A Tunisian vendor poses as he sells white truffles at a market in the town of Ben Guerdane, 40km west of the Libyan border, in February 2016.
3. The Economy
Macroeconomic overview
In recent years, economic growth in North Africa has recovered, albeit modestly, following the 2008 global financial crisis and the uncertainty of the 2011 Arab uprisings. The countries of the region have varying economic profiles, ranging from economically diverse Morocco at one end of the spectrum to Libya with its strong reliance on oil and gas at the other. All countries in the region face similar economic challenges including creating jobs to address high youth unemployment, improving public service delivery, attracting foreign direct investment (FDI), reducing the size of the public sector, improving tax collection and reducing informality. The oil exporters – Algeria and Libya – face the additional challenges of economic diversification and reforming their expensive and unsustainable subsidy regimes.
Table 1: Macroeconomic indicators across the region
|
Algeria |
Egypt |
Libya |
Morocco |
Tunisia |
|
|---|---|---|---|---|---|
|
GDP (billion current $) |
180.68 |
250.89 |
48.31 |
118.49 |
39.86 |
|
GDP growth (%) |
2.8 |
5.31 |
7.83 |
2.95 |
2.5 |
|
GDP per capita (current US$) |
4,278.85 |
2,549.14 |
7,235.03 |
3,237.88 |
3,446.61 |
|
Public debt (% of GDP) |
32.88 |
92.52 |
N/A |
64.41 |
70.5 |
|
FDI, net outflows (% of GDP) |
-0.002* |
0.08* |
0.29* |
0.56 |
0.14* |
|
FDI, net (balance of payments, million current $) |
-1,204.3* |
-7,209.7* |
439.5** |
-2,961.4 |
-809.7* |
|
Imports of goods and services (% of GDP) |
33.50* |
29.36 |
57.99 |
48.80 |
55.94* |
|
Exports of goods and services (% of GDP) |
22.64* |
18.91 |
60.39 |
38.28 |
43.54* |
|
Inflation, consumer prices (annual %) |
4.27 |
29.5* |
2.61† |
1.91 |
7.31 |
|
Population, total (millions) |
42.23 |
98.42 |
6.69 |
36.03 |
11.6 |
|
Unemployment, total (% of total labour force) (modelled International Labour Organization estimate) |
12.14 |
11.44 |
17.28 |
9.04 |
15.48 |
|
Ease of doing business index (1=most business-friendly regulations) |
157 |
120 |
186 |
60 |
80 |
Source: Data compiled from World Bank (2018), Open Data, https://data.worldbank.org/ (accessed 18 Nov. 2019); IMF (2018), World Economic Outlook Database, https://www.imf.org/external/pubs/ft/weo/2018/02/weodata/index.aspx (accessed 18 Nov. 2019).
Note: 2018 data shown unless otherwise noted.
* 2017 data, ** 2016 data, † 2013 data
Algeria’s economic performance has been seriously impaired by a protracted struggle over the succession to the presidency after the resignation of Abdelaziz Bouteflika. Investment in the oil and gas sector, which is central to the country’s economy, has been held back since the late 2000s due to infighting within the regime, a series of high profile corruption cases, and poor relations with international companies. This under-investment has resulted in falling oil and gas production, which has led to steadily declining revenues as domestic consumption has increased while international oil prices have remained relatively low since 2014. The contribution of the hydrocarbons sector to GDP has fallen in real terms in every quarter since the second quarter of 2017, according to official data up to the end of June 2019.39
Overall economic growth reached 1.4 per cent year-on-year in 2018, as a good harvest and increased construction and industrial activity offset the 6.4 per cent contraction in the hydrocarbons sector over the same period. In the first half of 2019, mass protests called for deep political reforms in an attempt to avoid another establishment figure supported by the military replacing President Bouteflika, which would extinguish any hopes of potential changes to the political system. Against this backdrop, the oil and gas sector contracted by 7.7 per cent year-on-year in the first half of 2019, and overall economic growth stood at a mere 0.8 per cent, with a marked slowdown in the non-hydrocarbons sectors in the second quarter, as the protest movement gained momentum.40
The government had used up its budgetary reserves by late 2017 and has since resorted to borrowing from the country’s central bank to cover its large structural deficit. Algeria maintains it still has sufficient foreign exchange reserves to cover about 15 months of imports, but reserves have declined rapidly since 2014.41 The country could potentially source finance from outside Algeria as it has little external debt, but both the political establishment and the protest movement are resistant to submitting to IMF conditions in exchange for external loans that could support long-term economic and political reforms. Towards the end of the Bouteflika era, a new hydrocarbons law was drawn up with the aim of improving terms for international investors. The law has been pushed through by the interim post-Bouteflika administration, but it has been criticized by the protest movement, and foreign companies are likely to wait for a political settlement before committing to major new projects.42
Egypt, by contrast, has completed a three-year IMF programme that has yielded mixed results. After the 2011 revolution forced President Hosni Mubarak to step down having been in power for almost 30 years, the first interim government considered signing up to an IMF programme, but was overruled by the military administration. The Mohammed Morsi government of 2012–13 also came close to sealing a deal with the IMF, but backed away. The government of President Sisi eventually resorted to the IMF in 2016, after generous infusions of aid from Gulf Arab allies proved to be insufficient to stave off a balance of payments crisis.
