The recent political events in the Middle East have centered the attention of policy makers and stakeholders on efforts to promote stability in the region. However, long-term stability is unlikely to be achieved without sensible improvements in standards of living of the population, especially the poor. Reforms in mid-1980s brought some tangible results during the first decade of 2000. For example, the percentage of the population living with less than $3.10 dollars a day declined from 24% to 14% between 1990 and 2008, as well as the poverty gap which went from 6 to 3.7% in the same period. The global economic crisis and the Arab revolutions, however, slowed-down the pace of the reforms and backlashed efforts to improve social wellbeing. As a result, most countries in the region still face macroeconomic uncertainties, high unemployment, food insecurity, and environmental challenges. Under this scenario, perhaps it is the right time to wonder which economic sectors have the potential to sustainably accelerate economic growth in the region.
A forthcoming publication by Nin-Pratt et. al. highlights the potential of an often-overlooked sector: agriculture. Although agriculture only accounted for 13% of the MENA’s GDP between 2010-2014, the authors argue the sector is strategic for ensuring sustainable development given its potential for creating (and maintaining) jobs, implementing agricultural policies in accordance with environmental concerns, food security, and poverty reduction. Moreover, leveraging policies that benefit the agricultural sector can incentivize economic growth by creating synergies with other sectors in the economy.
Trade is a promising sector: in the MENA region, agricultural exports constitute a substantial share of total exports, but the relative share of high-value crops with exporting potential is still low. This contrasts with the region’s comparative advantage for producing fruits and vegetables that can be exported to areas where these products are available at later seasons and only for a few months a year. The geographic proximity with Europe also facilitates to reach high-value markets in less time and at lower costs. Table 1 illustrates the unmet potential for trading of selected high-value crops. The first column in the table shows the index of revealed comparative advantage (see note on Table 1), which signals how competitive the region is for meeting the global demand of a certain product. In the case of MENA countries, we can see the share in high-value crops exports on total regional agricultural exports is several times the share in exports of these products on total global agricultural exports, which underlines the region’s advantage as “revealed” by observed trade flows of these products.
Note: The index of revealed comparative advantage (RCA) is a measure used in international economics originally introduced by Balassa and Noland (1965). The RCA of commodity j is calculated as the share of j in the region’s total export divided by the share of j in total world exports.
However, as shown in Table 1 (second column) there is still scope for expanding production of high-value products which have higher potential for income generation than traditional staple crops. In Lower Egypt for example, production of fruits, vegetables and aromatic herbs generates up to 45 percent of net farm incomes while covering only 37 percent of the area planted. Another example is Jordan, where production of vegetables and fruits account for 40% of agricultural value added and employment in agriculture; while in Tunisia, about 70% of agriculture GDP comes directly from production of vegetables and fruits.
Agriculture is also key for employment in the region. On average 26 percent of workers are in the sector, but this figure goes to 50 percent if the-rich Gulf countries in the region are not considered. On the other hand, agriculture is an eminently rural activity that concentrates a high proportion of the poor in the region. In some countries, like Yemen, more than 70% of the poor live in rural areas and depend directly or indirectly on agriculture. Further, despite the low share of agriculture on most countries’ GDP, the share of the sector on employment still represents 15 and 50% for low—and middle—income countries, respectively. Hence, any policy that benefits the agriculture sector will likely have an impact on poverty too.
So, how could MENA countries tap into the potential of agriculture for economic development?
First of all, countries should reconsider policies that have prioritized the production of staple crops. As discussed above, encouraging the production of high-value crops could have effects on income and job opportunities in rural areas, with multiplicative economic effects by encouraging new services needed to produce these crops. Production of vegetables is also more labor intensive compared to cereals which can translate into more employment opportunities. Also, crop diversification can lead to gains on water use efficiency and contribute to improve food security, mitigate and adapt to climate change and improve health and nutrition.
Second, there is room for increasing productivity and improving efficiency in production of staple and high-value crops. In particular, policies that promote technological change and an efficient use of water for irrigation have great potential. As one of the regions with scarce water resources, improvements in agricultural practices can have a positive impact in other areas too.
Finally, deregulation of labor markets can facilitate efficient labor allocation and investment. The experience from other regions shows that such deregulation can trigger a better allocation of labor from low-value agricultural activities to more productive sectors like agro-processing, industry, and services. Such deregulation can also be part of efforts to seek trade agreements to further boost agricultural development.
Further reading: Nin-Pratt, Alejandro, Hoda El-Enbaby, Jose Luis Figueroa, Hagar Eldidi, and Clemens Breisinger. “Agriculture and Economic Transformation in the Middle East and North Africa.” IFPRI Food Policy Report Series. Forthcoming. International Food Policy Research Institute. Washington, D.C.
