Economic Research Forum (ERF)

Arab regional cooperation in a fragmenting world

173
As globalisation stalls, regionalisation has emerged as an alternative. This column argues that Arab countries need to face the new realities and move decisively towards greater mutual cooperation. A regional integration agenda that also supports domestic reforms could be an important source of growth, jobs and stability.

In a nutshell

As globalisation stalls and the world breaks up into blocs, it is important for Arab countries to enhance their integration; through joint initiatives, the region could address serious existential challenges, especially in the areas of conflict and fragility, and food and water security.

An economic reconstruction programme for countries in the region currently in conflict is essential; so too is a programme aimed at building strong and inclusive state institutions that can resolve disputes and reach agreement on a new social contract.

A regional initiative for food and water security under climate change should ensure unhindered access to imported food even in times of crises; increase food and water supply through joint agricultural investments; and improve the efficiency of land and water use.

The geopolitical situation today is more precarious than at any time since the Second World War. The world is witnessing financial crises, persistent inequality, migratory pressures, pandemics, climate change, rising populism, superpower competition and wars in Ukraine and Gaza. This is reminiscent of the interwar period (Obstfeld, 2024).

Globalisation appears to be over (Goldberg and Reed, 2023) and the world is fragmenting into blocs. At least three large blocs can be identified: one led by the United States and its western allies; one led by China and Russia; and the third, a bloc of non-aligned countries.

According to the International Monetary Fund (IMF), since the Russian invasion of Ukraine, trade between the blocs has fallen by 5% and even trade within blocs has fallen by 2.5%. This has been associated with a slowdown in world economic growth. The latest forecast for global growth five years from now is 3.1%, which is the lowest it has been for decades (IMF, 2024).

Regional integration is a reaction to ‘deglobalisation’. As global trade talks under the World Trade Organization (WTO) show little progress, regionalisation has emerged as an alternative (Paul, 2023). Arab countries need to face the new realities and increase their cooperation, or risk becoming more marginalised. A regional integration agenda that also supports domestic reforms could be an important source of growth, jobs and stability (World Bank, 2020).

The Arab region is one of the least integrated regions in the world (Fischer and El-Erian, 1996). Past attempts at Arab regional integration, which focused on political and trade integration, have failed. There is a need to consider new approaches.

One such is to cooperate on a few initiatives that tackle real existential challenges facing the region. Areas for increased regional cooperation could include: first, dealing with fragility and conflict; and second, adapting to climate change and ensuring water and food security.

Fragility and conflict is a real existential challenge for the Arab region and a major constraint on economic, social and political development. Out of the 22 member states of the Arab League, nine (Comoros, Iraq, Lebanon, Libya, Palestine, Somalia, Sudan, Syria and Yemen) are fragile or conflict states. There is no way that a region can develop amid this level of fragility and conflict.

A regional initiative to restore peace and stability is needed. A short-run priority would be to find political solutions to current civil wars. That should be high on the agenda of the Arab League. There must be an end to proxy wars and competitions between regional powers, which are further fuelling civil strife in Libya, Sudan and Yemen, and increasing instability in Iraq, Lebanon and Syria.

Over the medium term, the focus should be on dealing with the drivers of conflict and fragility. A regional initiative could adopt a two-pronged approach.

The first prong would be an economic reconstruction programme aimed at accelerating growth, creating jobs and increasing living standards in the conflict countries. This should reduce the probability of a resumption of conflict since a high risk of civil war is robustly associated with low and stagnant income (Bodea and Elbadawi, 2007).

The second prong would be an institutional reconstruction programme aimed at building strong and inclusive state institutions that are necessary for resolving disputes and agreeing on a new social contract. In some countries – for example, Iraq and Libya – the strong politicisation of ethno-sectarian identities and/or the rise of warlords may make it very difficult for a national level social contract to emerge: sub-national social contracts may be a necessary step towards realising peace and stability (Furness and Trautner, 2020).

Palestine is the mother of all conflicts. The Israeli occupation and the expansion of illegal settlements are designed to render the creation of a Palestinian state difficult. Faced with this challenge, Arab countries should not wait for an international agreement on a two-state solution before working to ensure that the Palestinian state will have strong, effective and inclusive institutions, as well as a thriving economy. Local institutions in the West Bank and Gaza have proved their capacity as they have been managing budgets, delivering services and implementing development projects successfully for decades.

