuring of farms via 

redirecting cereal producing land which 

is irrigated on a large scale towards horticulture 

units and adding more intensive 

animal husbandry can increase revenue 

and employment. Consequently, it will 

contribute to the expansion of domestic 

demand for locally produced goods and 

services. Implementation of this strategy 

will only be viable if liberalization of 

agricultural imports by EU not only take 

place but does so through a negotiated 

process that recognizes the rationale of 

a slower transition toward lifting protection 

from agricultural products in the 

Mediterranean. 

Whatever the case may be, if revitalization 

of the TC network is necessary, it 

also appears to be a short-term objective 

considering the lessons of the first 

two chapters. It is a more global strategy 

of sectoral diversification as well as

one lending support to local enterprises 

which should be elaborated. Within a 

context marked by intensive competitiveness 

between developing countries 

in the manufacturing sector and new 

openings in the market for exportable 

services, the pertinent question according 

to Femise is to improve capacities 

for responding to supply from MPs and 

the emergence of sectors that could 

take over present specializations that no 

longer keep pace with the most dynamic 

markets in the world. As indicated 

by surveys on enterprises in part 1, in 

order to carry this out, any industrial 

strategy should be coherent with the 

points raised in the first part on the 

needs of enterprises which, in the first 

place, have essentially stressed the particular 

importance of the services sector, 

namely financial, communications, and 

transport services. 

4. Services, relay opportunities 

Services are seldom tackled by development 

theories which, marked as they 

are by industrial tradition, are confined 

to the role of supports for industry. 

However, current technical and institutional 

evolution demands a re-evaluation 

of the viability of development by services. 

Progress in telecommunications and 

information modifies the division of work 

and creates new possibilities for externalization, 

delocalization and exportation of 

services activities. Simultaneously, accumulation 

of human capital in developing 

countries allows some to mobilize a 

supply of qualified and competitive manpower 

for such productive activities. 

In a context marked by insufficient statistical 

coverage and a problematic that 

is relatively new, several approaches are 

-46- 

combined. After a synthesis of the tertiarisation 

process in different MPs and 

exportation prospects in this domain, 

one can deal with the opportunities that 

are being opened before MPs today, 

either by developing comparative advantages 

and promising niches (tourism, 

health services) or by liberalizing and 

reforming sectors identified in the first 

part as indispensable in assisting firms 

to adapt to the new context (banking 

services, telecom, transport). 

Growth and development perspectives 

for services in the 

Mediterranean 

The process of tertiarization concerns 

rich and developing countries alike and 

the correlation between income per capita 

and degree of tertiarization is narrow. 

Turkey aside, MPs are an exception to 

these heavy structural trends, on the 

one hand because at the regional level, 

there is no relation between per capita 

GDP and contribution of services to GDP. 

On the other, at the level of national economies, 

the weight of services stagnates 

(Jordan, Morocco, Tunisia) or diminishes 

(Algeria, Syria) since the 1970s. 

However, ongoing internationalization in 

the service economy seems to have 

started quite early on in MPs. The opening 

rate of services, in the aggregate, 

is higher than the world or European 

average; and it is rising. As for all MPs, 

the contribution of exported services 

to national income increased by 50% 

during the past two decades. This sector 

accounts for a larger share than others 

in total exports. It provides more than 

half of export revenues in two countries 

(Egypt, Lebanon), and more than one 

quarter in five others (Turkey, Israel,

Morocco, Tunisia, Jordan). At the regio- 

nal level, exchange of services generates 

a growing trade surplus and constitutes 

an essential factor in stabilizing the 

balance of payments. Despite this “specialization 

of services”, MPs have not 

profited from the internationalization of 

the sector as much as other developing 

countries and their share in the global 

market has fallen. Nevertheless, MPs 

are characterized by a marked heterogeneity 

in terms of different indicators 

of trade performance. Utilization of a 

classification breakdown in ten branches 

of services will allow a description of the 

service specializations in each MP and 

identify, alongside the effective specializations, 

existing growth opportunities 

(table x14). 

Gains of liberalization in services: 

the case of banks and telecommunications 

Besides traditional markets such as tourism 

(illustrated opposite) or nascent 

such as exchanges in health services 

(illustrated below), the other side of the 

-47- 

Box: Exportation of tourism services in 

Tunisia and Mediterranean countries 

Tourism constitutes one third of global services 

exports. As for MPs, revenues from the item 

travel rose to 20 billion US dollars in 2000, as 

compared to 10 billion for textile exports, 90 

billion for total goods exported and 5 billion 

derived from emigration. These revenues provide 

between 15% (Turkey) and 50% (Cyprus) of 

incoming hard currencies. Direct net revenues 

from tourism represent a growing percentage 

of GDP in the region: from 1 point in 1980 to 

4 points in 2000. For MPs who posses these, 

the utilization of satellite accounts of tourism 

demonstrate that the sector’s weight measured 

by the demand of the economy, ranges from 

10% (Turkey) to 19% (Tunisia). The place it 

occupies in employment is close to its participation 

in GDP. The link between added-value 

and tourism employment (excluding induced 

effect) leads to a production level similar to TC 

activity. 

The Southern Mediterranean is one of the prime 

destinations for mass tourism. The flux into the 

region rose from 4% (1990) to 6% (2003) of 

global tourism, whereas income was multiplied 

by 2.5. Simultaneously, competitiveness was 

intensified on the Euro-Mediterranean market. 

However, tourism offers by MPs vary far more 

than at first glance. Indeed one can observe 

national preferences which are translated by distinct 

specializations, sometimes by the sending 

country or by the receiving country. Moreover, 

exportation performance is equally diverse. It 

is possible to distinguish three diverse profiles: 

extensive growth (Turkey), intensive growth 

(Morocco), loss of competition (Egypt, Tunisia). 

Table X14: taxonomy of service industries for which there is a potential growth 

Industry 

Services 

Turkey Israel Algeria Morocco Tunisie Egypt Jordan Lebanon Syria 

Commercial Services .. 

Services Transport + .. .. 

Maritime Transport + .. .. .. 

Air Transport .. + .. .. 

Others transports .. + .. .. 

Traveling + .. + + .. + 

Others Services .. 

Communications .. .. + .. .. .. 

Construction + .. + + .. .. .. 

Insurance .. .. .. .. 

Financial Services .. .. .. .. .. .. 

Computer Services .. .. .. .. + + .. .. .. 

Royalties and licences revenues .. .. .. .. .. 

Other Business services + .. .. 

Pers. Serv., Cult & entertainment + .. .. .. + .. .. .. 

Governmental Services, n.i.e. .. 


.. no information available 

+ Services with growth potential 

Services in which the country is specialised

Box: International trade health services 

and exportation perspectives 

of developing countries 

Exportation of health services traditionally 

flowed from North to South; patients 

traveled inversely. However, factors that 

ensured the attraction of health services 

in the North progressively became commonplace 

and widespread along with the 

increase and improvement of medical 

capabilities in several developing countries. 

Export opportunities in this sector are 

evaluated here, on the one hand by 

estimating the volume of international 

health trade in terms of trends and 

structure of these exchanges. On the 

other, by analyzing the Tunisian experience. 

Exportation of health services 

represents one quarter of private sector 

activity. With the accommodation services 

involved, they attained 107 million 

US dollars in 2003 – nearly 4% of 

Tunisian service exports– and provided 

nearly 10 500 jobs. 

At the global level, this trade witnesses 

an expansion that is faster than the average 

of the exchanges, especially since 

2000. It stood at 11.8 billion US dollars 

in 2003, that is 0.75% of global services 

exchanges. This proportion has doubled 

since 1997. Case studies and global analysis 

converge to underline the regional 

dimension of external health services. 

84% foreign patients in Tunisia, 87% 

in Jordan hail from neighbouring countries. 

Trade of other developing countries’ 

exporters of health care (Thailand, 

Malaysia, Cuba) is subject to the same 

principle of proximity. The particular 

nature of trade in health services and 

the specificity of its demand explain this 

predominance in South-South exchanges. 

These two characteristics highlight 

a promising niche for MPs in the Euro- 

Mediterranean in the vicinity of the 

EU, but also prospects of expansion in 

South-South integration 

-48- 

question of services could be appre- 

hended in terms of competitiveness. 

As been underlined on many instances, 

MPs have committed to an opening up 

strategy. But, this for the time being is 

focused on industrial sectors. It is therefore 

necessary to advance on the question 

of services, rapidly in certain key 

sectors well identified through the reaction 

of firms (cf. part 1), for two reasons 

that reinforce one another: (i) to identify 

new specializations that would augur 

well as the world evolves; (ii) to foster 

conditions that favour competitiveness 

of local companies so that they can keep 

pace with other sectors. 

Certainly today there is recognition of 

the importance of services in the economy. 

Technological progress also plays 

a key role in the attention given to trade 

in services by decision makers. Progress 

in the fields of finance, information technology, 

communications, and transport 

has contributed to a rapid expansion 

of trade in services. Long considered 

as expensive, international transactions 

have been facilitated by the flow of electronic 

information. 

The advantages of liberalization of services 

were highlighted by certain facts, 

such as the increase in exports and FDI 

achieved by countries which have enhanced 

their services performance related 

to trade (transport, finance, roads and 

telecommunications). 

Internal reforms aim at lowering the 

cost of transport and daily management 

of affairs can play a crucial role 

in improving access to global markets. 

Liberalization of services will strengthen 

the capability of exporters to respond to 

reforms carried out within the framework 

of trade, and allow local producers to

etter coordinate their activities with 

input suppliers situated in higher income 

countries, thereby rendering the country 

more attractive for FDI. Furthermore, 

liberalizing trade in services can create 

investment opportunities for the private 

domestic sector and help in drawing 

foreign investments that do not entail 

a debt burden such as FDI and portfolio 

investments. FDI in services was 

the principal engine of FDI global flux 

during the 1990s and today represents 

nearly half of the value of FDI stock in 

the world. 

However, MPs experience difficulties 

of profiting from these global trends 

because they are inclined to implement 

services reforms in a dislocated 

manner. Privatizations that took place 

were slower than in other parts of the 

world; barriers upon entry always held 

back investors both foreign and local. 

The reason for this is undoubtedly to be 

found in strategies to preserve employment. 

Services, essentially public, were 

(and still are) envisaged in the first place 

as a reservoir for employment which 

eventually allow the management of 

social adjustment in industry. They are 

not understood as “productive” sectors 

in themselves. Therefore, what undeniably 

emerges from surveys conducted by 

Femise teams is that a number of these 

sectors participated in the industrial 

process, providing firms with other competitive 

sources, thereby placing them in 

the heart of the industrial processes. The 

specificity of MPs according to this point 

of view is that they act negatively, that 

is to say firms regret their absence and 

inefficiency. Hence, not only can they 

evolve as a new regional specialization 

but the effects practicing on local fabrics 

can lead to better returns on their open 

-49- 

door strategy in general, and the Euro- 

Mediterranean process in particular. 

Opening up of services markets in the 

Mediterranean region to competition can 

offset the costs of adjustment stemming 

from merchandise trade liberalization: 

pro-competitive reforms that facilitate 

entry by new firms can generate large 

employment opportunities for skilled and 

unskilled workers who are employed by 

governments in low productivity jobs. 

Because services often cannot be traded, 

increasing access to services markets 

is likely to entail the entry of foreign 

competitors through FDI. This will lead 

to the introduction of new technologies 

as well as hiring domestic labor. 

In this section, based on the case of 

four Mediterranean partner countries 

(Egypt, Morocco, Tunisia, and Turkey), 

we are going to explore the potential 

welfare gains of the liberalization, more 

specifically defined as alignment with 

EU regulations of trade in services, in 

three sectors: the banking sector, the 

telecommunication sector and the maritime 

transport sector. Special emphasis 

is drawn on the banking sector, where 

highlights of recent reforms and recent 

performance of the sector in the respective 

countries is given, and on transport 

due to the expected gain and the coherence 

with the MP strategies. For the 

3 sectors, the general presentation is 

followed by an estimation of the overall 

welfare gains of liberalization through 

compliance with EU regulations. 

Banking sector: Effects of full conformity 

with EU 

During the nineties, several MENA 

countries have embarked on significant

eform programs of their financial sec- 

tors, where they commonly initiated 

with banking sector reform. The outcomes 

of those programs, though varied 

across countries, were generally modest 

and have thus urged for another wave 

of reform and modernization. Within the 

phase to come, most MENA economies 

will be looking forward to setting the 

stage for deeper global integration, of 

which integration with the EU is a key 

ingredient. Thus, several countries of 

the region are indeed considering opening 

up their services sectors gradually 

to the EU competition; that is to extend 

their Free Trade Agreement with the EU 

to cover trade in services. 

It is worth noting that liberalization as 

used in this context is not meant to 

denote the removal of all regulations or 

all forms of restrictions, but it refers to 

the status where prudential regulations 

essential for the survival of the banking 

sector is preserved. Thus, the term 

“liberalization” in this section refers to 

the alignment of countries’ legislations 

and institutions with those commonly 

adopted by the EU countries, and hence 

also refers to the compliance to the 

requirements of integration with the EU. 

This part basically explores the impact 

of the liberalization of the banking sectors 

in four selected MENA countries 

(Egypt, Tunisia, Morocco, and Turkey) on 

their performance, while assuming the 

country undertakes the reforms needed 

for a successful integration. 

Opening banking services to the EU competition 

may arguably lead to the improvement 

of the banking system in the 

MENA countries, paving the way for better 

and cheaper services. As compared 

to the case of trade in goods, measuring 

-50- 

liberalization of trade in services is found 

to be difficult and problematic. Trade in 

services differs from trade in goods, not 

only for being applied on four conventional 

modes, but also because of the way 

the domestic market is protected. In 

case of services, a country’s legislations 

and institutions are assumed to add to 

mere tariff protection observed in the 

case of goods. However, it has been possible 

to calculate tariff equivalent to the 

restrictive regulation. This facilitates the 

estimation of the impact of liberalization 

on various indicators, including prices 

and welfare. 

This section, based on the result of a 

Femise study[28], will provide for the 

estimation of the overall welfare benefits 

accruing from the implementation of full 

liberalization measures, by quantifying 

the tariff equivalent of restrictive measures 

adopted in the banking sector and 

testing the effect of lifting them. 

In Egypt, the liberalization moves were 

translated into a sector enjoying a relatively 

low tariff equivalent rate (11.7%) 

compared to 5% in the case of the EU. 

A number of additional indicators, not 

included in the calculations, if taken 

into consideration would have even 

resulted in a lower tariff equivalent. The 

simulations showed that if the banking 

sector in Egypt was more liberalized 

reaching the extent of liberalization in 

the EU this would not be translated 

into significant welfare gains for the 

Egyptian economy where a 6% reduction 

of prices will result only in 1.44% 

welfare gains in consumption and 1.2% 

of GDP. Moreover, even if larger price 

cuts were undertaken it will not result 

into larger welfare gains where a 26% 

price reduction will increase the welfare

gains to 6.54% of consumption and 

5.47% of GDP. 

In Tunisia, the result obtained gives a 

rate of restrictiveness (RI) of 55 percent; 

which is quite remarkable: this 

rate is high but comparable to other 

results obtained for other similar developing 

countries. It implies, approximately, 

a 50 percent tariff equivalent rate. 

Using the 1997 Tunisian 99 sector inputoutput 

table, the calculations of the price 

and welfare variations were performed, 

it comes out that the gains are positive, 

significant but modest. Prices, other than 

the banking price, would decrease by no 

more than1 percent and often by less 

than 0.5%. And the total welfare gain is 

less than 0.5 % of the current GDP. 

As for Morocco, harmonizing the Moroccan 

banking sector regulations along the EU 

lines, would translate into a reduction 

of 19.3 percent of the cost of banking 

services, given that the restrictiveness 

index for the EU is estimated at 0.0708, 

which leads to a tariff equivalent of 6.3 

percent in comparison with a scenario 

of full liberalization. In order to assess 

the effect of this reduction on the economy, 

the 1998 Input-Output table of 

the Moroccan economy has been used 

assuming that there are no significant 

changes in the structure of the Moroccan 

economy over the period 1998-2005. 

The results indicate that the welfare, 

captured through total consumption, will 

improve by 1.15 percent. Since in 1998 

consumption represented 86.12 percent 

of GDP, this welfare gain will translate 

into an increase of 0.9912 percent in 

GDP. 

In the Turkish case, with the new price of 

banking services under liberalization, it 

-51- 

was found that the welfare of the society 

will increase by 1.38 percent. Thus, the 

effect of the adoption of EU rules and 

regulations similar to those of the EU 

countries in the banking sector amounts 

to US$ 2.1 billion annual increase in the 

real income of the Turkish consumers. 

Since during 1996 consumption formed 

72.95 percent of GDP, the percentage 

change in welfare of the society is equivalent 

to 1 percent increase in real GDP. 

Moreover, as the cost of the 2001 financial 

crisis has been estimated as $53.2 

billion, and considering the figure of 

6.86 percent for the annual real interest 

rate, we note that the annual cost of 

the currency crisis amounts to US$ 3.65 

billion. Turkey would not have incurred 

this cost if it had adopted and implemented 

the legislative, regulatory, and institutional 

framework of the EU banking 

system at the beginning of the 1990’s. 

Noting that GDP in 2004 has amounted 

to US$ 300.63 billion, the welfare gain 

from adopting the EU rules and regulations 

in the banking sector can be thus 

calculated as 2.2 percent of GDP. 

