The Arab World Food Security ForumKeynote Speech by PM Fuad Siniora Abu Dhabi- 15/03/2012
The Arab World Food Security Forum
Keynote Speech by PM Fuad Siniora
Abu Dhabi- 15/03/2012
Ladies and Gentlemen,
I would like first to apologize for not being with you this morning due to an urgent engagement at the Lebanese Parliament in its session today. But I did not want to miss the opportunity to participate in the discussion of a very important issue, at a very important time in the history of our region.
Maybe many don’t necessarily see the connection between food security and the Arab Spring. In fact some don’t even consider the economic factors as crucial issues in the buildup, breakout or even transition phase of the Arab Spring movement.
But let us remember together, that this revolutionary movement that drew the map of the Arab world was first sparked by the self-immolation of a vegetable cart vendor; and that the demonstrations that followed were also objecting to the fast increase in foodstuff prices in Tunisia and Algeria. Of course that is not to say that the issue of food security or even economic deprivation was at the forefront of the movements. The Arab Spring was and remains first and foremost about dignity, freedom, and justice, values that were often breached or sidelined in our part of the world. But the economic factors have always been at the source of feelings of marginalization that fueled the demonstrations.
It is also clear that the causes of unrest run deep and have accumulated over time. The economic and social factors brewed for a long time and they have also become intertwined with the political factors. In fact the political and economic marginalization reinforced each other as the lack of political democracy, accountability and justice was combined with (and also facilitated) crony capitalism and poor governance. This has led the benefits of the so half-baked economic reforms such as non-transparent privatizations and sales of State assets to be channeled into the hands of the select few. In addition, most of the times, the Arab authorities were not frank enough with their people about the challenges so that they could pave the way for the essential reforms that could allow for a better use of the scarce resources.
So while macro indicators of growth, fiscal deficit, exchange rates were often ok, most socioeconomic indicators such as unemployment rate, poverty levels, and food security kept deteriorating. Among the indicators that were reaching alarming levels: in Egypt, Jordan, Lebanon, Morocco, Syria and Tunisia. An IMF paper illustrates that more than half of the working-age youth population is unemployed. While another study shows that food security has deteriorated in most countries in the region as a result of the global commodity price crises in 2007/2008 and in 2010/2011.
The accumulated causes of unrest have created pent-up demand and high expectations by the people in the countries in transition as well as in other countries that face similar conditions. This presents a great challenge on how to manage the transition in times of actually deteriorating economic conditions, collapsing investment and rising unemployment, but yet more and more demands and higher expectations. The truth of the matter is that more awareness creates even more expectations and managing this fine balance is one of the key challenges of the policy makers in general and during the times of transition in particular.
Ladies and Gentlemen,
Overcoming this challenge is actually one of the most critical factors for the success of the transition process, at a time when the acute conditions are actually making the chronic challenges more complicated. Let me clarify with a specific example related to the issue of food security: this issue presents a serious challenge in our Arab region which have a high dependency on food imports due to simultaneously high demand driven by high population growth, and changes in patterns of consumption, as well as limited potential for agriculture growth, due to water constraints as well as deficient water management practices.
To give a specific example, the Arab countries are the world largest net importer of cereals in the world, with a gap that totaled 58.2 Million Metric Tons in 2007. This applies as well but in varying degrees to other food items. This high dependency on food imports creates the continuous need for foreign exchange for import-financing purposes. But the conditions created by the transition are actually those that have exactly diminished the capacity for generating foreign exchange. Tourism, Foreign Direct Investment (FDI) and remittances, are all down not just in Arab spring countries, but in most of the Arab world except the in oil producing counties.
This is an illustration of how deep-rooted factors and acute conditions are coming together to widen further the gap between expectations and challenges during this crucial transition in the Arab world, calling urgently for reforms. This actually reminds us of an old wisdom that deep and real reforms are best done when we can rather than when we must, as then, both the cost and the pain will be higher and the efficiency lower when we do them under pressure.
Still, and despite the current circumstances, we should not waste additional time and we hence should move to tackle immediately the crucial issues that are posing a challenge to our economy and our society. Food security, employment, fiscal reforms, subsidy design are all examples of hot issues where several chronic and acute factors intertwine and add further to the complexity of the transition.
