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World Bank vice president surveys regional economies

An exclusive interview with Inger Andersen, vice president of the Middle East and North Africa at the World Bank.
Inger Andersen, (R), the World Bank's Vice President for the Middle East and North Africa (MENA) region, makes remarks as Shanta Devarajan, (L), the World Bank's chief economist for MENA and communications manager Heba Shams listen, as she discusses political turmoil and economics in the region at a news conference during the IMF and World Bank's 2013 Annual Fall Meetings, in Washington, October 10, 2013. The meetings come at a time of economic uncertainty with the world's nations possibly slipping back int

Last week, Bassem Sabry caught up with Inger Andersen, vice president of the Middle East and North Africa at the World Bank, where they had this discussion about the region:

Sabry: Let's start from here in Egypt. Ziad Bahaa Eddin, the deputy prime minister, was recently in Washington, DC, where you met. Could you give us your thoughts on that visit and how did it go?

Andersen: First of all, it was a real opportunity for us to have Ziad Bahaa Eddin come visit us. He has spent time meeting with our sectoral specialists and directors, both on the human and social sectors, education, health and social protection as well as with our infrastructure people and finance team.  And essentially Ziad had given the team a little bit of homework beforehand, to provide him with a summary of the program of the bank, priorities as we saw them. And he came well prepared having read that, and had his comments and suggestions on how we could potentially move forward. So, it was quite a substantive conversation within each sector. And in the social sector, issues around social justice and finding ways of dealing with social safety nets were a critical piece. We see that social safety nets — in terms of sequencing — are very critical to map a road out ahead of other structural reforms that one might have to do with the economy, and that was something that we very much found an agreement and a meeting of the minds on. Ziad and the government are also looking at how to optimize the kind of investments that they are now doing, the broader public investments. There are resource flows coming in from the Gulf and elsewhere, as well as existing government resources. But the question here is how to ensure that this one step goes before another, so that we could get higher growth out of a particular sequencing. This is an area that we on the World Bank side who worked in many countries are interested in, the optimization of the same amount of money for better growth and development outcomes. So that was another conversation that we had. Service delivery and the infrastructure side as well, that was another issue that we discussed at great length. The issue here is where do I as a citizen meet my state. I meet my state when my garbage is picked up, that's when I know who my government is. If I live in a village somewhere, I meet my state when I drop off my kid at school and the teacher is there and the kid learns. Thus, the question here is how can we enhance service delivery. These were the kind of questions we discussed.

Sabry: But do you see any key conclusions or concrete steps that have been agreed on?

Andersen: Absolutely. As you know we have been engaged for some time now in looking at the technical level at what a social safety net would look like, and so there is deeper work on that to assist the government as it decides to roll out such social safety net. We also agreed to look at how we can provide specific support to this optimization of investments, put some analytical firepower behind that, which is here and now. We also looked at investments in municipal gas, household gas, things that could fundamentally transform my life a citizen if I no longer have to struggle with gas canisters and such. Also urban transport, in terms of looking at investments in this field. So there were general overviews and specific topics discussed. But it's more also what the government is looking at, how we can ensure there is strategic and overall planning on the scale of the plan of the government in a way that would provide maximum benefits. And clearly we are hearing from the government also about the fiscal imbalances and how they plan to deal with that, and we plan to deepen the discussion and cooperation on that side as well.

Sabry: Did you discuss the political situation and the road map in Egypt with Bahaa Eddin, and perhaps what the political environment and process should reach and feature before the Bank could be more deeply involved in Egypt, or was it essentially a technical discussion?

Andersen: Naturally, our conversation focused on development issues, on jobs, on eliminating poverty and boosting shared prosperity, and making sure that the Egyptian people's call for broad inclusion in all aspects of economic and political life are attained.  It was also interesting to hear about the implementation of the Interim Government's "roadmap" towards presidential and parliamentary elections, but the main focus was on how the World Bank can support the various policy initiatives currently under discussion and we stand ready to do that through mobilizing global expertise and resources in support of Egypt.