It can be inferred from previous results 

that adopting EU regulations is not 

expected to result in a significant boost 

in the overall welfare. The highest potential 

gains were observed in Egypt (1.2% 

of GDP), and the lowest were observed 

in Tunisia (0.5%). However, this abstracts 

from the even more important 

gain produced by a more competitive 

banking sector, the effect on investment 

and growth, which is not captured by the 

input-output equations. The quantitative 

exercise, however, points here only to 

the fixed effects of prices, which are 

positive, and generally nearly one point 

of GDP, bearing in mind that these effects 

are calculated using input-output table,

which assumes a constant of productive 

combinations. As explained previously, 

the essential gain expected from a “mise 

à niveau” of the banking sector, rests 

in fact, on the dynamic effects that will 

result from the positive modification of 

the firm’s competitiveness (we need to 

remember that most of the studies that 

were based on analyzing impediments 

facing firms, recognized the access to 

financing as the main concern) on the 

whole sectors. 

Other much underestimated effect is the 

anticipations effect, which is going to 

bring, at a given moment, the society 

to take a decisive step. The example of 

the textile and clothing sector, and its 

under-investment, also indicates that 

the current agents` expectations are 

reserved to the national level. Therefore, 

the modification of the banking sector, 

in particular in its function as provider 

of financial resources to enterprises, will 

constitute a decisive stage, firstly by 

bringing a visible change in the conditions 

of the agents’ daily operations with 

a strong symbolic power, and also the 

efficient firms will find means of competitiveness 

that are currently lacking. 

Liberalization of telecommunication 

Over the last decade, the telecommunication 

sector has embarked on a period 

of deep change initiated by technological 

innovation, liberalization of national 

markets, and by partial or full liberalization 

of incumbent operators. Historically, 

telecom operators were state-owned 

and vertically integrated monopolists. 

Due to large fixed costs of building a 

network, the activity of providing telecommunication 

services was considered 

as natural monopoly. However, techno- 

-52- 

logical progress and innovation generated 

new transmission systems and 

decreased the cost of building infrastructure. 

Therefore, the idea of a natural 

monopoly is no longer seen as valid. 

In addition, evidence indicates that the 

absence of competition does not provide 

incentives to decrease costs, and leads 

to inefficiencies and welfare loss. As a 

consequence, most historical operators, 

all over the world, have been subjected 

to privatization plans. 

This section follows the same approach 

of the previous section in providing 

an estimation of the expected welfare 

accruing from the liberalization of the 

telecommunication services in Egypt, 

Tunisia, Morocco, and Turkey. 

In Egypt, this sector has gained increased 

importance since 1999 with the establishment 

of the Ministry of Communications 

and Information Technology (MCIT). A 

number of major changes have happened 

in this sector reflecting the increasing 

role it plays in the development process 

and in catching up with the advanced 

technology. The telecommunications 

sector contributes largely to the Gross 

Domestic Product (GDP) where the official 

statistics show that it represents 

3%. Moreover, it is considered one of the 

fastest growing sectors in the economy. 

The number of employees in the whole 

sector was estimated at around 0.27% of 

the total labour force, which is relatively 

low revealing the capital intensive nature 

of this industry. The sector had seen 

a total expenditure of 2.3 billion US dollars 

in 2001 which represented 2.5% of 

GDP (International Telecommunications 

Union (ITU), 2001). The FR index for 

the fixed line was 0.519 and the Foreign 

Discriminatory Restrictiveness (FDR)

was 0.387 which represents around 75% 

of the FR. The same exercise was repeated 

assuming the more liberal scenario 

likely to prevail after the end of 2005. An 

FR index of 0.138 and an FDR index of 

0.0973 were obtained, where the latter 

represents around 70% of the FR index. 

For the mobile subsector we obtained 

an FR index of 0.354 and FDR index of 

0.235 which represents 67% of the FR. 

In the internet sub sector we obtained 

an FR index of 0.124 and FDR of 0.089 

which represents 72% of the FR. 

On calculating the tariff equivalent the 

results obtained were 13% in the case 

of the mobile which decreases to 4% 

if the constant of the fixed line sector 

is applied instead of the mobile. In the 

case of the internet, where the fixed line 

coefficients were applied, a tariff equivalent 

of 2% was obtained. 

Results generally reveal that the telecommunications 

sector in Egypt has 

experienced several changes on the 

policy and regulatory level driving the 

sector with all its subsectors towards 

liberalization. The estimated tariff equivalents 

showed that the mobile sector is 

relatively highly protected when compared 

with the fixed line and the internet. 

Though this might come as a surprise as 

the fixed line is likely to be more protective, 

it is believed that this is rather 

a result of the specification of the model 

used (which changes tremendously the 

fixed line model specification applied). 

The estimations showed that there is 

a high expected decrease in the level 

of protection in the case of fixed line 

subsector when the GATS commitments 

are fully implemented by the end of 

2005. Despite the rapid adoption of new 

technologies and the introduction of IT 

-53- 

in different sectors of the economy, as 

observed by different indicators, Egypt is 

still relatively lagging when compared to 

the lower middle income set of countries 

to which it belongs. 

In the case of Tunisia, the Tunisian 

government was for a long time reluctant 

before undertaking any strategic 

liberalization move, and little was done 

until 2001. But in 2001, the liberalization 

process in this sector was accelerated, 

and the issue is no longer whether or not 

to open it to competition and to foreign 

investment but how and how fast to liberalize. 

The answer should depend on the 

expected impact of this liberalization on 

the telecommunication sector itself and 

on the whole economy, and also on the 

way liberalization is designed. 

Applying the analysis separately to fixed 

line telephony, mobiles and internet services, 

RI equivalent to 60 percent for 

fixed lines, 46 percent for mobiles and 

53 percent for the internet was obtained... 

The sector overall RI is taken as 

the average of the three RIs calculated. 

The average overall rate is thus 53 percent. 

Consequently, the overall tariff 

equivalent is 70 percent. 

The result is not surprising and confirms 

that telecommunications are still 

strongly protected. Beyond the expected 

direct effects for Tunisia however, 

the main concern is the existence of 

coherence within the Tunisian strategic 

plan of economic development based on 

knowledge. Communications techniques 

are the pillar without which the success 

of the Tunisian plan can’t be acheived, 

and it requires a huge reduction of the 

protectionism in order to increase the 

local diffusion.

As for the Moroccan case, Since the 

early nineties, Morocco, like most other 

countries, has put substantial emphasis 

on telecommunication and information 

technologies. The significant development 

recorded over the last decade can 

be traced back to three major causes: 

legal and institutional telecommunications 

reforms; political openness 

and democratisation; and, technological 

changes. 

The overall restrictiveness index for telecommunications 

services in Morocco was 

estimated to be 0.278, and the tariffequivalent 

obtained therefrom was equivalent 

to 32 percent. In other words, the 

extent of existing restrictions increases 

the price of telecommunications services 

by 32 percent compared to what would 

prevail under full liberalization. The calculation 

also indicates that the magnitude 

of the tariff equivalent amounts 

to 40.5 percent for the fixed telephony, 

29.7 percent for internet services, and 

only 23.4 percent in the mobile telephony. 

These results provide evidence that 

full liberalization of telecommunications 

services would benefit users particularly 

in fixed telephony and internet services. 

The expected price reduction for mobile 

services is relatively lower but still significant 

in absolute terms. 

In order to assess the total effect a 32 

percent decrease in the price of telecommunications 

services on the economy, 

the 1998 Input-Output table of 

the Moroccan economy has been used. 

By using this table, it was assumed that 

there are no significant changes in the 

structure of the Moroccan economy over 

the period 1998-2005. In particular, this 

presumes that the telecommunication 

sector plays more or less the same role 

-54- 

in 2005 compared to 1998. Yet, this 

assumption is a serious limitation as it 

tends to underestimate the remarkable 

progress in telecommunication sector 

over the last few years. The second limitation 

of the 1998 Input-Output table of 

the Moroccan economy is the absence 

of any distinction between transport 

and telecommunications, only one line 

stands for both. On the basis of value 

added data, the share of telecommunications 

in “Transport and telecommunications” 

amounted to 23 percent in 1998 

and more than 34 percent in 2002. 

On the basis of previous computations, 

the adoption of the EU rules and regulations 

in the telecommunication sector is 

expected to lead to an average reduction 

of telecom services’ price of 32 percent. 

Accordingly, the welfare of the society 

captured through total consumption, will 

improve by 1.627 percent. Since in 1998 

consumption represented 86.12 percent 

of GDP, this welfare gain will translate 

into an increase of 1.4 percent in GDP. 

Since in 2004, GDP amounted to DH 

444 billion or the equivalent of US$ 

50 billion, the preliminary and rough 

approximation of the welfare gain from 

adopting the EU rules and regulations 

in the telecommunication sector is estimated 

at US$ 700 million. It very likely 

that this figure underestimate the total 

effect of liberalizing telecommunications 

services in Morocco. 

In Turkey, the telecommunication services 

were provided until 1994 by the 

state owned company PTT, a national 

monopoly providing postal and telecommunications 

services. Turkey decided 

to liberalize the telecommunications 

sector during the 1990’s. A new

Telecommunications Law was passed by 

Parliament in 2000, which was amended 

in 2001. Since then Turkey is trying to 

liberalize the telecommunications sector 

by following the EU approach to liberalization. 

It recognizes that competition 

and regulation in the sector are vital, 

and that privatization combined with 

the establishment of conduct regulation 

is essential for achieving economic efficiency 

and the guarantee of a universal 

service to keep the country away from 

the danger of digital divide. 

Estimations of the FR indexes revealed 

a value equals to 0.193 in the case of 

the fixed line, 0.165 in the case of the 

mobile, and 0.12 in the case of internet 

services. Using input-output tables, and 

assuming that with the adoption of the 

EU rules and regulations in the telecommunications 

sector, telecommunications 

price will decrease by 33.53 percent, 

the welfare of the society was found to 

increase by 0.587 percent. Thus, the 

effect of the adoption of EU rules and 

regulations in the telecommunications 

sector similar to those of Finland and the 

United Kingdom amounts to US$ 1.12 

billion annual increase in the real income 

of the Turkish consumers. 

Since during 1996 consumption formed 

72.95 percent of GDP, the percentage 

change in welfare of the society is equivalent 

to 0.428 percent increase in real 

GDP. Finally, it should be noted that 

as of 2005, Turkey has adopted most 

of the EU rules and regulations in the 

telecommunications sector. With further 

alignment of these rules and regulations 

to those of the EU and strict implementation 

of these rules and regulations by 

TA, Turkey could derive the welfare gains 

calculated above. 

-55- 

The importance of maritime transportation 

Maritime transportation constitutes an 

important economic activity in almost 

all Mediterranean partner countries. For 

instance, about 95 percent of international 

trade of goods from and to Tunisia 

is shipped, and the volume of its trade 

(exports and imports) is worth close 

to 80 percent of its GDP. In Egypt, the 

importance of the sector arises from the 

geographical location of Egypt which 

had made its seaports among the most 

important in the Mediterranean area, 

whether acting as a hub for the Arab 

region, or as an important station for the 

transshipment cargo between Europe 

and the rest of the world. In Morocco, 

available statistics show that more than 

98 percent of the country’s international 

trade is carried by sea, which is the equivalent 

of more than 60 million metric 

tons in 2004. 

So, transportation is an essential component 

of the MCs’ capacity to preserve 

and extend their market share and to 

face the competition in their markets. 

In the present case, however, the most 

important issue is that of the regional 

coherence, which must be emphasized 

while considering in details the opening 

measures, as the gains of each country 

is dependant on the actions of the other 

partners. Thus, if Algeria improves the 

capacity of its airports to accommodate 

large cargos, its exchanges can rise with 

other MCs under the condition that they 

can offer the same services as the airline 

companies[29]. 

A Femise study on the conditions of 

regional integration can be referred 

to to illustrate the importance of the

sector[30]. The analysis shows that 

trade between zones further and further 

apart has risen thanks to the 

maritime expansion although the cost 

stays high even despite that it is a 

key element of the MCs’ capacity to 

face the competition. The creation of 

the link traffic-quality in infrastructure 

seems to be distending itself, this 

may appear paradoxical, but, it in fact 

reflects the existence of scale economies. 

The countries which were late 

in the 70s and 80’s have caught up 

with the most developed countries and 

the construction gains of an additional 

road, for example, will be less and less 

significant with the extension of the 

road network. 

Nevertheless, the traffic creation within 

the MCs (Algeria, Egypt, Morocco, 

Tunisia, Turkey) resulting from a reduction 

in transportation costs due to an 

improvement in transportation quality, 

from an intermediary situation to an 

equivalent level to that of 25% of the 

most efficient countries[31], could be 

between 34% and 55%[32]. Turkey, the 

richest country in the region which is 

recording a weak share of infrastructure, 

could benefit the most this way. The 

importance is to know if it will get all 

potential gains of the “mise à niveau”, 

Figure 8: Share of each country in the 

zone infrastructures total 

Tunisia 

Morocco 

Source : Femise study 22-36 

Turkey 

Egypt 

Algeria 

-56- 

bearing in mind that the necessary 

adjustments are considerable. 

Also, the global effect of the liberalization 

of the maritime transportation 

can be calculated, using just about the 

same methodology used in the previous 

sections. It summarizes the outcome 

of a FEMISE study (FEM 22-02) that 

investigated the overall welfare accruing 

from the liberalization of the sector to 

the full compliance with the EU regulations. 

Thus, it should be reiterated that 

the liberalization as used in this context 

refers to the application of EU regulation 

and does mean the abolishment of all 

regulations. 

The findings in Egypt shows that the 

maritime sector is among the sectors 

that remain relatively restricted when 

compared to banking and telecommunications. 

The tariff equivalents are relatively 

high; however it is comparable 

with other countries. In fact the Foreign 

restrictiveness (FR index) of Egypt is 

less than that of the United States and 

highly comparable with Germany. The 

major problem related to the maritime 

sector is the non-transparency where 

the laws stipulate certain liberal issues, 

however reality shows restrictive practices. 

Despite the reforms undertaken in 

the 1990s that have helped to liberalize 

the sector, it still remains highly protected. 

This has been confirmed by Egypt’s 

GATS obligations that showed highly 

restrictive commitments. 

Due to data implications, the analysis 

was conducted jointly on the maritime 

and telecommunications sectors. The 

liberalization of maritime and telecommunications 

sectors following the EU norms 

was found to result in welfare increase of

11.2% and 0.89% respectively in terms 

of consumption or successively 5.47% 

and 0.74% of GDP. In fact welfare effect 

is likely to be lower than shown here, as 

the calculations are assuming that liberalization 

applies to the whole sector that 

includes telecommunications, maritime 

as well as other modes of transport. 

In the case of Tunisia, the maritime transportation 

restrictiveness index obtained 

is equal to 40 percent, and it is equivalent 

to a 50% tariff. Given the measures 

already taken to liberalize the sector, this 

rate is not so high compared to other 

countries in and outside the region, but 

it remains rather restrictive compared to 

the rates obtained for more developed 

countries, including the EU countries. If 

liberalization refers to the adoption of 

EU regulations, then the restrictiveness 

index would have to be reduced to about 

30%, which is approximately the rate 

obtained in the EU countries, and the 

tariff equivalent rate by about as much. 

Maritime transport prices would therefore 

be significantly lowered. In terms of the 

indirect impact on commodity prices, and 

on welfare measured by the equivalent 

variation, the result may seem weak, 

but the numbers do not really capture all 

the gain. 

In Morocco, by converting the overall 

restrictiveness index for maritime transport 

services in Morocco, estimated at 

(0.5425), we obtain a tariff-equivalent 

of (72 percent). In other words, existing 

restrictions generate an extra cost of 

maritime transport services of 72 percent 

compared to what would prevail 

under full liberalization. This substantial 

cost affects the economy as a whole and 

undermines seriously the capacity of the 

Moroccan operators to compete effecti- 

-57- 

vely on foreign markets. It also represents 

a serious handicap for attracting 

foreign investors willing to use Morocco 

as an export platform. 

In order to assess the hypothetical effect, 

a 72 percent decrease in the price of 

maritime services derived from our previous 

calculations on the economy, the 

1998 Input-Output table of the Moroccan 

economy has been used. It assumes 

in particular that the maritime sector 

plays roughly the same role in 2005 as 

in 1998. This assumption is to some 

extent defendable with regard to the 

role of maritime transport statistics, and 

the current state of reforms covering 

various components of the logistic chain. 

However, the serious limitation of welfare 

assessment of liberalizing maritime 

transport services in Morocco emerges 

from the fact that the 1998 Input-Output 

table does not separate transport from 

telecommunications. 

On the basis of the conducted computations, 

it seems that by aligning Moroccan 

regulations in Maritime transport services 

with their European counterparts 

and ensuring that various services are 

provided in a competitive environment, 

would lead to an improvement of consumers’ 

welfare captured through total 

consumption by 3.254 percent. Since in 

1998 consumption represented 86.12 

percent of GDP, this welfare gain would 

translate into an increase of 2.84 percent 

in GDP. This is a substantial amount and 

reveals the magnitude of the economic 

cost for Morocco due to lack of efficiency 

in the maritime transport services. This 

amount also indicates the potential gain 

that could be generated once maritime 

sector reforms are fully and effectively 

implemented.

In the Turkish case, foreign indexes for 

Turkey and the 15 EU member countries 

(on average) are calculated as 0.4944 

and 0.3270, respectively. In converting 

restrictiveness index obtained above into 

its tariff (ad valorem) equivalent, three 

alternative scenarios were considered. 