Ladies and Gentlemen,
According to research·, the Gulf States, including Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and UAE face a low risk of foods insecurity. Libya and Tunisia exhibit moderate risk of food insecurity, whereas all other countries show serious, alarming or extremely alarming levels of food insecurity risks.
To me these results are deeply discomforting at least for two reasons.
The first is that they reflect the fact that food security poses a clear and present impending danger in most countries undergoing a transition: Egypt, Yemen, and Syria as well as the countries where some political reforms are being undertaken like Jordan and Morocco.
The second reason is that the divergence on such matters, in a region that shares a common language, a common history, and a common cultural heritage, has dangerous implications not just on the specific concerned countries, but on the overall Arab world. Can we even imagine such wide divide existing between Western and Eastern Europe? Or between the US and Central America? In fact at the heart of the free trade agreements and economic unions that were created over the last two decades, lies the fundamental realization that the well being of your neighbor is of your own well being, in a world where frontiers and geographical borders have lost much of their relevance.
My worry is that divergence in the Arab countries socio-economic landscape is widening at exactly the time when we need it to be converging so that it could create an anchor for Arab countries in transition. The experience of other regions, be it the Marshall Plan in the wake of World War II that provided an anchor to Western Europe and arrested its slippage into communism, or be it the convergence to the European Union and the promise and focus it provided to the Eastern European countries as they transitioned into democracy, or even the impact of NAFTA and its effect on Mexico which shortly became afterwards an OECD country; these are all examples of the importance of grand regional economic schemes and their positive influence not just on the socio-economic well being of nations, but also on the very success of the democratic movements within them.
My Dear Friends,
I would like to reiterate on this occasion, a vision that I launched in the Kuwait Arab Economic Summit of 2009, of a stronger Arab Economic Integration that touches on all sectors, and especially those related to energy, transport and food security, bringing closer the Arab world and bridging the gaps among its people. It is essential to note that this initiative is in no way based on a concept of charity from those who have to those who have not; but is rather based on a concept of a region investing in its own well being and its broader development and welfare. A region that is investing in its own security and sustainable development.
Take water for example: the Arab individual share of water is less than 1000 cubic meters per year, in comparison with over 7000 cubic meters per year for the world’s average. This Arab average is subject to the risk of further decreases due to factors ranging from demographic changes to climate change to security issues which will have significant negative impact on our Arab citizens, their development prospects and their food security. Or take the power sector: production and consumption of power in the region are characterized by unsustainable patterns that are highly damaging for the environment. There is a need for a new sustainable production approach in this sector, where the Arab world holds over 60% of the proven world reserves of oil and over 40% of proven world reserves of gas. Meanwhile, we have a significant shortage of oil and gas pipelines as well as electrical transport and connection nets.
So the need is urgent to invest in cross-borders megaprojects in the key sectors such as transport, energy, and water, which are crucial to society but are also important factors of production for the other sectors. These megaprojects should attempt to bring our Arab countries closer together, reducing the cost and increasing the efficiency in sectors that are important for the wellbeing of society and also for the other productive sectors of the economy such as manufacturing and agriculture. For instance, shouldn’t the cost of importing agricultural products from Sudan be lower for other Arab countries than importing from Europe and South America if there were routes and highways connecting agricultural areas of Sudan to Sudanese ports?
Ladies and Gentlemen,
Let me here clarify one caveat: it is not sufficient to spend more on a certain sector, like agriculture, to have immediately positive results regarding reducing poverty or increasing food sufficiency. In this context, allow me also to share with you some observations regarding the agriculture sector in the Arab world.
The evidence has actually shown that agricultural growth does not have strong influence on poverty reduction in the Arab world, despite the fact that the share of the rural population exceeds 40% in the Arab world and even exceeds 60% in countries such as Yemen or Sudan. The reason is that a large proportion of this rural population does not even work in agriculture due to lack of opportunities and development in this sector. A recent study shows that the rural poor in the Arab world earn a large majority of their income from nonagricultural activities. They work instead in low-value added services or in the informal economy·.
So it is going to take more than financial engagement from those who can. It will take years if not decades of planning to shift production and consumption habits and patterns and allow key sectors to become financially viable so that they could generate investments and employment and be economically sustainable so that they could generate growth and development.
In this context, the Arab countries outside the GCC region have a great responsibility in enacting the needed structural reforms that are needed to make both growth and spending more pro poor, as the evidence points to large inefficiencies in the conduct of economic and social policies in this regard.
