While oil generates the largest part of the region's revenue, natural gas has also become a significant earner. The wealth that has been garnered from these hydrocarbon reserves has afforded the region’s countries some of the highest per capita incomes on the continent.
Reduced demand for oil slows growth
In 2008, the average growth of the countries in the region was 5.8%. This growth rate reflected strong individual performances from almost all countries in the region. According to data from the African Economic Outlook 2009, published in May by the African Development Bank (AfDB), the Organisation for Economic Cooperation and Development (OECD) and the United Nations Economic Commission for Africa (UNECA), Egypt, Libya and Morocco recorded exceptionally high rates of growth with 7.2%, 6.5% and 5.7% respectively. Mauritania and Tunisia achieved growth of above 5%, whilst Algeria's growth slowed down to 3.3%. Much of the region's growth in 2008 resulted from unprecedented highs in oil prices in the first half of 2008. Unfortunately the global financial crisis saw prices fall from US$150 per barrel in July to almost half that by the end of the year.
The effects of the global financial crisis have been relatively small as banks in North Africa were not large holders of subprime mortgage backed securities. However, the indirect effects of the crisis have become more apparent, with equity markets experiencing sharp declines. It is the wider global slowdown and reduced demand for hydrocarbons which have had the real impact on the region. The region's oil exporters have experienced a downshift in hydrocarbon receipts, terms of trade and current account surplus positions. As a result, regional growth is expected to slow quite significantly to 3.3% in 2009, before recovering to 4.1% in 2010.
Algeria and Libya look set to see their economic growth cut by up to three percentage points in 2009 and Egypt will slow as tourism and Suez Canal revenues decline. Morocco and Tunisia look to be well positioned to weather the crisis. They have a pattern of production and exports that are less vulnerable to reduced demand. Tunisia, although lacking in the vast resources of its neighbours, has the most diversified economy in the region. Despite this, growth will still see a slowdown in both these countries.
Global integration dependent on diversification and reforms
The whole region has ambitions for diversification, however Tunisia is the only country in which the results are currently being felt. The region's oil and gas sector has been the main target for foreign investors in North Africa for the last decade, with investors keen to take advantage of the oil boom. Although the region has been fortunate enough to be the destination for substantial amounts of foreign investment, overall the region's economic relationship with the rest of the globe is dependent on its natural resources and tourism. It is falling behind some of the other regions of the world which have become links in global production chains in technology, manufacturing and other dynamic sectors.
The failure to integrate with the global economy on other levels could have an impact on economic growth in the long term. For most of the region, the ambitions are the same as those of other developing nations: to further integrate into world markets, create better functioning internal markets, reduce poverty, create employment and maintain strong economic growth. Structural reforms have been implemented and have enabled the countries to maintain macroeconomic stability.
Recovery expected in 2010
North Africa's economic fortunes will be determined by two factors: weather conditions and the oil and gas markets. The pursuit of economic reform is vital and will be key to economic performance.
With a global recovery in 2010, African Economic Outlook reports that resumption of demand for exports from North African countries is expected to reverse many of the negative factors, leading to better figures for growth of between 3.7% in Algeria and Libya to 5.4% in Morocco. However, with world markets becoming more and more competitive, it is vital that North African countries expand and diversify their production and export bases to achieve strong, broad based and sustained growth. As such it is critical that these countries transform their economies with a view to achieving export revenues outside the oil sector.
