EUROPE - AFRICA AND MENA View from the WBG Brussels Office

Outline of the Presentation

I. Is the Eurozone economy emerging from crisis?

II. Trade relations with sub-Saharan Africa (SSA) and the Middle East & North Africa (MENA)

III. Complementarities in demographics and migration

IV. Leveraging EU policy for maximum development gains

V. Framing Questions for PSLO retreat

1. THE EUROZONE ECONOMY

Financial market stresses have eased considerably since May/June…

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Jan '10 Jul '10 Jan '11 Jul '11 Jan '12 Jul '12 Jan '13

Portugal

Ireland

Spain

Italy

Euro Area (GDP weighted)

Credit default swap rates, basis points

Source: World Bank, Datastream

…and the economy shows tentative signs of recovery…

Source: IMF, Global Economic Outlook, Oct 2012

Real GDP growth annualized quarterly percent change

Confidence improved with clear EU ‘blueprint’ for reform, but implementation will be tough …

New tools and institutions for Eurozone:

• European Stablity Mechanism: €500bn lending facility; operational since October 8.

• European Semester: An annual program of peer review for Eurozone economies.

• Fiscal Compact: Treaty enshrining balanced budget rule in each country; in force since January 1.

• Single Supervisory Mechanism: All banks with €30bn in assets to be supervised from Frankfurt.

• Six-pack and Two-pack: New powers of surveillance and control over national budgets.

• Outright Monetary Transactions: Potentially “unlimited” ECB purchases of short-term bonds.

“ Do the EU-27 have political will to follow Barroso’s

‘Blueprint for Genuine EMU?’ ”

These steps have contributed to a rebound in capital flows to developing countries (since June/July) …

Gross international capital flows to developing countries, billions USD

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Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12

New equity issuance

Bond issuance

Syndicated Bank-lending

Source: World Bank, Dealogic

… But risks remain. Six transmission channels of a renewed Eurozone crisis to developing world:

1. Trade: exporters affected directly and through indirect linkages.

2. Commodity prices: reduced earnings for commodity producers.

3. Financial linkages: FDI, bank lending, bond and equity markets.

4. Remittances: reduced flows to migrants’ home countries.

5. Aid: deteriorating fiscal conditions further limit aid budgets.

6. Confidence effects: uncertainty causes firms and households to hold back on major expenditures. Flight to safety could prompt sharp fluctuations: eg. currency depreciations.

… and Eurozone growth perspectives remain subdued

Source: European Commission, European Economic Forecast, Autumn 2012

Source : World Bank, Global Economic Prospects , January 2013

Global growth to remain modest through 2015 with greater strength in emerging markets

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High-income East-Asia &Pacific

Europe &Central Asia

Latin America& Caribbean

Middle-East& NorthAfrica

South Asia Sub-SaharanAfrica

2011 2012 2013 2014 2015

Source: World Bank, Global Economic Prospects, January 2013

Annual GDP growth, %

2. EU TRADE RELATIONSHIP WITH SUB-SAHARAN AFRICA (SSA) AND

MIDDLE EAST & NORTH AFRICA (MENA)

Source: World Bank, World Development Indicators

We should look beyond old stereotypes on Africa: 45% of SSA countries are Middle Income Countries and growing fast

Africa’s trade volume increased rapidly during the 2000s but its share has reduced – it will now start increasing….

The majority of the EU’s imports from Africa are raw materials The EU’s exports are mainly machinery and manufactures

Source: Eurostat

EU imports from Africa (2009) EU exports to Africa (2009)

Can European trade with Africa resume its (pre-crisis) strong upward trend?

EU trade with Africa (2001-09), billion euros

Source: Eurostat

… even despite increased competition from the BRICS?

