Report No. 1 2947-MNA Kingdom of Morocco - Republic of Tunisia Export Growth: Determinants and Prospects October 1994 Country Operations Division Country Department I Middle East and North Africa Region jII :~~~~~~~~~~~ KINGDOM OF MOROCCO REPUBLIC OF TUNISIA EXPORT GROWTH: DETERMINANTS AND PROSPECTS TABLE OF CONTENTS Page No. EXECUTIVESUMMARY ............................... i CHAPTER l: INTRODUCTION ............................ 1 A. ECONOMIC STRUCTURE AND EXPORT PROMOTION ...... 1 B. AN OUTLINE OF THE REPORT ...................... 5 CHAPTER II: EXPORT GROWTH AND SLOWDOWN .... ....... 8 A. THE PERFORMANCE OF EXPORTS .................. 8 B. THE ROLE OF PRICES AND EXCHANGE RATES ... ....... 10 C. THE PERFORMANCE OF EXPORTS TO THE EUROPEAN UNION .................................. 11 D. THE EVOLUTION OF MARKET SHARES ............... 11 E. THE DETERMINANTS OF MANUFACTURING EXPORT GROWTH 14 F. CONCLUSIONS ............................... 19 CHAPTER III: SUPPLY-SIDE CONSTRAINTS AND DEVELOPMENT OF EXPORT CAPABILITIES .......................... 20 A. INTRODUCTION ............................... 20 B. STRUCTURE AND EXPORT ORIENTATION OF THE MANUFACTURING SECTOR ......... ........ 20 C. FACTORS AFFECTING THE DECISION TO BECOME EXPORTERS 25 D. THE TEXTILE, CLOTHING AND FOOTWEAR SECTOR ...... 30 E. BUILDING EXPORT CAPABILITIES ................... 34 F. CONCLUSIONS ................................ 37 This report was supervised and drafted by Miria Pigato. Principal contributors Included Hamid Alavi, Bernard Hoekman, Veronique Kessler and Maurice Schiff of the Bank and Georges Corm, Francesco Daveri, Riccardo Faini and Juan Lopez, Consultants. Lant Pritchett and Garry Pursell were peer reviewers. At the time the report was written, Mahmood Ayub waa Divislon Chief and Daniel Ritchie was Director. CHAPTER IV: COMPETITIVENESS & COMPARATIVE ADVANTAGES 41 A. INTRODUCTION ............................... 41 B. THE PENETRATION OF THE EUROPEAN MARKET ........ 41 C. COMPARATIVE ADVANTAGES OF MOROCCO AND TUNISIA 43 D. COMPETITIVENESS: INTERNATIONAL COMPARISONS ..... 47 E. INDICATORS OF FACTOR ENDOWMENT: INTERNATIONAL COMPARISONS ................. 50 F. CONCLUSIONS ................................ 54 CHAPTER V: TOWARDS A CLOSER ASSOCIATION WITH EUROPE 56 A. INTRODUCTION ............................... 56 B. THE EXISTING COOPERATION AGREEMENTS .... ....... 57 C. AGRICULTURAL TRADE ARRANGEMENTS WITH THE EU: SIMULATIONS OF COSTS AND BENEFITS .... ...... 59 D. THE EUROPE-AGREEMENTS AS A MODEL FOR MOROCCO AND TUNISIA: ISSUES AND OPTIONS .... ........ 61 LIST OF TABLES Table 1.1: Structural Comparisons ......................... 3 Table 2.1 : Global Export Performance ....................... 9 Table 2.2 : Prices and Exchange Rates ...................... 10 Table 2.3 : Performance of Merchandise Exports to the EU ......... 11 Table 2.4 : Constant Market Share Analysis ................... 13 Table 2.5: Evolution of Determinants of Manufacturing Export Growth 15 Table 2.6 : Contribution to Export Growth - Demand & Supply Factors 18 Table 3.1: Dualism in the Manufacturing Sector ................ 22 Table 3.2 : Subcontracting Exports ......................... 24 Table 3.3: Indices of Sectoral & Geographical Concentration ... .... 25 Table 3.4: Morocco - New Entrants Exporters & Firms Switching from Domestic to Export Markets ................... 26 Table 3.5 : Tunisia - Firms Switching from Domestic to Export Markets 28 Table 4.1 : The Share of EU Countries in Global EU Imports ... ..... 42 Table 4.2: Revealed Comparative Advantages & Disadvantages ..... 45 Table 4.3: Labor Costs & Productivity in the Manufacturing Sector International Comparisons ..................... 48 Table 4.4 : Comparisons of Energy & Transportation Costs ... ..... 49 Table 4.5 : Structural Comparisons ......................... 51 Table 4.6: Educational Attainment Indices .................... 53 Table 4.7: Infrastructure Endowments ...................... 54 Table 5.1 : Cost/Benefit Simulations of EU Policy Scenarios ... ..... 60 LIST OF BOXES Box 1.1: The Main Characteristics of the Trade System & Export Incentives ...........................7 Box 111.1 The Textile, Clothing & Footwear Sector .... .......... 33 Box IV.1: The Clothing Sector: The Challenge of East Asia ... ..... 43 Box V.1 The Europe Agreements with the Central and Eastern European Countries ................... 66 ANNEXES ANNEX 1: STATISTICAL TABLES ANNEX II: THE EXPORT DEMAND AND SUPPLY FUNCTIONS ANNEX III: INTERNATIONAL COMPARISONS OF COST COMPETITIVENESS ANNEX IV: THE EVOLUTION OF COMPARATIVE ADVANTAGES: INTERNATIONAL COMPARISONS ANNEX V: HISTORICAL COMPARISONS OF FACTOR ENDOWMENTS I KINGDOM OF MOROCCO - REPUBLIC OF TUNISIA EXPORT GROWTH: DETERMIN4NTS AND PROSPECTS EXECUTIVE SUMMAtRY 1. The Kingdom of Morocco and the Republic of Tunisia share many features of their recent economic development. During the 1980s, they managed to successfully adjust their economies while experiencing rising real GDP per capita. In both countries, the key source of growth was a shift from resource-based exports (phosphates in Morocco and oil in Tunisia) to manufactured exports. Both countries also registered a fall in the rate of growth of their exports' receipts in the early 1990s. This report will investigate why export growth has declined and indicate measures to promote it; and address the authorities' concern that such a decline might trigger measures of import and demand compression, thus reducing outputgrowth, and weakening thesupportforfurthertradeliberalization policies. Thereport follows up on the work initiated in two private sector assessmnents for both Morocco and Tunisia, recently prepared by the Bank with the support of the two countries' authorities, and integrates ongoing initiatives on the economic integration with the European Union (EUJ. A. THE 1990-1992 EXPORT SLOWDOWN 2. During 1990-92, the average volume of merchandise exports fell by 2.6% per year in Morocco and grew only by 4.5% in Tunisia (relative to 8% and 9.1% during 1987-1990 in the two countries respectively). The slowdown in manufactured exports was even more pronounced: they decreased by 3.4% a yearin volume terms in Morocco and grew only by 3.7% in Tunisia. Tunisia's better performance, however, should not be over- emphasized. First, it was sustained by exceptional sales of olive oil (which registered a 300% increase between 1990 and 1991). Second, contrary to Tunisia, reported trade statistics in Morocco do not include products transformed and exported under subcontracting arrangements, whose value added is recorded among services instead. Subcontracting exports (estimated from value added data) reached 26% of merchandise exports in 1992, up from only 11 % in 1988. The inclusion of subcontracting would have made merchandise exports in Morocco grow at 0.9% a year during 1990-92 instead of the recorded 2.6% decline. 3. The empirical work presented in this report shows that the recent export slowdown can be largely attributed, in both countries, to sluggish demand due to the economic recession in the main destination markets, notably the EU. Competitiveness effects did play a role, but not a large one, particularly in Morocco, where the real appreciation of the dirham after 1990 was too minute to account for much of the export slowdown. Preliminary data indicate that in 1993 the volume of manufactured exports increasedby 3.7% in Morocco and 5.1 % in Tunisia. This was due to an increase in the demand for the goods exported by the two countries, e.g., clothing and agro-industrial products, and to a slight depreciation of _ i- the real effective exchange rate in Tunisia. Despite the recent export slowdown, Morocco and Tunisia succeeded in retaining their aggregate share in the EU market for their manufactured exports. The Moroccan share in total manufacturing imports of the EU increased from 0.17% in 1980 to 0.316% in 1990 and 0.318% in 1992. Tunisia's share declined from 0.27% in 1980 to 0.26% in 1990, and then recovered to 0.30996 in 1992. B. REVIEWING THE EXPORT PUSH: A SUCCESS? Economic strncture 4. During 1980-1992manufacturedexportsincreasedby 10.6% a yearinMorocco and 9% in Tunisia. This sustained rate of growth was achieved through a combination of policies that fostered macroeconomic stability and increased the outward orientation of the two economies: internal and external discipline, exchange rate devaluation, reduction in import and tariff protection, fiscal and financial incentives and duty free access to imported intermediate and capital goods for exporters. Finally, other important determinants of the export success of Morocco and Tunisia during the 1980s were the privileged access to the European market granted through various Association Agreements with the EU and a sustained demand in the main destination markets especially in the late 1980s. However, did the export-oriented policies adopted by Morocco and Tunisia significantly change the economic structure of the two countries? The empirical evidence shows that the structure of the two economies still reflects the legacy of the import-substituting policies adopted in the past. Thus, the characteristics of exporting firms differ substantially from those of firms that sell in domestic markets. ELcrst the exporting firms are larger and typically owned by or associated with a foreign enterprise. Some of these firms therefore have access to financial, technical and marketing expertise that enabled them to meet norms and standards of the importing markets. However, many exporting firms are off-shore enterprises operating under subcontracting arrangements in low-skilled activities such as garment assembly. The links between these firms and the local economy are tenuous, normally confined to labor and the use of infrastructure. Thus, they can easily relocate when the conditions offered by other countries become more favorable. Secon small firms are less likely to be or become exporters, probably because of the high entry and transaction costs of accessing foreign markets. .T1ird industrial linkages between exporting and non-exporting firms, or intra- sectoral, are weak. Thus, technical knowledge and export capabilities of larger firms are not disseminated to smaller firms that may have export potential. Finay the export sector is characterized by a lack of product and market diversification. 