Scenario A is based on the assumption 

that Turkey will lower her foreign index 

(0.4944) to the level of the EU (0.3270), 

if it adopts the EU rules and regulations 

in the maritime sector as they prevailed 

as of the end of 1998. In scenario B, the 

degree of existing maritime restrictions 

in Turkey is lowered to the level of the 

UK (0.2394), where the foreign index is 

the lowest among all EU member countries 

considered. Finally, in scenario C, it 

is assumed that the degree of existing 

restrictions in Turkey is reduced by 100 

percent (i.e., all restrictions on trade in 

maritime services are removed). 

The calculations reveal that, if Turkey 

liberalizes its maritime sector to the 

1998 level for the 15 EU member countries, 

then Turkish maritime prices will 

be reduced by 30.44 percent. A further 

maritime liberalization in Turkey to bring 

the sector to the UK’s level will cause 

an additional fall in shipping prices in 

the amount of 15.92 percent points. 

However, a complete elimination of trade 

barriers in Turkish maritime sector is 

expected to create a cost fall of 89.9 

percent. 

To analyze the possible welfare effect 

of the change in the price of maritime 

transport on the prices of other goods 

and services, the 1996 Input-Output 

Table of the Turkish economy which 

has 97 sectors was considered. Under 

the abovementioned three alternative 

scenarios about the degree of maritime 

-58- 

liberalization in Turkey, the welfare of 

the Turkish society will increase by 0.22, 

0.34 or even 0.66 percent respectively. 

However, these potential welfare effects 

need to be converted into their real GDP 

growth equivalents. Since during 1996 

consumption formed 72.95 percent of 

GDP, the percentage change in welfare 

of the society is equivalent to 0.1616, 

0.2464 or 0.4793 percent increase in 

real GDP of Turkey. 

It can be concluded that liberalization 

of the maritime sector holds a scope for 

higher welfare of the respective countries, 

albeit with varying degrees. The 

four countries were found to benefit 

from adopting and implementing the 

legislative, regulatory and institutional 

framework of the EU maritime transport 

sector. This is expected to accrue mainly 

due to the increase in competition in the 

maritime transport sector. It is worth 

noting that, one of the limitations of the 

Input-Output methodology is that it only 

accounts for static effects. It does not 

capture any likely increase in consumer 

demands for various commodities following 

their price reduction, which would 

require information on price elasticities 

of demand for all commodities covered 

in the input-output table. 

Moreover, it can be highlighted that 

even if these global static effects appear 

“modest”, they remain the most significant 

for 3 out of the 4 countries. 

Especially in terms of prices, the effect 

on the firms will be far from negligible at 

the micro economic level. As underlined 

in the first part, the firms acquire optimization 

behavior to face the competition 

and from this point of view, transportation 

problems constitute an obstacle that 

is often mentioned. It is obvious that all

means allowing the stimulation of firms’ 

price competitiveness, without having an 

effect on labor or wage levels (which is 

incompatible with the social constraints 

of the MCs) assumes a strategic importance. 

Finally, the examination of the 

problems facing the textile and clothing 

sectors has also shown that the MCs 

might, to improve their value chain, 

increase the reactivity of their firms. 

Here in addition to the prices effect, the 

transport liberalization becomes also a 

major component of a global industrial 

project. 

Moreover, transport remains a determinant 

factor and a major piece in the 

big puzzle of development because the 

existence of a reliable transport sector 

is a precondition for investors and especially 

for exporters. It is well established 

at least that with an inefficient maritime 

transportation system, progress in terms 

of investment and growth would be very 

hard to achieve. 

III. Regional integration: time for 

choices 

The question of transport naturally 

brings to mind one of the main missed 

opportunities of the ten first years of the 

Barcelona process as mentioned in the 

introduction, namely South-South regional 

integration. The open door strategy 

was clearly selected by the quasi-totality 

of Mediterranean partners, but the North- 

South axis was still much preferred to a 

more regional dimension. It is the objective 

of this chapter to raise the question 

of the coherence of this state of affairs, 

and seek the reasons that could explain 

it or allow proceeding on the transversal 

axis and which might seem essential in 

the Euro-Mediterranean context, about 

-59- 

what the European model can contribute 

to the latest regional initiatives. 

1. Current international integration 

of MPs 

Very few countries are not involved in 

some trade agreement or another (7 

according to Bouet and Mayer, 2003) 

and from this point of view MPs are not 

atypical at first glance. They are members 

of WTO (Egypt, Morocco, Tunisia, 

Turkey since 1995, Jordan since 2000); 

they signed trade agreements with their 

European neighbours. Moreover, the 

policy of new neighbourliness launched 

negotiations for the establishment of 

a vast Euro-Mediterranean free trade 

area: finally they are parties to diverse 

regional agreements. 

The main question is to know what is the 

degree of coherence in MPs’ trade strategy 

and the compatibility between their 

multilateral and regional approaches to 

the liberalization of exchanges. To reply 

to this question, one approach consists of 

measuring the degree of trade openness 

of a country, starting with an assessment 

of the level and distribution of tariffs and 

the consequences of non-tariff barriers. 

In fact, protectionism can be defined as 

any act that impedes the exchange of 

goods and services by rendering goods 

imported by a national actor more costly 

than the same products on the national 

market. If the price, all taxes included, 

of these two identical goods produced in 

two different places is the same in the 

market under consideration then there 

is no protectionism. According to these 

indicators on the extent of opening up of 

a domestic market of a country as well 

as its export markets, it is possible to 

have a better idea of the optimal trade

policy of these countries and coherence 

between past agreements and optimal 

opening strategy (multilateral, regional, 

etc.) 

A study undertaken by the Femise 

team[35] has used a new database that 

offers an assessment of the degree of 

openness of a country. This was done 

based on calculations carried out on 

a bilateral, detailed and disaggregated 

basis which includes the degree 

of tariffs dispersions according to the 

goods, which is done traditionally, but 

also according to the partners in agreement 

with the type of agreement in force 

(regional agreement, preferential treatment) 

which is translated into particular 

-60- 

measures (tariff quotas, specific rights, 

etc.). This process offers a more realistic 

view of barriers in existing trade, even 

if each type of barrier has a different 

impact on the level of exchange which in 

turn depends on the supply and demand 

flexibility. It provides an ad valorem 

evaluation of some of their elements it 

remains a delicate process. 

MPs’ access to markets 

Table X15: level of global and sector protection in the MPs 

The new measure of trade barriers used 

here indicates that MPs markets are over 

protected. The richer countries apply 

a generally lower level of protection. 

However, a sector by sector examination 

reveals a totally different reality, namely 

Global Agriculture Industry 

SM Countries Algeria 13,8% 17,9% 13,5% 

Egypt 29,0% 13,8% 30,3% 

Jordan 11,2% 11,8% 11,1% 

Lebanon 3,9% 8,8% 3,4% 

Libya 21,0% 11,9% 21,8% 

Morocco 20,9% 43,9% 19,0% 

Syria 16,4% 12,1% 16,8% 

Tunisia 20,2% 57,5% 17,1% 

Turkey 6,1% 42,0% 3,1% 

OECD Countries Australia 5,2% 1,2% 5,5% 

Canada 3,5% 15,2% 2,6% 

EU 3,5% 17,2% 2,6% 

Japan 4,1% 37,4% 1,5% 

Switzerland 3,9% 43,7% 1,0% 

USA 2,4% 5,1% 2,2% 

Emerging Countries Argentina 12,5% 11,5% 12,6% 

Brazil 11,8% 10,2% 11,9% 

China 14,1% 23,6% 13,3% 

India 33,4% 59,2% 30,1% 

Pakistan 19,1% 26,9% 18,1% 

South Africa 8,5% 19,4% 7,4% 

LDC Bangladesh 17,4% 20,0% 17,1% 

Cambodgia 12,9% 12,7% 13,0% 

Chad 15,8% 21,5% 14,7% 

Ethiopia 14,4% 17,0% 13,9% 

Lesotho 8,1% 20,7% 6,4% 

Madagascar 4,4% 4,8% 4,3% 

Source: Femise Study FEM22-36, based on database MacMap-HS6 and author’s calculation

that in terms of the agricultural markets 

it was found that the OECD countries’ 

protection is as strong as that calculated 

for MPs (table x15). Within the 

group of developing countries, the level 

of protection is in general higher and 

more homogeneous than in the richer 

countries. There are several exceptions: 

Madagascar has a free exchange policy 

and Lesotho has tariff barriers which 

vary from one sector to another. 

A comparison of MPs performance on the 

global level with that of countries with 

intermediate revenues[36] underlines 

the high degree of protection of their 

-61- 

domestic markets, specially in Libya, 

Morocco, Tunisia and Egypt (figure 9). 

Turkey is relatively more open than 

other MPs except for Lebanon. This 

reflects the influence of EU, through the 

customs union agreement and prospects 

of joining the economic Union 

thereby obliging the country to align 

itself with EU practices. Nevertheless, 

Turkey’s agricultural sector remains over 

protected. This differentiated treatment 

of the industrial and agricultural sector 

is common in all countries. Only Egypt, 

Syria and Libya give less protection to 

agriculture than to industry where certain 

activities are nascent. 

Figure 9: comparison of the protection level in the world, imports 

Figure 10: comparison of the protection level in the world, exports 

Source: Femise Study FEM22-36

A more refined analysis of protection 

per type of goods confirms that it is high 

for certain agricultural products, such as 

cereals in Japan, meat in Switzerland, 

etc. as well as products of key sectors 

in the economy (clothing in Egypt, vehicles 

in Syria). This reflects the weight of 

lobbies or adoption of policies to develop 

new activities which should be shielded 

from global competition until they are 

ready to confront it. 

Furthermore, the data used allows the 

tracing of the level of bilateral protection 

that is the degree of access of a country 

to the market of its partner (table x15). 

Any interpretation of these figures must 

be made cautiously[37] because they 

refer to the type of agreement that 

a country has with another (Morocco 

has concluded accords with Libya and 

Algeria and trade is free between these 

countries). But also they indicate the 

composition of the flow of exchange 

and respective specializations which, the 

more they are similar to those in partner 

countries, the more they are driven to lift 

barriers (for example, garment exports 

Table X16: level of bilateral protection, imports, 2001[38] 

-62- 

from Turkey are strongly penalized in 

exchanges with Egypt as opposed to, 

for example, petroleum and gas exports 

of Algeria or Libya which benefit from a 

quasi free access to all markets). The 

lessons learnt from this approach are: 

√ In general, MPs strongly discriminate 

against their partners in imports. This 

is certainly due to existence of trade 

agreements but mostly to heterogeneity 

of tariffs which they impose; 

√ Most countries, members of WTO, 

reserve the right to impose tariffs 

that significantly exceeded those set 

by agreements (16.2% higher for 

Tunisia, 24.8% for Turkey) with the 

exception of Egypt. 

√ MPs exports to EU could develop due 

to weak imposed tariffs as compared 

to those practiced in other countries 

such as the United States and the rest 

of OECD. This explains their specialization 

in textile-clothing for example 

as the EU market is nearby and also 

one of the richest in the world. 

Partners 

<strong>Report</strong>er Algeria Egypt EU Jordan Lebanon Libya Morocco Rest OECD Syria Tunisia Turkey USA 

Algeria 14,6% 14,6% 15,3% 18,4% 8,6% 0,0% 13,7% 12,8% 19,1% 19,7% 12,0% 

Egypt 7,3% 28,6% 10,2% 17,6% 3,2% 14,0% 24,1% 23,8% 15,1% 77,2% 28,2% 

Jordan 18,8% 5,8% 12,6% 7,9% 3,6% 4,5% 10,3% 5,0% 7,1% 16,2% 9,9% 

Lebanon 2,0% 3,3% 4,7% 5,8% 2,3% 1,8% 3,0% 2,2% 4,5% 7,8% 3,8% 

Libya 37,9% 7,6% 21,6% 5,2% 11,6% 0,0% 18,5% 24,0% 7,0% 18,7% 20,5% 

Morocco 0,0% 20,5% 18,9% 11,1% 16,6% 0,0% 20,9% 12,7% 15,8% 34,1% 19,5% 

Syria 10,1% 16,1% 20,0% 10,8% 17,2% 7,1% 9,7% 16,2% 18,3% 27,7% 14,0% 

Tunisia 4,0% 15,9% 12,7% 15,7% 21,8% 4,7% 16,6% 23,2% 12,8% 40,1% 23,7% 

Turkey 0,6% 12,0% 3,3% 5,4% 11,4% 1,3% 12,1% 6,2% 6,6% 16,1% 6,2% 

Australia 2,7% 7,7% 5,8% 12,7% 4,4% 5,0% 10,4% 5,2% 5,7% 13,8% 12,0% 3,3% 

Canada 0,0% 4,5% 4,7% 9,9% 4,7% 0,4% 8,0% 2,6% 1,1% 9,8% 8,0% 0,5% 

EU 0,1% 1,7% 3,0% 2,6% 2,8% 0,3% 1,4% 3,9% 0,5% 2,1% 1,5% 3,8% 

Japan 0,9% 7,2% 4,6% 6,3% 6,9% 0,2% 6,5% 3,0% 1,4% 6,4% 5,0% 3,0% 

Switzerland 0,0% 6,7% 4,1% 18,2% 7,9% 0,0% 8,1% 3,9% 1,8% 3,5% 6,9% 5,4% 

USA 0,2% 3,7% 2,7% 4,2% 2,3% 0,2% 5,8% 1,4% 1,1% 6,3% 5,9% 

Argentina 0,2% 13,0% 13,8% 10,7% 15,3% 1,0% 7,9% 12,9% 7,7% 9,5% 16,2% 13,2% 

Brazil 0,4% 10,9% 13,9% 7,1% 10,3% 1,0% 7,9% 13,2% 5,0% 11,6% 15,7% 10,6% 

China 4,6% 10,6% 16,4% 10,3% 13,8% 1,7% 9,8% 14,3% 6,8% 16,2% 19,2% 13,7% 

India 15,6% 24,6% 32,9% 29,4% 32,1% 31,2% 30,4% 33,4% 13,4% 31,0% 34,1% 30,8% 

Pakistan 9,6% 12,4% 19,4% 15,1% 17,6% 12,6% 12,6% 20,1% 7,8% 17,5% 21,1% 17,7% 

South Africa 1,8% 10,3% 8,2% 4,7% 14,7% 5,3% 5,3% 7,9% 8,5% 6,0% 15,6% 8,0% 

Bangladesch 13,3% 21,3% 14,8% 13,0% 19,6% 17,3% 15,5% 15,8% 7,4% 14,4% 23,2% 15,8% 

Cambodgia 3,8% 9,1% 14,4% 9,6% 15,6% 6,4% 9,1% 12,9% 10,9% 9,5% 14,2% 15,7% 

Chad 11,3% 15,9% 14,8% 11,5% 15,8% 7,5% 23,3% 13,3% 20,4% 24,0% 18,5% 11,9% 

Ethiopia 5,9% 9,4% 14,8% 9,0% 15,1% 0,8% 26,4% 9,7% 27,3% 21,0% 16,8% 9,4% 

Lesotho 3,6% 6,9% 7,3% 6,1% 9,2% 2,5% 3,1% 7,8% 15,5% 7,7% 13,2% 9,6% 

Madagascar 0,7% 0,0% 4,5% 2,3% 4,9% 0,3% 5,8% 4,7% 5,8% 4,9% 3,7% 3,2% 


√ Tariffs imposed by MPs on other MPs 

are among the highest, a matter that 

is not conducive to South-South integration. 

√ High tariffs are imposed on imports of 

minor importance for the well-being 

of consumers in the case of Turkey, 

Tunisia and Morocco but not for the 

rest of MPs. 

Specialization of MPs, as previously 

mentioned, equally influences the forms 

of integration in the flows that are convenient 

to MPs as well as the burden of 

tariff protection on their flows. It has 

been noted that: 

√ The degree of diversification of 

exports depends on a number of 

factors such as the industrialization 

process, established open door policy 

and geographic concentration of the 

flows of exchanges. The proximity of 

Maghreb countries to the EU explains 

the relatively concentrated structure 

of exports from the Maghreb. There 

are two consequences: first, Maghreb 

Table X17: level of bilateral protection, exports, 2001 

-63- 

countries will be more vulnerable to 

fluctuations in the European economic 

cycle; second, concentration of 

exports, in the absolute, weakens the 

resilience of their economies. 

√ Inclusion of MPs in international markets 

essentially occurs on the basis 

of comparative advantages resting 

on differences of relative productivity 

or factorial endowments. Geographic 

proximity to EU explains the intensive 

exchanges and the characteristics of 

supply largely determine the composition 

of exchanges. Exchanges are 

principally inter-branch[39]. However, 

a development of an intra- branch 

trade can be observed. 

√ MPs are outstanding in the export 

of manufactured products with 

the exception of Algeria, which 

has regressed while Egypt stagnates. 

Concerning Turkey and Israel, 

the decline in agro-foods produce 

has been more than compensated 

by the good results of consumer 

goods and equipment, respectively. 

