Political institutions hold the key to economic recovery in Mediterranean countries

Twelve years gained in thirty! Life expectancy increased from 62.6 years in 1980 to 74.4 years in 2011. The infant mortality rate has significantly dropped, from 65.6 to 15.7 in the same period. The percentage of children in full-time education and the literacy rate have also significantly increased since the 1980s. 

Mediterraneans are living longer but not necessarily better. Growth has not seen women become economically active or created genuine employment opportunities. “The poverty threshold is $1.25 per day but at $2 per day the proportion of people categorised as poor jumps from 1.8% to 10.3%”, states Femise in its 2013 annual report presented in Marseille on the 20^th of May 2014. 

Titled “Towards a new dynamic to sustain the economic and social balances”, this 13^th annual report, coordinated by Jean-Louis Reiffers (*) and Ahmed Galal (**), brings to light two theories.
 
The first theory is based on the existence of a “middle-income country trap”, in which Mediterranean countries are stuck. “It corresponds to a stage of development where the countries have succeeded in increasing their income as a result of the development of an industry based on low salaries and in increasing their productivity… This has been followed by an increase in salaries which has eroded their competitiveness. On one hand these countries can no longer compete with countries with lower salaries, which have entered global markets in the meantime, and on the other hand they are not able to compete with richer countries in producing high value-added products”, explains Femise.

The second theory is based on the role of political institutions. The shortcomings of strategies put in place to accelerate economic growth were evident before and after the Arab Springs. The jolts of political transitions have driven tourists away from Tunisia and Egypt, causing a 4% fall in GDPs and a 20% fall in public and private investment, which has in turn resulted in a 1 to 1.5 percent yearly increase in unemployment. It is also this region of the world that has seen the lowest rise in foreign direct investments.

According to the annual report, governments must outline clear economic policy which goes beyond the short term crisis and also put a stop to the shadow economy. To reinitiate the growth trend, Femise suggests focussing more on “innovation and technological progress than on capital accumulation”.
 
(*)  Jean-Louis Reiffers is President of the Scientific Committee of Femise and of the Institut de la Méditerranée in France. 
 
(**) Ahmed Galal, is President of Femise and Managing Director of the Economic Research Forum in Egypt.

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