5. However, there are also indications of a new dynamism anda higherinteraction between producers for domestic and foreign markets. For example, enterprises data show that in recent years both entry and exit rates have increased, and the percentage of domestic sellers that became exporters has doubled. This result must be attributed to the effect of trade liberalization policies in changing the perception of profitable opportunities in the export sector. Econometric estimates of an export supply equation indicate a significant response of the export supply to the domestic terms of trade. A one percent increase in the ratio of export to domestic prices would lead to a 1.01 % and 2. 71 % increase in the supply of exports in Morocco and Tunisia respectively. A decrease in domestic demand, measured by a fall in - II - the rate of capacity utilization, would increase the supply of exports, even at unchanged prices. This would happen through the switching of some firms from being domestic sellers to exporters and a decline in the share of output sold on the domestic market by partially exporting firms. These results highlight the crucial role that policy variables, by affecting domestic demand and prices, can play in promoting the supply of exports. Intemational ComDarsons 6. The export performance of Morocco and Tunisia appears less satisfactory when compared to that of the Mediterranean, Eastern European and Asian countries that compete in the European market. The two Maghreb countries did manage to diversify their economies and acquire some new comparative advantages. However, competitors such as Turkey, Malaysia, Thailand, and, in recent years, the Eastern European countries, were much more successful. They managed not only to strengthen their traditional comparative advantages in labor-intensive products, but also to export new capital-intensive and higher value added products. 7. Cheap labor has traditionally been the key determinant of the competitiveness of Moroccan and Tunisian exports. Real wages are still low, relative to competitors, and they have been declining in recent years. But productivity (measured by value added per employee) is also low, so that the level of unit labor costs is relatively high. By contrast, countries like Turkey, the Philippines, Thailand and China have been able to combine low but increasing wages with a fast rise in productivity. The computation of labor costs in a common currency (the ECU), shows that during 1985 and 1990, both Morocco and Tunisia improved their price competitiveness againstEuropean competitors (Portugal, Greece, Hungary), butfailedto catch up with the increased strength of Asian competitors (China, Malaysia, Indonesia) that had devalued their currencies much more. Finally, energy and transportation costs are high in the two Maghreb countries, particularly in Morocco. This decreases the profitability of exports and therefore the incentive for producing tradables. C. A S TRA TEGY FOR EXPORT GROWTH 8. Competing for the long term in international markets is the major challenge facing Morocco and Tunisia if a high growth rate and improved living standards are to be achieved. This complex task will require: (i maintaining sound macroeconomic policies and providing an environment that is competitive, and stimulates investments and the acquisition of technology; {ii) lowering trade barriers and increasing cooperation with Europe; (iii) strengthening the supply of exports, for example: enhancing firms capabilities to be flexible to changes in demand; broadening the existing comparative advantages and creating new ones; and improving cost competitiveness through higher productivity growth; and (iv) accumulating human and physical capital. - iv - Maintaining Macroeconomic Stability 9. Evidence around the world points to the dominant role played by sound and competitive economic policies in promoting exports. Morocco and Tunisia have completed many of the policy reforms initiated in the early 1980s. Trade liberalization has lowered import protection and increased domestic competition; current account convertibility has helped access to foreign exchange; the structure of fiscal incentives has been streamlined and markets deregulated. Both countries now enjoy macro and political stability and a low inflation rate; and their governments are strongly committed to export growth. 10. The continuation and deepening of these policies is the most important prerequisite for success. Further financial sector liberalization, tax harmonizations, and reduction of administrative controls are some of the key actions necessary to improve the incentive framework of the private sector to stimulate export growth that, as already mentioned, have been suggested in the two private sector assessments recently prepared by the Bank for the two countries. Moreover, the finding in this report of a substantial responsiveness of export flows to price incentives in both countries highlights the crucial role of exchange rate policies in promoting export growth. The evolution of the real exchange rate, especially with respect to competing countries, should therefore be constantlymonitored and an excessive real appreciation avoided through appropriate macroeconomic policy adjustments. Lowering Trade Barriers and Increasina Cooperation with Eurone 11. Trade liberalization has certainly increased import competition for many domestic firms. Quantitative restrictions have been virtually eliminated in Morocco and are expected to cover about 20% of domestic production by end 1994 in Tunisia. But nominal tariff and duty protection is still very high, reaching 50% (and higher values for certain agricultural goods) in Morocco and 73% in Tunisia. As already recommended in several Bank reports, lowering import protection is a necessary step to increase productivity and enhance quality, which are essential to achieve international competitiveness. But it is also becoming urgent because of the upcoming negotiations to upgrade the existing Association Agreements with the EU into "Free Trade Agreements N; and because the Eastern-European countries, that are directly competing with Morocco and Tunisia, already have low single digit tariff rates and will have full free trade with the EU by 2002 or earlier. Trade may simply move eastward unless Maghreb countries can match these liberalization moves. This is why the phase in period for lowering tariffs should not be longer than five years. Moreover, in order to reduce the inevitable trade diversion that would occur from a preferential liberalization vis-a-vis the EU, it would be important to lower trade barriers also against the rest of the world. 12. This report recommends the pursuit of increased cooperation with Europe and the speeding up of the negotiations for Free Trade Agreements with the E. U. However, it recognizes that the short-term benefits that would derive from such an agreement are minor: the Maghreb countries already enjoy duty free access to the European market for their industrial products and preferential access for their agricultural products. Vested interests in the EU will oppose any immediate opening of agricultural markets; and free movement of workers is unlikely even to be put on the negotiating agenda. By contrast, the costs of lowering tariff protection in both countries may be high and the consequent restructuring of the economy painful. 13. The costs of maintaining the status quo, however, may be much higher. EF, the benefits that derive from the existing Associations Agreements have been diluted by the granting of similar benefits to the Eastern European countries (in the recently negotiated 'Europe Agreements. Second, and most important, products that enter the EU market will be increasingly required to meet common industrial, environmental and safety standards. Achieving conformity with the new regulations will be easier with the full technical and financial cooperation of the EU. 14. The long-term benefits from a closer cooperation with Europe may be substantially higher than any short-term adjustment cost. These would come from: (ii an increased level of trade and foreign investment; (ii) the efficient working of a liberalized and open economy; (iii) reduced costs derived from the liberalization of services; and (iv) the adoption of industrial standards and certification and testing rules to conform to EU regulations. Strengthening Export SupOlV 15. Strengthening the support to small firms. Support mechanisms for providing technological and marketing services are believed to be important for the development of small and medium enterprises (SMEs), especially in export markets. But should governments provide such support? International experience indicates that private mechanisms, such as industrial and exporters'associations, chambers of commerce, and export traders can be more effective than public institutions with weak institutional capacity, bureaucratic structures and limited direct expertise. Pro-active efforts by governments to promote exports should be limited to financial assistance-as opposed to direct delivery services-to encourage the use of export-marketing supports and help establish associations that respond to the needs of SMEs; in turn, these associations should use these funds exclusively to provide export marketing and other services to the SMEs. 16. Subcontracting. Subcontracting agreements with foreign partners can be an important channel to accumulate industrial and technological experience from which local capacity can develop. Industrial and exporters'associations should help SMEs to actively seek andinitiate subcontracting arrangements with strategic foreign industries. Moreover, technical assistance and quality control programs to increase the efficiency of local subcontractors should be introduced. This would strengthen the linkage with the domestic economy and, with time, help to upgrade some of the subcontracting relationships into full partnership relationships. Finally, investments abroad by Moroccan and Tunisian firms would help them to establish technology dissemination channels and to obtain shares in foreign markets. 