Abstract:

In this paper we are interested in the new partnerships offered by the European Union to its neighbours on the southern shores of the Mediterranean. We try to focus on the economic relations between the two shores of Mediterranean. We suppose that Barcelona Declaration, 1995 has improved the trade balance; (export–import) between Med countries and EU. We also suppose that, the foreign direct investment (FDI) has been increased in Med countries by EU.

 

In the 1990s, we have witnessed two important phenomena developing side by side on the world scene. Multilateral trade liberalization, on the one hand, and the formation of huge regional trade blocs amongst the developed countries, such as the EU and the North American Free Trade Agreement (NAFTA), on the other. Multilateral trade liberalization efforts on the global scale have continued on a regular basis within the framework of the World Trade Organization (WTO). But these efforts, particularly the efforts of the EU countries to launch a new round of trade negotiations to enlarge the scope of the WTO agreements and to place new areas like trade and labour standards, investment issues, competition policy, government procurement, etc., on the WTO agenda have increased the worries of the developing countries about the future of the world trade system. Especially before and during the Third Ministerial Conference that met in Seattle in December 1999, the developing countries, including the Med countries, openly stated their dissatisfaction with the present structure of the world trading system. Furthermore, they wanted the international community to intensify its efforts to solve the problems of developing countries. Gains from multilateral trade liberalization in developing countries were negligible and in the case of some of those countries, in particular the least developed countries, their economies were marginalized [Oker Gürler: 2001,p.4].

Current economic relations between Med countries and the EU have their foundation in cooperation agreements dating from the 1970s. The original agreements were unlimited in duration, and provide duty-free access to EU markets for industrial goods, and preferential access for agricultural commodities. The Barcelona conference in 1995 revised economic relations, changing these agreements to association agreements, and providing for the establishment of a Free Trade Area in 2010. The major policy issue facing many countries in the southern Mediterranean region is to follow the rest of the world in liberalizing, privatizing and deregulating markets [Hoekman, Bernard: 1996,pp.12-14. In this paper we try to focus on the economic relations between the two shores of Mediterranean. This paper is divided into two sections as follows: trade balance; export–import; and foreign direct investment; technology transfer of EU in Med countries.

 Trade Balance Export, Import Between EU and Med

1.1 European Union-Mediterranean Countries Trade

This section briefly describes recent development in MENA trade with EU, exploring the impact of measures to open the economy to international trade. Many countries in the Med region started reforms in the late 1980s; the level of state intervention in the region was high. Some Med countries have successfully progressed in their economic reform programmes. A basic tenet of the economic reform efforts undertaken in the last decade in these countries has been that reform be gradual. Given that gradual trade reform has often not been accompanied by actions to significantly reduce the role of state in the economy, reform efforts have had a limited impact in terms of effectively increasing competition on product market [Hoekman, B: 1995,p.13]. This section focuses on the recent trade performance between the EU and Med – table one summarizes the value of trade, the growth, and the market share in EU. The Med countries have a population of about 229 million, about 1.6 times less than the EU and 1.3 times more than the 13 countries that have applied for membership of the European Union. By way of further comparison, the GDP per capita of the wealthiest Med partner countries in 2000 was Euro 9 900 for Malta, 14 200 for Cyprus and 19 100 for Israel. The figures for Portugal and Greece were 11 400 and 11 500 respectively. Apart from Turkey and Tunisia, the other Med countries were all below EU 2000 per capita [Eurostat: 2000,p.105].

Table One:

Med Exports to EU, 1998 and 1994(ECU million)(1)

(1) This data represents non-oil exports to EU. Source: Eurostat, Comext, Database.1989-1994.

The previous table presents some facts about MENA exports to the EU, which shows that there is some significance growth in the case of Jordan, Syria, and Tunisia more than 10%, while the growth in the case of Lebanon, Israel, Egypt, Morocco, Algeria, less than 10%.