But there is a need to unify Palestinian national institutions and ensure that leadership is credible – and that its legitimacy is accepted by the Palestinian people. Concomitantly, a Gaza reconstruction programme would have to focus on building back better, creating a more open, dynamic and thriving Palestinian economy and society in both Gaza and the West Bank, closely connected to the rest of the region and the world.

Climate change, and its impact on water and food security, is another existential challenge facing the Arab region. The region is already the most water-poor in the world, with water availability of less than 1,000 cubic meters per capita. As a result of climate change and population growth, water availability will fall below the threshold of extreme poverty (500 cubic meters per capita) by 2030.

To make things worse, the region is not using its water efficiently, and the productivity of water use is only half of the world average. If current policies and trends continue, by 2050, an additional 25 billion cubic meters per year will be needed. This is equivalent to building 65 desalination plants the size of Ras Al Khair in Saudi Arabia, which is the largest desalination plant in the world (de Waal et al, 2023).

Less than 5% of land in the region is arable. Moreover, soils currently used for farming are severely degraded to the point where their productivity has been reduced by 30-35% of potential productivity. Due to a mix of low productivity and policies that favour the production of grains over fruits and vegetables, the value of gross production per hectare in the region is only slightly more than half of the world average.

The situation will probably get worse as water gets scarcer and soil quality continues to deteriorate. By the end of the century, total agricultural production in the region could fall by 21% compared with a 2000 base (OECD/FAO, 2018).

 This is happening in the context of relatively high food insecurity and malnutrition. In 2022, 13% of the Arab population was undernourished (24% in conflict countries) and 15% of children under the age of 5 were stunted (FAO, 2023).

The region’s high dependence on imports of staple foods – and hence its vulnerability to shocks affecting international markets – will continue to increase, further complicating the food security situation. Trying to eliminate import dependence and achieving self-sufficiency in staple foods will not work and could lead to negative results as those crops tend to be the largest consumers of scarce water.

A regional initiative for food and water security under climate change should accept that the region will continue to be a major importer of staple foods. It could try to achieve three objectives.

First, it should ensure unhindered access to imported food even in times of crises. This could be done by diversifying sources of imports, developing joint procurement and building a regional food security reserve.

Second, such an initiative would increase food and water supply. To achieve this objective, it is necessary to increase joint investments in research and development (R&D) on arid agriculture, to carry out joint cross-border agricultural investments in the region and beyond, and to invest jointly in projects to increase the water supply. It will be vital to use investment techniques, such as outgrowers’ schemes, that avoid any hint of ‘land grab’ as happened during the food crisis of 2007-08.

Third, the regional initiative should improve the efficiency of land and water use. Current policies in the region are leading to a waste of water and a sub-optimal use of scarce agricultural land. There is a need to develop harmonised regional policy frameworks that will provide incentives to use water more efficiently and maximise revenue per hectare of agricultural land.

As globalisation stalls and the world breaks up into blocs, it is important for Arab countries to enhance their cooperation and integration. The region is facing serious existential challenges, especially in the areas of conflict and fragility, and food and water security. Through joint initiatives and programmes, the Arab world could overcome those threats and look forward to a better future.

Further reading

Bodea, C, and I Elbadawi (2007) ‘Riots, Coups and Civil Wars: Revisiting the Greed and Grievance Debate’, World Bank Policy Research Working Paper No. 4397.

De Waal, D, S Khemani, A Barone and E Burgomeo (2023) ‘The Economics of Water Scarcity in the Middle East and North Africa: Institutional Solutions’, World Bank.

FAO, IFAD, UNICEF, WFP, WHO and UNESCWA (2023) ‘Near East and North Africa – Regional Overview of Food Security and Nutrition: Statistics and Trends’, Cairo.

Fischer, S, and M El-Erian (1996) ‘Is MENA a Region? The Scope for Regional Integration’, IMF Working Paper.

Furness, M, and B Trautner (2020) ‘Reconstituting Social Contracts in Conflict Affected MENA Countries: Whither Iraq and Libya?’, World Development 135.

