Revitalizing Mediterranean Integration: Why this is good for MENA

A quarter century ago, countries in the Mediterranean region made a strong political commitment to set the region on a path of peace, stability, and prosperity through the Barcelona Declaration. As we mark the anniversary of this declaration, we should be reminded that countries on both shores of the Mediterranean Sea pledged to enter a path toward deepening economic cooperation, promoting trade and investment, facilitating the transfer of technology, and strengthening bonds and peaceful coexistence.

The world has changed a lot since the Declaration. In the last few decades, around half of global production, trade, and investments have taken place within global value chains (GVCs). Meanwhile, climate change raises issues about the environmental impact of trade. Finally, digitalization has permeated every aspect of organizational and business processes, carrying challenges related to skills and infrastructure, while also offering the potential to accelerate and improve the quality of integration. This new reality challenges our perspectives on regional integration and the policies that need to be developed around it.

Some issues remain unresolved in the Mediterranean region. Political economy constraints have contributed to a subpar record of integration. Trade, by itself, has proven to be insufficient to catalyse regional integration goals on a comprehensive socioeconomic scale. Sector reforms that are consistent with inclusive growth strategies — especially those targeting the most vulnerable, women, and youth — are still missing.

What went wrong?

Today, the potential of Mediterranean integration remains largely untapped. It needs to be invigorated. Two recent reports, "Trading Together: Reviving Middle East and North Africa Regional Integration in the Post-Covid Era" (World Bank) and "Enhancing Mediterranean Integration" (Center for Mediterranean Integration) explore key policy options for achieving a balance between domestic reforms and those intended to increase and diversify regional trade flows, with the ultimate objective to promote inclusive growth and improve well-being across the region.

Why hasn’t the goal of "shared prosperity in the Mediterranean region" become a reality yet? Gross Domestic Product (GDP) per capita in the Southern Mediterranean is, at best, still less than 40% of the EU-28 level. Not only that, but its trajectory has been, for all intents, flat since 1995.

There are still pronounced country-to-country differences in the numbers of people living in poverty and tremendous vulnerability for some population groups to fall under extreme poverty, especially when external shocks hit unexpectedly. There is also much more income disparity within the Southern and Eastern Mediterranean countries than within Europe, with the top 10% commanding more than 50% of total income. This situation needs to change.

Existing data show that MENA has had the lowest economic convergence scores and a weak capacity for reducing social inequality. The analysis suggests that previous economic approaches failed to include and address income distribution issues. Too much focus was put on technical matters of trade liberalization, which were only partially implemented, and not enough on linkages with sector reforms, which led to disappointing results.

What needs to be done?  

It is still possible for MENA to reverse the situation and take advantage of world trends. To answer how, one needs to fully grasp the challenges and opportunities in the region:

• Addressing internal and external imbalances: Governance improvements are needed to reduce institutional failures and crowd-in the private sector. The right policy mix is needed to correct macroeconomic imbalances while targeting the vulnerable.
• Promoting regional coordination: Liberalization is not a panacea. Good infrastructure, modern logistics, and better customs are also needed. A deepening of commercial relations within the MENA region, and with Europe and Sub-Saharan Africa, can be a stepping-stone toward a co-development approach. It is about rethinking trade agreements as instruments of policy dialogue.
• Strengthening environmental resilience: The Mediterranean is one of the most environmentally vulnerable regions, with water shortages, droughts, food production deficits, and rising sea-levels. Yet, it has some of the best resources for decarbonizing the energy sector and, potentially, carbonless energy resources to meet its needs and those of its neighbors. Regional market integration and cooperation are key to unlocking this potential.
• Improving the business environment: The emergence, financing, and growth of a diversity of enterprises must be facilitated and business communities need to be mobilized. A better investment climate is key to attract FDI. Insecurity, insufficient access to finance, inadequate competitiveness frameworks, and informality are key levers on which countries need to act.
• Building human capital: In its entirety, human capital represents "the knowledge and skills individuals possess that enable them to create value." By improving education and skills, mobility, and social engagement, youth can obtain the means for bold collective actions.
• And in the labor market, several inequalities must be removed, including with regard to gender, insertion of the highly educated, mobility within the region, and restrictions to entrepreneurship.

These challenges and opportunities must be grasped immediately to efficiently revitalize regional integration. The region needs a new framework where integration encompasses new dimensions, including security, mobility, environmental resilience, and regulatory convergence.