Importer 

Exporter Algeria Egypt EU Jordan Lebanon Libya Morocco Rest OECD Syria Tunisia Turkey USA 

Algeria 7,3% 0,1% 18,8% 2,0% 37,9% 0,00% 1,5% 10,1% 4,0% 0,6% 0,2% 

Egypt 14,6% 1,7% 5,8% 3,3% 7,6% 20,5% 7,4% 16,1% 15,9% 12,0% 3,7% 

Jordan 15,3% 10,2% 2,6% 5,8% 5,2% 11,1% 10,2% 10,8% 15,7% 5,4% 4,2% 

Lebanon 18,4% 17,6% 2,8% 7,9% 11,6% 16,6% 12,3% 17,2% 21,8% 11,4% 2,3% 

Morocco 0,0% 14,0% 1,4% 4,5% 1,8% 0,0% 8,2% 9,7% 16,6% 12,1% 5,8% 

Syria 12,8% 23,8% 0,5% 5,0% 2,2% 24,0% 12,7% 5,3% 12,8% 6,6% 1,1% 

Tunisia 19,1% 15,1% 2,1% 7,1% 4,5% 7,0% 15,8% 7,0% 18,3% 16,1% 6,3% 

Turkey 19,7% 77,2% 1,5% 16,2% 7,8% 18,7% 34,1% 8,3% 27,7% 40,1% 5,9% 

Australia 11,1% 11,7% 9,0% 6,9% 2,5% 15,5% 31,4% 10,3% 8,3% 30,4% 17,6% 2,0% 

Canada 10,3% 10,1% 5,1% 7,8% 3,0% 16,0% 22,1% 5,2% 10,1% 38,7% 10,6% 0,1% 

EU 8,8% 5,7% 2% 5,9% 5,1% 92,7% 18,5% 3,3% 8,5% 8,4% 1,0% 1,5% 

Japan 12,9% 17,7% 4,3% 10,9% 3,0% 21,7% 17,9% 5,6% 17,6% 20;6% 4,4% 1,9% 

Switzerland 12,4% 12,8% 0,8% 8,2% 2,8% 15,2% 16,8% 3,4% 7,9% 22,2% 0,6% 2,2% 

USA 12,0% 28,2% 3,8% 9,9% 3,8% 20,5% 19,5% 3,1% 14,0% 23,7% 6,2% - 

Argentina 14,0% 16,0% 6,8% 9,8% 5,0% 24,4% 28,0% 15,5% 16,7% 33,2% 16,7% 3,5% 

Brazil 14,6% 22,8% 6,7% 11,1% 4,8% 19,4% 26,6% 14,6% 18,0% 25,0% 18,6% 3,0% 

China 19,9% 142,6% 4,3% 15,9% 5,5% 18,9% 28,4% 5,6% 25,1% 32,0% 9,4% 4,5% 

India 17,0% 51,6% 5,6% 10,4% 3,4% 9,8% 33,8% 11,1% 13,4% 30,3% 14,5% 4,6% 

Pakistan 17,8% 45,0% 2,7% 3,9% 2,8% 14,1% 38,6% 14,7% 30,3% 25,9% 9,1% 8,2% 

South Africa 14,8% 35,2% 3,3% 14,1% 5,7% 17,1% 28,0% 5,9% 17,0% 28,8% 11,1% 0,7% 

Bangladesch 18,1% 63,9% 0,7% 5,7% 3,3% 8,0% 30,5% 6,7% 17,9% 28,3% 7,8% 11,7% 

Cambodgia 15,5% 42,4% 1,6% 4,4% 1,9% 10,2% 36,6% 7,5% 23,8% 28,4% 8,6% 12,4% 

Chad 5,5% 6,1% 0,0% 1,1% 0,5% 1,4% 4,0% 0,6% 28,8% 1,8% 0,2% 2,0% 

Ethiopia 14,6% 28,6% 3,0% 12,6% 4,7% 21,6% 18,9% 6,0% 20,0% 12,7% 3,3% 2,7% 

Lesotho 8,4% 13,0% 0,7% 2,6% 1,7% 27,1% 10,9% 7,0% 8,3% 10,4% 2,2% 12,0% 

Madagascar 23,4% 0,0% 1,5% 23,4% 4,0% 6,5% 33,1% 7,2% 22,8% 34,8% 19,3% 5,0% 


Nonetheless, since the second part of 

the 1990s, market shares gained by 

Morocco and Tunisia suddenly stopped, 

largely because enterprises in 

the textile sector were paralyzed by 

the consequences of the end of the 

multi-fiber agreement and deceleration 

of investments. 

√ Except for Algeria, all MPs had a 

trade deficit, the origin being in 

their exchanges with EU (except for 

Egypt), more specifically in manufactured 

goods. The offsetting of 

this deficit the 1980s was driven by 

the increase in exports and decrease 

in imports owing to the slow down in 

European demand and the gains in 

market share. Turkey, which enjoys 

a certain status in the customs 

union with EU since January 1996, 

saw its imports coming from EU 15 

grow rapidly whereas its exports 

remained very diversified. Hence, 

the country was able to profit from 

the opportunity to import new technologies 

and cheaper products to 

reactivate its exchanges and reduce 

its deficit (devaluation of its currency 

also helped). 

√ Based on a gravity model at the 

sectoral level, an estimation of the 

effects on the imports and exports of 

each country relative to the welfare 

of the considered country have been 

studied. Also the capitalist intensity 

of their trade and its structure, 

the presence of a common 

language or grounds, or common 

history were also considered. It has 

been shown that the level of tariff 

protection affects more significantly 

MPs imports than their exports and 

the flexibility of exchange flows to 

-64- 

tariffs is high[40]. This refers to the 

existence of preferential access of 

MPs to certain large markets such as 

those of the EU. Certainly, but this 

also means that a tariffs dismantling 

will cause a significant increase in 

exchanges, greater than that obtained 

generally in this type of analysis 

which does not take tariffs into 

account or the fact that MPs can not 

influence the market price imposed 

by their trade partners. Beyond this, 

constraints imposed by the majority 

of MPs on imports, especially more 

advanced technologies have had a 

negative impact on their adjustment 

capacity thus hampering the upgrading 

of their industry. 

√ It appears as well that sharing a 

common language encourages MP 

exports and imports, located as they 

are in the proximity of countries 

whose colonies they were in the 

past, whereas having a common border 

has no impact on the intensity 

of trade. This illustrates the difficulties 

of South-South integration, even 

when the size of the importer market 

plays a significant role. Nonetheless, 

estimations that were made demonstrate 

that the effect of lifting tariff 

barriers of MPs vis-à-vis other MPs 

would only have a marginal effect 

on intra-zone exchanges and that 

other elements should complement 

South-South trade integration policy 

in order to help achieve a rapprochement 

with EU. 

√ Not forgetting, as noted above, the 

importance of transportation costs, 

by reform of different sectors, particularly 

maritime transport as well as 

by creation of new infrastructures.

Evaluation of the advantages of dif- 

ferent forms of integration 

On the basis of these reports, the study 

tries to determine which type of open 

policy is the best for MPs. Simulations 

made according to the MIRAGE model 

indicate that: 

√ A free-exchange South-South agreement 

will benefit Turkey and Tunisia 

only and very marginally Morocco, 

which is relatively very protectionist 

towards other MPs. The first 

will increase its exports, namely TC 

towards MPs and the second will 

direct its exports towards MP and EU 

countries and gain ground thanks 

to the benefits of competition which 

will come about on opening up South 

markets. 

√ The same type of agreement signed 

between the EU and each MP separately 

will raise living standards in 

Turkey, Tunisia, and Morocco but 

not the rest of the Mediterranean 

where they would decline. Morocco 

and Tunisia will consequently benefit 

from the significant exchanges (respectively 

+54% and +48%) generated 

by liberalization and the trade 

in agricultural goods with EU will 

compensate the fall in exchanges 

between MPs. The budgetary equilibrium 

will suffer greatly from the loss 

of earnings due to abolition of tariffs, 

but employment, income and investment 

will progress. This opening up 

strategy will entail a profound modification 

of the productive structure. 

Sectors destined to witness a reduction 

of activities are milk and meat 

for Turkey, Morocco, and Tunisia, and 

TC and agriculture for other MPs. 

-65- 

Others will greatly profit from this 

growth in exchanges such as TC sectors 

in Turkey, Morocco (more than 

agricultural products) and Tunisia. 

However, this strategy does not 

appear best suited to MPs as a zone, 

the creation of traffic benefiting some 

will be compensated by the rerouting 

of traffic away from others. For 

example, in the TC sector, creation 

of traffic with EU affects intra-branch 

exchanges. The comparative advantages 

of Morocco, Tunisia and Turkey 

are such that activity is on the rise 

and net trade balance vis-à-vis EU in 

this sector is improving. As competition 

with other MPs in this domain 

is weak, EU will prefer the products 

of Morocco, Tunisia, and Turkey and 

their net trade balance vis-à-vis EU 

will deteriorate as well as their terms 

of exchange. This will undermine the 

global efficiency of this strategy. 

√ Finally, multilateral trade liberalization 

will profit a priori all MPs but 

less so Turkey. Adjustment costs, 

more important than those in the 

two examples previously envisaged, 

must be taken into account 

(increased unemployment in sectors 

exposed to foreign competition, 

future of agriculture, massive reallocation 

of production factors) and 

this cannot be accomplished by this 

model. Results are therefore to be 

handled with care, but this strategy 

will generate a strong traffic that 

will mainly boost TC production in 

Tunisia and Morocco and cereals in 

other MPs, hence a tangible growth 

in GDP and wages. 

Some will suggest that a regional 

approach could serve as a springboard

for a multilateral opening. The advan- 

tage will be a soft and progressive tran- 

sition that will facilitate the reallocation 

of production factors whose mobility is 

not perfect and this implies adjustment 

costs. However, such an approach does 

not always culminate in a multilateral 

agreement. This is only possible if the 

latter requires the same adjustments as 

a regional accord in all other cases, and 

the country concerned will have to bear 

the consequences of two transitions. 

An analysis of the situation of MPs in 

terms of structural congruence indicates 

that if for Turkey and other MPs an 

appropriate means to prepare complete 

liberalization of exchanges on a multilateral 

basis may be to conclude a freeexchange 

agreement with the EU, for 

Morocco the situation is not that clear 

cut. As for Tunisia, a regional agreement 

with other MPs will be preferable 

(table x18). 

It remains that behind the purely 

economic aspects, there are equally 

important political and social effects, 

a situation which the European construction 

had largely witnessed itself. 

It is evident that the current situation, 

with a North-South orientation, is not 

satisfactory and that the main factor 

of re-equilibrium rests on initiatives 

like Agadir or GAFTA. Therefore, it is 

interesting to raise the question of 

steps to be taken to transform these 

accords into more profound regional 

integration. 

Table X18: indicator of structural congruence 

Source: Femise study FEM22-36 

-66- 

2. European integration, a model for 

regional initiatives in the South 

Regional integration has in the past years 

become a global objective. Integration 

takes several forms, from the creation 

of free-exchange areas, common 

markets, up to more profound configurations 

such as economic and political 

unions. Regional integration is supposed 

to maximize the well being of a nation 

and reinforce the bargaining power of a 

region in the international context. 

This section of the report examines the 

capacity of MPs to establish a strong 

regional integration. As most MPs are 

also Arab countries, it was not possible 

to exclude from the analysis the 

attempts at Arab unions, namely because 

MPs were among the most active 

in concluding agreements in the Arab 

region. The section which is based on a 

Femise study (FEM22-07) will principally 

refer to Arab integration and highlight 

similarities and differences and suggest 

political recommendations for the Arab 

region. Seven different aspects of integration 

will be discussed, that is, commercial 

relations, laws of competition, 

convergence of public policy in finance 

and fiscal matters, monetary policy, the 

agricultural question, social policy and 

migratory flows. 

Trade Relations 

It is interesting to see that between 

1990 and 2004, the number of enac- 

Turkey Morocco Tunisia Others MP 

South South/Multi. 94,1% 94,5% 96,3% 97,7% 

North South/Multi. 98,5% 93,5% 91,5% 98,1%

ted regional trade agreements (RTAs) 

increased from 50 to around 230 globally. 

The mean number of RTAs that a 

country belongs to is six. 

Over the years, several RTAs have been 

initiated between Arab countries. History 

of these agreements dates back to 

1950, when the Treaty for Joint Defense 

and Economic Cooperation was formed. 

As the title suggests, this was a form 

of cooperation rather than integration. 

Around the same period, integration 

attempts were taking place in Europe 

as well. The European story started with 

the formation of the European Coal and 

Steel Community (ECSC) by Germany, 

France, Britain, and the Benelux countries 

(Belgium, the Netherlands, and 

Luxembourg). While European integration 

was strengthened on both the vertical 

and horizontal axis, Arab integration 

included more countries yet did not 

seem to deepen. 

Later, other RTAs were formed, including 

the Agreement on Trade Facilitation 

and Regulating Transit Trade in 1953, 

which was to exempt Arab-originated 

products from tariffs as a form of preferential 

treatment. 1953 also featured 

the Agreement for Paying the Current 

Transactions and Movement of Capital 

in the same year, which constituted only 

a set of unbinding recommendations 

and therefore remained idle. These two 

agreements were followed by the Arab 

Economic Union Agreement in 1957, 

the Arab Common Market Agreement in 

1964, and the Agreement on Facilitation 

and Development of Trade in 1983. 

However, the contribution of these 

agreements to regional integration was 

very modest. This is primarily due to 

-67- 

the vague wording of these agreements, 

which was often intended to guarantee 

the approval of all parties involved. 

This makes these agreements weak and 

unbinding. In addition, RTAs are often 

characterized as being too ambitious, 

given the circumstances they have to 

function under, which in turn infest trade 

partners with frustration as a result of 

not attaining the announced goals and 

objectives. Furthermore, RTAs generally 

lack a clear vision of the achievements 

required. Also, these RTAs are frequently 

intended as political slogans that are not 

put into action. Integration is also generally 

selective as soon as controversial 

issues emerge, especially that partners 

want to always be winners and are not 

willing to sacrifice part of their immediate 

benefit for future gains. 

Several economic and institutional 

reasons have hindered the process of 

integration. From an economic perspective, 

the likeness of production and 

export composition of countries of the 

Box : Spotlight on GCC 

The Gulf Cooperation Council (GCC) 

is yet one of the successful examples 

of sub-regional integration. Formed in 

1981, the Council was meant to enhance 

cooperation among six countries that 

have congruent political, social, and economic 

conditions, namely United Arab 

Emirates, Bahrain, Saudi Arabia, Oman, 

Qatar, and Kuwait. The council started 

out with limited specific objectives, such 

as the GCC free trade area. Since this 

aim has been successfully attained, GCC 

countries have recently considered going 

a step further and creating a customs 

union and a GCC common market. In 

2001, GCC countries have approved a 

more comprehensive economic agreement 

which further detailed the new 

structure of GCC economic integration.

egion under study as well as the lack 

of congruence between one country’s 

exports and another country’s imports 

prevent the deepening of trade relations. 

In addition, the strategy of import substitution 

prevalent in many countries, 

coupled with high tariff protection and 

the large size of the public sector, are 

further hindrances. Moreover, there is a 

huge disparity between tariff rates and 

income among countries of the region, 

as well as their economic structure (see 

Figure 11). 

In addition to the above-mentioned economic 

obstacles, integration of the Arab 

region faces a number of institutional 

difficulties. One of the major drawbacks 

is the absence of an adequate transportation 

system. It is interesting to know, 

for example, that while there are two 

daily flights between Cairo and different 

parts of Germany, there are only 

-68- 

two weekly flights between Cairo and 

Casablanca, Morocco. 

The major institutional handicap, however, 

is the lack of appropriate supranational 

institutions that would govern the 

whole process of integration. Instead, 

MPs use an intergovernmental approach, 

which limits the integration process 

within the bounds of each government. 

This lack of institutions has several 

implications, including the vagueness of 

rules and regulations controlling trade. 

In addition, such institutions would have 

the authority to settle disputes and conflicts 

arising between countries, especially 

that some of the MPs are not members 

of the World Trade Organization 

(WTO), namely Algeria, the Palestinian 

Authority, and Lebanon. Hence, violations 

by or against these countries, 

such as those enacted between Egypt 

and Lebanon, are resolved bilaterally in 

Figure 11: Shares of Economic Sectors to GDP in a Sample of Arab Countries 

Source: Femise Study FEM22-07, from World Bank, WDI 2003

an inefficient way, which often requires 

political intervention. These conditions 

ultimately weaken trade ties between 

these countries and represent further 

obstruction to regional integration. 

The most recent RTA in the Arab region 

is the Greater Arab Free Trade Area 

(GAFTA), which is specifically interested 

in the liberalization of trade in goods. 

It is planned that through the GAFTA, 

a customs union will be formed among 

member countries over a period of 

ten years, starting in 2006. Analysts 

see GAFTA as the first true integration 

agreement. It is believed that GAFTA will 

outperform its predecessors. To avoid 

falling into the traps of ineffectiveness, 

as has always been the case with 

Arab RTAs, implementation of the GAFTA 

agreement should build on the lessons 

learned from successful experiences, 

such as that of the EU. 

The EU has had several advantages 

and strengths that have supported its 

regional integration. Firstly, and most 

importantly, there is a clear vision of 

the intended goals. For the EU, economic 

integration is not the end, rather a 

means to achieving political integration. 

On the Arab front, however, the goal is 

often not clear and, as previously mentioned, 

is frequently vague and based on 

emotional drives. 

In addition, the EU has moved to a 

federal approach by creating supranational 

institutions that were granted the 

power to oversee the process of integration. 

Examples of these institutions are 

the European Parliament, the European 

Court of Justice, the European Central 

Bank, and the European Commission. In 

the Arab region, however, integration is 

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still based on a governmental approach, 

mainly due to the fact that political leaders 

fear the loss of their sovereignty 

and authority. 