Ladies and Gentlemen,
Before I outline these needed reforms, allow me to share with you again some of the facts and figures that compare our region to other regions in the world: Real per capita GDP growth averaged 1.7% in Arab countries (other than GCC) in the last two decades from 1990-2010. Growth, however, was mostly driven by the low-value added services, with manufacturing growing at 1% on average and actually many countries recording a negative per capita manufacturing growth such as Algeria, Iraq, Yemen, Lebanon and Syria. Agriculture growth was dismal across the board and actually negative in 13 Arab countries.
This low per capita growth rates in the labor-intensive sectors, explains the sluggish job creation. Furthermore, recent research suggests that unlike the rest of the world, overall growth does not translate into poverty reduction in the Arab world·.
All this raises a very important issue of how to make growth pro-poor in the Arab World. And in fact, global experience shows that manufacturing-led growth (labor intensive) as well as high-productivity growth (high value added services) are the most important drivers of poverty reduction and increased food security¨.
So growth in the Arab world is not necessarily pro-poor. But growth is not entirely in the hands of the governments. So what about government expenditures?
In fact, government spending as a share of GDP is the highest in the Arab region. Arab governments' total spending on agriculture, education, health, infrastructure, social protection and other sectors averages around 27% of GDP. This compares with an average of 16-18% in Latin America, the Caribbean, Sub-Saharan Africa and the Asia-Pacific regions. But this size of the spending does not in itself say much about the efficiency of this spending. In fact, the relationship between public spending and growth is very different in the Arab world than in the rest of the world. Research by the World Bank shows that spending one additional dollar by a government in the Arab region yields only about half the growth of a dollar spent in the rest of the world. This raises serious concerns regarding the effectiveness of public spending in the Arab world and shows that there is room for significant improvement in terms of government efficiency and productivity, and in terms of better use of available resources.
A detailed look at the World Bank research work shows two important factors behind the poor effectiveness of public spending in the Arab World.
The first factor is education spending, which in the study for the rest of the world is a major determinant of growth, but education spending in the Arab World as a whole has somehow a negative effect on growth, raising really alarming questions about the quality of educations systems and the effectiveness of public service delivery in our region. In addition, it seems that education in the Arab world no longer rewards quality, and is not adapting to the need of the market, and therefore in some instances is contributing further to unemployment. According to a 2009 UNDP report, education quality and type do not match labor market demand especially in vocational fields.
The second factor, more closely related to our topic today, is the large amount of subsidies that feature in Arab public spending. Fuel subsidy and in some countries food subsidies are often higher than the targeted social spending. Take the example of two Arab spring countries: in Egypt and Syria, food and fuel subsidies (accounting for about 20% of public spending) are more than two fold higher than spending on social protection programs and health combined·.
Ladies and Gentlemen,
Unfortunately, the word “reforms” has not always been used or implemented properly in the Arab world, because policies has often been planned and implemented top-down; they were never properly explained to the public; they often been half-baked in their design and in many cases they benefited only the few.
But today, it is high time for real deep and effective reforms, because simply there are no other credible alternatives. The brave young men and women who took to the streets in Cairo, Tunis, Bengazi, Syria and other Arab Spring cities are expecting more freedom and participation but also a better life and promising prospects. To their bad luck, these events have been launched and continue to take place in the midst of a global economic crisis still unfolding particularly in the US and Europe, which are the usual sources of trade and external financial support to the region.
In addition to the limited scope of foreign support, the increases in public sector wages and higher subsidies before and after the Arab Spring movement is leaving governments in a very difficult fiscal situation. The repercussions of the Arab Spring on the balance of payments in many countries has reduced any room of maneuver that policymakers could have. Of course had the Arab Spring taken place later, the cost could have been even much higher.
These constraints leave to us very little options, but from the jaws of the challenges we should snatch the opportunity.
Ladies and Gentlemen,
Let me sum-up and summarize with a proposal of a plan with three tracks.
The first track is to design and implement a common Arab economic integration agenda that starts with the launching of cross border megaprojects in the key sectors of transport, power, energy and water. These projects should be financially viable and be attentive to the issue of cost-recovery so that institutional investors could actively take part of them. They should bring the Arab world closer and reduce the cost of production and distribution through efficiency gains. These megaprojects should be accompanied by tax breaks and other fiscal incentives and as well by more conducive business environment that would make it attractive to the private sector, and allow it to create synergies, which would trickle down and help generate the jobs that are needed by our economies and ultimately help lift people out of poverty.