A core element of the IMF deal was exchange rate reform. Facing an increasingly unrealistic official foreign exchange regime, Egypt opted for the most radical reform approach: the free flotation of the national currency. This triggered a devaluation of more than 50 per cent overnight, which in turn led to a surge in inflation to 30 per cent on average throughout 2017.43 Egypt’s income per capita declined sharply in dollar terms, and the poverty rate, based on a global metric devised by the World Bank, rose by five percentage points between mid-2015 and mid-2018 to 32.5 per cent.44
On the fiscal front, the government phased out most energy subsidies from 2016 onwards, and generated extra revenue through the introduction of VAT as part of the IMF deal. The pressure on living standards was mitigated to a limited extent by two large-scale social safety net programmes, to which the World Bank allocated $900 million, and by the increase in spending on food subsidies by the state.45 When the IMF programme ended in November 2019, many of Egypt’s main annual macroeconomic indicators showed significant improvements: inflation was below 5 per cent; real GDP growth had climbed to 5.6 per cent; the government was running a primary surplus on its fiscal accounts, allowing for public debt to be reined in after having exceeded 100 per cent of GDP; interest rates were on a sharply declining trend, lowering the government’s debt-service costs; the Egyptian pound had appreciated by more than 10 per cent during 2019; foreign exchange reserves had reached a plateau of around $40 billion, sufficient to cover six months of imports; the current account deficit had fallen to 2 per cent of GDP, after reaching 7.5 per cent in 2016; and the official unemployment rate fell to 7.5 per cent from its peak of 13.4 per cent in 2013.
The build-up of Egypt’s foreign exchange reserves has been matched by a surge in external debt to about $110 billion as of mid-2019, double the level in 2015.
However, these positive economic indicators are hiding more troubling signs. The build-up of foreign exchange reserves has been matched by a surge in external debt to about $110 billion as of mid-2019, double the level in 2015. Much of this debt is long-term and on relatively concessional terms, representing a manageable figure of around 35 per cent of GDP; but a repayment crunch could be looming in the coming years. Another factor that may have a negative impact on the country’s economy is the heavy reliance on inflows of portfolio investment, and the relatively weak performance of FDI, apart from in the energy sector, which has benefited from the provision of enhanced conditions for international oil companies, including more streamlined contracting.46 Finally, the strong GDP growth performance of the past three years has depended heavily on external trade, which gained a boost from the currency’s devaluation, while domestic private consumption growth has averaged only about 1 per cent since mid-2017.47
Tunisia also resorted to IMF support in 2016, and is set to complete a four-year reform programme by mid-2020. Tunisia’s obligations have included a less radical approach to exchange rate reform than the free flotation of the Egyptian pound, but the Tunisian dinar has depreciated in the framework of a managed float of the currency, and this has been a factor in pushing up inflation to just over 7 per cent in 2018 and 2019, compared with 3.6 per cent in 2016. Growth has remained subdued, at 1.9 per cent in 2017, 2.6 per cent in 2018 and an estimated 2.7 per cent in 2019. Increased taxes, cuts in subsidies and higher inflation have been reflected in a rise of the poverty rate to about 15 per cent. Like Egypt, the Tunisian government has sought to mitigate these effects through a World Bank-supported social safety net scheme. Tunisia’s underlying balance of payments position is more precarious than that of Egypt. External debt has risen from 72 per cent of GDP in 2016 to over 100 per cent in 2019, the current account deficit is running at about 10 per cent of GDP, and foreign exchange reserves are sufficient only to cover three months of imports.48
Morocco’s economic policy has been subject to IMF monitoring since 2012, but not as part of a structured programme, rather as a condition for access to a precautionary liquidity line if required – Morocco has not yet drawn on this facility. As with other North African countries, the IMF has advocated exchange rate flexibility. Morocco has adopted a cautious approach. In 2017, it changed the weighting of the basket of currencies used as a reference for the exchange rate from 80:20 (euro:dollar) to 60:40, and the following year the Moroccan central bank widened the trading band for the currency. The Moroccan dirham has remained relatively stable, and the authorities have shown little inclination to follow the Egyptian route to a full flotation.49 The government has undertaken reforms to energy subsidies, and fuel prices are now indexed to international levels – a similar system came into force in Egypt during 2019. Economic growth has averaged about 3.3 per cent in recent years, with the main variable being the performance of agriculture, which is heavily influenced by rainfall levels.50 Morocco’s external accounts have benefited from the rapid growth of automotive and aeronautical exports,51 following the attraction of major international companies to special economic zones (SEZs). However, the overall growth rate has been below the level required to effect a significant rise in living standards, and dissatisfaction with socio-economic conditions has been reflected in persistent protests against corruption, inequality and police brutality.
