INFRASTRUCTURE:

UNLOCKING THE MENA REGION’S ECONOMIC TAKE-OFF

The MED This Week newsletter provides expert analysis and informed insights upon the most significant developments within the MENA region, bringing together unique opinions on the topic and reliable foresight upon future scenarios. Today we turn the spotlight on investments in infrastructure, which are increasingly important to let Southern Mediterranean countries fully unlock their economic potential.

The pandemic and the war in Ukraine have been taking a heavy economic toll in the MENA region, also in terms of the decline in FDI flows. These events have had a serious impact upon the economy of countries that rely substantially on foreign capital: for instance, in Morocco the stock of Foreign Direct Investments equals 55% of GDP; in Tunisia, the ratio is 71% and in Bahrain it is even higher at 86%. However, these percentages seem not to be enough: these States – and particularly some of them such as Algeria, Morocco and Tunisia  – will require more investments in infrastructure assets. The current gap in financing is quite broad, the World Bank has estimated that at least  $100 billion USD annually over the next five years will be required to improve regional connectivity in transport and energy cross-border projects. Additional investment would also produce benefits for Europe, for example in the energy sector: the current crisis has enhanced the value of North African natural gas for European diversification efforts in the short term and might be a catalyst for a renewed Euro-Mediterranean relation. Moreover, the future potential of green hydrogen as a promising renewable source might enhance the role of some MENA countries as FDI recipients. Some countries within the region – and in particular Arab Gulf States – have already been investing considerably in clean energy. But foreign capital is also required to enhance wider energy security within the whole Mediterranean region. This is why the European Investment Bank, through the EU Global Gateway initiative, has targeted countries in the Mediterranean for the implementation of projects in green and sustainable infrastructure.

High-quality infrastructure is a crucial element for inclusive and sustainable growth. It can reduce logistics costs, facilitate trade, enhance export diversification, and boost competitiveness. Currently, infrastructure connectivity in the MENA region remains limited, but the future choices of MENA economies and their approaches to infrastructure provision stand to have a long-term impact on Euro-Mediterranean integration. According to the World Bank, investments of at least $100 billion per year over the next five to ten years will be needed to maintain existing infrastructure and build new ones. The largest financing gaps are found in the areas of cross-border infrastructure, road transport, and energy. MENA countries should therefore identify good practices and develop guidelines on infrastructure quality and interconnection prospects. A regional platform for cooperation and dialogue upon infrastructure connectivity investments could help foster trade and investment, and also ensure a coordinated transition to carbon neutrality across the Mediterranean. This platform should enable countries to work together to improve the regulatory and business environment needed to attract more private investment in infrastructure. A network of integrated logistics platforms in a cooperative framework for ports and special economic zones in the north or south of the Mediterranean can also stimulate synergies and ensure the development of infrastructure in these areas.