Sabry: Speaking of social safety nets, these nets are expected, of course, to accompany the rollout of subsidy reform in Egypt. Jordan has had over the past year an experiment in subsidy reform, one that has caused a lot of controversy and even substantial uproar in the country. Nonetheless, do you see something in the Jordanian experiment that Egypt could learn from? 

Andersen: Each country has struggled with its subsidy load. It's a heavy fiscal burden in the Arab world, and each country has struggled with that, and I think Jordan is a good example. In Jordan they had subsidies on the fuel side as well as on the electricity side. And it took some very bold steps, but first they dealt with the social safety nets. So they rolled it out, and they were rather generous with the nets because when you make such shifts you want to make sure you do not cause disruptions or create social tension, and you always must make sure that you protect the poor. You've got to ensure they don't drop off into even deeper poverty. So what Jordan did was that they did a careful study on the fuel side, who are the big fuel consumers and how they can adjust prices, how they can index it to world prices, et cetera. And yes it did create some disturbance, but they sought to communicate that they need to do this, and they were good at it. They essentially explained the issue much as you discuss households: This is what I earn, these are our expenses, and these two have to add up or else I end up in debt. And as they made these adjustments, they rolled out the social safety nets. Now, similarly they are looking at the electricity sector, which is more complex. Jordan is a cold country. You need heat in winter. So there are issues there, but I believe that slowly and steadily these are elements that they will tackle and that should help them come to a more sustainable fiscal situation. At the same time though, they are also looking at other reforms. And let's look beyond Jordan for a moment. It's useful when you do reforms of this nature that you also think of other reforms, perhaps of a more low-hanging-fruit nature, but that can be part of a package so that people can see that the government is actually trying to lean forward. And some reforms have no cost, such as freedom of information, anti-corruption laws, good CSO [Civil Society Organization] laws. Things of this nature make the people realize that the government is really trying to address things that concern us. So many times we would advise that one thinks about an overall package so that the experience that a citizen has with his or her government fundamentally shifts. 

Sabry: Let’s take a step back for a moment, and take a more kaleidoscopic view. What is your general view of the condition and outlook of the region as a whole right now, especially given Syria and its impact on the area?

Andersen: Well, in 2012 we spoke of what was called "two-speed MENA (Middle-East and North Africa)," in a sense of one speed of growth for the oil-exporting countries and another for the oil importers. In large, that spike was partly driven by the recovery of the Libyan oil sector which drove this two speed MENA (1-2% GDP growth of the oil importers, much higher growth for the exporters). At this time we are no longer talking about a two-speed MENA. I think we are seeing, well, around October we talked about 2.8% average growth for the region in 2013. Now that may change, and let's hope it does because that doesn't begin to keep up with inflation, population growth and so forth. But clearly there are a number of issues at play in the MENA region, not least external issues from the eurozone crisis. These exogenous issues have driven impacts, whether in terms of trade, people buying less, Europeans being less capable of going on tourism irrespective of destination, FDI going down irrespective again of destination. But then of course we also need to say that the reforms and the transitions in the MENA region have been slower than what had been expected or hoped for, so you still see a slower investment climate and growth not where the country or even myself would like it to be. And that is exacerbated in certain parts of the region by the tragedy unfolding Syria. Take a country like Lebanon with 4.2 million people with over 1 million registered refugees and probably many more unregistered, and you have a situation where 20% or so of the population is essentially refugee-based. These people have found refuge in a country that has kept its borders open, Jordan did exactly the same, but it has impacted the economy. And indeed Egypt also has an amount of refugees, but the impact on the immediate neighbors of Syria has clearly been greater. So we are not seeing the kind of growth we would like to see, and would like to see in a general sense across the region, addressing some of these fiscal imbalances with the provision that it is sequenced by social safety nets. We would like to see structural changes with the policies around the private sector to enable a better business environment ...

Sabry: Such as ...?

