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World Bank Vice-President: Half of region's population living on less than $4 a day - ASHARQ AL-AWSAT English Archive
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Inger Andersen, the World Bank's vice president for the Middle East and North Africa, smiles during a news conference in Rabat, Morocco, on September 7, 2012. (AFP Photo/ Abdelhak Senna)

Inger Andersen, the World Bank’s vice-president for the Middle East and North Africa, smiles during a news conference in Rabat, Morocco, on September 7, 2012. (AFP Photo/ Abdelhak Senna)

Washington DC, Asharq Al-Awsat—With war and chaos gripping parts of the Arab world, it is easy to forget that the economic situation across wide swaths of the Middle East and North Africa (MENA) is also bleak.

The dire economic prospects of many regional states were highlighted in Washington DC last week, when the World Bank and International Monetary Fund (IMF) held their joint week-long series of annual meetings. The meetings coincided with the publication of the Bank’s latest report on the economic situation in the MENA region, which called on regional governments to take the controversial step of reducing electricity and fuel subsidies, which the report called “corrosive.”

Asharq Al-Awsat spoke to one of the report’s authors, Inger Andersen, vice-president of the World Bank for the MENA region, on the sidelines of the meetings about the report, and the Bank’s efforts to help regional states tackle poverty and deal with the fallout of the crises in Syria, Iraq, Gaza, and Yemen.

Asharq Al-Awsat: You announced yesterday that you are anticipating growth of 4.2 percent in the MENA region, with of course huge discrepancies between the high- and low-income countries in the region. What is driving this growth?

Inger Andersen: We are looking at three tracks. There are of course countries that are in deep conflict and turmoil, where growth is negligible, if there is any at all, or could be negative. Then you have the countries in transition, that are pulling through—Egypt, Tunisia, etc.—where we are averaging around 3 percent, which is good but below [their] potential, and we would like to see those countries, obviously, get on a stronger track over time. And then we have the oil-exporting countries where growth is higher, and therefore the overall average comes out at a decent 4.5 [percent] or so.

Now, when we look at the transition countries, even compared to Europe, the middle track if you like, that’s also decent, but that’s still not good enough when one has a population that is young, and we need to see a job rate growth. So essentially what we are talking about is growth that is there, the average, is pulled up in large part by the transition countries coming back on track but below potential, and by the oil-exporting countries.

Q: As you said, growth is below potential. Some people say that these growth rates are not actually indicative of the realities on the ground, partly because of this issue of poverty. One of the key themes of this year’s IMF and World Bank meetings is the idea of shared prosperity, and the “bottom 40,” meaning the percentage of people living in poverty. In the MENA region, the “bottom 40” represents a huge challenge; how are you going to tackle that?

Well, it’s interesting. If you start with the poverty dimension—if we just look at the poverty delineator of [the number of people living on less than] 1.25 [US dollars per day]—then MENA has achieved the [goal of] eradicating extreme poverty. But that doesn’t really quite work; if we take it up to 2 dollars a day, then all of a sudden we are at 13 percent [of the population living in poverty]—it is only 3 percent at 1.25 dollars. But if we take it up to 4 dollars—in the MENA region living on 4 dollars a day is impossible—then we are talking 53 percent.

Then all of a sudden we begin to see that any little crisis, any little thing, can cause more people to fall into poverty, and cause more people to fall into extreme poverty. And that of course is the tragedy of the conflict we see in the Mashreq, the turmoil we are seeing in Libya, as well as what we have witnessed in Yemen, that any little thing can then have a massive impact on nearly half the population when we are talking about [living] on 4 dollars a day, when 53 percent [of people] are living below that.

That’s the situation. Then, if we want to talk about shared prosperity, which is the bottom 40 percent, lifting them up, that’s when all of us you see [working on] poverty and shared prosperity begin to have an overlapping field; and reaching that decrease in poverty, and lifting the shared prosperity, we are saying some fundamental reforms need to happen so that those people can be reached. And what our report spoke about yesterday was some of these.

Q: There was huge focus on this idea of the curse of subsidies in the report. The theme of subsidies, the fact that they are “corrosive” for societies and economies in the long term also comes at a time when we see, especially over the last three years, governments saying we can’t really take this issue on because of the impact it will have . . .

What we are trying to highlight in this report is that subsidies are an issue in our region. This region is home to about 5.5 percent of the world’s population and about 3.3 percent of its GDP, but it has 48 percent of the world’s energy subsidies, so . . . for reasons that we don’t have time to go into, there is a legacy of energy subsidies.