17. Industriallinkages. To promoteindustriallinkages, public financialsupportcould be reallocated to sustain development of industrial associations that provide common services to all members, particularly to small firms; and subcontracting relations between large and small firms. The incentive framework may also prove important. In Tunisia for example, the recently approved Unified Investment Code has extended to indirect exporters the fiscal - vi - advantages previously enjoyed only by exporters; this new framework should help to promote some integration between domestic producers and exporting firms. 18. Cost competitivenoss. Unit labor costs in Morocco and Tunisia are lower than in the European partners but higher than in Turkey and in the competing Asian countries. Morocco and Tunisia can no longer compete on the basis of cheap wages vis-h-vis countries like China or Indonesia that already have cheaper labor and are rapidly improving the quality of their products. Lower unit labor costs should be achieved through increased productivity, which requires upgrading technology and a more skilled labor force. Moreover, efforts to improve cost competitiveness should include lower energy and transportation costs. The case for advocating lower energy taxes is particularly strong in Morocco, as the price of energy is higher than in all competitor countries. 19. Diversication. The increase in the geographical and sectoral concentration of exports in both Morocco and Tunisia indicates the need for diversification. As the search for a radical andsystematic market diversification may be long and costly, sectoral diversification should perhaps be the priority, through strengthening and broadening upstream segments in the export sectors. A diversified production structure and an export sector built on strong comparative advantages represent a necessary condition for a future geographical diversification. To sustain diversification efforts, many countries have adopted special 'Funds' supported partly by the State and partly by exporters. In 1993, the Soci6t6 Marocaine d'Assurance a l'Exportation proposed in Morocco the creation of a 'Fonds de Promotion Economique Exterieure des Exportations to finance the activities of the "Centre Marocain de Promotion des Exportations (CMPE), the main export promotion agency, to deal with the preparation and diffusion of documentation on foreign markets, and help to promote exports. 20. International experience on the effectiveness of similar Funds is mixed. However, in Morocco, it would be advisable to let most current export promotion activities become private-supported. At the same time, the resources of such a Fund, if the proposal is implemented, could be geared to increasing the technological and export capabilities of all firms, particularly small ones. Public intervention in this domain may be justified because of the existence of informational and other market failures associated with the provision of financial, marketing and technical support to small firms. The development of a broader private, export-oriented sector composed of small and medium enterprises would imply less industrial concentration, a more flexible and competitive domestic economy and the creation of new job opportunities. This report suggests some ideas for a program for building export capabilities that could be financed by the Fund and tested on a pilot basis. The proposed program could provide assistance to potential exporters - mostly small enterprises-to design and introduce their products in foreign markets. It would be based on a cost-sharing scheme with the participating firms, and managed by the two export promotion agencies, the CMPE in Morocco and the CEPEX (Centre Extdrieur pour la Promotion des Exportations) in Tunisia, in close association with private sector groups. Finally, it would have to be of a short term nature, up to eight years, which is the maximum length of time allowed by the recent GA TT agreement to phase out export subsidies. - vii - Investina in Human and Physical Caoitai 2 . The ability to compete and grow largely depends, in the long run, on the accumulation of human and physical resources. Evidence in this report shows two important areas that need increased investments, both public and private: these are human capital and infrastructure. Investments here may significantly improve the productivity of labor and the growth of the economy. Reducing the illiteracy rate should be a priority in both countries, but especially in Morocco. A second priority would be the improvement in technical education and training. Most of this training could be actively designed and managed by the private sector itself, with minimum involvement from the State. 22. Significant public investments may be required, especially in Morocco, to improve the quality of infrastructure services and expand the existing stock. Public investment may be insufficient, and complementary financing will be necessary. To this aim, private participation should be fostered by deregulating the provisions of these services, in particular in transport and communication; and by developing a framework for concession contracts with private investors. A better management of water, an increasingly scarce resource, is also a necessary condition to ensure private sector and export growth. CHAPTER 1: INTRODUCTION 1.01. Morocco and Tunisia share many of the charcteistics of ther rocent economic development. During the 1980s, they managed to sucssfully adjust their economies while maintaining rising incomes per capita. In both countrie, the key source of growth was a shift from resource-based exports (phosphates in Morocco and oil in Tunisia) to manufacturing exports. Both countries registered a decline in the rate of growth of their eWorts' receipts in the early 1990s. This report will address the authorities' concern that such a decline could weaken the support for further trade liberalization policies as the two countrie prepare to enter into free-trade agreements with Europe. This introductory chapter gives an overview of the structure of the economy in the two countries: Section A briefly desacribes the reforms undertaken in the 1980s; discusses the main changes in the structure of output and exports and compares the institutional framework for export promotion. Section B gives an outline of the report. A. ECONOMIC STRUCTURE AND EXPORT PROMOTION Adjustment and Liberalization Policies during the 1980s 1.02. Morocco's stabilization experience started with a period of contractionary monetary and fiscal measures (during 1983-86) which was followed by a gradual restoration of macroeconomic imbalances and a program of structural reforms to streng the supply response of the economy: trade and domestic price liberali, the deregulation of markets and a comprehensive financial and fiscal reform. By the end of 1992, the inflation rate was 5.7%, and the current account and the budget deficit had declined to 1.6% and 2.2% of GDP respectively. 1.03. Measures to reduce the anti-export bias inherited from the past resulted in a devaluation of the real effective exchange rate by 28.7% during 1980 and 1986. Import restrictions were gradually liberalized. While in the early 1980s quotas covered half of the imports, they were virtually eliminated in 1993. Tariffs were decreased from a range of 0-400% to 0-35% during the same period; a special import levy of 12.5%, replacing other duties, was added to tariffs in 1988 and then raised to 15% in 1993.1 Reference prices, which were introduced as an instrument of protection, still cover about one-fifth of the imported products freed from ministerial authorization and one-tenth of manufactured goods.2 Reference prices on imported goods are higher than international prices in about one-third of the cases. I/ With the exception of capital (10%) and p tical goods (12.5%). 2/ See Kingdom of Morocco: Preparing for die 21.t Cue*ury. Stigtming the Privae Sector in Moroccoo, World Bank, report no. 11894-MOR, page 27. - 2 - 1.04. Tunigia's adjustment program started in 1986, later than Morocco's, after a severe balance of payments crisis due to a fall in international oil prices. Stemming from the 1970s, Tunisia had inherited a large budgetary deficit (about 5.2% of GDP during 1981-86), a deteriorating current account balance (that after a peak of 11% in 1984 averaged 8% of GDP in 1985-86), an inefficient public sector, and an economy overridden with price, import and investment controls. The 1986 stabilization and reform policies aimed at reestablishing domestic and external balances and liberalizing interal controls. These policies contributed to an acceleration of growth, with GDP increasing by 4.6% a year during 1987-92; a reduction in external imbalances, with the current account deficit averaging minus 3% of GDP during the same period; an improvement in debt indicators; and a steady decline in the inflation rate from 8% in 1985 to 5.4% in 1992. 1.05. The devaluation of the real effective exchange rate (-14% between 1986-87) spurred the competitiveness of exports, which in turn helped to improve the macroeconomic balances. While oil exports declined (from 52.5% of total merchandise exports in 1980 to 15.1 % in 1992), exports of manufactures increased in volume terms at an annual rate of 10.6% during 1986-1992, and tourism increased by 14% during the same period. 