The overall growth rate in Morocco has been below the level required to effect a significant rise in living standards, and dissatisfaction with socio-economic conditions has been reflected in persistent protests against corruption, inequality and police brutality.
Libya continues to suffer from intense volatility, with growth projected to stand at 10.8 per cent in 2019 but just 1.4 per cent in 2020. Libya is dependent on oil and production remains erratic, but rising international oil prices have buoyed the economy. Inflation over the past several years has also damaged consumer confidence and has fallen to a ‘manageable’ 13.1 per cent in 2018. Planned economic reforms, approved in September 2018, which would see fuel subsidies removed and the dinar devalued, could close the gap between the official and parallel exchange rates. But the implementation of the reforms is slow, and efforts are frustrated by the continued internal military conflict, which has fostered a pervasive war economy.
There are many common economic policy themes across North Africa that could be usefully shared by the various governments across the region and with their international counterparts. These include: exchange rate reform, as undertaken by Egypt, Tunisia and Morocco, which may pose more challenging to implement in Algeria and Libya; subsidies reform; social safety net programmes; policy towards international investment, whether in the structure of tax regimes and SEZs or in setting the operating framework for oil companies; pension reform – Egypt, Morocco, Algeria and Tunisia are all working on programmes to raise the retirement age and increase contributions; and reforms to healthcare and education.
Regional trade
Across North Africa countries are resigned to the fact that commercial activity is notoriously feeble. As a result, little effort is made to facilitate cross-border trade. The region contributes less than 1 per cent of global trade and has an average degree of openness52 compared to other regions of the world, but that figure is buoyed by Algeria and Libya’s oil exports. The share of all North African countries’ exports and imports vis-a-vis the region is very low. In aggregate, only 4.6 per cent of North Africa’s exports were destined for the region, while 2.8 per cent of imports came from within the region.53
Countries differ in their regional openness. Tunisia appears to be the most oriented towards the region, whereas Morocco is more committed to trade with the entire continent. Egypt and Tunisia have the most diversified trading partners within the region. The limited integration of Algeria and Libya in the region reflect the low diversification of their economies. Tunisia and Morocco have the strongest bilateral trade ties, which demonstrates their industrial diversification.54 There is therefore potential for an increase in regional trade, especially among those with few bilateral trading relations.
Table 2: Bilateral commercial ties in North Africa, 2017
|
Exports (X) |
||||||
|---|---|---|---|---|---|---|
|
Algeria (DZ) |
Egypt (EG) |
Libya (LY) |
Morocco (MA) |
Tunisia (TN) |
||
|
Imports (M) |
Algeria (DZ) |
Total X: $ 37.5 bn Total M: $ 45.9 bn |
Total: $ 390 M % of EG X: 1.34% |
Total: $287,000 % of LY X: 0.016% |
Total: $261 M % of MA X: 0.89% |
Total: $ 467 M % of TN X: 3.10% |
|
% of DZ M: 1.22% |
% of DZ M: 0.006% |
% of DZ M: 1.39% |
% of DZ M: 1.02% |
|||
|
Metals (copper, iron and steel), agriculture, chemicals (essential oils, plastics), textiles |
Urea, nitrogen |
Apparel, iron and steel, tobacco, fertilizer, other agricultural products |
Machinery, iron and steel, vehicles, plastics, chemicals, electrical machinery and equipment |
|||
|
Egypt (EG) |
Total: $ 457 M % of DZ X: 1.22% |
Total X: $ 29.2 bn Total M: $ 70.1 bn |
Total: $ 42.2 M % of LY X: 0.23% |
Total: $ 110 M % of MA X: 0.37% |
Total: $ 49M % of TN X: 0.33% |
|
|
% of EG M: 0.65% |
% of EG M: 0.06% |
% of EG M: 0.16% |
% of EG M: 0.07% |
|||
|
Petroleum products (95%) |
Iron and steel, organic chemicals, minerals, industrial machinery |
Cars (73%), agricultural products, textiles |
Chemicals, agriculture (food residues and animal feed), iron and steel, vehicles, machinery |
|||
|
Libya (LY) |
Total: $ 18.9 M % of DZ X: 0.05% |
Total: $ 410 M % of EG X: 1.4% |
Total X: $ 18.5 bn Total M: $ 8.99 bn |
Total: $ 74.9 M % of MA X: 0.25% |
Total: $ 393 M % of TN X: 2.61% |
|
|
% of LY M: 0.21% |
% of LY M: 4.56% |
% of LY M: 0.83% |
% of LY M: 4.37% |
|||
|
Vegetable oils, sugarcane and sucrose, pasta, refrigerators and freezers, plaster articles |
Agricultural products (vegetables, beverages, dairy products, fats and oils); ceramic and stone products; plastics and chemicals |
Vegetable fats and oils, sugarcane and sucrose, sugar and candy, fertilizers, electrical machinery and equipment |
Toilet paper, refined maize oil, pasta, other agricultural products, electrical machinery, plastics, cements |
|||
|
Morocco (MA) |
Total: $ 522 M % of DZ X: 1.39% |
Total: $ 407 M % of EG X: 1.4% |
Total: $ 19.4 M % of LY X: 0.10% |
Total X : $ 29.4 bn Total M: $ 44 bn |
Total: $ 205 M % of TN X : 1.36% |
|
|
