ECONOMIC GROWTH IN THE MEDITERRANEAN: A CLOSER LOOK

Words by Adam Green

ILLUSTRATION BY COSTAS MANTZALOS

ILLUSTRATION BY COSTAS MANTZALOS

The Mediterranean region encompasses the southern countries of Europe and the northernmost nations of Africa, stretching from Spain to Cyprus, from Libya to Albania. Home to 21 countries and 500 million people, this region produces 10 per cent of the world’s GDP and combines a rich diversity – culturally, linguistically and economically – along with a shared history of commerce, and of conflict.

Yet it remains a region misunderstood by many policymakers and investors, who often relate to it via outdated perceptions and crass generalisations. To improve public understanding, both among policy communities and businesses, an expert panel assembled at the Frontline Club in London, on 19 September 2017.

Moderated by Claire Spencer, head of the Middle East and North Africa programme at Chatham House, the discussion was opened by Cleopatra Kitti, a businesswoman, adviser to governments and institutions, board member of the International Crisis Group (ICG) and founder of the Mediterranean Growth Initiative.[1] She was joined by Geoff Porter, founder of North Africa Risk Consulting, and two speakers from ICG: Comfort Ero, Africa Program Director, and Issandr El Amrani, its North Africa Director. The panel’s goal was to advance a more nuanced understanding of the economic dynamics shaping the Mediterranean and sub-Saharan Africa.

Opening the panel discussion, Kitti argued that the current challenges in the region called for greater engagement by the private sector, that it should be a partner in the area’s reconstruction and rebuilding. She spoke about her experience of conflict as a child during the Greek military junta and coup in Cyprus in 1974, followed by Turkish invasion and occupation. This exposed her, from an early age, to refugee camps, forced displacement and missing persons. Her birthplace, the Cypriot capital of Nicosia, is Europe’s ‘last divided city,’ she said. Yet Kitti finds hope in the resilience shown by people across ner native Mediterranean, and in Africa. ‘Whether in the refugee camps of Kenya, the schools of Tunisia or the suburbs of Cairo, the desire of young men and women in the region to have a share of opportunity in a connected world impresses one for life.’

Kitti argued that private enterprise can tackle the poverty and deprivation that create political violence. She cited ‘huge untapped potential in growth sectors where youth and women can be employed, including agriculture, food production and processing, technology, health, education and renewables’. This in turn, can help rather than hinder political stalemates. Working as an adviser to the private sector on East Mediterranean gas development, a geological resource spanning Cyprus, Israel, the Palestinian territories, Lebanon and Syria,[2] she has seen how ‘private investment can allow for government-to-government collaboration in an area divided by tensions and conflict’.

Attracting investment in the Mediterranean is not easy. The first step is for investors to acquire a more nuanced understanding of the region’s economic realities. Porter, previously a professor at the US military academy at West Point, pointed out that even apparently similar economies such as Libya and Algeria – both hydrocarbon-dependent – are very different when observed in terms of their populations, with 40 million people in Algeria compared to just 6 million in Libya. Observers also need to understand complex intra-regional relations. ‘The Algerian-Moroccan border has been closed since 1994, intra-regional trade is low, and Morocco is more interested in sub-Saharan Africa than looking east,’ observed El Amrani at ICG.

Data-driven investment decisions

Investors may decide the region is too complex and unstable to enter, at least until ongoing conflicts have subsided. But history shows that those who wait for the perfect moment to invest are usually too late. And by starving economies of much-needed capital, political violence can deteriorate further, as living conditions decline.

Sub-Saharan Africa offers a case in point. Foreign investors long ignored it due to a perception that it was too poor, or too risky. As the continent’s economic performance picked up, around a decade ago, companies suddenly found themselves rushing to gain a foothold. Take mobile telecoms, for instance, where South Africa’s MTN quickly dominated in key markets such as Nigeria – which could have been picked off by global mobile brands if they had been faster off their feet. What followed was a rush of investment, from consumer goods and private equity to technology and real estate, from companies ranging from Google to Unilever. If you wait for a perfect moment to invest, you will be too late as bolder, braver players spot opportunities, even in difficult environments.

The Mediterranean requires investment and foreign capital, as well as greater integration into global markets, to strengthen and diversify its economies and improve the livelihoods of its people. But this is not about charity. Businesses have spotted opportunities, including in tech-intensive sectors like software, hardware and electronics. Europe has long been its primary source of capital, with EU-led investment constituting the largest stakeholder in the region over the 2011–2015 period, at 51 per cent,[3] with Germany, the UK and France among the dominant investors.

Such inflows can, in turn, help European economies by reducing ‘push-migration’ to its shores as more opportunities open for people domestically in their home states. A more successful and stable Mediterranean is in Europe’s long-term interest. But encouraging such inflows requires strong institutions, clear investment-promotion policies, strong economic policymaking and anti-corruption measures. It also requires greater understanding of the region by outside investors.

To improve this understanding of the Mediterranean, and to encourage responsible investment, Kitti launched the MGI initiative. ‘Political narratives and policymaking lack evidence-based data analytics,’ she told the audience. ‘The MGI’s real-time interactive platform, presenting growth data and analytics on the economies of the region, offers a deep knowledge of economic policy and governance, through data analysis, interactive benchmarking and forecasting based on artificial intelligence modelling. It can be a financial app for investors, a media source and a policy analysis tool.’

Country-specific data cover over 1,500 indicators, from conventional metrics such as GDP, inflation and unemployment, through to more granular data points including access to clean fuels, depth of credit data and threatened plant species. The MGI tool gives cause for some optimism, with per-capita GDP growth improving in the likes of Lebanon, Albania, Cyprus and Croatia, for instance. Adult female literacy is on a general rise, too, with particular improvements in Morocco, Egypt and Turkey. But the tool also shows continuing challenges, most notably inequality. Israel, Morocco, Turkey and Tunisia have among the worst inequality trends. In the end, it is this inequality and a lack of fairness, rather than absolute income or wealth, which creates the unrest that sparks political violence, according to Porter.

‘There is aspirational deprivation, where what one wants is out of reach from what one can actively achieve,’ Porter observed. ‘An even more egregious driver for political violence is progressive deprivation, where not only is what one wants out of reach, it is increasingly out of reach. You may have a constant idea of what you want, but your circumstances are worsening.’ Ero, referring to the Sahel and sub-Saharan Africa, explained how this combination of poverty and powerlessness creates the common problems of the region. ‘You have a population that is eager to be integrated into the economy, but that doesn’t see a bright future. Its choices tend to be limited to criminality, radicalisation or an exit out through migration.’

These challenges can be at least partly overcome by a private sector willing to play a constructive role, and notice the opportunities of an area rich in people and in resources. This could, in time, brighten the future for a region that has so much potential. ‘I understand deeply, and love, my region,’ Kitti said. ‘I want to see a future for our children and for generations to come.’

Click here to listen to the podcast from the event.

[1] http://www.mgi.online; www.cleopatrakitti.com

[2] https://www.oxfordenergy.org/publications/east-mediterranean-gas-what-kind-of-a-game-changer/

[3] http://www.ey.com/gl/en/services/strategic-growth-markets/ey-exploring-growth-in-the-mediterranean-region#facts