1.06. Trade liberalization. In the mid-1980s, at the outset of the reform program, quantitative restrictions on imports covered about 80% of imports (and 100% of domestic production). Import duties ranged between 5% and 236% with an average tariff rate of 36%. The first phase of the reform of import controls included a narrowing of the customs duties range to 17%-43% in 1987. Imports of raw materials, semifinished products and capital goods were liberalized first. However, in 1991 quantitative restrictions still covered about 70% of domestic production. Following the Gulf war, and the continuation of adjustment policies, a program of import liberalization was announced, laid down and followed. To cushion domestic producers against foreign competition, the 1991 Finance law introduced transitory compensatory customs duties ranging from 10% to 30%; they were lowered in each of the subsequent three years. The operation was repeated in the finance laws of 1992-94. Minor rationalizations of the tariff structure were implemented during 1991-93, and a surcharge of 5% was levied during the period 1991-93. By the end of 1994, only about 20% of domestic production, which includes two-thirds of the textile sector, is expected to remain under quantitative restrictions. But tariff protection on some consumer goods is as high as 73%. TABLE 1.1: MOROCCO & TUNISIA - STRUCTURAL COMPARISONS Morocco Tunisia GDP per capita 1110 1839 (1992$) verae anual rate of growth (1980-92): (in consmnt 1980 USS) Rel GDP 3.32 4.10 Merchandis exports 4.23 4.24 - Manufactured exports 10.68 9.04 - Non traditional exports' (1985-92) 7.49 11.44 Merchandise imports (f.o.b.) 5.44 3.79 Inflation (CPI) 6.56 7.28 1986 m2 1980 m2 bare of merchandise export in GDP 12.8 14.0 27.4 25.5 Sectw sae in GDP AgrkIture 18.4 14.9 14.1 15.6 Induxry 30.9 32.7 31.1 27.1 -Manufcuring 16.8 18.6 11.8 15.1 f which Agro-indusry 4.7 5.6 2.9 3.2 Textile, clothing and footwear 3.4 4.6 2.8 4.8 Scrvac 50.6 52.4 41.3 45.0 - Tourism 3.9 3.6 Structure of dmehndise exports Agriculture 19.6 18.6 3.5 4.8 Industry 79.9 80.9 96.3 94.9 - Fuel., minerals" 46.0 16.6 46.3 16.9 - Manufacturing 33.9 64.3 43.5 78.0 of which (in % of manuf. exports) Ago-Indwutry 26.0 13.2 9.2 6.9 Textile,clothiag and footwear 32.3 42.0 46.7 55.1 Trde exposure 45.3 51.6 85.8 80.9 (X+M)/ODP 0 Nm mudMamal.m: PFo Morom - hmandW expoau - *Ssb; Par Temhh - Mara_di. *Vww - tash lb mA hhdWmb t,hk dmIvdmd (hia ba T1a upmurd 59% dft ke 1992) _Ido =me kmu (pb ). (In M o, d *Id otlF dr 1992. Mt:WUIRMFA -4 - Outward Orientation dIndustra Struct 1.07. The economic structure in both Morocco and Tunisia responded favorably to the outward-oriented policies implemented in the 1980s (see Table 1.1). Sustained export growth allowed both a fast increase in imports of capital and intermediate goods, essential for resuming income growth, and a significant improvement in the current account balance. Manufacturing increased its share in the GDP of both countries ; and within manufacturing, production shifted towards the most export-oriented sectors: agroindustry and textile and clothing. The structure of exports showed remarkable changes: the share in merchandise of primary exports, phosphates and derivatives in Morocco and of oil in Tunisia, declined from around 46% in 1980 to 16%- 17% in 1992 in both countries. During the same period, the share of textile and clothing in manufacturing exports increased from 32% to 42% in Morocco and from 47% to 55% in Tunisia. The Institutional Infrastructure for Export Promotion 1.08. Export incentives. To compensate for the anti-export bias generated by the import and price protection policies of the 1970s and early 1980s, the authorities of Morocco and Tunisia have granted important fiscal and financial incentives to exporting firms. In Morocco, exporters, excluding those in services, benefit from tax holidays and exoneration from payment of indirect taxes. Direct and indirect exporters can import their inputs free of duty through a temporary admission mechanism. Except for a 1 % levy on agricultural and agro- industrial goods, exports are not taxed. However, exporting certain subsidized agricultural commodities still requires a license. And the high protection of the agricultural sector, a "priority sector", makes exporting a less profitable activity. 1.09. In Tunisia, incentives to export activities have been significantly more important than in Morocco. Already in the early 1970s, the government introduced a law (no. 1972-56) that created an off-shore regime for foreign and domestic enterprises exporting more than 80% of their output. These firms were granted full exemption from income and indirect taxes and unrestricted duty free access to imported inputs. The benefits granted to exporters were then extended (law no. 1981-56) to partial exporters, as a pro-rata of their export sales. These benefits were included in all the sectoral Investment Codes. The system of temporary admission was further streamlined and simplified in the late 1980s. The revision of the sectoral investment codes and their substitution, in 1993 with an Unified Investment Code, has only marginally touched the structure of fiscal incentives for exporters (see Box I. 1).3 1.10. F1nancial incentives. Export credit at preferential rates is available in both countries but its importance has declined in recent years. In Morocco the ratio of export credits 3/ It bas substituted the pernmment exemption from payment of income tax with a 10 year tax holiday followed by a permanent 50% reduction in the income tax rate. to total credit to the economy declined from 21% in 1990 to 10% in 1992 (about 90% of this export credit is given at preferential terms). This fall was due not only to the slower growth in exports, but also to the increased banks' preference for more profitable lending. Banks can now lend to exporters at 12% (and obtain the Central Bank's refinancing at 10%) while average lending rates are 14%-15%. Similar arrangements for preferential export financing exist in Tunisia. The ratio of such credit to total credit to the economy has declined from 8.7% in 1990 to 5.3% in 1992. Preferential rates now stand at 10.25%. These credits can be rediscounted at the Central Bank at 8.25%. Average lending rates, just recently lowered, stand at 11.3%. The new Investment Code has eliminated aU subsidized investment credits, including those for exports ( which represented about one-third of total subsidized export credit). 1.11. Foreign exchange regulations. Foreign exchange controls have been progressively relaxed in both countries. Foreign investors have the right to fuly repatriate dividends, profits and invested capital and are not subject to controls on expatriate hiring and salaries. Off-shore banks have operated for years in Tunisia; in 1992 they were also established in Morocco. Current account convertibility was achieved in 1993 by both countries. Foreign investors also enjoy the full convertibility of all capital operations related to their investments in the two countries. Exporters are allowed to keep 40% of their earnings in foreign exchange in Tunisia and 10% in Morocco ( 5% if they export services) for their needs. They can also keep accounts in convertible dinars and dirhams in the two countries respectively. 1.12. Export promotion services. Morocco and Tunisia have developed a complex framework for export promotion. It includes export promotion agencies ( the most important being the CMPE in Morocco and CEPEX in Tunisia) insurance companies ( the SMAEX in Morocco and the COTUNACE in Tunisia) insuring against political and catastrophic risk, chambers of commerce, and commercial representation overseas. Some of the existing agencies, which are mostly State owned or funded, have been fairly successful in participating in external fairs, providing information on foreign markets and in assisting established exporters. The services are provided at low or no cost to beneficiaries. Competition with private providers of services for exports is practically absent. B. AN OUTLINE OF THE REPORT 1.13. The report is organized as follows. Chapter II analyses the performance of Moroccan and Tunisian exports during the 1980s. It shows that after a decade of sustained increase, export growth, particularly that associated with the European Union, slowed down considerably during 1990-92. Much of this slowdown was due to the economic stagnation in the main destination markets; however, supply factors also contributed. 1.14. Supply side constraints to export development are discussed in Chapter m. The chapter investigates how the structure of the economy, particularly the manufacturing sector, - 6 - changed in response to the trade liberaization policies and export promotion measures implemented by the Governments of Morocco and Tunisia during the 1980s. It then suggests a strategy for developing the export capabilities of firms and for increasing the flexibility of the industrial structure to changes in demand. 1.15. Chapter IV compares the export performance of Morocco and Tunisia with that of some Mediterranean, East European and Asian countries that compete in the market of the European Union (EU). While Morocco and Tunisia barely maintained their market share in the EU market, some of these countries, notably Asia, significantly increased it. The chapter shows that this was because they managed to improve both their short-term cost competitiveness and their structural comparative advantages. 1.16. Export growth in Morocco and Tunisia has been helped by the preferential treatment granted to their industrial products by the EU. The intensification of trade and the economic and political links between Europe and the Maghreb countries will largely depend, on the nature of the new Associations Agreements to be negotiated soon. Thus, Chapter V looks at the relevant aspects of these potential agreements, and it discusses what Morocco and Tunisia can learn from the recent experience of Eastern European countries in negotiating similar arrangements. BOX 1.1 THE MAIN CHARACTERISTICS OF THE TRADE SYSTEM AND EXPORT INCENTIMS 1993 - 1994 MOROCCO I TUNISIA TRADE PROTECTIO Range (in %) Range (in %) Custom Duties 0-35' Custom Duties 1043 Special Import Levy (PFI) 15.02 ComDensatorv Duty on Imnorts' 10-30 Reference Prices (as % of 1992 domestic production) 10 Export Lev 1.5 Exoort Levy I % of Domestic Production % of Domestic Manufacturing covered by QRs - 1987 97 Output covered by QRs - 1986 40 - 1990 72 - 1989 20 - 1993 41 - 1993 less than 53 - 1994 around 20 FNCE AM EXPORT PROMOTION - Current account convertibility - Current account couvertibilit. - Foreign investors can repatriate 100% of capital and - Foreign investors can repatriate 100% of capital and dividends. dividends. - Exporters allowed to keep 10% of their earnings in foreign - Exporters allowed to keep 40% of their earnings in foreign exchange (5% if they export services) for needs related to exchange to cover all expenses in foreign exchange related to their field. their activity. - Availability of export credit at preferential rate. - Availability of export credit at preferential rate. - Export Credit Insurance: the Socidtc d Assurance a - Export Credit Insurance: the Compagnie Tunisienne pour I'Exportation (SMAEX), a public establishment. 