% of MA M: 1.18% |
% of MA M: 0.92% |
% of MA M: 0.04% |
% of MA M: 0.46% |
|||
|
Petroleum products (88.5%), ammonia |
Paper and paperboard, electrical machinery, plastics, glass and glassware, aluminium, food residues and animal feed |
Iron and steel, ammonia, petroleum products, nitrogenous fertilizers |
Dates (23.6%), insulated wires, notebooks, pens, olive oil, hair products |
|||
|
Tunisia (TN) |
Total: $ 749 M % of DZ X: 2.0% |
Total: $ 432 M % of EG X: 1.48% |
Total: $ 36.3 M % of LY X: 0.2% |
Total: $ 120 M % of MA X: 0.41% |
Total X: $ 15.1 bn Total M: $ 21.8 bn |
|
|
% of TN M: 3.44% |
% of TN M: 1.99% |
% of TN M: 0.17% |
% of TN M: 0.55% |
|||
|
Petroleum products (96%), agricultural products |
Mineral fuels, oils and waxes, cotton, essential oils, cotton, iron and steel, plastics |
Iron and steel products, refined petroleum oils, paper waste, ceramic building bricks, motor vehicles, plastic waste |
Vehicles, cotton, agricultural products, electrical machinery and equipment, aluminium |
Source: Compiled by the authors from the Harvard University (2017), ‘Atlas of Economic Complexity’, http://atlas.cid.harvard.edu (accessed 18 Nov. 2019).
Small and medium-sized enterprises
Small and medium-sized enterprises (SMEs) tend to form an important part of a country’s economic and industrial fabric, generating employment and economic growth and development. In regard to regional synergies in North Africa, SMEs are crucial to cross-border trade. They also stand to gain the most from improved coordination and regulatory harmonization in the region, which will expand markets, capital mobility and skills transfer, while simultaneously making these countries more attractive to investors and SMEs more competitive. SMEs also serve as an important entry point for informal enterprises to formalize and progress through the value chain.
As such, every country in the region has dedicated SME institutions and is engaged in reforms to develop the sector. For instance, Egypt, in which 97 per cent of all enterprises are SMEs, is engaged in investment climate reforms, which include reducing red tape and facilitating access to finance for SMEs. The central bank has encouraged banks to target allocating 20 per cent of their loan portfolio to SMEs and provide microfinance at preferential interest rates, in exchange for reduced statutory reserves requirements. Algeria’s 2017 Law No. 17-02 encourages the establishment of new SMEs and introduced measures to improve their competitiveness and export capacity, through the National Agency for the Development of SMEs.55 Libya’s national programme for SMEs, set up in 2008, has operated through the establishment of business incubators, providing training to entrepreneurs, and easing access to finance, with specific programmes tailored to university graduates, women, innovators, and residents of remote areas. Tunisia, where SMEs represent 99 per cent of all firms and employ nearly 60 per cent of all workers,56 has a specific ministry to support them, the Ministry of Industry and SMEs. Finally, Morocco’s National Agency for the Promotion of Small and Medium-sized Enterprises (ANPME),57 established in 2002, supports SME competitiveness through investment, financing and access to markets, and advocates entrepreneurship by assisting entrepreneurs and independent economic agents in developing their plans and formalizing their companies.
Regulatory cooperation
Definitions of SMEs vary across North Africa. Each country has its own legislative framework and institutional support for SMEs. Regulatory cooperation is an obvious area in which countries can improve the support they offer SMEs. Harmonizing SME definitions, legislation and support institutions would allow countries to benefit from the experience of other countries and lay the ground work for future cooperation.
Tunisia’s 2018 Start-up Act is a great example of a law that could form the basis for broader North African SME support legislation. Developed at the impetus of the business community and civil society, the Start-up Act is a viable model for the region in terms of its bottom-up construction and the subsequent adoption of the text by the government. The legislation defines start-up companies, and makes it easier to establish and close companies, to unlock funding, and to promote access to global markets. Among its key features, start-ups benefit from public support in the form of basic funding for founders, an eight-year tax exemption, access to foreign currency accounts, and public-sector workers are encouraged to take time to work on a start-up by guaranteeing their positions for twelve months.58 The act also went through the unusual yet constructive step of creating an educational platform for policymakers and engaging in a strong public advocacy campaign.59
Sectoral opportunities: Country analysis
Each country has prioritized the development of SMEs in particular sectors, in line with national goals and industrialization plans. It is thus worthwhile examining each country’s plans to develop the sectors of greatest potential, these illustrate potential areas of cooperation, competition or synergy.