So half of the world’s subsidies on energy are happening in 3.3 percent of the world’s GDP. Now, if that’s the case then let’s talk about these subsidies. We have long talked about how these subsidies are more reaching the rich rather than the poor, but we have also talked about a region where service delivery is not very strong, where education and health and all the services that I expect from my government can be strengthened.

We have also talked about a region where, at 4 dollars a day, half of the population live in poverty, so imagine that you are now making those savings from these savings and you are putting them to a productive use, towards whatever programs it is. We always said that to roll out a subsidy reform, first roll out protecting the poor, first roll out social safety nets, and that has always been our recommendation. Don’t touch [subsidies] until you roll out social safety nets, and that has been our strongest recommendation.

What this report also bears out, however, is that there are four areas where really subsidies are having a detrimental impact on the overall structure of the economy, and that’s beyond the corrosive fiscal impact on the budget.

Let me just mention very briefly, one is, if you have very, very cheap energy, what kind of industries are going to seek investments there? These are energy-intensive industries that [are] often . . . very labor-poor . . . so it could be cement, it could be heavy machinery, it could be things not like light manufacturing, which are not energy-intensive and will not come where you have cheap energy. What is coming there is a different mix of the investors, who will seek to go to cheap energy. So you have constant corrosive investments in job-poor investments, and job-rich sectors are shying away. That’s interesting of course, because in a way you could say that you are taxing jobs by providing energy subsidies.

The second point that I would talk about is obviously transport. We have in this region heavy congestion in many countries, very cheap fuels, we have an underinvestment in public transport, and we are subsidizing cars not people, and this of course has huge influence on loss of growth. Everybody who has sat in traffic in a metropolis knows what we are talking about—hours lost in terms of productivity, but also health, childhood asthma . . . so there are losses there. Health, and also a very, very large number of traffic accidents, among the highest in the world. That’s another cost on the economy.

And third, in a number of our countries, where diesel is subsidized very heavily, a third or more of that subsidy goes on diesel for pumping water. Pumping water in unsustainable [ways], that obviously [have] an impact on water supply, so whether it’s on jobs, whether its on broader transport and health, and whether its water, these are areas that are impacted on.

First and foremost, the fourth area is growth. By spending such a huge chunk of your change on subsidies, you are not spending it on something else, which could be growth-enhancing. How can you slowly but safely establish a social safety net, make the right investments in public transport, service delivery . . . and move this massive amount of resources into productive investments? That’s the conversation that this report has.

Q: So what will be your message to the Arab officials in the MENA region? Will this be a key factor, or a key theme?

I think [for] each of [these] countries, we have been in this conversation for a number of years. There will be successive governments in each of the countries, and each government. Tunisia has come a long way; Morocco has come a long way dealing with this; Jordan has made bold moves as well on the fuel side, and is now beginning to look at the electricity side; and Egypt has made some forward moves. Each of these has been done in a political reality that we have to understand, and so what we absolutely recommend is “no jolts”: roll out the social safety nets first, [and] ensure the poorest do not fall at this time, but to the contrary, that they feel they have a net beneath them.

So, yes, this will form part of the conversation but the broader issue that we wanted to highlight is that it is not just a budget issue, it is a health issue, it is a water issue, it is a congestion issue, it has many other aspects to it that may have been underplayed.

Q: Let us turn to Yemen. In Yemen, removing fuel subsidies has had huge political consequences there. So let me first ask you what you thought of what the government did when it came to this issue of fuel subsidies, and what you think of the wider problems occurring in Yemen right now . . .

The first thing I will say about Yemen is that we strongly support President [Abd Rabbuh Mansur] Hadi and the peace and partnership agreement that was signed a couple of weeks ago, and that that agreement places the very foundation for a coalition and a set of agreements for moving forward, including its annexes, which of course deals with security in the city, the disarming of militias, and the establishment of a consensus-type government.

It is very, very critical that at this point this agreement is adhered to, from an economic point of view, which is where I’m coming from, and I’m sure also from a political and security point of view where others are coming from, because Yemen is of course the poorest country in our region, and Yemen cannot afford to have further shocks, Yemen cannot afford to have deeper conflict. Yemen needs to focus on investing in its future, so that its people can see that there is a future for the young people, many of whom are unemployed.