'Assurance du Commerce Enxieur (CtOTUA.fCE), publicly - Export Promotion: the main agency is the Centre Marocain de owned. Promotion des Exporations (CMPE), a public establishment. - Export Promotion: main agency is the Centre Extiricur pour la Promotion des Exportations (CEPEX), a public establishment. THE MAIN EXPORT INCENTIVES Exporting enterprises4 (excluding services and indirect Totally exporting enterprises (all sectors)' exporters). Incentives apply in proportion of production - 10 years income tax holiday, 50% rate reduction afterwards. exported. - exoneration from registration duties, custom duties and VAT. - 5 years tax holiday, 50% rate reduction afterwards. - refund of custom duties and VAT on equipment goods - duty free imports (applies to direct and indirect exporters). imported and/or acquired on the local market. - reimbursement of PFI. - tax deductibility of reinvested earnings. - exoneration from payment of VAT (up to a maximum). - possibility of seUing up to 20% of production in the local market after payment of all taxes and duties. Partially exoortine enternrises and indirect exporters (advantages relate to the income generated from exports). - 10 years income tax holiday, 50% rate reduction afterwards. - suspension of VAT and consumption duties on capital goods needed for exports. - refund of custom duties and charges on (a) raw materials and semi-finished products imported or acquired on the local market; (b) imported equipment goods not produced locally. H igher rates on meat, milk, cereah, oilseeds and sugar. Introduced in the finance law of 1991-94 on limited range of products 2 Exccpt on capital (10%) and pharmaceutical goods (12.5%). and progressively lowered in subsequent yean. Includes dangerous articles and, for 1994 only, cereals, oilseeds and ' See Law no. 93-120, December 1993, Code d'Incitaon aux sugar. Investissements'. Note that additional incentives are granted if See Code des Exportations, 13 August 1973. These incentives ae investments are made by new promoters, in disadvantaged areas and maintained in the 'Projet de Loiportant Code aax inva.stlnue under several other conditions. privds", currently under discussion. Additional incentives are granted to exporters under particular conditions. - 8 - CHAPTER II: EXPORT GROVWTH AND SLOWDOWN 2.01. During the 1980s, sustained export growth represented, in both Morocco and Tunisia, the essential component of a policy program designed to combine adjustment with rising incomes. Since 1990, however, real export growth has registered a significant slowdown in both countries. This slowdown in export growth may induce both countries to resort, to a larger extent than in the past, to import and demand compression, thus jeopardizing the objective of resuming fast and sustained output growth. Section A analyzes recent trends in the evolution of exports, while Section B reconstructs the contribution of prices and exchange rates to such an evolution. The performance of exports to the European Union, the main destination market, and the evolution of market shares in the EU are discussed in Sections C and D. Section E examines the contribution of both demand and supply factors to the export performance in the 1980s. Conclusions are drawn in Section F. A. THE PERFORMANCE OF EXPORTS 2.02. 1980-1990 A decade of growth. Table 2.1 shows the performance of total merchandise and manufactured exports during the 1980s and in the early 1990s for Morocco and Tunisia. Relative to the 1970s, when oil in Tunisia and phosphates in Morocco were the main export items, manufactured exports represented the fastest growing item in the 1980s: they increased by 13.7% and 6.8% a year in volume terms between 1983 and 1987 and by 15.1% and 14.4% between 1987 and 1990 in Morocco and Tunisia respectively. 2.03. lhe 1991-1992 slowdown. During 1990-92, the average volume of total merchandise exports fell by 2.6% in Morocco and grew only by 4.5% a year in Tunisia (relative to 8% and 9.1% during 1987-90 in the two countries respectively). The slowdown in manufactur exports was even more pronounced: they decreased by 3.4% a year in volume terms in Morocco and grew by 3.7% in Tunisia. Among Moroccan manufactured exports, fertilizers were particularly affected, and to a lesser extent clothing and electrical machinery, the latter being a newly exported product. Tunisia's better performance, however, should not be over-emphasized. EiM, it was due to exceptional levels of olive oil exports in 1991.1 In fact, the decline in the export growth of most manufactured goods was as severe in Tunisia as it was in Morocco. Exports of agricultural products, as well as those of food-processing and chemicals fell substantially and exports of textile and clothing grew slightly less than in previous years. Second, contrary to Tunisia, reported trade statistics in Morocco only include direct exports. They exclude therefore all inward processing trade where Moroccan producers act as subcontractors transforming imported fabrics into finished products whose value added is recorded among services instead. As shown in Chapter III, gross subcontracting exports lt Olive oil is classified as a manufactured good. In volume terms exports of olive oil increased from 49.7 to 158.2 thousands of tons. They were down to 96.5 thousands of tons in 1992. - 9 - (estimated from value added data) reached 26% of merchandise exports in 1992, up from only 11 % in 1988. The inclusion of subcontracting would have made merchandise exports in Morocco grow at 0.9% a year during 1990-92 instead of the recorded 2.6% decline. Preliminary data for 1993 show, in both countries, a moderate resumption in the growth of both merchandise and manufactured exports, most likely due to an increase in the demand for the goods exported by the two countries, and, in the case of Tunisia, to a slight devaluation of the real effective exchange rates (see Table 2.2). Table 2.1: GLOBAL EXPORT PERFORMANCE (Average annual growth rates, in volune) 1980-83 1983-87 1987-90 1990-92 1993 (est.) Morocco Merchandise exports 4.8 4.6 8.0 -2.6 2.5 Manufactured exports 12.3 13.7 1S. 1 -3.4 3.7 Tunisia Merchandise exports -0.7 4.3 9.1 4.5 1.6 Manufactured exports 10.5 6.8 14.4 3.7 5.0 Source: MNICO database. 2.04. Performance of exports on the main partners' markets. Moroccan and Tunisian exports are directed towards a few markets, mostly in Europe, particularly in France. Geographical and historical reasons explain the closeness with Europe which is also the source of most foreign direct investments, workers' remittances and tourism receipts. However, the concentration of both products and markets makes exports of both countries more vulnerable to shocks and price fluctuations. Thus in 1990-1992, the European market, representing about 65 % of Moroccan and 78% of Tunisian exports contributed to more than 90% of the fall in the rate of growth of exports for both countries (see Table 11 in Annex I). 2.05. The slowdown was not reflected only in the EU market (see Table 11 in Annex I). Arab countries, because of the Gulf war, and East European countries, in deep recession, imported at a slower rate. By contrast, Moroccan products performed well on 'Other Industrial Countries" markets (namely USA, Japan, Canada, Australia, New Zealand and South Africa). In value terms, total exports to this region increased by 34% in 1991 mainly thanks to agricultural and food processing products (for example, exports of fresh and prepared fish to Japan). Globally, Tunisia's exports performed worse than in previous years in all other markets (excluding olive oil). - 10- B. THE ROLE OF PRICES AND EXCHANGE RATES 2.06. Both movements in the exchange rate and in relative prices account for the changes in the value of exports. Table 2.2 shows that the positive export performance observed during the 1980s in both Tunisia and Morocco was positively correlated to the continued depreciation of the real effective exchange rate. The table also shows the evolution of the export prices in local currency (dirhams and dinars), the local currency vis-a-vis the dollar,2 and their effect on the dollar value of exports. Table 2.2: MOROCCO AND TUNISIA - RCES AND EXCHANGE RATES (all partners - avcrage annual changes in %) MOROCCO 1981483 1984-87 1988-90 1990-92 1993 (est.) Export Price in DH 10.7 7.0 5.8 1.6 3.8 Nominal Exchange Rate USStDH -17.9 -4.0 0.5 -1.8 -8.9 Combined Effect on S-valued exports -9.1 2.7 6.3 -0.2 -4.7 Real Effective Exchange Rate -5.4 -5.0 -2.2 0.5 1.0 TUNISIA Export Price in DH 7.2 3.3 8.9 2.8 10.7 Nominal Exchange Rate US$/DH -15.8 -4.9 -1.9 -0.4 -13.5 Combined Effect on S-valued exports -9.8 -1.8 6.8 2.5 -2.5 Real Effective Exchange Rate -1.2 -7.5 -1.3 1.0 -1. Source: International Finance Statistic, for Exchange Rate. MNICO database for Export Price. 