The contribution of trade to GDP (sum of imports and exports in relation to GDP), or the degree of openness varies considerably from the economy to another. In 2000 Malta had by far the most open economy of the Med countries, followed by Tunisia, Jordan and Israel. Overall trade grew faster than GDP in most of the countries between 1991 and 2000, thus increasing the degree of openness. The EU is the leading trade partner of the Med countries, accounting for 45% of total Med country trade in 1999. The Maghreb countries are particularly reliant on Europe; for example, EU accounted for three quarters of Tunisia’s total trade in 2000. Lebanon, Jordan, and the Palestinian Authority traded least with Europe. EU had a similar trade position with most of the Med countries back in 1991, and with exception of Malta there have been no dramatic changes since then.

In 2000 the trade flows between the EU –Med countries were greater in value than the EU- China or EU-Japan. The Med countries accounted for 8% of the European Unions total extra –EU trade in 2000.  

 

Table Two: Degree of openness and converge

Ratio in %1991         2000*  1991           2000**

                                                            Degree of openness     Converge ratio

(Imp.+Exp)/PIE)            (Exp./Imp.)

Source: rates calculated using figures supplied by the Countries

* Jordan, Lebanon, Syria, Palestinian: 1999 figures

**Lebanon, Syria, Palestinian: 1999.

1.2   The Main Partners for EU in Med Region

The European Union is traditionally the main partner of the Med countries. In 2000 this group of countries was more important than others for total trade with EU. Between 1994 and 2000 trade between the two regions doubled in value, rising sharply in 2000. The EU traditional trade surplus with Med countries has been stable since 1999. France was the member state that contributed most to the surplus in 2000. Since the energy exports, Algeria, and Syria had trade surplus with EU. Turkey, Israel and Algeria are the European Union’s three main trading partners among the Med countries. The member states that are most involved in trade with Med 12 countries are Germany, France and Italy [Stephan, Q: 2001,p.7]. In 2000 as in 1990, trade between EU and Med countries was dominated by three groups of products: energy, machinery, and transport equipment. The EU’s biggest trade surplus with Med was for machinery and transport equipment. On the other hand the Med countries have surplus with EU for energy and miscellaneous products (clothing, footwear and furniture). Between 1994 and 1997 there was a steady increase in trade between EU and Med. There was a slowdown in 1998 and 1999 before a sharp recovery in 2000 [Tim, A: 2001,pp.1-10]. 

Overall trade between the two groups followed the same pattern between 1994 and 2000 as trade between the Med countries and the rest of the world. Expressed in Euros, trade between Med and EU doubled over the period to reach 151 million for trade between the five leading countries (the three Maghreb Countries, plus Israel and Turkey and EU), which accounted for 80% of trade between the two groups. In the case of Med exports to the EU, there were some big increases in volume terms between 1995 and 2000: +80% for Turkey,  +72% for Israel, and +20% for the Maghreb countries. With regard to Turkey and Israel, the growth value of export to EU mainly reflects the increase in volume terms. It can be seen, however, that since the end of 1999, in the case of Israel the rise in export prices has contributed to the increase in trade in value terms. In the case of the Maghreb countries (Algeria, Tunisia and Morocco), however, the trends are more complex. Exports rose in value terms by 80% between 1995 and 2000, whereas in volume terms the increase was only 20% [Stephan, Q: 2001,p.4].

Changes in the prices of exports to the EU had a big impact on the figures value. Subsequently, from the end of 1999, prices rose sharply, with the result that exports showed sharp increases in value terms. Compared with these fluctuations in value terms, growth in volume terms has been fairly steady since the end of 1996. Raw material and energy products account for about 70% of Algeria’s exports to EU. The next table illustrates the variation of trade between Med countries and EU.

The Maghreb countries’ export prices have thus been strongly affected by fluctuations in the prices of these products, especially oil and gas. Between 1994 and 2000 the imports of Med countries from the EU multiplied by 1.7 in value terms. For the five leading Med partners, this increase was a relatively accurate reflection of the rise in imports in volume terms. That showed that the Med countries import more than export, which increases the trade deficit with EU. Since the start of 1999, however, the price rises have been more vigorous, which means that the import figures in value terms have tended to rise since 2000. According to the initial estimates, imports by the Med seemed to slowing down at the beginning of 2001. Between 1994 and 1998 the trade deficit of the Med countries with the rest of the world, as with the EU countries, constantly grew. The deficit has stopped growing since 1999, partly because of the change in export prices mentioned above.