Goldberg, P, and T Reed (2023) ‘Is the Global Economy Deglobalizing? If so, why? And What is Next?’, Brookings Papers on Economic Activity Spring: 347-96.

IMF (2024) ‘World Economic Outlook – Steady but Slow: Resilience Amid Divergence’.

Obstfeld, M (2024) ‘Economic Multilateralism after Bretton Woods’, Peterson Institute of International Economics Working Paper 24-9.

OECD/FAO (2018) ‘OECD-FAO Agricultural Outlook 2018-2027’, Paris and Rome.

Paul, TV (2023) ‘The Specter of Deglobalization’, Current History 122(840): 3-8, University of California Press.

World Bank (2020) ‘Trading Together: Reviving Middle East and North Africa Regional Integration in the Post Covid Era’.

Most read

Labour market effects of robots: evidence from Turkey

Evidence from developed countries on the impact of automation on labour markets suggests that there can be negative effects on manufacturing jobs, but also mechanisms for workers to move into the services sector. But this narrative may not apply in developing economies. This column reports new evidence from Turkey on the effects of robots on labour displacement and job reallocation.

Global value chains and domestic innovation: evidence from MENA firms

Global interlinkages play a significant role in enhancing innovation by firms in developing countries. In particular, as this column explains, participation in global value chains fosters a variety of innovation activities. Since some countries in the Middle East and North Africa display a downward trend on measures of global innovation, facilitating the GVC participation of firms in the region is a prospective channel for stimulating underperforming innovation.

Food insecurity in Tunisia during and after the Covid-19 pandemic

Labour market instability, rising unemployment rates and soaring food prices due to Covid-19 are among the reasons for severe food insecurity across the world. This grim picture is evident in Tunisia, where the government continues to provide financial and food aid to vulnerable households after the pandemic. But as this column explains, the inadequacy of some public policies is another important factors causing food insecurity.

Sustaining entrepreneurship: lessons from Iran

Does entrepreneurial activity naturally return to long-term average levels after big economic disturbances? This column presents new evidence from Iran on trends in entrepreneurship among various categories of firm size, sector and location – and suggests policies that could be effective in promoting entrepreneurial activities.

Intimate partner violence: the impact on women’s empowerment in Egypt

Although intimate partner violence is a well-documented and widely recognised problem, empirical research on its prevalence and impact is scarce in developing countries, including those in the Middle East and North Africa. This column reports evidence from a study of intra-household disparities in Egypt, taking account of attitudes toward gender roles, women’s ownership of assets, and the domestic violence that wives may experience from their husbands.

Manufacturing firms in Egypt: trade participation and outcomes for workers

International trade can play a large and positive role in boosting economic growth, reducing poverty and making progress towards gender equality. These effects result in part from the extent to which trade is associated with favourable labour market outcomes. This column presents evidence of the effects of Egyptian manufacturing firms’ participation in exporting and importing on their workers’ productivity and average wages, and on women’s employment share.

Do capital inflows cause industrialisation or de-industrialisation?

There is a clear appeal for emerging and developing economies, including those in MENA, to finance investment in manufacturing industry at home with capital inflows from overseas. But as the evidence reported in this column indicates, this is a potentially risky strategy: rather than promoting industrialisation, capital flows can actually lead to lower manufacturing value added and/or a reallocation of resources towards industries with lower technology intensity.

Financial constraints on small firms’ growth: pandemic lessons from Iran

How does access to finance affect the growth of small businesses? This column presents new evidence from Iran before and during the Covid-19 pandemic – and lessons learned by micro, small and medium-sized enterprises.

The economics of Israeli war aims and strategies

Israel’s response to last October’s Hamas attack has led to widespread death and destruction. This column outlines the impact thus far, including the effects on food scarcity, migration and the Palestinian economy in both Gaza and the West Bank.

Happiness in the Arab world: should we be concerned?

Several Arab countries have low rankings in the latest comparative assessment of average happiness across the world. But as this column explains, the average is not a reliable summary statistic when applied to ordinal data. The evidence from more robust analysis of socio-economic inequality in happiness suggests that policy-makers should be less concerned about happiness indicators than the core development objective of more equitable social conditions for citizens.