- Morocco’s Industrial Acceleration Plan (2014–20)60 lists a number of industrial sectors it deems a priority: automotive, aerospace, electronics, textiles, pharmaceuticals, construction materials and renewables. The plan also reiterates the country’s commitment to improving SME competitiveness, through the development of access to finance and markets, support to innovation, and by increasing company productivity.
- Algeria supports SMEs by investing in private-sector companies through the National Investment Development Agency. Meanwhile, the National Agency for the Development of SMEs is tasked with the development and modernization of the SME sector.61 In addition to fossil fuel and petrochemicals, sectors of interest include pharmaceutical, fishing, and agriculture (including arboriculture, olives, viticulture and animal husbandry). Furthermore, in 2017, Algeria launched a ‘solar energy cluster’ aimed at encouraging the participation of SMEs in this promising sector, in addition to attracting traditional energy players and research centres.
- Libya’s SMEs are in a particularly difficult position, operating primarily in the informal sector due to complex business registration procedures and the weakness of the legal, regulatory and administrative systems. SMEs are dominated by food production, construction material (such as wood, bricks and metal), and clothing; other sectors with potential include glass, leather goods, fisheries, and consumer goods and services.62
- Tunisia’s SMEs have benefited from concerted local and international support since the 2011 revolution, which has allowed their growth in non-traditional sectors of the economy. For instance, SMEs have been successful in agriculture (including agribusiness, led by such products as olive oil); automotive and aeronautics; software; and health services.63 The textile industry remains important, but has been marked by a slowdown64 since the expiration of the Multi-Fibre Arrangement in 2005, which previously offered Tunisian textile firms preferential access to European markets.65
- Egypt’s SME sector, representing 95–98 per cent of all industrial firms, is a key component of the economy. Whereas formalizing the informal sector remains an intractable challenge, SMEs are making inroads across various sectors and creating opportunities in transformation, information and communication technologies, infrastructure and construction, tourism, education and agribusiness.
Outlook: Potential areas of synergy
North Africa and the fourth industrial revolution
New technologies and North African readiness
The rules of industrialization are rapidly evolving, with artificial intelligence and renewables becoming central to the fourth industrial revolution. While many governments are grappling with the challenges of automation, mainly the impact on employment, it would be more costly in the long run to not act. The only way forward is to move ahead of the regional curve, by building upon North Africa’s educational achievements and the private sector’s leadership. However, the transition will be painful and certain groups – notably university graduates – could face additional unemployment pressure if they are not adequately retrained and reskilled. Research by the World Economic Forum (WEF) on the relative readiness of different countries to upgrade their production systems to meet emerging challenges and opportunities demonstrates new ways of thinking about future economic development. The research looks at a host of factors and assesses the readiness of an existing production base (or ‘structure’), which includes its complexity and scale, as well as the drivers of production, such as human capital, technology and innovation, and institutional frameworks. The report found that all four analysed North African countries – excluding Libya – are not ‘future-ready’; Egypt leads the group, closely followed by Tunisia, with Morocco and Algeria trailing (see Figure 2).
The WEF highlights the importance of public–private cooperation in boosting a country’s preparedness for future challenges. However, such cooperation remains rare across the region. Furthermore, while the private sector in different countries has usually taken the lead in developing and integrating new technologies, institutional challenges remain. For example, if there are no clear regulations for online payments, businesses will suffer regardless of how enthusiastic they are about new technologies. Likewise, using artificial intelligence to develop better production or agricultural models will not be possible in the absence of regulatory frameworks for the collection and storage of data.
Legislators have been slow to realize the importance of new technologies. While each country is developing its own digital strategy,66 the often-optimistic goals of these plans are usually not supported by appropriate changes to regulatory frameworks that might free up capacity in the private sector.
Figure 2: Readiness for the future of production assessment for Egypt, Tunisia, Morocco and Algeria
— Source: Compiled by the authors from existing graphs and data available in World Economic Forum (2018), Readiness for the Future of Production Report 2018, Geneva: World Economic Forum, https://www.weforum.org/reports/readiness-for-the-future-of-production-report-2018 (accessed 18 Nov. 2019).
Note: Numbers listed under each country name represent the ‘structure of production’ and ‘drivers of production’ weighted scores. Scores rank from 0 to 10.
Note: Numbers listed under each country name represent the ‘structure of production’ and ‘drivers of production’ weighted scores. Scores rank from 0 to 10.
Figure 2: Readiness for the future of production assessment for Egypt, Tunisia, Morocco and Algeria
Note: Numbers listed under each country name represent the ‘structure of production’ and ‘drivers of production’ weighted scores. Scores rank from 0 to 10.