But for that to happen, a second track needs to be pursued in parallel by the governments of the countries that are undertaking a transition or those who want to take part of the promises of tomorrow. It consists of pushing ahead with needed reforms at the institutional, legal, regulatory levels, as well as those related to the judiciary, the creation of the proper investment climate and above allow for the implementation of all the governance issues. Progress on the infrastructure front should be complemented by progress on the supra-structure front, something that Arab countries have always been weak at. Together with the stabilization of the security situation, the normalization of the democratic process that reduces uncertainty in the long-run. These structural reforms will contribute to stronger investments in labor-intensive sector such as manufacturing, and with time will lead to stronger investments in the high-value added services. These sectors will generate large scale employment, absorb the educated youth into the economy and lift people out of poverty, hence fostering food security.
The third track is to rethink and implement a new approach to social safety nets that ease the transition and protect the most vulnerable at these difficult times in our society. As I mentioned previously, not just growth in the Arab world, but also government spending is not effectively pro-poor. Probably we need to learn from the experience of other countries, such as Brazil for instance, on how optimal design of social safety nets, especially the “Bolsa-Familia”, has not just protected the poor from adverse economic conditions, but actually lifted masses out of poverty and contributed directly to higher growth and stronger investments through the higher additional purchasing power of the emerging middle class.
Ladies and Gentlemen,
Food security is an issue that brings together the macro and the micro, the economy and the human, the government and the private sector. I hope that by focusing on such issues we can effectively approach crucial socio-economic matters and tackle deep rooted obstacles to growth and development in our Arab region. These problems are now much clearer in times of Arab Spring, but also the opportunity has never been better to address them and provide our future generations with the best possible prospects.
I would like to thank you all for your attention and wish you a successful conference.
·Academic work by economists on the issue of food security has usually pursued two tracks: the macro dimension and the micro dimension.
In general, the macro dimension comprises overall macroeconomic stability, economic growth, and governance. In the Arab world, with its high food-import dependency and limited agriculture potential, the country’s overall trade balance is a key variable. Ability to earn foreign exchange from exports and remittances is therefore a crucial variable in assessing macro food security.
On the micro-level, a crucial factor is household access to food, and therefore the assets (infrastructure) and services (education, health and social safety nets) that are necessary for individuals to be in a satisfactory state of welfare.
Both the macro and micro indicators were joined together in a recent study entitled “Beyond the Arab Awakening: Policies and Investments for Poverty Reduction and Food Security”. The study developed an Arab-countries-wide indicator on food security, combining a constructed ratio of food imports to total exports and remittances, illustrating a country’s ability to purchase food on the international markets using its FX revenues. The measure also takes agriculture performance and local food production into account. Finally, the prevalence of child under-nutrition is also included in the indicator, and the reason for that, according to the study is that young children’s nutritional status tends to be most responsive to changes in living conditions and to be particularly vulnerable to food shortages and diseases, due to their high physiological nutrient requirements for growth, their special dietary needs, their often more direct exposure to adverse health conditions, and their dependency on adults.
·Take Egypt for example: the poorest 20% of rural households earn only 18% of their income from agriculture, whereas the richest 20% of rural households earn 36% of their income from agriculture.
·While every 1% in overall growth in the rest of the world translates into 0.12 percentage points reduction in child malnutrition, the relationship is statistically insignificant in the Arab world.
¨For example a study conducted on Yemen in 2011 has shown that an additional 1% growth that is driven by a promising industry or services sectors leads to an average annual reduction of the percentage of calorie-deficient people by 0.22 percentage points and average annual reduction of the percentage of malnourished children by 0.06 percentage points.
·The insistence of some Arab countries on subsidies comes despite the broad historical and global evidence that fuel subsidies in particular have a negative effect on public finances, distort markets, and are ineffective in fighting poverty as they benefit mostly the higher end consumers. The findings of a Gallup World Poll conducted in 2011 is consistent with the global evidence: comparing subsidies to people’s satisfaction levels revealed no clear trend linking the level of subsidies in a country to the people’s perception of how the poor are treated, suggesting that subsidy levels are largely unrelated to the poor’s well being as they don’t really help the poor.