In 1999 the Med countries’ deficit with the European Union accounted for about half of their total deficit. The total external trade of the Med countries increased in euro terms in every country, apart from Syria, between 1995 and 2000. The feature of 2000 for most countries was the much sharper increase in trade than the previous years. In 2000 the EU’s three main partners among the Med countries were, in order of importance, Turkey, Algeria and Israel. These three countries accounted for almost two thirds of the total EU-Med trade. Until 1999 Israel was the EUs second biggest partner, both as customer and as supplier. Between 1999 and 2000 Algeria was the country that saw the biggest increase in trade, taking over second place as the EUs partner. Algeria and Syria were only two countries that recorded a trade surplus with the EU. The two countries profited from the rise in prices of their main exports: oil and natural gas. Among the Med countries, Turkey has the biggest deficit with EU, next comes Israel. Table three illustrates the main Med partners for the EU.

 Table Three:  EU Countries trade with Med partner Countries ( EUR     bn)

Import                  Variation    Export            Variation    Balance

        1995   1999   2000   98/99    99/00         95      99       00    98/99  99/00  99      00

                    Source: Stephan, Q. (2001), Eurostat 2001.

1.3 The Main European Partners

Germany. France and Italy are traditionally the main European Union partners of Med. Together, they account for nearly two thirds of total EU-Med trade. This situation reflects the historical links between their particular geographical positions. Of the three, it was Italy which recorded the biggest increase +41% in trade with Med in 2000. Given its size, Greece traded much less with Med countries. In 2000, however, they accounted for about 10% of total Greece traded, matching the figure for France, Italy, and Spain. Med was much less important for the other member states. In 2000 the United Kingdom and Spain ranked fourth and fifth EU importers. The member states in the north of Europe (Ireland, Denmark, Sweden and Finland) play a smaller part of the EU-Med Trade. With the exception of Portugal, all the member states export more they import form the Med countries. The biggest trade surplus in 2000 was achieved by France, followed by Germany [Tim, A: 2001,pp.1-10].

Table Four:  Med Countries Trade with EU member states (EUR bn)

Import                  Variation    Export            Variation    Balance

                 1995   1999   2000  98/99    99/00         95      99       00    98/99  99/00  99      00

EU- 15   32.1      47.2  64.5    11.1     36.7         50.5   69.4     86.5    2.0      24.7   22.2  22.0

                   Source: Stephan,Q. (2001), Eurostat 2001.   

1.4 Trade by Product

There has been no dramatic change in the structure of the EU-Med trade product group since 1990. In 2000, just as it was ten years earlier, trade between the two regions was dominated by three groups of products: energy (SITC 3) miscellaneous manufactured articles (SITC 6+8) and machinery and transport equipment (SITC 7)- (see tables six and seven). In 2000 trade in these three groups accounted for more than 80% of total EU-Med trade, with machinery and transport equipment (STIC 7) providing the Unions biggest surplus. On the other hand, the Med countries were in surplus with regard to miscellaneous manufactured articles ( SITC 8), clothing, footwear, furniture, etc) and energy products (SITC 3) [Stephan, Q: 2001,p.8].

 1.  Trade in Energy Sector

Energy was the biggest surplus item. This surplus was mainly due to Algeria and, to a lesser extent, to Syria and Egypt. In 2000, these three countries accounted for 94% of the Med energy exports to the EU; oil accounted for two thirds and natural gas accounted for one third of these exports.  Among SITC 3 products, for these three countries, the biggest surplus was for oil.  Algeria exported almost 70% of the energy products that the Med sold to the EU. This figure reveals how dependent the Algerian economy is on the price of oil. Energy is also the product group which showed the biggest increase in trade between 1995 and 2000. But the big variations in value terms are the result of fluctuating prices.

2.  Machinery and Transport Equipment 

The second product group that made solid progress was machinery and transport equipment. Israel and Turkey were the EUs biggest partners for trade in this product group. Turkey alone accounted for nearly 40% of the total trade in transport equipment between EU Med trade. This reflects the astonishing development of Turkey’s car industry in the 1990s. Ten of the 12 Med countries recorded their biggest deficit with EU countries for goods in this group, which are mainly capital – intensive goods. In 2000 Israel was the only Med country which recorded its biggest trade surplus with EU countries for product in SITC 7: telecommunications equipment SITC 7,6. This reflects not only the strong demand emanating from the EU, but also the rapid development of this sector and the hi-tech products in Israel. Table Five presents some data about trade between EU and Med countries by product group.