However, there are some promising signs. Take fintech companies, for example, from online payment innovations to crowdfunding platforms, the Egyptian fintech market leads the region, buoyed by the size of its internal market and the support it has received through the country’s 2018 e-commerce strategy.67 Tunisia’s fintech scene is also impressive,68 notably in its integration of new services to traditional banking and financial services. Morocco’s local banking institutions are also supporting the domestic fintech sector. Finally, Algeria’s fintech industry is also growing as a regional contender, supported by the banking sector and independent initiatives.69
In addition to serving their local markets, companies in North Africa have long explored areas of cooperation, readily crossing borders and establishing regional discussion forums and conferences to exchange ideas and experiences.70 For example, Egyptian start-up incubators, such as Flat6Labs, are opening branches in regional capitals and investing in local start-ups. Tunisian entrepreneurs also eye the Egyptian and Moroccan markets; while Libyan entrepreneurs move to Tunis seeking a more supportive ecosystem. Much remains to be done, but it is achievable with the concerted support of a wider range of public and private actors.
Solar energy
Among new technologies, solar energy holds great promise for synergies in North Africa. The region is a global leader in solar energy, supplying domestic and international markets. Countries in the region are investing massively in the sector. Tunisia’s TuNur already supplies electricity to Italy and France. Egypt has established one of the world’s largest solar parks at Benban, north of Aswan, with a capacity of 1,500 megawatts, which was funded using a feed-in tariff scheme to supply electricity to distributors. Furthermore, two of the world’s largest solar plants – Noor Ouarzazate and Noor Midelt – are in Morocco.
Solar energy’s public–private nature makes it an ideal sector for regional synergies. Regulatory cooperation between countries, private-sector-led provisions for collaborative production, and even information and experience sharing are all areas of potential cooperation that would improve the possibility of further downstream trade and collaboration.
Solar energy holds great promise for synergies in North Africa. The region is a global leader in solar energy, supplying domestic and international markets.
Exporting renewable power to consumption markets is hardly a new idea: a century ago, the theoretical Atlantropa project71 sought to connect the northern and southern banks of the Mediterranean with a massive hydroelectric energy project. More recently, there was the now abandoned Desertec project,72 which was an ambitious private-sector-led initiative that planned to provide Europe with clean energy generated from North Africa-based power plants. Although the project has stalled, much of its theoretical basis underpins new projects in the region.
While important government projects, which are setting the industry’s pace of development, are looking to expand to markets on both sides of the Mediterranean, private operators are steadily making their own mark. According to entrepreneurs, the promising North African market offers significant opportunities for cooperation and all parties stand to gain in terms of learning and in business.73 Illustrating the potential for cooperation in the North African solar market, in 2018, Morocco’s Attijari Finances led the fundraising round for Egypt’s KarmSolar, which also plans investments in Morocco. Disruptive sectors tend to face stiff competition from incumbents in related or existing industries. Solar energy is under pressure from the imposing fossil fuel industry in the region. As such, it is necessary for cross-country cooperation to develop the solar sector’s resilience.
Finding synergies within extra-regional agreements
It’s unlikely that North African nations are going to establish a new economic zone in the near future. However, they are already signatories and party to a number of trade agreements. For example, all five countries are members of the Greater Arab Free Trade Area (GAFTA) established in 1997; signatories to China’s Belt and Road Initiative; and, most recently, all have joined the AfCFTA. With the exception of Libya, all are signatories to Euro-Mediterranean Association Agreements (Libya has an observer status in the Euro-Mediterranean Partnership).
The countries of the region could choose to build upon any regulatory harmonization that results from their being party to current trade agreements and move to create a more integrated regional area; this is the case, for instance, of the Regional Comprehensive Economic Partnership (RCEP), which is currently being negotiated between members of the Association of Southeast Asian Nations (ASEAN), who are building on harmonization achieved in one organization as a stepping stone to deeper cooperation. But to replicate this in North Africa would require a political willingness that is simply not there. Countries of the region appear to prioritize formal agreements with developed nations and markets, which they see as providers of high technology capital goods and inputs, and sources of demand for higher value-added products. Alternatively, North African countries tend to pivot towards African regional economic blocs74 as evidenced by Morocco’s significant investments in West Africa, notably in the banking, telecommunications and insurance sectors, culminating in its bid to join the Economic Community of West African States (ECOWAS); and by Egypt, Libya and Tunisia all joining the Common Market for Eastern and Southern Africa (COMESA) in 1999, 2005 and 2018, respectively.75
The North African private sector, however, can identify synergies within the respective regional agreements that they are party to. Particularly, if countries are already engaged in rules harmonization to meet the terms of a free-trade area, this could remove some institutional friction and facilitate economic collaboration between public and private economic actors.
Another possibility, which would require renegotiation of bilateral agreements, would be to use cumulative rules of origin under which products with inputs from more than a single North African country would be given preferential treatment in the importing country or region. Currently, the EU offers cumulative rules of origin to some groups of countries – including ASEAN, the Andean Community, SAARC, and Mercosur – but not to North African signatories of bilateral agreements.76 Such privileges would encourage North African countries to establish joint production mechanisms and improve industrial collaboration. The more numerous and wide-ranging synergies that are created between North African countries, the stronger their bargaining power will be when negotiating with the EU and other regional blocs and arrangements.