2.07. In the early 1980s, export prices, expressed in local currency, increased by 10.7% per year in Morocco and 7.2% in Tunisia. This evolution was consistent with the high inflation rates experienced in most OECD countries. As price increases in these countries slowed down in the early 1990s, export prices in Morocco and Tunisia increased at a much slower pace, 1.6% in the former and 2.8% in the latter. To keep the competitiveness of their products, Moroccan and Tunisian exporters could not benefit any longer from a further depreciation of their currencies;3 being price-takers, they had to lower the rate of increase in the price of their 2/ The combined effect of price and exchange rates on the percentage change in the value of export flows in dollars is given by the following formula PX$ = PX + E/DH(DN) where PX$ is the export price index in dollars PX is the export price in local currency (DH or DN) E/DH(DN) is the nominal exchange rate index of the US$ vs the dirham, DH (dinar, DN) All variables are expressed in logs. 3/ In the next sections, the competitiveness of Morocco's and Tunisia's exports, measured by changes in the real exchange rate with respect to both industrialized and competitor countries, will be analyzed. - 11 - products, in order to remain competitive. Thus, part of the slowdown (approximately one-third) in the dollar value of exports registered in the early 1990s must be imputed to the slowdown in export prices. C. THE PERFORMANCE OF EXPORTS TO THE EUROPEAN UNION 2.08. Much of the export slowdown of Morocco and Tunisia in 1990-92 can be attributed to the stagnant demand in the European market. Table 2.3 shows that the average annual rate of growth of nominal dollar eports from Morocco to the EU fell from 24.3% in 1987-90 to 3.7% in 1990-92. In turn, fertilizers, clothing and agro-industrial products accounted for most (15.25 %) of the total slowdown (20.53 %) of manufacturing exports4 (see Table 10 in Annex I). The picture for Tunisia is fairly similar. The growth rate of merchandise exports to the EU decreased from 15.9% in 1987-90 to 6.19% in 1991-92. Much of the fall can be predicated on the worsening performance of fertilizers, agro-industry, mineral fuels and clothing. Table 2.3: PERFORMANCE OF MERCHANISE EXPORTS TO THRE EU (nominal US$ - average annual growth rates) 1980-83 1983-87 1987-90 1990-92 Morocco -6.9 12.4 24.3 3.7 Tunisia -13.6 11.0 15.9 6.2 Source: COMTRADE, World Bank. D. THE EVOLUTION OF MARKET SHARES 2.09. In spite of the recent slowdown, during 1990-92 Morocco and Tunisia registered slightly growing shares in the EU market for their manufacturing exports. The share of Morocco's products in total manufacturing imports of the EU increased from 0.17 of one percent in 1980 to 0.316 in 1990 and 0.318 in 1992. The share of Tunisia's manufacturing exports in the imports of the EU declined from 0.270 of one percent in 1980 to 0.226 in 1987 and then rose to 0.260 in 1990 and 0.309 in 1992. 4/ Their contribution to merchandise export growth, measured by their own growth rate multiplied by their share in merchandise exports in the initial year, fell from 4.1 to -1.24% for fertilizers, from 11.00 to 4.14% for clothing and from 2.08% to -.97% for processed food between 1987-90 and 1990-92. - 12 - 2.10. The evolution of market shares is determined on one hand by competitiveness and on the other by the geographical and the sectoral composition of exports. If the initial composition of exports is biased towards fast growing markets and/or commodities, aggregate export growth may be sustained even in the absence of any positive competitiveness gain. Conversely, an unfavorable sectoral and/or geographical composition of exports may negatively impinge on the overall export performance. A technique, the constant-market share analysis, will be used in the next section to evaluate the contribution of each of these effects to the behavior of exports. 2.11. Constant market share analysis. In the "constant-market share analysis", the difference between the growth rate of a country's exports and that of the destination country's imports, in this case the EU, is decomposed into two factors. The first term measures by how much the country's export growth would have exceeded total import growth in the EU, had such exports to each of the EU's member countries5 grown at the imports growth rate in each of these members; that is, had the country held to its import share in each member country of the EU. This is labelled the country's effect. If positive, it indicates that the composition of the country's exports was biased towards the relatively fast growing national markets in the EU. The second term, the differential effect, is measured as the weighted difference between the growth rate of the country's exports to the member countries of the EU and the growth of imports in these countries. It is a broad measure of competitiveness: a positive differential effect indicates that on average the country's exports have increased their market shares6 ( see part A in Table 2.4). 2.12. Table 2.4 shows that between 1980 and 1990, Morocco achieved remarkable success in gaining market shares for its manufacturing products in the EU market. The differential effect, constantly positive throughout the decade, reached a peak during 1987-1990. However, during 1990-1992, Morocco's performance slowed down considerably. The export growth was further hampered by a negative country composition effect. The small weight of Germany, a fast growing market, and the large weight of France, a country particularly affected by the recession, contributed to the weak performance 'of manufacturing exports. Overall, therefore, Morocco held its market share in the EU's countries between 1990 and 1992, but was somewhat penalized by an unfavorable country effect. S/ The EU countries takmi into account are France, Belgium, Italy, Germany, Netherlands, the United Kingdom, and Spain. 6/ Formally, let X, Xi, M and Ml indicate Morocco's total exports, Morocco's exports to country i, the EU total imports and imports into country i. Let a, = X/X and b, = M,/M. We then have that X'= E a, X'I and M' = E b, M';, where a prime indicatos a growth rate. It is easy to show that: XI-M'l= E (a, - b,) MI + E b, (X'I - M') where the first term refers to the country effect and the second term to the differential effect. - 13 - 2.13. These findings are only marginally different if the effect of the sectoral composition of exports, rather than the country composition, is considered7 (Part B of Table 2.4). In this version of the market share analysis, the growth of a country's exports of products in the most important sectors is compared to the growth of each European country's imports in these sectors. In Morocco, the sector effect was constantly negative during the 1980s, indicating relatively slow growing sectors. However, it became positive after 1990, probably because some sectors, such as clothing and agro-industry, were less hard hit by the faU in aggregate demand in the EU. On the contrary, the differential effect (again, an indicator of broad competitiveness) was positive throughout the 1980s but turned negative after 1990.' Table 2.4: CONSTANT MARKET SHARE ANALYSIS MOROCCO TUNIA l 1980- 1983- 1987- 1990- 1980- 1983- 1987- 190- 83 87 90 92 83 87 90 92 Manufactures export growth (current USS) 11.4 113.9 99.9 11.7 -19.1 74.5 75.8 32.1 Decomposition of export growth * 1) EU demand -13.6 94.6 53.0 11.1 -13.5 94.6 53.0 11.1 2) A - country effect -0.6 1.1 0.3 -2.3 -2.8 1.5 0.2 0.2 - diff. effect 25.6 18.2 46.6 2.9 -2.8 -21.6 22.6 20.8 or: B - sector effect -3.4 -11.1 -7.4 6.0 -2.8 -3.6 -7.8 6.9 - cliff. effect 28.4 30.4 54.3 -5.4 -2.8 -16.5 30.6 14.1 * The export growth can be decomposed in the EU demand + (A) country effect + differential effect; or (B) + sector effect + differential effect. Source: COMTRADE data, World Bank, Staff estimates. 2.14. The application of the constant market share to Tunisian exports yields different results. First, the improvement in Tunisia's export performance came later than that in Morocco. 7/ The formula for the decomposition into sectoral and differential effects is the same as in the previous footnote, with the index i referring to sectors rather than to countries. 8/ Obviously, the differential effect after controlling for sectoral effects also includes the impact of country composition. Similarly, the decomposition in the first part of Table 2.4 does not control for sectoral effects. It is possible to define a new decomposition which controls simultaneously for both country and soctoral effects. The results however do not change in any substantial way. - 14 - The differential effect for Tunisia, measured after controlling either for country or for sector effects, was negative until 1987. It was only after 1987 that Tunisia registered a positive differential effect, probably due to a better competitiveness. Seod, contrary to Morocco, the country effect remained positive also after 1990. This finding reflects the substantially larger weight of the German market for Tunisia's exports. 3Ijir, Tunisia registered a substantially positive differential effect even after 1990. E. THE DETERMINANTS OF MANUFACTURING EXPORT GROWTH 2.15. The results of the constant market share analysis suggest that not only the economic conditions in Europe but also competitiveness effects affected a substantial role in the demand for Moroccan and Tunisian exports in the EU. The changes in competitiveness during the 1980s should in turn be explained by the analysis of the supply of exports. To this aim, the next section provides an econometric analysis of the export supply and the export demand for both Morocco and Tunisia.9 ExpQrt demand 2.16. Determinants of export demand. The evolution of the main determinants, on the demand side, of Morocco's and Tunisia's manufacturing exports is presented in Table 1.5. The variables taken into account are the international demand, measured as a weighted average of real imports10 of the main trade partners, and the evolution of the real exchange rate with respect to industrial countries and to competitor countries."1 An increase in the real exchange rate index indicates a real appreciation. 9/ The theoretical specification of the export demand and supply are disussed in Annex H. 10/ These are merchandise imports and not manufactures. Approprate deflatos of manufictured imports were not available. 11/ The developed countries ue: France, Italy, Germany, Netherlands, the United Kingdom, Belgium, Spain. Competitor countries are: Tunisia (Morocco), Turkey, Greece. - 15 - Table 2.5: EVOLUTION OF DETERMINANTS OF MANUFACTURING EXPORT GROWTH MOROCCO TUNISIA Real Exehange Rate* Real Exchange Rate* with respect to with respect to Real World Competit. Idw. Real World Competit. Indus. Exports Demand Countries Countin Exports Demand Countries Countries 1980 85.8 102.4 109.38 109.65 58.2 103.2 92.49 96.43 1981 97.0 91.2 103.86 112.57 67.8 93.1 91.54 102.30 1982 97.9 91.7 107.59 116.11 79.9 95.0 96.78 105.63 1983 104.5 90.8 105.99 111.05 79.4 91.4 97.94 101.64 1984 103.5 93.7 103.86 104.84 88.9 93.5 98.57 99.97 1985 100.0 100.0 100.00 100.00 100.0 100.0 100.00 100.00 1986 130.9 110.8 109.87 92.08 109.1 112.0 99.49 85.16 1987 164.2 117.4 115.27 85.88 136.9 121.4 89.95 70.93 1988 198.9 121.2 118.99 87.39 148.5 126.7 88.96 70.37 1989 245.7 121.8 115.95 89.72 168.9 129.5 82.75 70.12 1990 263.9 130.9 104.52 80.25 199.5 137.9 81.88 67.48 1991 267.6 140.1 104.87 81.21 227.7 145.5 84.37 69.64 1992 144.9 104.87 81.30 146.6 90.20 72.92 * An increase in the index indicates a real appreciation. Source: Staff estimnats 2.17. The behavior of international demand closely follows the evolution of the European economy and is similar for both Morocco and Tunisia. International demand fell from 1980 to 1983, reflecting the delayed recovery in Europe relative to the U.S. It then increased steadily until the end of the sample period. The evolution of the real exchange rate presents different characteristics in the two countries. 