Source: IMF Direction of Trade statistics/McKinsey Global Institute

Sub-Saharan Africa: percentage share of trade partners, 1990-2008

The EU’s top-ten trading partners on the African continent are a diverse mix of economies, both from MENA and sub-Saharan Africa

Source: Eurostat

Trade in goods (2009)

EU exports to MENA increased during the 2000s

Source: Eurostat

EU exports to MENA (2001-10), billion euros

The EU remains the pre-eminent trade partner for Maghreb countries (part of the ‘EU Neighbourhood’)

Destination of Maghreb country exports (excluding oil)

US 3%

EU 72%

China 1%

RoW 19%

MENA 5%

US 4%

EU 76%

China 0%

RoW 16%

MENA 4%

2000 2007

Source: World Bank calculations from UN Comtrade database

3. DEMOGRAPHICS AND MIGRATION

Source: Eurostat

Population change by component, EU-27, 1961-2009

Europe’s population is heading towards absolute decline, with net migration the main offset

Source: ISN Zurich/IOM

The financial crisis has hampered migration into EU countries…

… and boosted emigration from certain countries Emigration Belgium, the Netherlands, Sweden and Ireland thousands (2003-09)

Source: Eurostat

Source: World Bank, Shaping the Future (2009)

Population dynamics imply rapid aging and major shrinkage of EU labor force

Projected labor force change, 2005-2050

Source: Eurostat

Source: Eurostat

Source: Eurostat

MENA/SSA could provide solution to dwindling European labor force…

Source: World Bank, Shaping the Future (2009)

Projected demographic change by age group, 2010-2050 (in millions, zero-migration assumption)

In 2010-20, Europe’s labor force will contract by 4 million while Africa’s will rise by 122 million…

Source: World Bank/McKinsey

… but the window of opportunity in MENA is closing soon…

Source: World Bank, Shaping the Future (2009)

In 2000, almost 40% of African migrants were tertiary-educated

Source: World Bank, 2011

Remittances help create businesses …

Source: World Bank, Leveraging Migration for Africa: Migration, Skills, and Investments, 2011

(based on household surveys from 2009)

… but high remittance costs need to be addressed

4. HOW THE BANK CAN LEVERAGE EU POLICY FOR MAXIMUM

DEVELOPMENT GAINS

The EU institutions’ rising aid budget has been increasingly focused on Africa …

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1971 1981 1991 2001 2011

Oceania

MENA

South & Central Asia

East Asia

Americas

Sub-Saharan Africa

Europe

Source: OECD

EU Institutions+member states’ ODA, billion constant 2010 dollars

… which is also the case for the aid budget of the EU as a whole (EU institutions+member states)

The largest share of global ODA to Africa comes from the EU member states and European Commission (EC)

Top ten sources of ODA to Africa, 2011

Source: OECD

$21.7bn $10.1bn

$6.9bn $5.5bn

$4.6bn $3.1bn

$2.3bn $2.3bn

$1.8bn $1.6bn

EU countries + ECUnited States

IDAEU Institutions

FranceGermany

AfDBJapan

CanadaUnited Kingdom

Key EU policy initiatives: new institutions and instruments

• Lisbon treaty. Creation of the External Action Service.

• Africa strategy. Comprehensive approach and fragile states; finalizing EPAs; focus on food and energy.

• Post-Arab Spring. ‘Money, Markets, Mobility.’ Tunisia and Egypt budget support. DCFTAs to boost trade integration.

• New instruments. 2014-2020 MFF. Blending. Climate finance.

Role of WBG in assisting increased EU-SSA/MENA cooperation

The WBG implemented $1.8bn of EU-financed Trust Funds during FY08-12

Examples of current cooperation:

• Fragile states (Nairobi hub) and Disaster Risk Reduction.

• SE4ALL: Partnering to scale up energy access in pilot countries.

• Trade facilitation: Reducing cost-to-market for African/MENA goods.

• Natural Capital Accounting: Pushing this methodology into the mainstream.

• SSATP: Largest transport policy program to strengthen African roads.

• Ouarzazate solar plant: Generating power for Maghreb countries and taking CSP technology to global scale.

• MENA Transition Fund and joint budget support in Tunisia/Egypt.

Total: 124 active TFs (FY12)

Questions for PSLO Retreat Is Europe doing enough to capitalize on its proximity, special relations and high ODA and other support to AFR and MNA? Why do others see more opportunity in AFR? Who should do more: European private sector or governments and the EU? How could the World Bank Group help EU more? More IFC, more catalytic role by the Bank or both? What can PSLO do to advance cooperation between EU and MNA and AFR?

THANK YOU FOR YOUR ATTENTION! Have a productive PSLO retreat