In 1988 the leaders of Algeria, Libya, Mauritania, Morocco, and Tunisia gathered to lay the framework for what would later become the Arab Maghreb Union (AMU), a regional organization mandated with several responsibilities, the most prominent of which is to facilitate regional economic integration between the five North African states. Over the years, the AMU has sought to establish itself as a veritable trading regime on par with the European Union (EU) in terms of scope and depth, but the organization’s goals have not been realized, nor have the region’s economies come even close to the integration found between other regional organizations.
While its members or leadership might not be at fault, the AMU specifically, and regional economic integration in general, need a rethink as other opportunities present themselves in the near future. Caught between saving a defunct organization like the AMU or starting anew with Europe under the framework of a Mediterranean Union, North Africa’s economies, particularly those of Algeria, Morocco, and Tunisia, might choose to opt for the latter.
North Africa continues to lack the proper atmosphere for regionalization, witnessed by both disappointing trade data signaling continued low regional trade flows and evidence of a lack of political will to overcome differences. The politics of the region remain fragmented, land borders are still tough, if not impossible to physically navigate, and the tariff schedules from years ago are still standing.
Executive examined the failures and future of economic integration à la Maghreb, and offers this insight on the lack of regionalization and its causes, as well as future prospects for the region’s countries.
Political problems
Few regional organizations have suffered the same number of political setbacks as the AMU. In the 1990s, Libya withdrew from the organization after AMU member states recognized the UN-imposed sanctions on the country following the verdict of Libya’s involvement in the Lockerbie bombing.
Every economic organization has a regional champion, usually the biggest of a group’s economies or another determinant based on scale. In the 1990s, Algeria faced its own domestic political strife, including a civil war with Islamic fundamentalists and other issues of stability, leaving it too embattled to head the AMU. With Algeria out, Tunisia and Morocco failed to pick up the torch, nurturing instead their own trade relations with the EU. The lack of political will and economic readiness left the AMU effectively stalled between 1995 and 1999, when the organization existed only in name.
While a lack of political will is no longer ubiquitous, the reemergence of old conflicts is brewing. This could at any moment severely threaten a weak organization like the AMU. Mauritania and Libya are still sorting out their own tensions after a coup d’état launched against Mauritania in 2005, which the authorities effectively squashed and afterwards accused Libya’s security services of having been involved in. Algeria and Morocco continue to stumble over their territorial chessboard in the Western Sahara, with Morocco remaining accusatory over Algerian support for the Polisario Front’s struggle for independence. With the land border still closed between Algeria and Morocco after fourteen years, the AMU will have a tough time bringing about the free movement of the means of production between the two biggest economies of the AMU.
Grabbing globalization
For the twenty years after the AMU’s inception, the neo-liberal paradigm came to dominate international trade theories. After watching Europe strengthen its international position, developing markets scrambled to form unified entities to mimic the EU. Countries pursued a mixture of strategies to best maximize their position, but the EU format — starting with a small core of states and basing itself at first on intra-industry trade, only later moving towards notions of a regional politico-economic entity — proved the strongest of the possible options.
For the AMU, working “towards the facilitation of the free movement of individuals, goods, capital, and services” was the most economically relevant of its five initial mandates. The AMU’s common development strategy for the Maghreb added three more goals, including a free trade zone for goods and services, customs union and common market, as well as a fully-fledged economic union. Progress, however, has been kept on the backburner as member states continue to rely on overlapping bilateral agreements with each other. This keeps intra-Maghreb trade accounting for little as a proportion of aggregate trade figures.
This lack of regional integration has continued to push North African governments to look elsewhere, rather than to their Maghreb neighbors, to export, to import, and to tie themselves economically. European neighbors have historically accounted for higher trade levels with AMU economies, but with little power to bargain collectively for a better trade status with Europe, the organization’s countries continue to show little prowess in trade negotiations, receiving instead the policies chosen by states on the northern side of the Mediterranean, the most prominent of which being France and Spain.
The past five years were perhaps the best in terms of investment climate and political fervor for North African states, particularly those of Algeria, Morocco, and Tunisia, comprising French North Africa. However, the politics and inherent inability of AMU members led to an entity in name only, which left it toothless to establish a regional trading order. Having missed the past twenty years in catching the winds of globalization, can North Africa continue to pursue long term economic objectives of privatization, liberalization, and diversification as separate cells?