39 Algeria National Office of Statistics (2019), ‘National Quarterly Accounts: Second Quarter 2019’ (French), http://www.ons.dz/IMG/pdf/ComptesN2T2019.pdf (accessed 16 Dec. 2019).
40 Bank of Algeria (2019), ‘Monthly Financial Situation: September 2019’ (French), https://www.bank-of-algeria.dz/pdf/Situation_Publiable_BA.PDF/2019/FR/Situation_publiable_de_la_Banque_d’Alg%C3%A9rie_septembre_2019_FR.pdf (accessed 16 Dec. 2019).
41 Bank of Algeria (2019), ‘Quarterly Statistical Bulletin No.46’ (French), https://www.bank-of-algeria.dz/pdf/Bulletin_46f.pdf (accessed 16 Dec. 2019).
42 Le Point Afrique (2019), ‘Algeria’s controversial hydrocarbons law is passed’ (French), 15 November 2019, https://www.lepoint.fr/afrique/algerie-le-projet-de-loi-controverse-sur-les-hydrocarbures-a-ete-adopte-15-11-2019-2347587_3826.php (accessed 16 Dec. 2019).
43 International Monetary Fund (2019), Arab Republic of Egypt: Fifth Review Under the Extended Arrangement Under the Extended Fund Facility-Press Release; Staff Report; and Statement by the Executive Director for the Arab Republic of Egypt, Washington, DC: International Monetary Fund, https://www.imf.org/en/Publications/CR/Issues/2019/10/10/Arab-Republic-of-Egypt-Fifth-Review-Under-the-Extended-Arrangement-Under-the-Extended-Fund-48731 (accessed 16 Dec. 2019).
44 Economyplus Middle East (2019), ‘All that you wish to know about poverty in Egypt over 20 years’ (Arabic), 2 August 2019.
https://economyplusme.com/11052/ (accessed 16 Dec. 2019).
45 World Bank (2019), ‘Strengthening Social Safety Net Additional Financing’, https://projects.worldbank.org/en/projects-operations/project-detail/P168414 (accessed 16 Dec. 2019).
46 Ould Ahmed, H. (2019), ‘Algeria lawmakers approve new energy law to attract foreign investors’, Reuters, 14 November 2019,
https://www.reuters.com/article/algeria-energy/algeria-lawmakers-approve-new-energy-law-to-attract-foreign-investors-idUSL8N27U35P (accessed 16 Dec. 2019).
47 All data extracted from Central Bank of Egypt monthly statistical bulletins and quarterly reports on Egypt’s external position:
https://www.cbe.org.eg/en/EconomicResearch/Publications/Pages/MonthlyStatisticaclBulletin.aspx and https://www.cbe.org.eg/en/EconomicResearch/Publications/Pages/ExternalPosition.aspx.
48 International Monetary Fund (2019), Tunisia: Fifth Review Under the Extended Fund Facility, and Requests for Waivers of Nonobservance and Modification of Performance Criteria and for Rephasing of Access, Washington, DC: International Monetary Fund, https://www.imf.org/en/Publications/CR/Issues/2019/07/11/Tunisia-Fifth-Review-Under-the-Extended-Fund-Facility-and-Requests-for-Waivers-of-47106 (accessed 16 Dec. 2019).
49 International Monetary Fund (2019), Morocco: First Review Under the Arrangement Under the Precautionary and Liquidity Line-Press Release; Staff Report; and Statement by the Executive Director for Morocco, Washington, DC: International Monetary Fund, https://www.imf.org/en/Publications/CR/Issues/2019/10/23/Morocco-First-Review-Under-the-Arrangement-Under-the-Precautionary-and-Liquidity-Line-Press-48747 (accessed 16 Dec. 2019).
50 Morocco High Commission for Planning (2019), ‘Note de Conjoncture No.35’ (French), https://www.hcp.ma/Publication-Note-de-conjoncture-N-35-Octobre-2019_a2395.html (accessed 16 Dec. 2019).
51 Morocco Exchange Office (2019), ‘External Trade Bulletin’, https://www.oc.gov.ma/sites/default/files/2019-11/IEE%20Octobre%202019.pdf (accessed 16 Dec. 2019).
52 Measured by comparing the sum of imports and exports to GDP.
53 African Development Bank (2019), North Africa Economic Outlook 2019, Abidjan: African Development Bank,
54 Ibid.
55 International Labour Organisation (2017), ‘Algerie – Loi n° 17-02 du 10 janvier 2017 portant loi d’orientation sur le développement de la petite et moyenne entreprise (PME)’ [Algeria – Law No 17-02 of 10 January 2019 including the law of orientation on the development of the small and medium enterprise (SME)], NATLEX Database, https://www.ilo.org/dyn/natlex/natlex4.detail?p_lang=fr&p_isn=103500&p_country=DZA&p_count=1088 (accessed 16 Dec. 2019).
