Regional co-operation can boost the Middle East’s economic recovery and transformation

Countries with diversified vaccine providers could exceed their growth expectations this year

The Hope Consortium stores and distributes Covid-19 vaccines across the world. Courtesy: Hope Consortium
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On February 19, G7 leaders agreed “to work together and with others to make 2021 a turning point for multilateralism”. A week later, G20 finance ministers and central bank governors echoed the call for joint action and strong policy co-operation.

International co-ordination has never been more important as the world continues to grapple with a global pandemic and the worst peacetime economic contraction since the Great Depression.

The cornerstone of this global strategy is regional co-operation – a long-time call for the Mena region and now an opportunity of a lifetime.

Near-term co-operation to help end the health crisis and accelerate recovery

The prospect of ending the health crisis and hastening the recovery hinges on wide access to efficient distribution of vaccines, as well as policies that support growth and mitigate economic scarring from the pandemic.

Within the Mena region, only a handful of countries have started vigorous vaccination campaigns – these being GCC nations and a few others with production capacity, such as Morocco.

Our latest forecasts suggest that countries with diversified vaccine providers could this year record higher growth on average by 0.3 percentage points to 0.4 percentage points, compared with their October 2020 forecasts.

On the other hand, most countries in the region plan to rely primarily on the World Health Organisation's Covax vaccine-sharing scheme.

Those with more limited access to vaccines and/or hit harder by the second wave will have weaker outlooks and delayed recoveries. The 2021 gross domestic product of fragile and conflict-affected states could be 6 per cent lower than it was in 2019.

Regional co-operation is thus essential to ensure equal and sufficient access to vaccines for all countries. It is also in the interest of both vaccine haves and vaccine have-nots as the virus knows no borders.

Countries that have secured surpluses and those with domestic vaccine production capacity, such as Morocco and the UAE, could increase production and improve distribution to those with insufficient supplies while countries with the know-how should support others when it comes to storage and distribution.

This has already started: in the UAE, the Hope Consortium is providing logistics services to distribute 6 billion doses of vaccines worldwide during the first half of 2021, while the Vaccine Logistics Alliance is expected to support the delivery of 2 billion doses globally under the WHO's Covax initiative, prioritising countries with low storage capacity.

Such co-operation needs to be generalised and further strengthened, with a priority to support fragile and conflict-affected states. A joint procurement arrangement similar to the EU initiative could also be considered as a cost-effective way to secure access to vaccines by a larger number of countries.

Co-operation is also critical to reduce economic divergence and hasten recovery. Under the current policies, the recovery of emerging markets in the Mena region is projected to lag behind that of their peers elsewhere, with most countries not recouping their 2019 GDP levels until 2022.

Moreover, many of the region’s countries do not have the policy space to further support their economies. Additional public spending could exacerbate debt sustainability concerns in several countries.

In this context, further regional co-operation and integration could provide an additional source of growth without mounting pressure on fiscal positions.

Further economic integration among Maghreb countries could create a regional market of about 100 million people, make the region more attractive for foreign direct investment and increase the efficiency of resource allocation, according to a 2019 study by the International Monetary Fund.

Intraregional trade may double, contributing to higher employment and raising growth in each Maghreb country by 1 percentage point on average in the long term. With trade and tourism hit hard by the coronavirus, the potential benefits from further integration could be even higher.

Longer-term co-operation to build a strong, resilient, and inclusive regional economy

Beyond the immediate need to support each other on vaccines and post-pandemic recovery, there is a wide range of common challenges faced by the region that could benefit from further co-operation and peer learning. These include efforts to strengthen social protections and find a solution to help refugees and internally displaced people.

Tackling crisis legacies by fostering a dynamic private sector-driven economy and further integrating women, youth and informal sector workers into the formal economy are salient. Enhancing governance for better economic and social outcomes is also critical.

The pandemic has also intensified global efforts in green policies and digitalisation. These provide potential sources of additional growth. But they also tap into the region's unique comparative advantage – with proper education and training, the Mena region's very young population could lead in pushing technological advances.

Therefore, it is critical to seize this opportunity to start on high-quality investment in green infrastructure and digitisation at a regional level, with common standards and co-ordinated policies. Sharing experiences of those more advanced in these areas – for example, the UAE – could hasten progress across the entire region.

Regional co-operation calls for reducing barriers and reviving regional institutions

Regional co-operation and integration will require the gradual elimination of trade and investment barriers, improved labour and capital movement, more connected infrastructure, and harmonised standards across the region – including digital and environmental standards.

The recent Al-Ula agreement, signed by GCC leaders at their latest summit on January 5, 2021, is a step in the right direction. This agreement will pave the way for a gradual normalisation of economic ties in the region and re-energise efforts to create a unified market in the GCC.

In the short term, it will cut travel times, reduce import costs and boost tourism once the pandemic subsides. In the medium-term, the agreement could encourage investors and lead to a surge of capital flows.

Stronger institutional arrangements will be essential for further economic integration, calling for a renewed co-ordination framework among various regional institutions.

This is a window of opportunity for the region to contribute more to international economic decisions, promote regional priorities and defend regional interests.

Amid this once-in-a-life-time crisis, I urge Mena countries to “think regional” and seize this opportunity of a lifetime.

Jihad Azour is the director of the International Monetary Fund's Middle East and Central Asia department

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