Diplomatic sweeteners fail to create the jobs needed for stability

Date: 12/05/05

Every year since 1995, the EU has channelled around €1 billion towards the southern Mediterranean in a bid to stimulate economic and social development. The European Investment Bank has made a similar amount available in 'soft' loans.

This is a substantial amount for what some have cast aside as "a diplomatic sweetener", aimed at keeping governments on-side.

Annually it is equivalent to the gross domestic product (GDP) of the West Bank or Suriname. For the ten years since the programmes were launched, the total figure is closer to the annual GDP of Bosnia and Herzegovina or Jordan.

The majority of this money has been used to fund projects aimed at improving economic and financial structures. From modernising Syria's water sector, to supporting small businesses in Egypt, to setting up an economic forward planning unit for Algeria's prime minister.

But while absolute poverty remains lower than in any other developing region, despite these investments, the economic performance of the ten countries of southern Mediterranean remains unimpressive.

According to the World Bank the average GDP growth in 2003 for nine countries (no figures are available for Libya) remained higher than in much of Western Europe, at around 3.2% in 2003. But compared with other developing countries, which in a global economy the ten will have to compete with, this figure is low.

Foreign investment figures tell a similar tale.

According to the Femise - a network of Euromed economic institutes - in recent years total foreign direct investment to all of the Mediterranean partners has been little more than that which Poland alone has received.

Observers say that continued political instability is no doubt a factor, but despite the EU's best efforts to improve regulatory frameworks and overall governance, making the area more attractive to investors, the countries continue to perform badly.

The World Bank says that in Egypt, the most populous country in the Arab world, investment has fallen by three quarters from just over

$1bn (E770 million) in 1999 to $237 million (e184m)in 2003.

And much of the investment trickling into the region has been channelled into energy projects.

So ten years on, has the EU been successful in improving the economic environment in the southern Mediterranean?

New governance and anti-corruption figures release by the World Bank this week indicate the opposite.

According to the Bank, the quality of regulation from 1996, one year after the Barcelona process began, until 2004, has increased in only Jordan and Libya. Even in Libya, standards remain woeful with Tripoli finding itself in the bottom 6% of the 209 countries surveyed

In 2004, only Jordan, Morocco and Tunisia had the standard of regulation above average for their income groups. Similar figures are found for government effectiveness.

But this apparent hesitance in embracing economic reform has led to perhaps the most pressing problem for the region's political stability: unemployment.

Some estimate that 35 million new jobs need to be created across the ten countries in order to keep unemployment at current levels.

Moderate estimates put region-wide unemployment at around 15%, although some say the actual figure is much higher. In some countries such as Algeria or the Palestinian Authority the figure is upwards of 25%.

Potentially destructive still, youth unemployment is estimated to be around 30% across the region.

Today in the southern Mediterranean there is a disparity between the wealth beamed into homes by TV and satellite and the harsh economic reality.

The results of such frustrations are well known, from clandestine immigration, to crime and terrorism.

With current levels of foreign investment, the countries could struggle to reach even these employment targets.

It is partially because of this bleak economic outlook that few of the countries in the region enjoy real political stability.

In 2004, only Jordan and Morocco were judged by the World Bank to have better than average political stability in comparison with other middle income countries.

According to some researchers this economic malaise may increase pressure on European governments to use the aid for diplomatic means, buttressing governments against the pressure of rising public opinion and perhaps hampering long term stability.

But if current trends continue Euromed investments may be able to achieve little else.

Article takes a look at the financial support from the European Union to stimulate economic and social development in the countries of the southern Mediterranean.

• Primary Source