Skeletons in the closet
While recent AMU activity has centered on discussing the possibilities of an eventual monetary union and the creation of the Maghreb Bank of Investment and Exterior Trade, the organization has fundamental principles of economics that it must first address on the domestic front. The economic problems running rampant in AMU economies are posing a serious threat to any continued regionalization plans as countries have to be in good macro economic health and share similar figures for economies to merge and any customs union to become a success.
Algeria’s own internal troubles were highlighted by Abdulhamid Temmar, Minister of Industry and the Promotion of Investments, who believes “the transformation began 10 years ago. For this it was necessary to first assure the political and social stability, because we exited the 1990s from a very difficult situation.” Other AMU member states must keep this in the back of their mind and pursue regionalization within the framework used by the most successful organizations.
Among his ministry’s merits is its spending of around $30 million for local development in certain regions and to guarantee calm. As he noted, “We have partially reconstructed indispensable infrastructure. There were schools that had to be opened. There were necessary gifts to the poor and the most disadvantaged […] there was also macro economic stability and this is what we achieved between 2000 and 2004.”
Morocco’s Minister of Foreign Trade, Abdelatif Maazouz, believes that his country’s “biggest challenge is competitiveness and integration into regional economic groupings dynamic in order to cope with increasing global competition. Such a challenge can be met only through integration and the elimination of tariffs within the framework of a genuine free trade area guaranteeing the free movement of goods, services, capital and persons.” To this end, Morocco did support Algeria’s accession to the World Trade Organization (WTO), which Maazouz believes “is likely to boost bilateral trade between our two countries on the basis of WTO rules.”
More optimistically, however, countries in the region are pushing the right domestic plans for liberalization through privatization. Moves to liberalize telecoms and other markets has provided countries with more efficient systems and an influx of foreign capital to use in financing industrial diversification. Plans to establish off shoring sites for European firms as well as research and development (R&D) centers, is refreshing news from a region which has relied to a large extent on its natural resource abundance, in phosphates and hydrocarbons. While hydrocarbon prices have boosted export to import ratios — accounting for 243% in Algeria, 58% in Morocco, and 83% in Tunisia — price levels are not guaranteed forever.
Inter and intra Maghreb trade
Data indicates a boom is occurring in aggregate bilateral trade between Maghreb countries, but while the numbers look great on their own, intra-Maghreb trade is limited.
In 2006, Morocco registered an export growth of 13.5% to Algeria, 77.3% more to Tunisia, 17% more to Libya, and 32% more to Mauritania. On the import side, Morocco imported 26.8% more from Algeria in 2006, 6.4% from Tunisia, 31.7% from Libya, and 47% from Mauritania. But while these figures may suggest booming intra-Maghreb trade, they pale in comparison to Morocco’s trade figures with their main commercial partners, most of whom are European, as well as others, including the United States, Turkey, and Saudi Arabia.
Figures kept by the United Nations note the high tariffs applied to products imported to the Maghreb, hitting 21% in North Africa for trade partners holding most-favored nation (MFN) status. This figure dwarfs that of tariffs Asia applies to its imports, at 10.8%, as well as the 9.5% in Latin America. Morocco also decreased average tariffs by 57% in recent years and 65% for maximum tariffs over a ten year period, while Algeria and Tunisia decreased their average tariffs by 20% and 30%, but these drops imply only a growth in intra-regional trade, but not at the levels which could be achieved if the countries joined under the AMU and allow the supranational body to determine trade policy.
In fact, North Africa accounts for the lowest global intra-regional trade figures at only 3%, less than one-third against the 9.5% level for the next highest, the Common Market of Eastern and Southern Africa (COMESA), and much below the best performing area for intra-region exports, the EU, at 70%.
On the country level, the most popular bilateral trade in North Africa is not even within the confines of francophone Maghreb, where countries with shared languages, recent history, and geographical proximity would have a natural propensity to partner and trade. Libyan-Tunisian bilateral trade characterizes the highest figures of intra-AMU bilateral trade. Equalling $750 million per year, the trade is mostly in food, manufacturing, and fuel, and to a large extent determined by Tunisia’s relatively small economy and proximity, while Libyan fuel is in abundance. The second strongest of the AMU’s bilateral relationships is that of Algeria-Egypt trade, nearing $350 million, but composed largely of Egyptian exports to Algeria.
Intra-Maghreb investment flows also remain weak as Algerian, Moroccan, and Tunisian firms find little interest in the industries of their counterparts. This dynamic is also exacerbated by Gulf petrol dollars, which continue to make their way westward in new projects, throwing their capital into the support of, primarily, housing and tourism infrastructure development, but additionally, into downstream industries and related sectors in infrastructure development.