Now, with respect to the decision of the government to make a set of announcements pertaining to subsidies and then rolling back some, I think that was a political agreement that they had to arrive at and I think we have to understand that there was a conversation and a compromise that was needed; and, in a way, what one would have wished to see was the rolling out over successive years of comprehensive social safety nets. From our side, we have been investing in as much as we could in the social welfare fund to expand it, and we did that in—I think it was 2012, I think 150 million dollars that we put into the social safety net—and we would certainly be willing to look at that again. Essentially, if one had had a program of slowly dealing with the subsidies, one could have moved the resources out of the subsidies and into the social welfare fund, to ensure that there is a surety. It is very hard when it’s done in jolts. At this point I think the issue is much more one of finding a way forward on the political path, that is now very urgent, so that the economy doesn’t suffer, and so that the opportunities for jobs and development and growth for that country which they so clearly, really need at this time, are not lost.

Q: But have the programs you were pursuing with Yemen—the monetary mechanism, the pledges of support—now been put on hold?

Not at all; we have an office there, we are working there, we have signed in Yemen since the transition 14 new projects for a total of 592 million dollars. At the Riyadh donors’ conference we pledged 400 million [dollars] but we delivered almost 600 million and we have 34 active projects of 1.1 billion dollars in total, and the last one that was approved by our board was in July and August and September of this year; we will be signing them if not during the meetings then immediately after, and one deals with labor-intensive works, so essentially providing [jobs]. It’s a sort of stimulus package, if you like, to fix roads, clean schools . . . also providing 50 million [dollars] for the Social Fund for Development and providing resources to improve the quality of education. And so we are not leaving Yemen.

Now, as I say, it is very important that the Yemeni people, that the various parties that are having conversations, that they find a political way forward, because Yemen cannot afford further strife and conflict.

Q: If the Houthis were to take power, if the current political system were to fall, do you have contingency plans in place, or is it a case of, “We are going to stick with Yemen regardless of what happens,” or does it have to be within this agreement?

I think it would be improper of me to speculate on what might happen. What I can say is that we have an ongoing program with the Yemeni government under President Hadi, as does the world in the sense that in Riyadh nearly 8 billion dollars were pledged for Yemen and for Yemen’s people, and goodness knows that open conflict is not something that Yemen should enter into at this point. Yemen is a very poor country, and it needs all its people to move forward for development and for the next generation.

Q: Let’s move on to Iraq. Part of the country has been overrun by the Islamic State of Iraq and Syria (ISIS). There hasn’t been a budget agreed for 2014 and we are almost at the end of the year. So crises abound. We also see a dipping growth rate in Iraq after all the hopes that it would start to pick up after the government was formed. What is your projection for Iraq?

Well, obviously at this time, Iraq is going through an incredibly difficult time, and the challenge on this prime minister and on this government is obviously nearly unimaginable. And so, the kind of growth that we were projecting before, previously we were like you said more optimistic because we were seeing a steady coming-together of the political factions, we were seeing a movement forward on some of the key sectors. We now have to reassess somewhat, and so I don’t think that we would come out with very firm numbers on Iraq, simply because of the uncertainty of what we are living in at the moment . . . So far, what we have seen is [that] . . . oil production in the south is unaffected, and that is a very good thing. What we would be more concerned about is the disruption of food security and of the planting seasons, which will [soon] be upon us—this is harvest time—and so what that will do in the longer run, and that obviously depends very much on what will happen in the coming months.

But we obviously predict that GDP will decline significantly in the coming year. Now, for us, we are maintaining a presence in Iraq, and we have not closed down our projects that are operating in the areas where we can operate, which is of course in the Iraqi government-controlled areas. We have recently approved, together with the Islamic Development Bank, a 350-million-dollar transport project that is not yet effective but hopefully at some point will become effective. That will deal of course with transport and tying the country more together on the north–south corridor. But we also have projects in the electricity and water sectors away from the ISIS presence and these we are going to soldier on with. We are still doing the monitoring and we are continuing to implement as best we can.

Q: Did you have projects in what are now ISIS-controlled areas?

It is by sheer coincidence that those projects came to a close in June. And we were then planning to start new projects that obviously we will have to reassess. And so our financial year closes at the end of June and so this is what happened. And so some of those projects were in the education and water sector and we don’t know what would have happened to that infrastructure and those schools and so on [if the project had continued after June, when ISIS captured the territories]; that might have been impacted by the current situation.

Q: Do you have a GDP forecast or a projected growth rate for Iraq?

We are forecasting real GDP growth at a negative level for 2014—between -2 percent to -3 percent—and we are forecasting—and obviously this is to be taken in light of the uncertainty that we all know about—about 1.5 percent [positive growth] for 2015. That is on the assumption that oil production in the south continues. We know of course that Kirkuk–Ceyhan pipeline is disrupted, but also that the southern exports continue.