Table five: European Union Trade with Med Countries by Product Group in (Eur bn)
Import                            Export                         Balance
Code                              Value         Variation      Value          Variation
     SITC  Product group      2000    99/00        95/00     2000       99/00          95/00     1995    2000

                      Source: Eurostat. 1995-2000.

1.5 EU Clothing Exports

Tunisia, Morocco and Turkey make up the group of countries that are the most involved in trade in miscellaneous manufactured articles. Their biggest surpluses, in the first or second place, with EU. The same applied to Malta, Syria and Egypt. Morocco and Tunisia recorded their biggest deficit with EU for textile yarn and fabrics. This suggests that the textile industries in Morocco and Tunisia export to Europe clothing partly manufactured from yarn and fabrics imported from the EU.

  The structure of trade by products reveals the importance of the textile industry for the economy of the region.  Overall in 2000, it enabled the Med countries to achieve their second biggest surplus with the EU. Trade in agriculture products provided EU with surplus in 2000. However, in the case of Morocco, Israel, Cyprus, and Turkey, the biggest or the second biggest surplus with EU came from trade in fruit and vegetables. In connection with the creation of the EU- Med Free Trade Area, association agreements and customs union agreements have already been signed between the EU and Med countries. The free trade area will allow the free movement of manufactured goods and a gradual liberalization of trade in agricultural products.  The Med countries are also involved in liberalizing trade among themselves.  In this regard, international trade in Euro –Med region should continue to expand. This table illustrates the share (%) of each Med country in trade in main products with EU.

         Table Six: Share (%) of each Med country in trade in main

Products with EU countries

Export                                       Import

Machinery &     Misc                         Machinery &          Misc

Transport         Manufactured              Transport             Manufactured

Energy       Equipment      Articles        Energy     Equipment   Articles

                    (SITC 3)        (SITC 7)    (SITC 8)     (SITC 3)    (SITC 7)     (SITC 8)

                                  Source: Stephan, Q. (2001), Eurostat 2001.     

Foreign Direct Investment: EUs In Med Countries

 2.1     Explanation of the Foreign Direct Investment.

One of the striking features of LDC economies is their inability to attract foreign direct investment (FDI), despite - very often - their genuine potential. The volume of foreign assets invested in the LDCs remains globally insignificant. And this has to be seen in the context of globalization, where economic interdependence has a tremendous influence on economic growth - and even on the economic take-off of countries trying to develop. The dearth of private capital, therefore, further accentuates the way they lag behind. Poor countries do not attract enough foreign investment to enable them to achieve the growth that is essential to their development. Not surprisingly, those attending the third UN conference on the Least Developed Countries (LDC III) called for more private capital to flow towards them [LDC: 2001,p.14].

The problem of direct foreign investment in the LDCs is so important that it needs to be put into its proper context. This in turn compromises opportunities for genuine integration into the world economy. According to a new UNCTAD study on FDI flows to the LDCs, the latter attracted barely one half of one per cent (approximately $5.2 billion) of global investment in 1999. Their share in the total investment received by the developing countries increased from an average of 2.2% in 1990 to a maximum of 2.4% in 1999. This is disappointing in view of the fact that private investment in developing countries overall has constantly increased in recent years. In absolute terms there has been a substantial increase in flows of private capital into the LDCs in the last decade, as the value of private investment in the LDCs was a mere $600 million in the early 1990s. In 27 LDCs the growth of FDI has been 20% during this period. But this evolution should not be allowed to mask the disappointing global performance levels achieved by the LDCs in some countries  - though the situation varies greatly from one country to another [Kenneth, Karl: 2001,pp.8-9].

