Regional Economic Integration in the Middle East and North Africa

MENA is one of the least globally and regionally integrated regions in the world. Though home to 5.5 percent of the world’s population and 3.9 percent of the world’s GDP, the region’s share of nonoil world trade is only 1.8 percent. Deep economic integration could help policy makers address the critical development challenges that have been brought to the forefront by the Arab Spring by boosting growth, fostering diversification, and stimulating employment.

The level of tariff protection vis-à-vis the rest of the world remains high by international standards, particularly in North Africa. Nontariff measures have become the most important barriers to trade in goods in the Arab world. Trade in services is extremely limited. To boost services trade, reforms will be required to ease entry and licensing restrictions, promote competition, harmonize and strengthen regulatory practices and arrangements, and lower restrictions on the mobility of foreign workers residing in the region. Continued public ownership in some services sectors also represents a hurdle to service flows.

Backbone services such as telecommunications, financial services, transport, and power are crucial to boosting productivity and international competitiveness. Building strategic infrastructure networks while opening infrastructure services to competition and trade could help reduce production costs, increase foreign direct investment, promote knowledge spillovers, and expand markets.

Logistics performance, which varies substantially across countries, has generally been constrained by slow and ineffective introduction of risk management, little effort to monitor customs performance at the border, and insufficiently improved facilities at border crossings. Priority should be accorded to measures that improve the efficiency of border crossing points, including through the harmonization of customs procedures.

The proliferation of PTAs, with their different sector and product coverage, rules of origin, and implementation requirements, poses a formidable challenge for capacity-constrained MENA institutions. If an Arab Customs Union is to be established by 2015 and an Arab Common Market by 2020, then efforts will need to be made to strengthen the rules and discipline applicable to PAFTA and other regional trade agreements. Mechanisms for tracking and enforcing commitments to regional economic integration also need to be strengthened.