Moreover, European agreements are 

mostly clear and specific with attainable 

goals. The EU has adopted a gradual and 

pragmatic approach that has enabled a 

smooth and affordable transformation, 

moving steadily from a shallow type of 

integration to a deeper one. Analysts 

argue, however, that recent development 

in international trade and technological 

advancement would not enable 

the success and sustainability of a shallow 

integration approach. 

Going back to the initiation of the EU, 

two factors helped the integration process, 

one of which is the pressure and 

support of the United States to push 

forward the process. In addition, the six 

founding countries of the EU had similar 

economic conditions. The difference 

between average non-weighted tariff 

levels, for example, was around 10% 

only. On the Arab front, however, as 

shown above, countries of the region are 

not homogeneous enough to allow for a 

smooth integration process. 

Competition Laws 

To complement and facilitate trade relations, 

competition laws have been initiated 

and fine-tuned worldwide. In 

2005, over 110 countries have embraced 

national competition laws in order 

to prohibit anti-competitive behavior 

and to guarantee a competitive market. 

However, it has been proven that national 

competition laws are not sufficient 

to oversee competition on the regional 

level. This argument is believed to be

true since objectives of different national 

competition laws may vary and because 

some countries entering regional integration 

may not be operating under a 

national competition law. Introducing 

a regional competition law necessitates 

the introduction of a regional competition 

authority. 

With respect to Arab integration, the Arab 

League Charter of 1945 has not mentioned 

the provision of a competition law. It 

is not clear whether this was a deliberate 

decision or whether it has been overlooked. 

It is suggested, however, that the 

Charter unintentionally overlooked this 

notion, especially that it was not widely 

publicized at the time. On the European 

side, however, competition laws have 

been initiated in Austria in 1890. Then, 

the first European competition law was 

adopted in Germany in 1923, and has 

been developing ever since. As the 

GAFTA agreement is believed to allow 

for more integration, the Arab region is 

in need for a regional competition law. 

The EU experience would be a valuable 

lesson to build on. 

One of the main objectives of the 

European competition law was supporting 

the creation of a single market. 

The process of enacting the law for the 

EU was not effortless. Several obstacles 

have been overcome. Opposition of big 

industries was one of these obstacles; 

these viewed the law as limiting. It 

has also faced political and intellectual 

resistance. It was primarily with the 

persistence and determination of member 

states that this law saw the light. It 

had to change the perceived notion that 

competition laws are a constraint and 

plant the idea that it is a constructive 

social power instead. Initially, European 

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agreements did not include competition 

laws, but had the necessary provisions 

to enact one. These provisions, as previously 

mentioned, are lacking in the 

case of the Arab region. 

In addition, European bureaucrats were 

supportive of the competition law, which 

facilitated the process of its enactment. 

In the Arab region, however, bureaucrats 

lack a profound understanding of the 

importance of a competition law to the 

process of integration. It is suggested 

that a model competition law be formulated 

for the Arab region, to serve as a 

guide for harmonization of national competition 

laws, which could pave the way 

for the passing of a regional competition 

law. 

Public Finance Convergence 

Another aspect that is believed to be 

significant for deepening regional integration 

is public finance convergence, as 

it is argued that discrepancy of member 

states’ fiscal policy may create political 

tension and disagreement. Gradual fiscal 

convergence may guarantee a smooth 

integration process and may minimize 

the costs incurred by member states. 

In addition, removal of barriers and 

distortions, especially tax coordination, 

is crucial for regional integration. Public 

finance convergence is even a pre-requisite 

for deeper forms of integration, 

specifically monetary and fiscal unions. 

Again, this convergence implies a unified 

authority, hence a supranational institution. 

The EU experience is just as beneficial in 

the area of public finance convergence. 

The EU has realized that it is crucial 

to narrow the gap between richer and

poorer areas of the Union. Thus, it has 

adopted budgetary federalism to be able 

to cope with this challenge; especially 

that per capita income of the 15 initial 

members of the EU is between 2.2 and 

13 times that of the ten new members. 

The European Commission has put an 

action plan spanning the period 2006- 

2013 to narrow this gap. The plan has 

been allocated €336.4 billion, divided 

among three main objectives. The first 

objective, which is assigned €262 billion, 

will target underdeveloped areas, which 

have a GDP of less than 75% of the 

EU average. The second aim, which 

has been allotted a sum of €61 billion, 

will target regions that are undertaking 

reforms. The third component of the 

plan, with a budget of €13.4 billion, will 

enhance trade among EU member states. 

This plan was presented in detail to 

give an idea of how regions tackle their 

disparities. Such a plan should be adopted 

with some modification to fit the 

Arab situation. 

In the Arab region, similar disparities 

between countries as well as poverty 

problems exist. The level of domestic and 

foreign public debt, for example, is relatively 

high among some Arab countries. 

It is as high as 100% of GDP for Egypt, 

135% for Lebanon, 93% for Jordan, and 

81% in the case of Syria. Moreover, the 

discrepancy of public spending between 

member states is huge, especially that 

some countries direct a considerable 

amount of public spending to military 

expenditure. 

It should be acknowledged, however, 

that taxes have been featuring a declining 

trend in Arab countries. In addition, 

by 2004, customs and duties among Arab 

countries have been reduced to 20% of 

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their level in 1997. Many countries have 

also started revising and restructuring 

their tax systems. However, reforms 

are done on a country basis rather than 

regionally, which may result in widening 

the disparities. 

The problem with fiscal convergence is 

that states have to be willing to bear 

some short-term costs in order to reap 

long-term gains. In addition, coordination 

is a key issue. Individual reform 

might be even worse than existing disparities. 

Monetary Policy 

Moving from fiscal convergence, the 

next step would be harmonizing monetary 

policy. This topic cannot possibly be 

discussed without shedding light on the 

unique experience of the EU. It is worth 

noting that the idea of a unified currency 

was met with great skepticism. This 

move required the willingness of political 

leaders, an effective regional institutional 

framework, and agreeing that one of 

the member states would play a leading 

role in the process. In the case of The 

EU, Germany was the primary driving 

force. The Arab version, however, fails 

to fulfill these three requirements. There 

are doubts about Arab leaders’ willingness 

to be involved in such deep integration. 

In The Arab world, integration 

is merely a political slogan. Hence, it is 

difficult to have a regional institutional 

framework in such a hostile environment. 

And certainly, choosing a leader 

would be the most difficult and rather 

impossible task. 

Establishing the European Central Bank 

(ECB) was crucial for the success of this 

form of integration. It was a supranatio-

nal institution that possessed credibility, 

a suitable strategy, technical expertise, 

as well as the authority to implement its 

plans. A crucial pre-requisite for the success 

of the ECB was its independence. It 

is argued that independence of central 

banks implies lower inflation rates and 

better growth and employment conditions. 

The ECB also sustained transparency; 

although this is a difficult task, as 

any events that are unaccounted for and 

that may affect monetary policy could 

attack its credibility. The process was 

accompanied by awareness campaigns 

to guarantee support of the public. 

In the Arab region, most integration 

attempts relied heavily on trade, which 

was sometimes followed by labor and 

capital mobility. However, not much 

effort has been exerted to identify regional 

monetary policies. 

Box: South-South Financial and Monetary 

Integration (based on Femise study 

FEM22-39) 

MPCs are opting for increased regional economic 

integration in the future. An important 

part of economic integration is the increase in 

cross border trade. However, given the unstable 

monetary, macroeconomic and financial 

environments in certain parts of the 

MED region, it is doubtful whether pursued 

macroeconomic policies will provide the required 

stability for increasing economic integration 

on a regional scale. 

We still see significant divergence in business 

cycles and exchange rate polices. The existence 

of exchange rate overvaluations and 

misalignments within GAFTA countries is still 

hindering intraregional trade flows. Therefore, 

macroeconomic policy divergence within the 

region appears to be among the main obstacles 

towards achieving further trade and 

monetary integration. One way to circumvent 

this problem is perhaps through the adoption 

of a common currency within the MED 

region. 

The exchange rate literature stipulates that the 

benefits of monetary unification, by adopting 

a common currency, are in the form of elimi- 

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nation of the costs associated with exchange 

rate misalignments and currency conversion. 

The recent GAFTA agreements do not immediately 

provide for labor mobility within the 

region and for fiscal cross-border transfers 

in order to smooth out economic and financial 

shocks. Further, the various MED central 

banks do not possess a good track record 

of maintaining price stability, and a flexible 

exchange rate, which allows them to pursue 

their own independent monetary policy. A 

monetary policy that adopts a common currency 

or that ties the various MED currencies 

closely to the euro and not the dollar can turn 

out to be instrumental in borrowing monetary 

credibility from the European Central Bank 

(ECB), and thus, may reduce the MED region 

inflation and interest rates. 

If there is a desire for monetary independence, 

then a flexible exchange rate regime 

is better for MED countries in the presence of 

structural differences between the different 

MED countries. However, Lebanon, Egypt, 

Morocco and Tunisia’s experience with flexible 

rates has been disappointing, given the high 

volatility of their real exchange rates and the 

prolonged misalignment of their respective 

currencies from its equilibrium value. A weak 

domestic currency contributes to the low 

productivity of domestic firms competing in 

the foreign sector. Since these countries are 

moving toward greater trade links with each 

other, greater exchange rate fixity vis-à-vis 

the Euro might be favored. 

The Femise study analysis is based on yearly 

data for the period 1960-2003, collected from 

the International Financial Statistics database, 

and the Arab Monetary Fund to study the 

status of monetary integration within the MED 

region and the prospects for the adoption of a 

common currency. 

Cointegration tests were used to study South- 

South monetary integration to see whether 

the MPCs set their macro and monetary policies 

independently, or follow some sort of 

policy convergence, and can therefore adopt 

a common currency. The South-South cointegration 

results show that there is no convergence 

in MED monetary or macroeconomic 

policies in general. The results of the test 

pointed towards a strong long-run relationship 

between the GDP growth rates of Jordan 

Kuwait, Morocco, Saudi Arabia, Syria, Tunisia, 

UAE, and Lebanon, indicating a strong convergence 

in MED business cycles. While this can 

perhaps be explained by the fact that greater 

trade links resulting from GAFTA are gradually

leading to similar dynamics of the rates of 

growth of GDP, these GDP growth rates are 

highly correlated with oil price fluctuations. 

This is not only true for the oil producing MED 

countries, but also true for the remaining 

non-oil producing MED countries through the 

significant effects of workers remittances working 

in oil-MED countries. One can thus safely 

conclude that the strong convergence in the 

rate of growth of GDP is not really the result 

of greater trade integration, but is rather 

driven by the dynamics of oil prices. The cointegration 

results for nominal exchange rates 

in Jordan, Egypt, Kuwait, Morocco, Syria, 

Tunisia, and the UAE points to a rather weak 

convergence, which is not surprising. It is 

attributed to the lack of coordination of monetary 

and exchange rate polices, and to the 

fact that there is a significant degree of heterogeneity 

in MED exchange rates policies: at 

least 5 of the seven MED countries appear to 

be setting their exchange rates independently. 

The result of test for cointegration between 

the inflation rates of Bahrain, Egypt, Jordan, 

Saudi Arabia and Syria points to the existence 

of a very weak convergence of MED monetary 

policies with respect to inflation. The presences 

of a convergence in government monetary 

policies cannot be attributed to more coordination 

in MED monetary polices, but is rather 

due the fact that all MPCs have been devoting 

significant efforts to contain the inflationary 

pressures of the late 1980s. 

The general conclusion drawn is that macroeconomic 

and monetary policy coordination 

is still lacking in the region and more efforts 

need to be devoted in that respect. One area 

where genuine efforts should be devoted relates 

to government Monetary policies. There is 

a need for more harmonization of exchange 

rate and interest rate policies. The policies 

of fixed exchange rates to the USD have led 

to real exchange rate overvaluations with 

detrimental impacts on intra-regional trade. 

Two policy options are available. The optimal 

monetary policy option is a monetary union 

between those countries. However, since a 

monetary union between GAFTA members is 

a somewhat distant prospect, these countries 

should perhaps follow the Egyptian Tunisian 

and Moroccan examples and introduce in the 

short run more flexibility in their exchange 

rates. In the long-run these countries can 

opt for more fixity through a rigid peg or an 

exchange rate target zone as a preliminary 

step before the adoption of a common currency. 

However, this may not be a viable 

alternative for the majority of the MPCs, given 

the virtual absence of independent monetary 

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policies and well-developed capital markets. 

Another consideration is that underdeveloped 

monetary, political and policy-making institutions 

tend to undermine the effectiveness 

of discretionary monetary policy. For now, 

some type of fixed arrangement may be the 

safest option for most of these countries. For 

the MED countries engaged in a significant 

amount of trade with the EU, a euro peg may 

be more appropriate than a dollar peg. In 

all cases, those countries maintaining fixed 

exchange rate arrangements must implement 

crisis-prevention measures, namely by exercising 

fiscal discipline, managing their debts 

and foreign reserves, and avoiding currency 

appreciation. As the countries in the MED 

region improve their monetary and fiscal 

infrastructures and become more integrated 

with global capital markets, they should altogether 

adopt a common currency in the long 

run. 

Agricultural issues 

When considering integration of the 

Arab region, special attention should 

be paid to the agricultural sector, as it 

is one of the major sectors of the Arab 

world. Around 23 million workers are 

employed in direct agricultural activities 

in the region. Yet, despite the vast 

natural resources available in the region, 

the absence of policies and regulations 

have led to a large and widening trade 

gap in that sector. The majority of Arab 

countries import agricultural products 

intensively. Over the period 1980-2003, 

agricultural imports of the Arab region 

increased from US$19 billion to US$26.2 

billion. On the other hand, exports 

increased from US$3 billion to only 

US$5.7 billion (Figure 12). With respect 

to trade among Arab countries, its volume 

amounted to US$5.3 billion, which 

implies that imports from within the 

Arab region represents only one fourth 

of total imports of Arab countries. 

On the European side of the world, the 

number of workers employed in the agri

cultural sector dropped from 19 million 

in 1970 to only 6.7 in 2002. This drop 

could be attributed to several factors, 

including the growth of the industrial 

and services sectors, representing a pull 

factor, and the increasing mechanization 

of agricultural processes. The agricultural 

sector of both the Arab region and 

the EU has two specific differences. First, 

its contribution to GDP is much lower for 

EU countries. In addition, the structure 

of agricultural production is quite different, 

represented by, the quality of production, 

the level of mechanization, the 

scale of business, etc. To illustrate the 

difference, it is interesting to see that 

the highest level of exports per laborer 

in the Arab region was reached in the 

year 2002. Yet it represented only 10% 

of that of the EU in the same year. While 

the Arab region is still struggling through 

the trade liberalization stage, the EU has 

already proceeded to full integration. 

Despite the fact that agriculture accounts 

on average for only 2% of EU countries, 

its development and integration have 

been paid special attention by the EU. The 

EU has initiated the Common Agricultural 

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Policy (CAP) with the aim of increasing 

agricultural productivity, guaranteeing a 

decent standard of living for the agricultural 

community, stabilizing the market, 

ensuring the availability of supplies, 

and maintaining reasonable prices. As a 

result of this policy, cereal production, for 

example, has boomed in Europe since the 

nineties. The EU has also worked on narrowing 

the trade gap between its imports 

and exports (Figure 13). 

In addition, while the Arab intra-trade 

is quite limited, as displayed above, the 

EU depends more on intra-markets than 

on external ones. Figure 14 portrays 

the proportion of European intra-trade 

to total trade. The figures represented 

here pertain to the EU 15 only, which 

suggests that the EU enlargement to 

include 25 states would even increase 

the proportion of intra-trade. 

The weak integration of agriculture has 

been attributed to several factors. One 

of the main reasons is importing cheap 

products from outside the Arab region. 

Another reason is investments that are 

directed to large public works projects. 

Figure 12: Imports and Exports of Total Agricultural Products in the Arab Region 

1980-2003 (US$1000) 

Source: Femise study FEM22-07

These projects often need high main- 

tenance costs, which leaves countries 

with little funds to be directed towards 

developing the agricultural sector and 

adopting new technologies. A factor that 

is common among all aspects of integration 

is the lack of regional agricultural 

policies. 

To combat the weaknesses of the agricultural 

sector, several Arab institutions 

have paid special attention to its 

development allover the region. One 

example is the Arab Fund for Economic 

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and Social Development. From 1974 to 

2003, agricultural and rural development 

have been allocated an amount 

of KD886 million, representing around 

one fifth of the Fund’s total loan commitments. 

The Kuwait Fund for Arab 

Economic Development has directed 

KD338 million to agriculture, which 

represent around 19% of total disbursements. 

The Saudi Fund for Development 

has also shown interest in the agricultural 

sector, directing around 19% of its 

disbursements to it, which amount to 

around SR4.5 billion during the period 

Figure 13: EU agricultural imports and exports in million US$ (1980-2003) 

Source: Femise study FEM22-07 

Figure 14: Total EU trade in Agricultural Products including and Excluding Intra- 

Trade (1990-2003, million US$) 

Source: Femise study FEM22-07

1974-2003 in 71 projects. Although 

these efforts have been widely appreciated, 

they still fall short of providing 

a regional integration scheme and policies, 

as they do not posses a supranational 

nature. 

Drawing on the lessons learned from the 

EU experience, there is a strong need 

for the Arab region to adopt an agricultural 

model that would strengthen 

the market orientation, increase the 

productivity of agricultural goods, and 

coordinate efforts between different 

member states. Arab countries need to 

start negotiating as one entity in order 

to get better terms of trade and to be 

clearly heard internationally. 