Benefits of FDI

The harshness of the battle among developing countries to attract FDI is nowadays unquestionable, because of the numerous benefits that it can bring. For this reason development-aid bodies are increasingly trying to promote FDI in the LDCs. While it is not a panacea, foreign direct investment does offer the advantage of providing considerable financial flows to the recipient countries and of creating wealth in them. In view of the increased scarcity of public aid and the problem of financing development, raising the level of private foreign investment could make a considerable contribution. But the current contribution of FDI to the formation of capital, taking the LDCs as a whole, is below the 10% bar. FDI can also offer poor countries interesting opportunities in terms of technology and the transfer of know-how, enabling them to convert their comparative advantages into competitive advantages. The lack of industrialization in the LDCs, and their difficulties in profiting from the recent technological boom in the tertiary sector, further legitimises the role of FDI as a catalyst. FDI brings employment. It also provides motivation through the effects of formal and informal training which arise from subcontracting and domestic investment. On a macroeconomic scale, foreign investment promotes an increase in production and income in LDCs and contributes to essential diversification [LDC: 2001,p.10].

What’s preventing investment?

According to neoclassical theory, flows of private capital should move towards countries where the stock of capital is relatively low and where their marginal performance is highest. On this basis the LDCs should have been the focus of attention for foreign investors. But there we have it! Economic reality does not always obey theory, and investment in the LDCs has remained low. Although there is real potential in certain LDCs to attract FDI, the risks and obstacles to increasing flows of private capital are equally great. There are also differences between countries to take into account. Decisions to invest follow from analyses of factors like risk and opportunity, profitability and security. Without either stability or predictability, the political and institutional, as well as the legal and regulatory frameworks within which investment evolves may prove to be a disincentive. This is still the case in several LDCs. The economic environment is also characterized by constraints such as the limited size of markets and their low growth rate, inadequate infrastructures or the lack of assistance to the private sector. The high level of administrative costs and poor governance are also dissuasive factors. Add to these the absence of efficient financial intermediation, resulting from the weakness of domestic financial systems. Then add a whole series of other negative external parameters, such as problems of access to world markets, basic-product price instability, debt, the dysfunctional nature of international capital markets and so on. We then begin to understand the nervousness shown by foreign investors. They regard the LDCs as very risky – particularly certain African ones, dogged by a poor image. Some factors, crucial to FDI, are beyond the control of governments. But there are others that are within their influence [LDC: 2001,p.11].

What can be done?

There are currently a number of initiatives in progress aimed at helping LDCs to set up a more attractive business environment. These initiatives aim to support structural reforms and to accelerate the process of liberalization. It is to be hoped that this will be properly managed. Certain LDCs have made tangible progress but they have not sparked off the anticipated decisive flood of investment. This confirms the need for a global approach. UNCTAD and the International Chamber of Commerce are providing technical support to improve the field of action for FDI and to highlight existing potential (through manuals, information brochures, an investment code and so on). Surveys are being carried out among trans-national companies to better identify the constraints. A number of actions were announced at the Brussels conference. Thus a technical assistance programme - mobilizing UNCTAD, UNIDO and two World Bank institutions – should soon be starting in pilot countries. Its aims are to increase, through joint action, the level of FDI in the LDCs and to help them maximize its benefits. Twenty-nine bilateral investment agreements have been signed between the LDCs and the developed or developing countries. Some countries, such as Sweden, have decided to support a new UNCTAD programme to increase countries’ ability to be attractive for FDI. The FDI is motivated primarily by the desire to get behind trade barriers [Kenneth, Karl: 2001,pp.11-12].

Other FDI is motivated by foreign investors seeking to exploit input or output markets located abroad in activities where operating a foreign affiliate seems the most efficient strategy. Some other investment projects may be undertaken to reap economies of scale or because of increased market competition.  The response to an integration agreement will depend on each individual case, and will reflect potentially offsetting influences. Theory does not offer definitive conclusions regarding the general impact of regional integration on investment [World Bank: 2001,p.16].

An important motive behind some FTAs, especially for participation by developing countries like Med, is the hope that they will attract significant foreign direct investment, FDI. Unfortunately, it is not at all clear that a simple FTA will accomplish this. On the contrary, there are at least two opposing forces acting on FDI when tariffs come down in an FTA, and it is the negative force that seems more likely to dominate in the Euro-Med context. The hope, of course, is that investment will be attracted to a country like Med countries, both by the desire to serve its now more thriving market and by the intent of using its cheap labor to export to the larger market of the FTA. The former may happen, but it depends on the other effects of the FTA being significantly beneficial, so that there is a thriving market to serve. If FDI is also being sought as the primary mechanism for raising incomes and market size, then this may not work.