2.18. In Morocco the real exchange rate with respect to industrial countries depreciated from the beginning to the end of the 1980s, registering instead a modest appreciation during 1991-1992. However, when measured with respect to competitor countries, it showed a slightly more erratic behavior. It depreciated until 1985, then appreciated significantly until 1989 (mostly as a result of the more aggressive exchange rate policy pursued by Tunisia and Turkey) and finally, after the devaluation of the dirham in 1989, remained stable at a lower level. Over the sample period, the behavior of the real exchange rate mirrors the results of the constant market share analysis quite well. Indeed, the findings of a positive differential effect generally coincide with a depreciation in the real exchange rate (during the period 1983-86 and especially in 1987- 90). 2.19. In Tunisia, the real exchange rate measured with respect to both industrial and competitor countries appreciated in the early 1980s and depreciated afterwards. Starting in 1991, as the inflation rate was relatively higher in Tunisia than in the competitors' countries the - 16 - exchange rate appreciated. This undesired evolution was corrected through a depreciation of the dinar in 1993. As for Morocco, the behavior of the real exchange rate in Tunisia mirrors the findings of the constant market share analysis. Between 1983 and 1987, the appreciation of the real exchange rate was reflected in a negative differential effect. The devaluation in 1986 came probably too late for its effects to be felt during the whole period. Similarly, the more aggressive exchange rate policy after 1986 was associated to a positive differential effect during 1988-1990. Perhaps surprisingly, however, the real exchange rate appreciation in 1991-92 did not coincide with a negative differential effect. There are two possible reasons for this result: first, the export performance in 1991-92 still benefitted from the lagged effects of the devaluation in the previous period; second, our estimates suggest that in the very short-run the demand for Tunisia's export is price-inelastic. As a result, a real appreciation will induce, in the short-run, an increase rather than a decline in the market share of exports, measured in current prices. The improvement in the market share, however, ought not to be taken as an indication that a real appreciation is of no concern. In the medium run, a real appreciation will have a severe negative impact in the export performance. 2.20. Export demand. The econometric estimation of an export demand equation (see Table A2 in Annex II) suggests that both international demand and the real exchange rate are significant determinants of the export performance of Morocco and Tunisia. In both countries, an increase in intemational demand leads, in the long run, to an equiproportionate increase in manufacturing exports. Export demand was also found to be highly responsive to price incentives. "2 The long-run impact of a real exchange depreciation was estimated to be equal to 2.73% and 8.8% in Morocco and Tunisia, respectively. This finding highlights the importance of appropriate exchange rate policies for the performance of exports."3 ExpQrt supply 2.21. In aggregate, both the volume of exports and the value of the real exchange rate are determined through the interaction of demand and supply factors. The evolution of domestic 12/ In the export demand equation, what matters is the ratio of Morocco and Tunisia export prices to foreign prices, measured by the real effective exchange rate. In the supply equation, what matters is relative export profitability, which is typically measured by the rtio of export to domestic prices. There are therefore two price elasticities of export, one in the demand equation relating the change in the external real exchange rate, the other in the supply equation relating the change in export supply to the ratio of export to domestic prices (or costs). 13/ In Table A2 of Annex II only steady state factors ae considered. n Morocco intenational demand played a crucial role in the export boom from 1984 to 1987 and a positive albeit smaller role in 1987-90. The evolution of the real exchange rate was insrumetal in promoting fast export growth, especially after 1987. In Tunisia, both competitiveness and intemational demand provided a negative contribution to export growth during 1980-1983. Both factors shifted to a positive contribution in the following years. Finally, in 1987-90, the multiplier role ofinternational demand declined. Convasely, competitiveness effects appear to have been paramount in promoting export growth in 1987-90. - 17 - costs, the incentive to sell on domestic markets, measured by the ratio of export to domestic prices, as well as the growth of productive capacity would affect the ability of domestic producers to compete with foreign firms. These factors would also influence the impact of a nominal devaluation."1 In fact, if offset by higher domestic costs, a nominal devaluation would prove to be an ineffective way to promote exports. 2.22. Estimates of an export supply equation for Morocco and Tunisia are reported in Table Al of Annex II. The results indicate that in Morocco, a one percent increase in the ratio of export to domestic prices"5 is associated with a 1.01 % increase in the supply of exports. The elasticity of export supply to productive capacity (measured by industrial value added) is estimated to be 3.39%. Finally, a unitary increase in the capacity utilization rate would lead to a 2.08% fall in export supply. Estimates for Tunisia indicate a more significant response of the export supply to the domestic terms of trade. A one percent increase in the real price of exports would lead to a 2.71% expansion in exports. The elasticity of export supply to productive capacity is 1.99%. Finally, an increase in capacity utilization would lead to a reduction in export supply equal to 2.48%. The high elasticity of export supply to productive capacity in both countries indicates that exports have increased at a much faster rate than value added in industry. This may be explained by (i) the increased openness of the two economies and (ii) the increasing weight in total sales of intermediate inputs. The latter implies that exports (which are measured on a gross basis) will increase more rapidly than value added.16 2.23. These results highlight the crucial role that policy variables may play in promoting the supply of exports. First, by inducing an increase in the relative price of non-tradeable goods, an expansionary macroeconomic policy would cause a leftward shift of the export supply curve, with a negative and immediate impact on exports. Second, an increase in domestic demand would lead to higher domestic prices and therefore to lower exports. Moreover, the econometric estimates show that even at unchanged prices a sudden increase in demand would crowd out export supply. This would probably happen through: the switching of some firms from being exporters to domestic sellers; an increase in the share of output sold on the domestic market by partially exporting firms (see Chapter III; the lengthening of delivery lags; the rationing of foreign consumers; and the increase in the cost and the availability of crucial non- traded inputs (such as energy and labor) which would affect export supply. The relevance of 14/ This report does not investigate how domestic prices would respond to a nominal devaluation. To do this, a full macroeconomic model would be needed, detailing the stnce of both fiscal and monetary policies. 15/ The relative profitability of exports is measured by the ratio of export prices to the consumer price index. The CPI is taken as an indicator of the evolution of non-traded goods prices. 16/ One way to account for both these effects is to introduce a tirm trend in the equation. If this is done, it becomes possible to impose the restriction of a unitary elasticity of exports with respct to capacity for Tunisia. Even in this new specification, al the other coofficiants an basically left unchanged. - 18 - these effects for Morocco (and Turkey) has already been documented.17 They appear to play a role also in Tunisia, implying a reduction in the well-known market segmentation between producers for domestic and foreign markets. A decomposition of demand and supply effects 2.24. A full decomposition of the contribution to export growth of both demand and supply factors is reported in Table 2.6. The evolution of exports is seen to depend on international demand, productive capacity, the rate of capacity utilization and the ratio of foreign to domestic prices.' For Morocco, international demand played an important role in the evolution of exports. Moreover, the simulations indicate that a large share of export growth can be explained by the increase in productive capacity. The capacity utilization rate, on the other hand, seems insignificant when measured over a full business cycle. Finally, in both the 1984-87 and the 1987-91 periods, the increase in the relative price of industrialized and developing competitor countries played a large role in the evolution of exports. Table 2.6: CONTRIBUTION TO EXPORT GROWTH - DEMAND AND SUPPLY FACTORS (in % of ept growth) l____________________ MOROCCO TUNISIA 1983487 1988-91 1983487 1988-91 EU Demand 20.7 8.7 3.4 3.7 Real Exchange Rate of * Competing countries 3.0 7.4 -29.7 11.6 * Industrialized countries 18.1 12.5 5.3 3.3 Productive Capacity 58.6 70.2 116.9 77.3 Capacity Utilization -.4 1.2 4.1 4.1 |Source: Staff estimates 17/ See R. Faini (1994), 'Export Supply, Capacity and Relative Prices', Joumal of Dovolpgment Economics forthcoming. 