Social Policies 

It is believed that integration would not 

be considered successful, unless it truly 

benefits citizens of each of the member 

states. Thus, analysts are inclined to 

assess social policies as a measure of 

the extent of regional integration and 

the welfare of citizens. 

The Arab region is often characterized by 

the lack of coordination of social development 

efforts, not only on a regional 

level but even within each country. 

Development efforts are often carried 

out by individual NGOs. The region has 

witnessed incremental improvements in 

some of the social indices, such as 

maternal and infant mortality, life expectancy, 

and literacy rates, which will be 

discussed in detail thereafter. Yet the 

Arab Human Development <strong>Report</strong> has 

stated that progress has been quite 

slow and cannot be seen as universal, 

as many citizens of the region are still 

deprived of their basic needs. 

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It is worth noting that the average 

per capita income PPP of Arab states 

is US$5,685. This is a relatively high 

value, when compared to the average of 

developing countries, which is US$4,359 

(2003 values, according to the Human 

Development <strong>Report</strong> 2005). Yet this 

value is in a way misleading, as it is 

strongly affected by values of the GCC 

countries, which have per capita incomes 

reaching up to US$22,420 for the 

United Arab Emirates. Other Arab states, 

however, have considerably lower 

values, such as Sudan (US$1,910) and 

Yemen (US$889). 

Despite apparent income improvements, 

some basic indices are still lagging 

behind. The Average literacy rate for the 

Arab states is 64.1% while the developing 

countries’ average is 76.5%. The 

lowest rates of literacy in the region are 

to be found in Algeria, Egypt, Morocco, 

Oman, Sudan, Tunisia and Yemen, which 

also have lower incomes. Yet income is 

not the only determinant of literacy. This 

hypothesis is proven through a study 

comparing Oman and Jordan. While 

Oman’s per capita income is around 

triple that of Jordan, literacy rate of the 

latter is higher than that of the former 

by around 20%. 

In addition, the gender gap is a major 

characteristic in the Arab world. Literacy 

rates as well as labor force values prove 

that fact. Female literacy rates, as a 

percentage of males, accounts to 71% 

in the region. In addition, school registration 

rates for females reach around 

83.8%, while the average of developing 

countries is 87.3%. Moreover, the rate 

of female economic activity as a percentage 

of rates recorded for males reached 

38.9%. The narrowest gap of economic

activity between males and females is 

found in Morocco, then Kuwait, Tunisia, 

and Egypt, while the widest gap is recorded 

in Oman, Iraq, and Saudi Arabia. It 

should be recognized that, while female 

participation in the labor force increased 

by 11.7% in the Arab region between 

1985 and 1997, the average increase 

for developing countries amounted to 

only 2.3%. 

On another note, life expectancy has 

witnessed substantial improvements 

since the fifties, where it amounted to 

40.5 for males and 42.6 for females. 

During the period 1990-1995, life expectancy 

reached 62.6 and 65.2 for men 

and women, respectively. In addition, 

under five mortality rates (per 1,000 live 

births) range from 3 to 39, with Lebanon 

reporting the lowest rate and Yemen the 

highest. Maternal mortality rates (per 

100,000 live births) range between 3 

and 550. Total health expenditure as 

a percent of GDP ranges from 1.5 to 

10.1%. 

To improve the welfare of citizens, several 

Arab countries have established social 

funds, which act as mediators and deliver 

funds provided by the government 

as well as by donors to mainly the poor 

by financing small projects. They work 

on ensuring job opportunities, improving 

infrastructure, and offering basic 

services to the poor. Yet effectiveness 

of such funds can be hampered by a 

number of factors. The independence of 

such funds varies from one nation to the 

other. While the Jordanian and Lebanese 

funds, for example, enjoy higher levels 

of independence, the board of directors 

of the Egyptian Social Fund is largely 

composed if government officials, 

which adds to its bureaucratic nature. 

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Moreover, monitoring and evaluation 

of social funds’ activities are sometimes 

abandoned with the intention of 

cutting costs. Furthermore, the temporary 

nature of these funds is a major 

challenge to the sustainability of their 

interventions. 

In addition to the national effort exerted 

in Arab countries, there is a regional 

effort to improve the welfare of citizens. 

Just as in the case of agriculture displayed 

in the previous section, different 

institutions, such as the Arab Fund for 

Economic and Social Development have 

paid special attention to social development. 

The fund has been directing almost 

9.3% of its total loan disbursements to 

social services projects. The Arab Reform 

Forum is yet another attempt to harmonize 

social policies. The forum has been 

established on 2004 in the Bibliotheca 

Alexandrina with the mandate of continuous 

dialogue between intellectuals. 

These dialogues are intended to discuss 

development issues, while particularly 

focusing on the role of youth and women 

in development. 

Yet social policies in the Arab world are 

still lagging behind. This may be attributed 

to several hindrances. Political 

tension in the region has forced governments 

to direct large amounts of funds 

to military development, which is to the 

disadvantage of social development. 

Thus there is also a problem of unavailability 

of funds. High population growth 

rates are also a serious challenge, which 

also raises the issue of unemployment 

and the failure in many instances to provide 

professional training. The inability of 

coordinating development efforts among 

governments and different non-governmental 

entities also hampers their effec-

tiveness; especially that civil society in 

Arab region has a limited experience. 

Centralizing decision-making is also an 

obstacle, especially given high rates of 

corruption and lack of capacity-building. 

The crisis management nature of most 

development efforts lacks sustainability 

and true welfare improvement. 

Moving to the European experience, it 

is worth noting that the European Social 

Fund has played only a marginal role in 

the integration of social policy. On another 

front, the European Social Charter 

of 1961, which was revised and extended 

in 1996, represents a set of binding 

undertakings. In addition, to strengthen 

the role integrated social policy, the 

European Court if Justice has limited 

a country’s control over social policy 

in the sense that it has prohibited the 

restriction social benefits to a country’s 

citizens. 

One of the challenges that the EU had 

to deal with was the persistent unemployment 

of the nineties. To deal with 

such problem, each member state was 

required to formulate an action plan. 

Plans of all countries would then be 

coordinated through the EU’s different 

bodies. The European Social Fund was 

to provide support to these initiatives. 

This is just one problem to demonstrate 

how the EU has been coordinating social 

development efforts. 

To accelerate the development process, 

Arab countries need to utilize the available 

resources efficiently and coordinate 

social development efforts. The two 

main problems of social development, 

namely youth unemployment and the 

gender gap, need also to be addressed. 

To support development efforts, partici- 

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pation of the civil society must be further 

encouraged and enhanced. 

Labor Mobility 

The shallowest form of integration, 

namely RTAs, concentrate mainly on the 

free movement of goods and services. 

Common markets, as the second stage 

of integration, allow for the movement 

of factors of production, hence labour 

mobility. It is well known that labour 

mobility is a natural process that accompanies 

economic growth. However, it can 

be enhanced through further integration 

policies. Hence, in the absence of such 

policies, which is the case in the Arab 

region, pull factors are the only determinant 

of labour mobility. Bilateral agreements 

are the only agreements in the 

Arab region that deal with some aspects 

of labour mobility, however, not to the 

extent of its free movement. 

Egypt, for example, has signed agreements 

on cooperation on labour issues 

with nine Arab countries during the 

period 1974-1990. Morocco has agreements 

with five Arab countries, dating 

back to the early 1980s, Tunisia with 

four countries, and the United Arab 

Emirates with five countries. Despite 

this number of bilateral agreements, 

Arab labour force has been facing competition 

from extra-regional labour, 

especially from Asia. Furthermore, political 

tension between Arab countries 

often resulted in the termination of 

employment of labourers of other Arab 

countries. This was not a unique event; 

it was repeated in several countries with 

large numbers of workers. In 1985, for 

example, Libya terminated the working 

contracts of large numbers of Egyptian 

and Tunisian migrant workers. Qatar

deported hundreds of Egyptian workers 

in 1998. Moreover, the second Gulf 

war, in 1990-91, resulted in returning 

around 390 thousand Egyptian workers 

to their country. Estimates also suggest 

that GCC countries, as a result of disagreement 

on political stance pursued by 

these countries during that war, deported 

over a million workers to Jordan, 

Syria, and Yemen. 

The Arab Labour Organisation has adopted 

two charters to regulate labour 

movement within the Arab region. They 

indicate that preference should be given 

to Arab workers, especially Palestinians, 

after preserving job opportunities for 

citizens of a member state. However, 

they do not mention anything about free 

labour mobility. In addition, this is a nonbinding 

instrument. The latest agreement 

in this respect is the Declaration 

of Principles on the Facilitation of the 

Movement of Arab Labor, enacted in 

February 2005. This declaration mentions 

only the facilitation, and not the 

freeing, of labor movement. This too, is 

a non-binding agreement. 

As previously indicated, in the absence 

of labour movement policies, economic 

growth is the only determinant of migration. 

Within the Arab region, the main 

pull factors exist in the GCC countries, 

as they possess a huge potential of 

growth. Over the period 1975-2002, the 

population of GCC receiving countries 

increased by 335%, namely from 9.7 to 

32.5 million. However, while the national 

population represented 77.4% of 

total population in 1975, it represented 

only 61.5% in 2002; implying a growth 

rate of migrant population of 568%. 

Yet the non-GCC Arab portion of the 

migrant population decreased from 72% 

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in 1975 to 31% in 1996. Specifically in 

Saudi Arabia, which is the most striking 

example, the portion moved from 90% 

to only 30%. 

To the contrary, the EU has solid integration 

policies with respect to labour 

mobility. Citizens of EU members have 

the right to reside and be employed in 

any other member state. One of the 

major obstacles that faced this form of 

integration was the divergence of qualifications. 

To overcome this challenge, it 

was agreed that member states would 

mutually recognize each other’s qualifications 

instead of unifying the criteria 

for education. It is important to realize 

the difference between the case of the 

Arab region and that of the EU. While the 

former did not have a clear vision and 

determination to reach it, the latter established 

precise rules and regulations and 

delegated the authority of implementing 

them to supranational institutions to 

guarantee their timely attainment. 

Looking Ahead 

The Arab region has a number of advantages 

that are of major value. Countries 

of the region have a strong common 

historical, cultural, and religious heritage, 

in addition to being unified through 

one language. The latter has been 

unavailable among EU member states. 

In addition, the region enjoys a variety 

and wealth of natural resources. A collective 

population exceeding 270 million 

in 2003 represents a huge market and a 

diverse labor force. The region’s location 

in the heart of the world is also a great 

asset. Yet the region seems paralyzed 

as a result of several factors, notably a 

lack of commitment for integration on 

the part of the member states.

The discussion of the different aspects of 

integration and lessons learned from the 

European experience has shown a common 

set of actions needed to actually 

reach proper integration. First, countries 

of the region need to have a clear vision 

of what they really want to achieve. 

There is also a strong need for political 

leaders to have the will and the commitment 

for integration; the lack thereof is 

a major hindrance. Countries also need 

to coordinate their efforts in different 

fields in order to form a homogeneous 

region rather than being scattered and 

sometimes even contradicting. Yet the 

most important measure that truly needs 

instant action is forming supranational 

institutions capable of monitoring and 

overseeing progress made in different 

countries towards integration. Without 

these institutions, Arab countries will 

not be able to seriously coordinate their 

efforts and guarantee implementation of 

the agreed objectives. A pre-requisite 

for the formation of such institutions is 

the political authorities’ readiness to be 

evaluated by regional institutions. 

3. Migrations in the Mediterranean: 

the road for Deeper integration 

Migration within the Mediterranean 

basin is a long-established phenomenon 

with deep historical and socio-political 

implications. Recently, this issue has 

become a much complex and contestable 

subject. 

The influence of migration on global 

development is considerable: considerable 

for the EU because it fills gaps in 

the employment market and increases 

the size of the workforce and thus the 

number of taxpayers; positive for the 

developing countries because it takes 

-80- 

some of the pressure off the domestic 

employment market, brings in far more 

foreign currency overall than is received 

in official aid, and enhances skills. 

With unemployment on the rise in the 

Mediterranean Partners’ (MPs) economies, 

migration forms a window of 

opportunity to absorb part of excess 

labor. On the other hand, concerns over 

social cohesion issues and illegal migration 

in Europe have prevented accepting 

migration as a compensation for the 

slow growth of the labor force. 

Demographic Contrasts of 

Labor Market Trends within the 

Mediterranean Basin 

The demographic situation in the 

Mediterranean Basin varies considerably. 

The population in the EU is aging; 

total births (7.3 million per year) do not 

compensate for the deaths (8.1 million 

per year) (Femise, 2003). Moreover, 

the average population growth rate for 

the EU was 0.3% in the period of 1990- 

2003 while it was 2.4% for the southern 

countries, and estimates show that it will 

decline to 0% and 1.7% in the period of 

2003-2015 for Europe and MPs respectively 

(World Bank, 2005). 

Northern countries have a relatively 

older population; those of the South, a 

fairly young population. Children under 

the age 15 account for between 35 and 

40 per cent of the population of southern 

countries (Femise, 2003). Hence, the 

proportion of the population of working 

age will grow more quickly than 

total population. Additional demand for 

employment will hence increase, as will 

the migratory potential. As a result, 

employment outside the domestic eco-

nomy has become a structural feature in 

many countries of the region. 

Moreover, the Southern Mediterranean 

population and the entrants to the labor 

markets will continue to grow at least till 

2015, because the population structure 

is marked by the predominance of youth 

(FEMISE, 2003). Also, the average unemployment 

rate for the EU is 6.7% (ILO, 

2004a) while it is about 16.0% for the 

South Med countries (World Bank, 2005). 

Meanwhile, the European Union countries, 

faced with aging populations, are 

reluctant toward recognizing the need 

for managed and legal immigration programs 

to cover their labor requirements 

in the future. 

Migration Magnitude: Half of the 

MPs’ migrants are bound to Europe 

South Med countries now form a major 

region of emigration. There are 2 main 

streams of emigration in the MPs, one 

bound for the Gulf Cooperation Council 

countries (GCC) and the other is bound 

for European countries. With a number 

of first-generation emigrants ranging 

between 10 and 15 million according 

to whether migrants are counted by 

destination of countries of origin, First 

-81- 

generation emigrants from the ten South 

Med countries appear to represent some 

4.8% of their aggregated population 

which amounted to 260 million in 2005. 

(Fargue, 2005). 

Migration flows to the GCC countries 

This stream is directed towards the oilrich 

countries of Bahrain, Kuwait, Oman, 

Qatar, Saudi Arabia and the United Arab 

Emirates. These countries now have 

massive stocks of foreign labor, but 

immigration into them related to development 

of oil resources back to 1972 

where about 800.000 migrant workers 

were settled in the GCC. With the oil prices 

increases which followed, the entire 

region rapidly became dependent upon 

foreign labor, and by 1975 the foreign 

population in the GCC states could have 

been as much as 3.8 million people, or 

40% of total population 

Nowadays, expatriate workers represent 

almost three quarters of the labor force 

(Fasano, and, Rishi, 2004). A wide difference 

in the expatriate workers distribution 

among the GCC countries exists, 

for while they represent almost 90 per 

cent in the labor force of the UAE, they 

account for up to 50 per cent in Saudi 

Arabia (table X19). 

Table X19: Percentage of nationals and expatriates in the labour force of GCC countries, 

1995-2001 (000 Person) 

Total 

(‘000s) 

1995 * 2002** 

% 

Nationals 

% Nonnationals 

Total 

(‘000s) 

% 

Nationals 

% Nonnationals 

UAE 955,1 11,6 88,4 2 269,0 10,2 89,8 

Bahrain 226,5 40,0 60,0 308,3 40,1 59,0 

KSA 6 450,0 36,5 63,5 6 089,8*** 49,7 50,3 

Oman 670,3 35,8 64,2 731,5 21,7 78,2 

Qatar 218,0 17,9 82,1 322,9 14,2 85,7 

Kuwait 1 051,5 16,6 83,4 1 320,2 19,6 80,4 

Total 9 571,4 26,4 73,6 11 041,7 26,0 74,0 

Sources : * Maurice Girgis, Les nationaux et les ouvriers migrants dans le GCC : Coping with Change, 

2000 ; ** GCC, STATISTICAL BULLETIN, volume 12, 2003; http : // www.gcc-sg.org/gccstatvo112/genstat/g4.htm; 

*** Annuaire d’OIT de Statistique du Travail 2002

As of mid 1980s to mid 1990s the GCC 

witnessed a substitution of Asian workers 

for the existing Arab workers and the 

share of Arabs declined from 75% of the 

foreign workers in 1975 to 28% by 2000 

in favor of the Asian workers (Girgis, 

2002). One reason for the decline is the 

trend towards the nationalization of the 

labor markets. As the unemployment 

among the GCC nationals increased, 

their governments took measures which 

entailed adopting regulations limiting 

the size of foreign labor in favor of the 

national work force such as: 

√ Job reservation where some professions 

are reserved only for nationals. 

√ Subsidizing enterprises to increase 

the percentage of employed nationals. 

Figure 15: MENA Migrants in the EU, by country of residence 

-82- 

√ Increasing the cost f foreign labor 

through taxation. 

√ Relying on mandatory measures. 

These include quantitative targets 

or quotas on the proportion 

of nationals employed by private 

companies in specific professions 

or sectors. 

√ Attempting to equalize the perceived 

attractiveness of public and 

private employment by extending 

retirement benefits and social 

allowances to all nationals independently 

of the sector that they 

work for. 

√ Attempting to reduce the wage and 

productivity differential between 

the public and private sectors. 