As for attracting export-oriented FDI, this is even more questionable in the case of the Euro-Med agreements. With tariffs already zero into the EU, this motive for FDI should already have been present without the FTA, and the FTA does not particularly enhance it. In this section we focus on the foreign direct investment in Med region, particularly FDI in Med after ratification of the association agreements.

2.2 Changes in FDI Flows to the Med Countries

Are there any indications that Med have attracted more FDI to Tunisia, Morocco, Jordan Algeria, Egypt, Lebanon and Syria, these countries that have EMAs or are negotiating them? One may argue that it is still too early to assess the impact on FDI since some countries are still negotiating, but some attentive conclusions may still be drawn insofar as foreign firms could have shown some response as early as the start of negotiations. Such anticipation effects have been noticed elsewhere, notably in Mexico, when negotiations leading to the creation of NAFTA got off the ground [Blomstrom and Kokako: 199, pp].

In the case of Tunisia, which signed its first association agreement in 1995, an examination of investment flows during two periods, 1992-95 and 1996-97, points to a muted response from foreign investors.  Changes in flows over this periods show that the region has fact lagged behind in attracting FDI, in comparison with the whole group of developing countries where total flows increased by over 70 percent annually, from an annual average of $81 billion during 1992-95 to almost $ 1940 billion in 1996-79 [Mohamed, El: 2001,p.85].

The next table reveals the fact about the inflows in six Med countries namely, Egypt, Jordan, Lebanon, Morocco, Syria and Tunisia. Inflows to these six Med countries declined slightly, from an annual average of $ 1 728 billion to $ 1 662. Egypt, Morocco and Tunisia account for the bulk of FDI inflows to the region. Flows to Egypt and Lebanon experienced increases, whereas those to Tunisia, Morocco and Syria fell. Inflows to Jordan remained insignificant, both in absolute terms and a share of countries’ GDP. The ratio of FDI to GDP fell in greater proportions particularly in Tunisia where it lost one percentage point from 1992-95 to 1996-97. The region and the developing world as whole have thus experienced divergent trends, resulting in a shrinking share for the region, from an average of over 2.1 per cent in the first period to 1.2 per cent in the second. It is thus clear that the region has not taken part in the significant intensification of FDI flows that the world has experienced in recent years. The bilateral FTAs with the EU have not produced the expected stimulating effects on such flows.

 Table Seven: FDI flows to Med Countries 1992-97

$ Million annual       Percentage of GDP          Share in all FDI

average                                                          to developing

Countries        92-95          96-97             92-95             96-97         92-95           96-97

                              Source: World Investment Report, UNCTAD, 1998 and IFS yearbook 1998,IMF.

 2.3 Geographical Source of FDI

The EU, the main source of FDI inflows to Med countries, accounted for almost 75 per cent of FDI in Tunisia over the period 1989-92 and about 60 per cent in Morocco during 1992-95. The EU held almost half of the total FDI stock in Egypt as of 1995. The breakdown of these flows among European countries is very different across hot countries for reasons that do not always reflect cultural or historical cost ties. Italy was the principle source for Tunisia, accounting on average for over 41 per cent of the EUs share. This dominant position arose from contraction of the transcontinental gas pipeline carrying Algerian gas to Italy through Tunisian territory. France remained the main source for Morocco, with share of about 26 per cent in 1992-95. The UK emerges as the first European source of FDI for Egypt, although its share in total FDI stock did not exceed 11 per cent as the of 1995, as against over 20 per cent for the USA. Morocco and Tunisia sourced about 12 per cent of their FDI in the USA; Japan’s investment in the region has been marginal, except perhaps for Egypt, where it accounted for 5.6 per cent of the FDI stock in 1995.

The performance of the EU as a source of the worldwide FDI stands in sharp contrast with the Med countries. Although there are significant differences across European countries, the EU as whole increased its outbound investment more or less at the same pace as the USA and other developed countries, with flow during 1992-95 exceeding those of 1996-97 by about 36 per cent. France and Italy increased their total outflows by 19 per cent and 16 per cent respectively. As far as FDI of EU origin is concerned, bilateral FTAs have not generated the impetus that was expected when the agreements were signed.           