Andersen: It varies from country to country. But in a number of countries we are working with governments on competition laws, meaning laws that make a level playing field. In some countries there has been an onshore economy and an offshore economy (though this is not Egypt's issue so much) where the offshore economy has all kinds of open competition while the onshore economy was a crony economy. And so, making that shift so that there is an equal playing where domestic investors can invest with surety of returns and non-state interference. These kinds of reforms. So, opening the business environment, the red tape, how difficult it is to establish a company, can I do with my profit as I please, can I hire, can I fire. These are the kind of issues that can make for a vibrant investment climate. And so, these are concerns that we definitely want to address. 

Sabry: And which countries in the region would you say that right now you are most involved on that level?

Andersen: In the current moment I would say that a number of countries are really stepping up on these issues, and I would mention Morocco, Tunisia and Jordan as being true examples where there has been an internalization of the importance of making these reforms. So, each country has its own legacy that it is struggling to tidy up, but all of these can and must lead to a more vibrant domestic and FDI investment climate. So I think there is a realization that if we want to create jobs, and that's what each country wants, then the public sector could only do so much but actually the jobs could really be created by the private sector. And so, what would it take to unleash that? And here, interestingly enough, the subsidy story comes back into play because if you have very cheap energy, automatically what tends to happen over decades is that your overall energy tends to be energy intensive. Thus, what happens is that you are doing heavy stuff, such as cement and marble, things that are expensive in energy terms. These kinds of industries are good, but they are very labor poor. The labor content is poor. So you get a very fundamentally skewed economy that has labor-poor content. On the other hand, if you were in IT and other service industries, these are high in labor content. And there are many further spin-offs and spillover effects from such issues as time passes.

Sabry: I was recently speaking with Hartwig Schafer, the bank's country director for Djibouti, Egypt and Yemen. We particularly discussed how the Bank was involved on the ground in Egypt, using the foray into "labor-intensive projects" as an example of what the Bank is doing to alleviate poverty there. What other projects of such nature in the region are you most excited about or see as particularly noteworthy?

Andersen: Certainly these "labor-intensive works projects," which are supply-based, and this is stimulus. It is what it is, and we are not ashamed of that. At times this what you need to do, and all parts of the world do them. But they are good. In Yemen, where I just came from Yesterday we are also supplying similar "labor intensive projects" as those in Egypt, and you can go into towns and cities and you can find small works such as schools being painted and roads being laid, a variety of contracts that are being put to small local contractors which hire teams to do these works, so this money goes into the economy. This is not what will resolve the economic problem, but that is a stimulus. That's one thing that I would mention. Another program I'd like to mention is the National Human Development Initiative in Morocco. It was started in 2006-07 at the initiative of the king and government. The idea being how to deliver packages of support to the very poorest, whether those in slums as well as those in faraway distant Atlas Mountains where they really didn't experience the government, which brings me back to my earlier point. They didn't experience so much the service delivery and the presence of the state. I was in Morocco some months back and saw this program up close, and it was amazing. I met women who headed households for one reason or another, and they had been given some money and then trained to make this exquisite Moroccan patisserie and opened a number of shops, so much so that now during Ramadan the quality of their products was so high they that it was preferred over more established providers. They are also training others and expanding what it is essentially a collective. I have also met fishermen who had taken small loans from this program to get outboard engines so they go a bit further into the waters and get a higher catch, and thus be better capable of taking care of their families. In addition, some of them have bought motorcycles that had small attached coolers so they could take their fish to further markets where they could get better prices as well. So, these are the kind of things where you can see that with relatively modest money you have ability to reach people who would otherwise be unreachable or be otherwise unemployable and might gravitate into unproductive or even destructive activities. And many of these were youngsters. I also see that there is a keen desire and growing discussion Egypt as to how to better reach beyond the cities, which is somewhere micro-finance comes in. We have a program in Egypt that runs through the social fund and NGOs and provides microfinance that way, and another runs through banks. These are the kinds of things we need to scale up across the region.

Sabry: Let’s go back for a second to Syria. How is the bank involved in alleviating the tragic effects of this conflict?