Sources: Fargue, 2005, based on calculations from: 

Algeria: 1998 population census; Armenia: 2001 population census; Australia: 2001 Population Census; 

Austria :Population census, 2001; Belgium: Office des étrangers, 2005; Canada : 2001, Statistics 

Canada; Cyprus: Census of Population, 2002; Czech Republic: Ministry of the Interior, 2002; Denmark: 

Statistics Denmark, 2003; Estonia: Population census, 2000; Finland: Statistics Finland, 2003; France: 

Recensement de la population, INSEE, 1999; Germany: Central Register on Foreigners, 2002; Greece: 

Population Census, 2001; Hungary: Population Census, 2001; Iceland: Statistics Iceland, 2003; Iran: 

Statistical Centre of Iran, 2003; Ireland: nd; Israel: Central Bureau of Statistics, mid-2003; Italy: 

Residence permits 31.08.2004; Japan: Japan Statistics Bureau, 2000; Jordan: Population and Housing 

Census 1994; Latvia: Population and Housing Census, 2000; Lithuania: Population and Housing Census 

2001; Luxembourg: RP2001; Malta: nd; Morocco: Direction Gén. Sûreté Générale, 2002; Netherlands: 

Netherlands statistics, 2004; New Zealand: Population census, 2001; Norway: Statistics Norway, 2005; 

Palestinian Territory: Israel, Central Bureau of Stat, end 2004; Poland: nd; Portugal: 2003; Romania: 

Census of Population, 2002; Slovakia: nd; Slovenia: Population Census, 2000; South Africa: Statistics 

South Africa,2003; Spain: Residence permits 31.12.2003; Sweden: Statistics Sweden, 2003; Switzerland: 

Office fédéral de l’immigration, 2003; Tunisia : Recensement de la Population 2004; Turkey: Population 

Census of 2000; United Kingdom: 2001 Census; United States: 2000, U.S. Census Bureau, Census.

In light of the rising oil prices and the second and first generation migrants 

resulting revenues that are expected 

to even exceed those of the 1970s and 

(Fargue, 2005). 

1980s; fiscal balances and external cur- Statistics provided by the EU memrent 

account balances are greatly improber states report the presence of an 

ving creating a strong domestic demand. aggregated 5.8 million migrants of Med- 

The regional current surplus is projected MENA origin. Two traditional countries 

to reach 23.5% of GDP in 2006 (IMF, of destination, Germany and France, 

2005). 

together host almost three-quarters 

of this number, the remaining quar- 

This cash gift is an opportunity for the ter being distributed among the other 

oil-surplus GCC countries to accelerate twenty-three EU member states (Figure 

reforms that would generate employ- 15). Among the three countries ranking 

ment for the rapidly growing working age next—the Netherlands, Spain and Italy— 

population as well as increase demand the last two act as a new magnet for 

for foreign labor. 

South-Mediterranean migrant workers. 

The main countries of origin are: the 

The flow towards Europe 

Between 5.0 and 6.4 million Med-MENA 

Palestinian Territories, Turkey, Morocco 

and Egypt. 

first-generation migrants reside in Europe Figure 16 indicates the existence of 

(unrecorded migrants not included). This specific patterns of destination among 

number does not include ‘second-gene- different countries of origin. Migrants 

ration’ migrants. In general it is esti- from the Maghreb and Turkey are premated 

that there are about 10.6 million dominantly destined for Europe, while 

Figure 16: Distribution of Migrants originating from 7 Med Countries by Region of 

Destination According to origin countries data 

Notes: Israel, Jordan and Syria do not provide statistics of their nationals abroad by country of residence 

and are not included 

Source: Fargue, 2005, based on calculations from: 

1/ Conseil National Économique et Social (1997), Commission de la Communauté Algérienne à l’Étranger 

«Situation de la communauté algérienne à l’étranger» étude préliminaire; 2/ CAPMAS (2001); 3/ Choghig 

Kasparian, L’entrée des jeunes libanais dans la vie active et l émigration depuis 1975, Université Saint 

Joseph de Beyrouth, 2003; 4/ Ministère des Affaires étrangères et de la Coopération, Maroc, 2004; 

5/ Palestinian Central Bureau of Statistics, Statistical Abstract of Palestine, No4. Ramallah, 2003; 

6/ Ministère des Affaires Etrangères, Tunis, 2005; 7/ General Directorate of Services for the Workers 

Abroad, Attached to the Ministry of Labour and Social Security (2002). 

-83-

those from Eastern Arab Mediterranean 

countries are instead destined for the 

GCC countries and other regions of the 

world. 

Remittances play a central role in the 

monetary stability of many developing 

countries and are crucial to the survival 

of poor households. For these last two 

decades or more, migrants’ remittances 

to North Africa have constituted the 

highest ratio to GDP of any region in the 

world: in 2002, they were 3,1% of GDP, 

compared with 1,6% for Latin America 

and 0,6% for sub-Saharan Africa – the 

latter, the lowest ratio in the world 

(Gallina, 2004). 

Since Barcelona Declaration, and the 

launch of the partnership agreement, the 

flows of remittances became an important 

source of income to the MPs (Table 

X20), as it represents over 35 percent 

of the value of exports in Morocco and 

Egypt, and more than 50 percent of the 

value of exports for Jordan. 

It appears that remittances are more 

important to the region than aid flows. 

As development aid from the EU - 

under the MEDA program launched with 

the Barcelona Process- in 8 of the 12 

Mediterranean countries is less than 1 

billion USD per year, in addition to another 

billion as loans from the European 

Bank of Investments. This aid, about 9 

Table X20: Worker’s Remittances inflows (billion $) 

-84- 

USD per capita, is expected to provide 

a boot to the modernization of the economies 

of the Southern Mediterranean, 

and encouraging them to compete in 

a completely free market with the EU 

partners by 2010. Remittances instead 

are not only larger and more stable, but 

contribute directly to the welfare of low 

income households located in both rural 

and urban areas (Gallina, 2004). 

The challenge of integration: the 

case of Turkish migration to the EU 

One of the major debates that accompany 

the Turkish membership to the EU is 

its effect on labour migration. Between 

the opponent’s view that this could open 

the door to an unrestricted migration 

coming from a country with 72 million 

people, and the supporter’s view that 

sees that the young labour force migrating 

from Turkey can offset the effects of 

the rapidly ageing population in Europe, 

the complexity of the issue remains and 

the negotiations with the EU still stand 

a long way. 

The official number of Turkish migrants 

in the EU is hard to find, the rough figure 

estimates them at around 4 million 

between migrants and refugees. 93% of 

those are concentrated in only four EU 

countries: Germany alone hosts about 

70% of the Turks migrants; the remaining 

share is distributed between the 

1996 

2004** 

2000 2004* % of GDP % of exports 

Egypt 3,1 2,9 3,0 4,0 39,0 

Jordan 1,7 1,8 2,2 19,7 56,4 

Morocco 2,2 2,2 3,6 7,2 37,1 

Turkey 3,5 4,6 0,7 0,2 1,1 

Source: Global Development Finance 2005: Mobilizing Finance and Managing Vulnerability 

**Calculations from World Development report 2006 and Global Development Finance 2005

Netherlands (9%), France (8.7%), and 

Austria (4.4%). More than half of those 

migrants have joined those countries’ 

labour force and have contributed with a 

share of 0.7% of these countries’ GDP. 

In addition to their large number in 

Europe, Turks constitute an economic 

power that is still underestimated on 

the national and international levels. 

According to a Turkish Research center, 

the amount of Turkish investment in the 

EU has increased by more than 50% in 

the past 7 years with a growing number 

of Turkish entrepreneurs (more than 

6% of Turkish work force are entrepreneurs). 

The number of Turkish migrants to 

Germany is on the rise. The OECD estimates 

the Turkish citizens to be about 

1.9 million (where 46% of those are 

women). More than 832,000 Turkish 

are working in this country (70% of 

Turkish migrants labour force is located 

in Germany) and contributing 2% to 

the country’s total GDP. However the 

Turkish residents are still facing difficulties 

integrating into the German society. 

Provoked by the former policy to treat 

Turks as ‘guests’, they have been isolated 

(especially women that belong to the 

most disadvantage group). Most of them 

-85- 

do not carry German passports and 

some do not even speak the language. 

The policy of rejecting integration was 

an impulse to the formation and development 

of fundamentalist groups within 

the Turkish community. 

A new Immigration law was introduced 

in January 2005 that calls to streamline 

immigration procedures, improve the 

integration of immigrants and ease entry 

for skilled workers in certain sectors. 

Despite the fact that this law is considered 

a first step to integrate the Turks 

into the German society, it fails to abolish 

the temporary status of thousands 

of refugees, and doesn’t fully address 

integration and naturalization issues. 

Some suggests that there is a need to 

first integrate the existent residents 

into the society before admitting more 

migrants to avoid the risk of creating 

parallel societies. 

The EU, and specially Germany, main 

fears are that by formalizing migration 

there is a risk of increasing the already 

existent unemployment problem in some 

European countries and that the type of 

skills of migrants does not match the 

need of their labor force. This justifies 

the high rates of unemployment (way 

above the countries’ averages) among 

Table X21: Participation rate *in selected OECD countries. 2002-2003 average 

Austria Belgium Switzerland Germany Denmark France Netherlands Sweden UK 

Global rate 71,7 64,2 81,2 71,8 79,7 69,2 76,4 78,0 75,3 

of which 

Foreigners 

74,1 57,0 80,2 65,0 64,2 62,5 61,3 66,0 67,0 

of which Turkish 64,7 39,8 74,9 58,9 46,9 55,8 57,6 47,4 51,3 

Women 41,6 22,3 61,7 40,4 - 30,4 45,1 - 24,8 

Men 83,5 60,5 83,4 74,8 51,6 78,6 69,7 70,8 76,9 

Note: The sign “-” indicates that the estimate is not statistically significant. 

*The participation rate refers to person aged 15 to 64 years who are in the labour force divided by the 

working age population. 

Source: OECD calculation based on The European Commission labour survey, 2005

Turkish migrants in some EU coun- 

tries, especially France and Belgium. 

On another front, some European countries 

such as Ireland, Spain and the 

United Kingdom are admitting increasing 

numbers of immigrant workers because 

migrants bring skills unavailable locally 

and fill the large number of jobs in agriculture, 

health, and services that natives 

are unwilling or unavailable to take. 

On the other hand, some suggests that a 

slowdown (or suspension) in the Turkey’s 

accession process may have a substantial 

negative impact on the migration 

issue. From an economic point of view, 

slowing the process leads to low growth 

and increase in unemployment in Turkey. 

This might also slow or suspend the political 

and economic reform that has been 

ongoing in Turkey. This would increase 

the general feeling of insecurity and 

hence the number of potential migrants 

(legal or illegal) will increase. 

Under the currently strict regimes, net 

migration from Turkey to the EU accounts 

for a minimum of 35,000 persons a year. 

It is expected that these trends will 

accelerate in the future if no regulations 

are set to formalize migration. 

In a study to estimate the eventual 

immigration from Turkey to the EU when 

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Turkey becomes a full member, scenarios 

are withdrawn for the period 2004 

to 2030 based on the experiences of 

various groups. These scenarios estimated 

a net migration from Turkey to EU-15 

until 2030 between 0.5 and 4.4 million, 

assuming free mobility of labor in about 

10 years from now (figures that are way 

less than those estimated in case membership 

in the EU is suspended) 

Opening up of Turkey and its possible 

accession to the EU represents a 

big challenge; however the undergoing 

development and the increasing integration 

of Turkey into the world economy 

will diminish the role of migration. In 

the past few years, the Turkish government 

has started to take serious steps 

towards formulating and implementing 

the necessary EU migration policies. 

However it is clear that the quicker the 

debate begins, the more the political and 

economic expectations focusing on the 

growth of the Turkish economy will reinforce 

this tendency. The future challenge 

would be on how to integrate the Turkish 

immigrants already in Europe rather 

than focusing on the new migrants to 

the EU. It is even expected that some 

Turkish migrants would be willing to 

return back to their home country after 

the integration (following the examples 

of Greece, Spain and Portugal). 

Table X22: Unemployment rate* in selected OECD countries. 2002-2003 average 

Austria Belgium Switzerland Germany Denmark France Netherlands Sweden UK 

Global rate 

of which 

4,8 7,3 3,6 9,2 4,9 8,9 3,1 5,3 5,0 

Foreigners 

of which 

9,0 17,5 7,3 15,1 12,9 18,5 7,4 12,4 8,0 

Turkish 

foreigners 

13,7 34,2 12,6 19,1 - 25,4 - - - 

Women 13,0 48,1 14,9 17,9 - 38,4 - - - 

Men 13,9 28,3 11,6 19,7 - 20,8 - - - 

Note: The sign “-” indicates that the estimate is not statistically significant. 

* The unemployment rate refers to persons aged 15 to 64 years who are in unemployed divided by the 

labour force. 

Source: OECD calculation based on The European Commission labour survey, 2005

Towards a Fair Euro Mediterranean 

Migration approach: Challenges and 

Opportunities 

In the Barcelona Summit of November 

2005, although the Summit chairman’s 

statement called for the “creation an 

area of mutual cooperation on migration, 

social integration, justice, and security 

and strengthening the management of 

regular migratory flows in a comprehensive 

manner beneficial to the peoples 

of both shores of the Mediterranean”. 

It appears that the negotiations in 

this field tend to focus mainly on the 

European concerns regarding the subject 

of migration. 

During negotiations the heads of states 

of the EU have put considerable emphasis 

on the issues of combating illegal 

migration, regulating migration flows 

and social cohesion. This is reflected 

in the Summit’s final declaration which 

stipulated that the Euro Mediterranean 

partners will develop mechanisms for 

cooperation in the fight of illegal migration 

including readmission agreements, 

combating human trafficking and capacity 

building in border management. 

In an attempt to draw guiding principles 

for a migration policy, the Barcelona 

Summit’s Five Year Work Programme 

acknowledged that “Migration, Social 

Integration, Justice and Security are 

issues of common interest in the 

Partnership, and should be addressed 

through a comprehensive and integrated 

approach”, and that the Euro- 

Mediterranean partnership will enhance 

co-operation in these fields to: 

√ Promote legal migration opportunities, 

work towards the facilitation of 

-87- 

the legal movement of individuals, 

recognizing that these constitute an 

opportunity for economic growth and 

a mean of improving links between 

countries, fair treatment and integration 

policies for legal migrants, and 

facilitate the flow of remittance transfers 

and address ‘brain drain’; 

√ Reduce significantly the level of illegal 

migration, trafficking in human beings 

and loss of life through hazardous sea 

and border crossings; 

√ Continue to pursue the modernization 

and efficiency of the administration of 

justice and facilitate access to justice 

by citizens; 

√ Reinforce judicial co-operation, including 

on cross border issues. 

In order to be able to reach a fair migration 

policy, certain challenges need to be 

addressed. The new policy must answer 

the concerns of the EU regarding how to 

deal with combating illegal migrants (on 

bilateral basis and under the European 

Neighborhood Policy), social cohesion 

and integration of second generation 

migrants. But also, it has to take into 

consideration the windows of opportunity 

for the MPs represented in demographic 

gap in the EU, and the agreement 

and mode 4 of supply of services under 

GATS. 

√ Firstly, it is noticed that “clandestine” 

migration in the Mediterranean 

region has increased dramatically in the 

last decade, although European regulations 

and cross-border rules have been 

strengthened. Also, another new phenomenon 

which appears in the region 

is the transit migration, as most of the

Maghreb countries have turned into 

transit countries for migrants from Sub- 

Saharan Africa and Middle East to pass 

to European countries. Estimates show 

that annually about 100,000 to 120,000 

cross the Mediterranean illegally, among 

those about 35,000 are from sub Saharan 

Africa (Baldwin, 2005). In 2003 9800 

illegal migrant have been caught in 

Morocco alone, among them 6600 were 

from sub Saharan Africa. 

The EU is intent on using the European 

Neighborhood and Partnership 

Instruments to intensify its cooperation 

with Mediterranean third countries on 

migration management. This cooperation 

will be country-specific or “differentiated”, 

in the European-Neighborhood- 

Policy manner of speaking. 

√ Secondly, there is a very strong 

need for comprehensive migrants’ integration 

policies. Primarily, migration 

policies have been primarily defensive 

and control-centered instead of proactive. 

Similarly, integration policies for 

immigrants have been reactive. In many 

cases, poor integration policy has contributed 

to negative perceptions of immigrants, 

which in turn has led to the 

reinforcement of defensive immigration 

policies. 

Here, numerous non-governmental actors 

can strongly influence the migrant’s integration 

process. These vital institutional 

actors include churches, trade unions, 

employers’ organizations, political parties, 

the media, and other civil society 

actors. Government policies that aim 

at steering processes of settlement and 

integration should actively involve not 

only immigrants themselves, but also 

those important players in civil society. 

-88- 

Such non-governmental partners are 

important in two ways. First and foremost, 

they function as direct partners 

in the implementation of policies. But 

they are perhaps even more important 

as political actors. They may influence 

the political climate and political outcomes, 

and may be important agents in 

combating exclusion, discrimination, and 

xenophobia. (Penninx, 2004). 

√ On another front, as highlighted 

before by FEMISE, the MPs can benefit 

from the window of opportunity which 

the contrast of demographic structures 

of European countries compared to MPs 

offer. For while Europe is ageing rapidly, 

the MPs enjoy population predominant 

by youth. If the labor force participation 

rates remain constant in the EU, an 

ever-increasing share of the population 

will be inactive as a result of old age 

which will negatively affect the long term 

economic growth. 