56 European Commission (2018), ‘Negotiations for a Deep and Comprehensive Free Trade Area between the European Union and Tunisia: The EU Proposal on Small and Medium-sized Enterprises (SMEs)’, https://trade.ec.europa.eu/doclib/docs/2018/july/tradoc_157225.pdf (accessed 18 Nov. 2019).
57 Agence Nationale pour la Promotion de la PME [National Agency for the Promotion of SMEs] (n.d.), candidature.marocpme.ma (accessed 18 Nov. 2019).
58 Official Journal of the Tunisian Republic (2018), ‘Law 20 (2018), Dated 17 April 2018, with respect to Start-ups’ [in Arabic], 20 April 2018, https://www.startupact.tn/pdf/Loi2018_20.pdf (accessed 18 Nov. 2019).
59 Sold, K. (2018), ‘The Tunisian Startup Act’, Sada, Carnegie Endowment for International Peace, 26 June 2018, https://carnegieendowment.org/sada/76685 (accessed 18 Nov. 2019).
60 Moroccan Ministry of Industry, Trade, and Green and Digital Economy (2019), ‘Industrial Acceleration Plan 2014-2020’, www.mcinet.gov.ma/en/content/industrial-acceleration-plan (accessed 18 Nov. 2019).
61 Oxford Business Group (2017), ‘The Algeria Report 2017: SMEs drive growth in non-energy sectors of the Algerian economy’,
https://oxfordbusinessgroup.com/analysis/strength-numbers-through-increasingly-supportive-frameworks-small-and-medium-sized-enterprises-are (accessed 18 Nov. 2019).
62 Organisation for Economic Cooperation and Development (2016), SMEs in Libya’s Reconstruction: Preparing for a Post-Conflict Economy, Paris: OECD Publishing.
63 European Bank for Reconstruction and Development (2018), ‘Tunisia Country Strategy 2018-2023’, https://www.ebrd.com/where-we-are/tunisia/overview.html (accessed 18 Nov. 2019).
64 Kahia, M. (2017), The Framework of Tunisian Textile and Clothing Industry, MPRA Paper No 60283, https://mpra.ub.uni-muenchen.de/60283/ (accessed 18 Nov. 2019).
65 Fridhi, B. (2015), ‘L’apport Des PME Dans Le Développement Du Secteur Privé En Tunisie: Efficacité Désirée et Problème De Financement’ [‘The contribution of SMEs in the development of the private sector in Tunisia: the desired efficiency and the problem of financing], Global Journal of Management and Business Research, 15(2): pp. 16–43.
66 See Maroc Digital 2020, Egypt’s ICT 2030 strategy, Plan National Stratégique Tunisie Digitale 2020, Algeria’s Plan d’action 2015-2019, and Libya’s Electronic Initiative.
67 United Nations Conference on Trade and Development (2017), ICT Policy Review: National E-commerce strategy for Egypt, Geneva: UNCTAD, https://unctad.org/en/pages/PublicationWebflyer.aspx?publicationid=1956 (accessed 18 Nov. 2019).
68 Fintechnews Middle East (2019), ‘A Glimpse into North African Countries Leading the Way in Fintech’, 29 April 2019, https://fintechnews.ae/4032/fintech/north-africa-tunisia-algeria-morocco-fintech/(accessed 18 Nov. 2019).
69 Ibid.
70 Seamless Conference North Africa 2020 (2019), ‘The Future of Fintech across North Africa’, https://www.terrapinn.com/exhibition/seamless-north-africa/index.stm (accessed 18 Nov. 2019).
71 Mauch, F. (2012), ‘Atlantropa – Endless Energy from the Mediterranean Sea’, Arcadia No 9, https://doi.org/10.5282/rcc/3864 (accessed 18 Nov. 2019).
72 Reuters (2014), ‘Desertec shareholders jump ship as solar project folds’, 14 October 2014. https://www.reuters.com/article/germany-desertec/desertec-shareholders-jump-ship-as-solar-project-folds-idUSL6N0S535V20141014 (accessed 18 Nov. 2019).
73 Interview with Ahmed Zahran, CEO of Egyptian solar power firm KarmSolar, Paris, 16 September 2019.
74 Interview with Ben Shepherd, Principal of Developing Trade Consultants, Paris, 16 September 2019.
75 Common Market for Eastern and Southern Africa (2019), ‘COMESA Member States’, https://www.comesa.int/comesa-members-states/ (accessed 18 Nov. 2019).
76 United Nations Conference on Trade and Development (2013), Handbook on the rules of Origin for the scheme of the European Community, Geneva: United Nations, https://unctad.org/en/PublicationsLibrary/itcdtsbmisc25rev3add1_en.pdf (accessed 18 Nov. 2019).