Andersen: Well, the bank is supporting neighboring countries to help mitigate the impact of the Syrian conflict, as hundreds of thousands of Syrian refugees flee across the borders seeking safety. In Jordan, for example, the Bank has recently approved a $150 million emergency project to help the country cope with the massive influx of refugees and to maintain access to critical public health services and household basic needs. The bank also signed with Jordan, UK, Switzerland and soon Canada $50 million in grants to support Jordanian local government and municipalities. 

In Lebanon as well, following the government’s request last July, the World Bank, along with the UN, the EU and others, led in a record four weeks the Economic and Social Impact Assessment (ESIA) which underscored the challenges facing Lebanon as a result of the influx of refugees. Lebanon has welcomed more than 1 million refugees from Syria, equal to 21% of the country’s population. The impact on Lebanon’s already large fiscal deficit and could reach an estimated $2.6 billion over the course of the 2012-14. Social consequences are dire: beyond the current one million, an additional 170,000 Lebanese will be pushed into poverty by 2014; increased competition for jobs will probably double the unemployment rate. The ESIA serves as a guide for the Lebanese government and partners to develop a prioritized short-, medium- and long-term road map of recommendations to mitigate the impact of the Syrian conflict. The four-track approach focuses on alleviating the impact on the government’s budget as well as addressing longer-term needs of vulnerable communities. The first track is centered on funding existing projects that can be scaled up and/or implemented speedily and for which donor grant resources can be made available. These projects will have an immediate impact on Lebanese families and communities affected by the Syrian crisis. The second track focuses on mid-size projects that need longer preparation and implementation time.  This could potentially be done through a multi-donor trust fund. The third track includes projects with sustained development impact that have the potential to carry sectoral policy reforms such as infrastructure and private sector investments.  These could be financed through World Bank Group and/or other international financial resources and possibly blended with grant financing from donors. And finally the fourth track has to do with enhancing private sector engagement in the Lebanese market though targeted financing, including partial risk guarantee schemes, aimed at the delivery of services such as energy, electricity, water and transport.

Sabry: The Arab Spring, if we can set aside the debate over the term for a moment, was ignited by a combination of political as well as economic grievances. Many see that the original economic issues not only remain, but have even been exacerbated right now. Thus, holistically, what would you say what are the main lessons learned and issues in need of attentions that governments in the region must respond to right now to avert another round of tumultuous uprising?

Andersen: Let me approach this from another angle, if I may. The big issue since 2011, I think, is that we saw an absolute focus on discussing the political everywhere, from parliaments to cafes, in part because the political had not been discussed for so long, and it is completely understandable. However, from an economic and developmental point of view, we know that politics cannot go without economics. You can't do sequences. You can't say, "Let's do a perfect constitution first, and then address the economy, because you could actually have a perfect constitution and a failed economy and then find people in the streets again because they didn't find the jobs. So, at the end of the day what did the people want? They wanted social justice, they wanted freedom, but they wanted bread and jobs. So, this bread and these jobs have to be delivered by a vibrant economy. So, right now, what we are recommending across the region is a vibrant business environment. There are bold reforms that will need to be done. The rentier economies will need to be tackled to become more open and transparent. There are reforms on the business environment, as we mentioned, such as cutting red tape and expediting and facilitating business-related government transactions. There are the fiscal imbalances that need to be addressed, and we discussed that. Then there are also the un-targeted subsidies that are frankly targeting the rich and are being paid for in large part by the poor. And then there are the issues of reforms that generate a sense of citizenship, reforms that make me a feel as a citizen that I am a part of this country and that my voice matters. These are the kind of reforms that deal with issues such as — as we mentioned — freedom of information, publishing the budget, publishing the assets of government, uprooting corruption, and when I look at the reforms that are being rolled through here in Egypt for example I am seeing that some of these are indeed being discussed and moving towards implementation. These things would make me as a citizen, if I were a citizen of this country, feel as if my voice and presence in this country are being recognized. These tiers of reforms are pretty much what we're talking about. 

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