In order to determine the potential 

immigration needs of the current EU 

countries, the ILO performed a combined 

demographic and economic analysis 

to assess how ageing would reduce the 

standard of living (as measured by per 

capita GDP). 

For the purpose of the exercise the GDP 

per capita and hence the average per 

capita consumption level is targeted to 

increase in real terms by about 3 percent 

per annum. The analysis using a 

simulation model predicts a substantial 

labor shortage of about 38 million workers 

by 2050, assuming a rise in labor 

productivity of 2.5 %. If productivity 

only increases by 2 % a year, the shortage 

grows to 88 million workers. The 

effect on the “gap between the targe-

ted standard of living and the one that 

is possible” would be substantial. Per 

capita GDP would be only 78% of the 

expected level by 2050 (ILO, 2004b). 

√ Another opportunity that needs 

to be exploited by the MPs is the supply 

of services by a natural person under 

GATS mode 4. However, even by the 

modest standards of services liberalization, 

little was done on liberalizing 

the temporary movement of service 

suppliers and most countries made only 

limited commitments on mode 4. The EU 

tends to strict the Mode 4 liberalization 

to highly qualified workers only, as well 

as planning the management of Mode 4 

immigration by Economic Needs Tests or 

quotas to avoid labor market shocks. 

In the short term, the MPs need to 

analyze more thoroughly the full implications 

of GATS Mode 4 and how they 

can benefit from it by orienting the 

negotiation towards the deepening of 

liberalization in this area in a way that 

gives the MPs access to the European 

labor market. 

Hence, the new migration policy needs 

to be designed in such a way as to 

promote and encourage regulated nonpermanent 

flows. This form of migration 

is dynamic, more equitable and insures 

continuous flows. Moreover, this nonpermanent 

migration will ensure the 

fulfillment of the labor requirements of 

the European countries without causing 

social problems. In addition, if migration 

is conceived on a temporary basis, it can 

be designed in such a way as to enhance 

migrants’ skills thanks to the professional 

experience they acquire abroad; 

migration could thus become part of a 

strategy for enhancing human capital in 

-89- 

countries of origin; in other words, turning 

“brain drain” to “brain gain”. 

Conclusion : 

The cross-border movement of people 

is a substantial and widespread 

phe¬nomenon involving more than 10 

million people a year over the past 

decade, as well as a growing number 

of countries (ILO, 2004c). However, a 

major gap in the current institutional 

structure is the absence of a multilateral 

framework for governing this matter. 

From the World Commission on Social 

Dimension of Globalization’s perspective, 

the lack of a multilateral framework 

on migration is a clear illustration of 

the imbalance in the current rules of 

the game. While the rights of foreign 

investment have been in¬creasingly 

strengthened in the rules set for the 

global economy, those of migrant workers 

have received far less attention. 

Thus, a multilateral regime for the crossborder 

movement of people that makes 

the process more orderly and eliminates 

the exploitation of migrants could offer 

considerable gains to all. 

Through the protracted process of services 

negotiations in the WTO (Doha, 

Cancun, Hong Kong), the GATS «Mode 

4» provisions remain weak, very limited 

and restricted to the temporary movement 

of service providers and so covers 

only a tiny fraction of the cross-border 

movement of labor. 

Much can be done to improve significantly 

upon the current situation. The issue 

of developing a multilateral framework 

to govern international migration should 

now be placed firmly on the international

agenda. The objectives of such a fra- 

mework should be (ILO, 2004c): 

√ To facilitate mutually beneficial ways 

of increasing migration opportunities 

and ensure that the process is fair to 

both sending and receiving countries; 

√ To make the process orderly, predictable 

and legal; 

-90- 

√ To eliminate trafficking and other current 

abuses where women are especially 

vulnerable; 

√ To ensure full protection for the rights 

of migrant workers and facilitate their 

local integration; 

√ To maximize the developmental benefits 

of international migration.

Notes 

[1]: Informality is referred to enterprises 

that do not respect legal 

procedures for the creation and 

exploitation of society, namely 

registration, license, social security, 

taxation, etc... Data established 

by Egyptian Labour Market 

survey (ELMS), 1998. 

[2]: Source: Egyptian Labour Market 

survey (ELMS), 1998. 

[3]: Formality is defined by three 

major characteristics: (i) being 

registered; (ii) possessing a 

[4]: 

license and (iii) holding recurrent 

accountancy. 

The index is calculated as such: 

4 1 ⎛ f 

⎞ 

ai − fbi 

Index1= 

∑ ⎜ × 100 ⎟ 

4 i= 1 ⎝ fbi 

⎠ 

where fai = value of factor i on 

the date of survey and fbi = value 

of factor i a year later. 

[5]: This index was calculated according 

to values of each of these 

variables with: value (1) given to 

each expected growing variable. 

(0) for variables that should be stable 

and (-1) for those that should 

decrease. The score for each enterprise 

is standardized to belong to 

the interval [-100%; 100%]. 

[6]: It should be noted that Egypt 

witnessed a recession in 2003 

and 2004, which affected the perception 

of enterprises. 

[7]: Study FEM22-22, conducted by 

CEFI. 

[8]: An enterprise here is considered 

as one turning towards export if 

at least 10% of its turnover is 

destined to the external market. 

[9]: Analysis according to data collected 

on the occasion of annual 

surveys with public and private 

enterprises with more than 10 

workers by the Turkish national 

statistics institute (level of sectors 

with four figure international classification 

of industrial types). 

[10]: Cf. FEM22-22, Cefi op. cit.. Firms 

that entered or exited during the 

period are obliterated. 

[11]: Either imports/ (imports + production 

or turnover). 

-91- 

[12]: Study FEM22-20 conducted by 

ROSES. 

[13]: Cf. Marc Lautier, Care and Cepii, 

study FEM22-34, conducted by 

Cepii. This section utilizes in certain 

parts a summarized contribution 

from Femise study written by 

Marc Lautier. 

[14]: FEM22-22, Cefi, op. cit. 

[15]: Flexibility of employment growth 

to real industrial added value. 

Also, for Morocco, an increase 

of 1 point of industrial added 

value created 1.13 employment 

between 1995 and 2001. 

[16]: FEM22-34, Cepii, op. cit. 

[17]: FEM22-22, Cefi, op. cit. 

[18]: Commission of European 

Communities. European 

Commission (2003). Economic and 

Competitiveness of the European 

Textile and Clothing sector in support 

of the Communication: the Future 

of the textiles and Clothing sector 

in an enlarged Europe. Commission 

Staff Working Paper, SEC(2003) 

1345, Brussels, Belgium:3-4. 

[19]: 99 among the first 500 industrial 

enterprises in Turkey, 16 among 

the first 50 of all mixed sectors in 

Morocco, 7 among the first 100 in 

Tunisia. Among 330 largest enterprises 

of the sector at the global 

level, 13 are Turkish, 1 Israeli, 2 

Egyptian and 1 Syria. 

[20]: Figures of Association Marocain des 

Industries du Textile Habillement 

(AMITH). 

[21]: Nordås, H. K.. The Global Textile 

and Clothing Industry post the 

Agreement on Textiles and 

Clothing.Discussion Paper n. 5, 

World Trade Organization, Geneva, 

Switzerland, 2004: 16. 

[22]: Figures concerning Tunisia are 

much more difficult to find and 

are often not published. 

[23]: Figures of the Haut Commissariat 

au Plan, economic notes. 

[24]: Represents 1690 firms including 

997 that registered foreign participation 

and 623 are totally held 

by foreigners. 

[25]: This explains the advantage of 

NPI that succeeded in setting 

up the network. These countries

have a piercing effect on the global 

clothing market by leaning 

on wage differential. Success of 

their clothing exports and utilization 

of imported fabrics expanded 

the emergence of local textile 

industry. The latter succeeded in 

manufacturing fabric in response 

to demands of local ready-made 

garment makers, after being substituted 

to imports, these fabrics 

were exported. The “setting up of 

the network” (Cepii, 1978), was 

prolonged until the synthetic fiber 

industry was in turn an exporter. 


Federicco Cafe Center, Roskilde 

University 


Bilkent University. 

[28]: Complete illustration of the methodology 

and results in FEM22-02 

study, Bilkent Univ,. op. cit. 

[29] : Study FEM22-36, conducted by 

Catt, EMMA network. 

[30]: FEM22-36, Catt, op. cit. 

[31]: Estimation obtained from a revolving 

model. The cost of transport 

is measured according to compilation 

of three indexes on communications, 

transport by train 

and by road. 

[32]: According to the quality of roads, 

existence of deserts separating 

MCs are considered here, and 

development in opening borders 

between Morocco and Algeria. 

[33]: FEM22-02, Bilkent Univ. op. cit. 

[34]: For detailed analysis,, cf. FEM22- 

02, Bilkent Univ. op. cit. 

[35]: According to FEM22-36, Catt, op. cit. 

[36]: Except India. 

[37] : They reflect not only accorded 

preferences and degree of integration 

of one country with another 

but equally the composition of 

their exchange flows. For example 

the case of Uruguay. This country 

mainly exports meat and its byproducts. 

Preferential conditions 

were accorded to it by EU but also 

to Japan and AELE countries. But 

access to these countries’ markets 

will not improve for Uruguay 

as long as it imposes high tariffs 

on these products. 

-92- 

[38]: The table is read as follows: globally 

Jordan imposes an average 

of the right of 18.8% on products 

coming from Algeria. 

[39]: The branch is defined as the 

group of fragmented enterprises 

manufacturing the same product; 

the sector regroups the enterprises 

according to their principal 

activity. Intra-branch (interbranches) 

exchanges, exchange 

products coming from the same 

industrial branch (from different 

industrial branches). 

[40]: Results will certainly be more contrasted 

if employed tariffs here 

were not derived from TRAINS but 

from that developed by CEPII.

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coord. Patricia Augier, Michael Gasiorek, 

in collaboration with INSEA (Morocco), 

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Contributors: Lahcen Achy, Patricia Augier, 

Amine Basri, Novella Bottini, Marion 

Dovis, Michael Gasiorek, A. Hassani, 

A. Irali, Thomas Lagoarde-Segot, N. 

Mounir, Teoman Pamukçu, Charles Lai- 

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FEM22-34: “Les perspectives de changement 

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quels secteurs de croissance après l’industrie 

légère?”, conducted by CEPII, 

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Chaponnière and Marc Lautier, in collaboration 

with CARE-Université de Rouen

(France), CEPN-Université de Paris 13 

(France), ESSEC Tunis (Tunisia), Hebrew 

University Jerusalem (Israel), University 

of Granada (Spain); July 2005 

Contributors: Wifak Barouni, José Camacho, 

Jean-Raphael Chaponnière, Agnes 

Chevalier, Marc Lautier, Juliette Milgram 

Baleix, Mercedes Rodriguez Molina, 

Alfred Tovias 

FEM22-36: “Obstacles to South-South 

Integration, to trade and to foreign 

direct investment: the MENA countries 

case”, conducted by CATT-Université de 

Pau, EMMA network, coord. Jacques Le 

Cacheux, in collaboration with University 

of Granada; October 2005 

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Marie-Laure Cheval, Sandy Dall’erba, 

Fabrice Darrigues, Sylvain Dejean, 

Aomar Ibourk, Saad Isseini, Miren 

Lafourcade, Amina Lahrèche-Révil, 

Jacques Le Cacheux, Juliette Milgram, 

Serge Rey 

FEM22-39: “South-South Trade Monetary 

and Financial Integration and the 

Euro-Mediterranean Partnership: An 

Empirical Investigation”, conducted 

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American University of Beirut, Dir. 

Simon Neaime; June 2005 

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-96- -96-

ANNEXES 

Socio-economic Indicators of MPs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . p.97 

Macro-economic Indicators of MPs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . p.98 

FDI inflows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . p.99 

Trade relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . p.100 

Modelisation of the impact of a South-South agreement . . . . . . . . . . . . . . . . p.101 

Modelisation of the impact of a North-South agreement . . . . . . . . . . . . . . . . p.102 

Modelisation of the impact of a multilateral liberalisation . . . . . . . . . . . . . . . p.103 

-97-

-98-

Socio-economic Indicators of MPs 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Macro-economic Indicators of MPs 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-100-

FDI inflows 

 

 

 

-101-

Hj is the country index, Xi = value of exports in product i , X = value of total exports of j country; 239 = number of product in SITC rev 2, 3 digits. The index is normalised to obtain value between 

0 and 1. The more low the value is, the more diversified the export structure is. The maximal concentration (index=1) means that the country exports one product. 

[1] Calculated using the Herfindahl-Hirschmann index which allows a measure of the concentration level of the exports of a country on a small group of products. 

Hj= i=1314 (xi/X)2 / (1/239)/(1 - (1/239)) 

Source: Comtrade, calculations Institut de la Méditerranée 

Oil excluded Oil excluded Imports Exports 2003 2003 2003 2003 2003 

Algeria 7 947,6 14 537,2 7 878,4 338,2 2,75% 5,12% 6 590,0 -7 540,0 -6 046,0 2% 0,61 

Egypt 2 805,2 2 023,3 2 778,2 1 027,7 -5,94% 0,08% -782,0 -1 751,0 -1 388,0 39% 0,34 

Israel 13 955,3 8 423,4 13 906,2 8 420,8 -0,66% 4,01% -5 532,0 -5 485,0 -5 500,0 87% 0,22 

Jordan 1 428,1 89,3 1 425,3 89,3 1,94% -5,63% -1 339,0 -1 336,0 -1 094,0 42% 0,11 

Lebanon 3 064,6 143,5 2 665,3 143,5 -1,29% 1,28% -2 921,0 -2 522,0 -2 038,0 67% 0,15 

Morocco 8 352,5 6 645,5 7 777,1 6 532,6 6,71% 10,88% -1 707,0 -1 244,0 -1 962,0 75% 0,20 

Syria 972,1 3 269,9 949,6 278,8 -7,12% -4,23% 2 298,0 -671,0 -626,0 5% 0,88 

Tunisia 7 353,1 5 877,7 6 926,7 5 341,1 3,01% 3,93% -1 475,0 -1 586,0 -1 397,0 84% 0,21 

Turkey 31 695,5 24 487,9 31 220,7 24 275,0 8,12% 10,55% -7 208,0 -6 946,0 -6 341,0 89% 0,14 

 

Trade relations 

Average Annual Trade Growth 

Imports Exports Imports Exports rate, oil excluded 1995-2003 Overall trade Oil excluded 

Manufactured 

Products 

Manufactured 

Products share 

Exports 

Concentration 

[1] 

-102- 

 

Overall trade 2003 (million of dollars) Trade balances (million of dollars) 

Structure of trade 

 

Overall trade 2003 (million of dollars) 

Trade balances (million of dollars) Structure of trade 

Average Annual Trade Growth 

Exports 

Manufactured Manufactured 

Imports Exports Imports Exports rate, oil excluded 1995-2003 Overall trade Oil excluded 

Concentration 

Products Products share 

[1] 

Oil excluded Oil excluded Imports Exports 2003 2003 2003 2003 2003 

Algeria 57,8% 13 532,5 24 611,5 13 424,8 481,9 2,92% 0,93% 11 079,0 -12 943,0 -9 659,0 1% 0,60 

Egypt 20,7% 10 892,7 6 160,7 10 329,7 3 507,5 -1,43% 6,24% -4 732,0 -6 822,0 -3 414,0 25% 0,32 

Israel 60,0%* 34 210,9 31 782,7 30 451,9 31 644,6 1,67% 6,55% -2 428,0 1 193,0 1 871,0 96% 0,34 

Jordan 88,6% 5 653,2 3 081,6 4 720,3 3 074,1 4,90% 7,16% -2 572,0 -1 646,0 -1 354,0 66% 0,10 

Lebanon 45,7% 7 167,5 1 523,9 6 046,8 1 520,4 2,41% 13,23% -5 644,0 -4 526,0 -3 561,0 51% 0,21 

Morocco 50,6% 13 730,6 8 777,2 11 514,6 8 547,7 5,74% 8,01% -4 953,0 -2 967,0 -3 240,0 46% 0,16 

Syria 50,4% 5 110,6 5 730,7 4 924,5 1 642,1 3,59% 6,96% 620,0 -3 282,0 -3 083,0 21% 0,61 

Tunisia 72,1% 10 146,7 7 354,4 9 454,5 6 721,9 3,23% 3,74% -2 792,0 -2 733,0 -2 050,0 68% 0,17 

Turkey 49,0% 69 339,7 47 252,8 57 764,8 46 272,6 8,05% 10,18% -22 087,0 -11 492,0 -7 046,0 82% 0,09 

 

* : GDP 2002

Modelisation of the impact of a South-South agreement 

Impact of a South-South agreement on various macroeconomic datas (in % of growth) 

Impact of a South-South agreement on the sectors of production (previous level in billion 

Source: Femise study, FEM22-36, CATT 

dollars and growth rate after 14 years) 

-103-

Modelisation of the impact of a North-South agreement 

Impact of a North-South agreement on various macroeconomic datas (in % of growth) 

Impact of a North-South agreement on the external trade (previous level in billion dollars 

and growth rate after 14 years) 

Impact of a North-South agreement on the sectors of production (previous level in billion 


dollars and growth rate after 14 years) 

-104-

Modélisation de l’impact d’une libéralisation multilatérale 

Impact of a multilateral liberalisation agreement on various macroeconomic datas (in % of 

growth) 

Impact of a multilateral liberalisation agreement on the sectors of production (previous level 


in billion dollars and growth rate after 14 years) 

-105-

Report on the euro-mediterranean partnership 2005 - Femise

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