According to Morocco’s Ministry of Economy and Finances, “the revival of the Arab Maghreb Union could constitute a powerful lever for credible partnership with the European Union and enhance the attractiveness of the region for foreign direct investment, through its positive effects on regional stability and the expansion of the market size [of 80 million consumers].” The Ministry added however that although there is “an obvious complementary between the economies of the Maghreb, intra-Maghreb economic and commercial exchanges remain weak compared to their trade with the European Union.”
With common associations with other global players, including partnerships with the EU and the entry of Algeria to the WTO, where it will join both Morocco and Tunisia, North African countries seem to be focusing on opportunities in other global neighborhoods rather than those in their own region.
Maazouz also believes Algeria’s WTO accession and the bilateral trade it should promote with Morocco, which is already a WTO member, “will contribute to the strengthening of the Arab Maghreb Union and facilitate the construction of the free trade area Maghreb.”
Natural or unnatural partners?
Beyond these basic macro economic goals and the stability all member states must achieve before they can move forward, there are also questions of the complementary regional tradition of relationships and whether separate North African states are effectively natural partners. By specializing in the same industries, Maghreb countries are effectively ruling out the complementary natures of their trading relationships. In theory, the AMU would be an effective organ, as are other trading blocs, in harnessing specialization in agricultural production, accommodating member states under a bloc in setting prices on international markets.
Instead, the lack of an effective AMU has left states to pursue their own bilateral trade policies, most of which are through EU member states as Moroccans do not need to buy Algerian fruit or Tunisian textiles when they have an industry and costs are cheaper within their own borders.
Although integration prospects remain weak, the idea is certainly merited by theoretical underpinnings, as noted by the World Bank, which maintains that an AMU-like organ could foster a two-pronged support for economic growth, including scale and competition effects as well as “hub-and-spoke” effects through the Maghreb countries’ continued trade with Europe.
The Bank believes “Maghreb integration would create a regional market of more than 75 million consumers, similar in size to many leading trading nations and sufficiently large to exploit economies of scale and make the region more attractive for foreign investment.”
Maazouz maintained that “Morocco has always integrated regional dynamics in its strategy of developing trade relationships through preferential trade agreements with the countries of the AMU.” Highlighting Tunisia as the prime case of Morocco’s regional relations he noted that, “if trade relations with Tunisia have evolved from a classical preference towards free trade in line with WTO agreements as well the vision of free trade adopted from the framework of the Barcelona process, those of other countries remained governed by conventional commercial tariff agreements.” He explained that other bilateral relations with AMU members are “pending the adoption of the proposed free-trade zone being negotiation between countries in this grouping.”
Advice for revival
The impact of business on politics was apparent for EU-watchers when the European Coal and Steel Community was to a large extent the creation of industrialists in France and Germany. If the Maghreb has any plans to revive the AMU, it could follow Europe’s example, exemplified in the calls by Morocco’s Ministry of Economy and Finances upon AMU members to “develop synergies among private partner countries.”
Recent examples of private, intra-Maghreb partnerships include the 2007 creation of the Union of Maghreb Entrepreneurs as well as temporary institutions, like a proposed think-tank aimed at strengthening the Morocco-Tunisia partnership ties. Often, ad hoc bodies, if they prove useful, are further extended or formalized.
Financial integration could be another way to ensure similar, Maghreb-wide standards in the financial services industry with the aim of facilitating export promotion and large project financing.
The IMF has recently been working on two related products: harmonizing regional payment systems and banking regulations, as well as strengthening the relationships between financial regulators and operators. According to the Ministry of Economy and Finances, “some short-term measures could be implemented and play the role of catalyst for a deeper financial integration.
“These measures would reduce the financial barriers to intra-regional trade by simplifying administrative formalities applied to the banking transactions related to trade and reduce the cost and number funding tools of trade. In addition, it is necessary to remove the stress of transport, a basic factor determinant of boosting trade”.
European Commissioner for External Affairs Benita Ferrero-Waldner believes that “a more effective functioning of the AMU would strengthen Algeria’s relations with the EU. Algerian companies would be better equipped to trade with the EU if they had the possibility to benefit from the economies of scale of the larger AMU market. In addition, the negotiating power of the AMU would certainly be stronger than that of each of its individual participating countries. By stimulating trade, a successful AMU would also underpin the structural reforms necessary for achieving faster growth.”