Q: On Palestine, we are coming up to the Gaza reconstruction meeting. What role will the World Bank have in the reconstruction, and what do you see as as the biggest challenges?

We have moved far forward as fast as we possibly could. You may recall during the 50-plus-day conflict there were lulls and ceasefires. During one of these ceasefires our country director, who is based in East Jerusalem, went to Gaza to assess the situation, and as soon as the hostilities ended, we had our people there two or three days after. Obviously we are working closely with the UN, who are doing a fantastic job under the circumstances, as well as with the EU. We have had a request from the Palestinian Authority to do a comprehensive needs assessment. That needs assessment will have to look at all sectors, but in the meantime we knew that we could do a rapid assessment of three particular sectors, and that’s what we have done—of the water sector, of the municipal sector, and of the electricity sector; these are sectors we know well . . . And with that, then, we have prepared in less than five weeks four projects that we should be presenting to our board on October 30 that would support the Palestinian Authority with both budget support as well as these three sectors.

Q: Is this for Gaza only, or for the West Bank and Gaza?

This is for Gaza only. In addition to that we also have regular projects for the whole [Palestinian territories], but these are emergency projects.

Q: Do you have an estimate for the costs?

Yes, we will be announcing that once approved. But we are looking at a planning figure that is around 63 million dollars, but it has not yet been approved. I mentioned this also in New York when I was there.

What I do need to say about Gaza is that the biggest concern that the world needs to have right now is about 60,000 units of housing that have been destroyed and therefore families are unable to live in them. We have about more than 100,000 people who are still displaced and living in ad hoc situations either in the UNRWA schools or with families. And we know of families that have 100 people in their apartments. Now, for the people who are living in shelters and in temporary tents, we know that the Mediterranean winter is coming. It can have rainfall, it can have snow, it is stormy, and this is of severe concern. Our UN friends are doing all that they can and have worked hard to provide as much as they can, but what is needed is access and mobility, so that materials can come in. The UN and the EU have worked together to set up a mechanism that should facilitate building materials coming in, but that is first step in a long journey.

Q: As for the reconstruction conference in Cairo, will you or another representative of the World Bank be there?

Of course we will be there. I will not because I have to be here, but our country director for Palestine will be there.

Q: And the priorities for you? You mentioned the issue of housing, but for you, what will be your priority?

So, we are going to obviously speak to the three sectors that we now know well: the municipal, the water, and the energy. By the way, we are also working on health; that will probably become an emergency by November, but it is taking us a little bit longer because we need to make sure that we coordinated with everyone who is active in the health sector. So we will speak to those three sectors that are key . . . Our resources of 63 million dollars sound like a lot, but [they] will not be enough—there will be more resources needed, so we will speak to that, but we will also be, essentially, part of a chorus that has to be a strong voice for emphasizing the absolute priority for ensuring that reconstruction under the Palestinian Authority—under a unified government—is key. We note by the way that it appears that today Prime Minister [Rami] Hamdallah had a cabinet meeting of the unified government, which is a good sign.

On to another crisis. You have this situation with Syria. Do you have figures on where the economy is today in Syria? Again, today Syria is very difficult because you have areas where the government is in control and other areas where it isn’t . . .

Our Syria numbers are very, very sketchy; simply because of the exact reasons that you were saying. So we are being very prudent in issuing numbers. Our report has one page on each of the countries and you will see there how cautious we are. We think that the real GDP growth estimate in 2013 probably took a dive of around minus 13 percent. We are very cautious about coming up with numbers for 2014. They may be around zero, or maybe a little higher. Obviously, when you have what appears to be around 4 million people internally displaced, probably, numbers are hard to get at because there are registered and unregistered refugees, but maybe [of the] 3–4 million people outside Syria, some are refugees, some are not registered as refugees. You are seeing a massive movement and you are seeing massive disruption for preparing harvests, and you are seeing massive disruption of any exports, including oil and hydrocarbons . . . manufacturing, heavy industry, agriculture and hydrocarbons, all of these industries have been disrupted to some extent, less or more depending on where you are, so clearly this is not a good situation for Syria.

Q: Do you have any presence there?

We are not present on the ground, no.

Q: I want to ask you about the Gulf Cooperation Council (GCC) and the oil-producing countries, except Iraq. What is your outlook for them? In your estimation for the next year what is the biggest challenge, but also the biggest opportunity for them?