Table:  Eight

Geographical Distribution of FDI Inflows Into

Med Countries (percentage share of total FDI)

Country:        Egypt1995a, Tunisia 89-92 Morocco 92-95b

Note: a (FDI); b FDI flows Source: World Investment Report, UNCTAD, 1996.                                              

                           2.4 Scrotal Distribution of FDI to Med countries

The benefits of FDI vary according to the recipient sector. As an additional source of investment financing, FDI plays the same role regardless of its destination in the host economy. Benefits include the transfer of technology, organizational, marketing and development of skills etc.

Most FDI flowing to Med countries has found its way to the energy sector, tourism or light manufacturing with skill intensity, where low labor costs have provided the principle motivation. In Tunisia, the energy sector attracted three –quarters of total FDI in 1992-1995 and 63 per cent during the two years following the signing of EMA with EU. Two major products dominated FDI through 1997: the doubling of the trans gas pipeline and the local Masker natural gas project, with its heavy involvement of British Gas.  With completion of the two gas –related projects, the share of manufacturing rose from about 17 per cent in 1992-95 to 21 per cent in 1996-97, and that of tourism almost doubled.  The next table will illustrate the facts and figures.

In Morocco, small amounts of FDI have gone into the primary sector. The services sector received about two thirds of the total imports invested during 1992-94, and this share remained more or less the same in 1995. Two services activities attracted the bulk of the flows.

Privatization open to foreign participation accounts for the relatively large share of finance. Two major companies – a financial holding company and large bank – were privatized in 1994-95 with major foreign participation.  In Tunisia privatization moved slowly, and foreign participation stayed very modest. The pace accelerated only in 1998, with the sale of two cement plants to a foreign firm, totaling about $400 million, an amount close to total privatization receipts during the decade from 1987 to 1997. In Egypt, the petroleum sector had the lion’s share of the total FDI stock in 1995, and the financial sector accounted for 26 percent. Privatization has played a significance role in the rise of FDI in the last years.

                     Table Nine:  Scrotal Distribution of FDI Inflows into Med Countries

                                       Source: World Investment Report, UNCTAD, 1997.

Conclusion

The year 2000 was dominated by the instability of the Middle East region due to the negative consequences of the outbreak of violence resulting from the Palestinian-Israeli conflict. The interruption of the Middle East Peace Process has seriously jeopardized the benefits of the Barcelona process in this region and imposed limits on the development of overall regional cooperation. However, one of the achievements of the Marseille Conference in November 2000 was precisely to demonstrate the resilience of the Barcelona process. In spite of this dramatic context, the European Union was able to pursue a frank political dialogue and to take emergency measures, of which the most important was the establishment of a special cash facility of € 90 million to help the Palestinian Authority preserve its institutional framework. The economic highlight of the year 2000 was the further rise in oil prices, which had already started rising in the first quarter of 1999. The average price of oil per barrel in 2000 was $29. about 50% higher than in 1999. As a result, terms of trade for the region’s oil-producing countries improved considerably, and growth was boosted, particularly for net energy-exporting countries such as Algeria, Egypt and Syria.

The lack of spirit of partnership did not lead to a sufficiently frank and serious dialogue on crucial questions concerning universal human rights, prevention of terrorism or migration. At the same time certain Mediterranean partners are not sufficiently committed to speeding up the economic transition process and to introducing the necessary national reforms to comply with the Association Agreements. Also the volume of the exchanges between the Mediterranean partners (South-south trade), originally very weak, did not increase. The previous sections have illustrated that. Moreover, the investment level of the EU in the region remains low compared to investment flows in other parts of the world. The reason for this lies in the diversity of regulations, the inadequacy of the physical and administrative infrastructure and the lack of economic and legal transparency in commercial activity such as; the implementation of the MEDA programme was hindered by the complexity of the procedures. In spite of the priority given to the structural and adjustment in order to help the governments achieve economic and social reform, difficulties were frequently encountered in the implementation of the association agreements; civil society is not sufficiently aware of the importance of the Barcelona process and too often is not aware of the opportunities and advantages it offers.

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