Maazouz is still convinced that “the Arab Maghreb Union is an important economic potential which should enable the five member countries to cope with globalization and to position itself in a strong and credible relationship vis-à-vis other regional groupings such as the European Union. Morocco remains committed to the AMU and optimistic about its future.”
As French President Nicholas Sarkozy announced plans for a Mediterranean Union and the merits for such an organization, the main question left for AMU member states is which organization they will choose first. Based on the evidence, the progress to date and a European penchant for regionalization, what is left of the AMU will most likely continue to be phased out for better options.
Mediterranean Union or the AMU?
While intra-Maghreb integration has remained stalled since its inception, losing ground against the movement of time, inter-Maghreb integration is showing progress, manifesting itself in such treaty regimes as the Agadir Accord, the Greater Arab Free Trade Area, a host of bilateral deals, and most recently the idea of a Mediterranean Union as proposed by French President Nicholas Sarkozy as a formal trading organization integrating the economies of the European Union and of those states bordering the southern rim of the Mediterranean Sea, including Morocco, Tunisia, Algeria, and Libya, not to mention the economies of the Arab countries in the Eastern Mediterranean.
The formalization of an organization to supersede bilateral trading agreements remains the most likely path through which regional economic integration among the countries of North Africa will occur. Regionalizing isn’t zero-sum, in that acceding to a Mediterranean Union comes at the detriment of the AMU, but Maghreb economies will most likely still opt to associate with Europe in the short term, which will lead to a formalized partnership in the long term.
Spain, France, Italy, and others along the northern rim of the Mediterranean have long pursued strong trade policies with their southern neighbors, reflecting the benefits of a strong Euro abroad, historical trade ties, and the prospects of North African liberalization, which has presented firms with a host of off-shoring opportunities in Morocco and Tunisia.
Trade figures bolster these dynamics, denoting that 17% of Algerian exports were destined to the Italian market, 10% to Spain, 9% to France, and 4% to Belgium. On the import side, Algeria’s appetite brought 22% of the country’s total imports from France, 8.6% from Italy, 6% from Germany, and 6% from Spain. Tunisia’s figures mimic those of Algeria, with the European Union’s appetite for Tunisian exports standing at 80% of Tunisia’s total exports, while Tunisia imported 69% of their total from Europe.
More than geo-strategy
Sarkozy’s proposals for a Mediterranean Union during the 2007 French presidential elections is likely to mean more than just a pipedream driven by geo-political desires, but evidence does point to the lacunae left by Europe relative to other major economies and the relationships they maintain with their spheres of influence.
Although Zbigniew Brzezinski foresaw a growing role for France in maintaining its hold of the North African “cluster of states” in the late 1990s, there is a growing body of evidence that globalization has fostered a strong domestic position for the European Union, but without the same type of geo-strategic clout the US and China have gained. European FDI flows to Mediterranean economies remain meager, comprising only 1% of total European FDI, against 17% of the US’s FDI to Central and Latin America and 20% of Japan’s FDI to countries encompassed within their regional periphery of East Asia.
Pundits also criticize the idea of a Mediterranean Union, holding it in suspicion as a consolation prize for Turkey if the country grows tired with its seemingly endless EU accession plans, but plans to regionalize the Mediterranean could foster the sort of union needed by North Africa in any regional organization.
The idea includes plans to extend and deepen trade ties and promote cooperation in developing countries along the southern rim through institutions such as a Mediterranean Investment Bank, modeled after the European Investment Bank. Further details will likely be announced in July when Paris will host a Euro-Mediterranean summit to formally establish the Union. France’s Sarkozy is likely to partner with Egyptian President Hosni Mubarak, who will lead the southern side of the Union from its base in Tunis.
Regional stability was addressed in a 2008 report by Morocco’s Ministry of Economy and Finances, which noted of the most detrimental threats were: “Instability in the price of petroleum for importing countries and geopolitical instability, above all for most in the countries of the southern Mediterranean, who founded their development strategies on the attraction of foreign capital and the development of tourism.
“In total, the international environment was globally favorable for the national economy in 2006. In particular, the rebound of growth in Europe, our principal commercial partner, has strongly supported foreign demand addressed to Morocco, which has evolved to a rate of 7.1% against 6% in 2005.”
Ferrero-Waldner stated in April that Morocco could play a leadership role in the Mediterranean Union, underscoring that “Morocco expressed a great political will to lead at the beginning.”
The will expressed by Morocco includes with it possibilities for enlarging cooperation with the EU, a larger liberalization of trade, political dialogue supporting neo-liberal growth theories and strong association of theory with communal foreign and defense policies.