I think that we are seeing these countries doing very well. Sustained growth of 5.5 percent, depending, 7.1 for Qatar, 5.5 for Saudi Arabia, very sustained growth if you look across the spectrum as we are projecting it. So, we are seeing strong performance, and obviously we are seeing a macroeconomic situation that is strong, both on the fiscal and on the current account sides, and with respect to surpluses and with respect to reserves. So, that is a real benefit for the overall region, we have also seen the largesse of these countries towards their neighbors, whether it be Yemen, or Egypt, and therefore a strong-performing GCC will obviously have the ability to help, if you like, their Arab neighbors, and we have seen significant generosity to the countries that have gone through all these challenges, and that’s a good thing.

Q: As you look towards the coming year, what are the biggest challenges ahead of us?

We think that we have to take a two-pronged approach here. On the one hand, there is dealing with the now, dealing with the emergencies, be it in Gaza, be it in Yemen, be it in Iraq, be it in Lebanon, Jordan—in terms of refugee flows—and there is a need for the world to be very vigilant about this and not get fatigue from these protracted crises.

That’s the now, but we must also not deal only with now, we have to have our view also on the longer term. We have to have a little bit of a deeper horizon, and in a way we often speak about in [terms of] 1943–44, when the [Second World] War was still raging across the world. [Then], the world leaders had the wherewithal to come together and plan for what would be coming after, and they established the Bretton Woods institutions. We say that [this current period constitutes] a “Bretton Woods moment” for the Arab world. It is time now for the Arab world, yes to deal with the emergency of now, but also to look deeper [regarding where] our region needs to be supported and [where] it needs investments. It needs the private sector, and it needs support on the public side. It also needs to do a number of important reforms, and that’s the way we started out. It needs to deal with the subsidies [issue], it needs to roll out social safety nets and, very importantly, just as importantly, it needs to deal with the business climate, so that the private sector can come in, so that jobs can be created, so that the bright future that this region deserves—it is placed geographically between Africa, Asia and Europe, it has a young population that is vibrant and well-educated, it has all the elements that it needs; it just needs to be given the chance.

What have you been doing regarding Jordan and Lebanon?

For Jordan we established a multi-donor trust fund. We put in resources of our own—about 10 million dollars—that leveraged another 60 million or so. This is supporting the Jordanian municipalities where you have the large refugee inflows. As you know, many of the refugees are not living in camps. Ditto in Lebanon, where we have also put in resources from our side, and we are receiving resources from donors. But obviously there is a need for strong and continued grant support by the global community to support these countries, to enable them to continue hosting [refugees], and, frankly, the best thing the world could do is to support the host governments, so that the protection space—this is what the UNHCR refers to—that protection space is held open, because at the end of the day it is communities, it is people, who will close the space or not. Politicians will close it if the people close it. So, therefore, the more we can support municipalities and governments, providing services to their own people so that the protection space is held open, the better that is.

Q: But for how long? How feasible is that, economically?

Well, obviously there has to be massive, massive support, and that obviously is what we underlined when [World Bank] President [Jim Yong] Kim met with [Lebanese] Prime Minister Tammam Salam in New York, because one cannot expect the country to just keep its border open ad infinitum. That’s why the global support for this crisis has to continue, whether it be on the Syrian side of the border or the Lebanese side; that’s a technicality if you like. But one cannot get fatigue at this point; that’s an absolute priority and it is critical that the world understands that this crisis remains unresolved.

What about countries that are not big oil exporters, but are not in embroiled in war or crises either, like Egypt and Tunisia?

I was at the Invest in Tunisia conference; it was fantastic. They really did a marvelous job, and the prime minister as well as the entire cabinet stepped up. They had invited the private sector as well as the prime ministers of France, Algeria and Morocco, who were present, and I think [Tunisian Prime Minister] Mehdi Jomaa’s [idea] of “start-up democracy” is catching on. The sense that, “We are a start-up, start-ups make mistakes, but we are going to get it—but don’t expect that it will be ready-made from the get-go . . . To make this start-up work, invest in Tunisia.”

So we are staying very close to Tunisia, we are going to support Tunisia all we can, and we have a very vibrant program there, but its was a very, very good conference; and now Egypt is preparing for an economic summit for February—the dates were announced yesterday—and again this is an opportunity to show that Egypt is open for business. For each of these conferences what has been critical is that they deal with the investment climate reforms, so that in fact red tape, credit bureaus, PPP legislation—these kind of things are handled prior to the conference so its easier for the private sector to come in to create those jobs.

They have taken a good number of [these steps]. They have a program of reforms to be done.