18/ Export prices are detrmined ondogenously. In a reduced form context, the correct rmere of the relevant price incentives is provided by the ratio of competitors' prices to non-traded goods prices. - 19 - 2.25. For Tunisia, the decomposition of export growth highlights the role of productive capacity and of factor prices in explaining export growth."' Between 1982 and 1985, the upward trend in the relative price of domestic goods provided a negative and substantial contribution to export growth. The devaluation of the exchange rate policy in the mid 1980s was reflected in the positive role that price incentives played in promoting export expansion from 1988 to 1991. More than 38% of export growth during this period can be attributed to the declining profitability of sales in the domestic markets. F. CONCLUSIONS 2.26. The empirical work presented in this Chapter has shown that the recent slowdown in the export growth of Morocco and Tunisia can be largely attributed to worsening economic conditions in the main destination markets, notably those of the EU, mitigated however by a relatively high demand for the consumption goods (such as clothing and processed food), exported by the two countries. 2.27. Competitiveness effects did play a role, but not a large one. In Morocco, the real appreciation of the dirham after 1990 was too small to account for much of the export slowdown. However, in Tunisia, the real appreciation of the dinar in 1991-92, more pronounced than that in Morocco, may have accounted for some of the export slowdown. The 1993 depreciation of the dinar should have partly addressed this imbalance, provided that it is not going to be offset by higher domestic costs. 2.28. As export demand in both Morocco and Tunisia is very dependent on price competitiveness with respect to the other country (as well as being a function of prices in other competitor countries) the authorities in the two countries may be tempted into a series of devaluations. However, they should be aware that such a 'war' may deteriorate the terms of trade without achieving substantial gains in price competitiveness. 2.29. The responsiveness of export flows to price incentives during the 1980s in both Morocco and Tunisia highlights the crucial role of exchange rate policies in promoting export growth. It is therefore essential that the evolution of the real exchange rate, in particular with respect to competing countries, be constantly monitored and an excessive real appreciation avoided through appropriate macroeconomic policy adjustment. 19/ In these regressions, contrary to the market share analysis, international demand does not play a significant role in explaining the behavior of exports, as it does for Morocco. There is not, of course, a well-defined statistical relationship between market share and regression analysis. Moreover, the coefficients of the EU demand in Table 2.6 are calculated on the basis of a reduced form, which in turn is a function of all demrnd and supply coefficients; the latter differ considerably for the two countries. - 20 - CHAPTER III: SUPPLY-SIDE CONSTRAIS AND DEVELOPMENT OF EXPORT CAPABILITIES A. INTRODUCTION 3.01. Chapter II has shown the vulnerability of export growth in Morocco and Tunisia to changes in international demand. When export demand falls, or is simply shifted in favor of new products, the issue of international competitiveness becomes vital. Competitiveness is not just based on prices but equally on the capacity to adapt rapidly to user needs. The adaptability of supply to day-to-day changes in demand is a central characteristic of the new competitive environment in which Morocco and Tunisia operate. Thus, this chapter will discuss some of the factors which may help to develop the export capabilities of firms in the two countries.' 3.02. Section B analyzes the structural characteristics of exporting and non exporting firms, and discusses how the liberalization policies adopted by the governments of both countries since the mid-eighties affected the structure of the manufacturing sector. Using enterprise data, Section C examines factors underlying the decision to change status from being a domestic seller to an exporter; it then looks at the main characteristics of the exporting firms, using regression analysis. The main objective of these two sections is to deepen the understanding of the microeconomic effects of trade liberalization policies in Morocco and Tunisia. The most successful exporting sector, textile, clothing and footwear, is analyzed in Section D. A review of the main elements of export promotion services and existing technological capabilities is given in Section E. Finally, Section F summarizes the main results and provides recommendations on how to build and improve export capabilities. B. STRUCTURE AND EXPORT ORIENTATION OF THE MANUFACTURING SECTOR 3.03. The manufacturing sector in both Morocco and Tunisia responded positively to the trade liberalization and export promotion policies adopted in the 1980s. Specifically, two important trends can be detected: f&, during 1980-90 the share of exported manufacturing production increased from 13% to 25% in Morocco and from 25% to 35% in Tunisia; second, the share of natural resource-based exports (e.g., phosphates and fertilizers, and oil) declined, in both countries, in favor of the labor-intensive sectors, in particular the textile, clothing and 1/ The focus of this chapter is on supply side const_aint to export development. A comprehensive view of constraints to private sector development is in: (a) Kingdom of Morocco: Developing Private Industry in Morocco, Vol. I and U, Report no. 11557-MOR, July 1993; (b) Kingdom of Morocco: Preparing for the 21st Century - Stegthening the Private Sector in Morocco, Report no. 11894-MOR; (c) Republic of Tunisia: Private Sector Assessment, Report no. 12945-TUN, April 1994. - 21 - footwear sector (ICF).2 There was, however, not much change in the structure of export industries. Thus, the reforms implemented during the 1980s managed to increase the share of production exported; but they also intensfied the expon orientation of those industries that were already highly export-oriented, in particular the TCF sector, and therefore did not lead to a significant diversification of the export base. in the case of Morocco, where disaggregated firm- level data are available, only one industry, electrical and related goods, increased its export orientation from below to above the average during the 1980s.3 A Dualistic Structure 3.04. The dualistic structure of the manufacturing sector in the two Maghreb countries largely reflects the combination of past import policies, aimed at protecting the local industries, and the generous fiscal and financial incentives granted to exporters, especially in Tunisia. Similar incentives, although less generous, existed in Morocco. The distribution of enterprises by export orientation, size and sector in the two countries is presented in Table 3.1. 2/ The Data. The empirical analysis of this chapter is mostly based on information from annual enterprise surveys. Tho source of the primary data for Morocco is the annual plant survoys of the manufacturing sector for 1985-89 conducted by the Ministry of Commerce, Industry and Privatization. These surveys cover all 'formal' manufacturing plants with more than 10 workers or with total annual sales above DH 100,000, regardless of the number of workers. In 1989 the survey covered 5200 firms of which 4112 produced mainly for the domestic market and 1088 served both the domestic and the export market. In the case of Tunisia the main source of data is the survey of enterprises in industry, trade and services collected annually (1985-90) by the Institut National de la Statistique (INS). It covers about half of the existing 'formal industrial enterprises (around 2000 firms in 1990) with more than 10 workers, and therefore is less comprehensive than the data for Morocco. The structure of the manufacturing sector during 1980-90 is presented in Tables 12 and 13 in Annex 1. 3/ Export orientation was measured by the share of exports in production. See Table 15 in Amnex I. - 22 - Table 3.1: DUALISM IN THE MANUFACTURING SECTOR IN MOROCCO (1989) AND TUNISA (1990) (Pucesotage of ad fnus) Export-oriented rms Domestic-narket oriented rums (export share 2 10%) (export share < 10%) Morocco Tunisia Morocco Tunisa Agro-Industries 12.7 12.2 87.3 87.1 less than 100 workers 6.1 11.8 81.0 77.6 100 workers and more 6.6 0.4 6.3 9.5 Textiles, dothing, footwear 50.7 49.2 49.3 50.8 less than 100 workers 29.6 25.2 44.5 41.1 100 workers and more 21.1 24.0 4.8 9.7 Chemicals 7.7 27.7 92.3 72.3 less than 100 workers 5.3 20.2 78.2 60.6 100 workers and more' 2.5 7.4 14.0 11.7 Metals and Machinery 5.8 32.9 94.2 67.1 less than 100 workers 3.0 21.8 82.6 52.9 100 workers and more 2.8 11.1 11.5 14.2 Other Manufacturing 19.4 18.4 80.6 86.1 less than 100 workers 12.9 15.7 71.0 70.3 100 workers and more 6.5 2.7 9.7 11.4 Source: Calculations based on data from the Ministry of Commerce, Industry and Privatization in Morocco and the survey of enterprises by INS in Tunisia. 3.05. Only about 15% of the firms in Morocco (in 1989) and 23% of firms in Tunisia (in 1990) employed more than 100 workers. However, they produced 76% of total manufacturing output and accounted for 87% of manufactured exports in Morocco; and 72% of output and 85 % of exports in Tunisia. In both countries, the value added content of production was lower for exporters than for non exporters. In Tunisia, the exporting firms paid on average lower wages than those paid by non exporting firms, and the share of wages in value added was more than twice as large for the former than the latter. The Moroccan data suggest that both real wages and labor productivity were lower in the export oriented firms, relative to those domestic oriented.4 During 1986-1990, unit labor costs in exporting firms remained flat (relative to a 1 % average annual increase in the domestic oriented firms), as a combination of a 4/ See World Bank, 1994, Kingdom of Morocco: 'Poverty, Adjustment & Growth', Report No. 11918- MOR, pages 38-39. - 23 - proportional decline in both labor productivity and real wages. But employment expanded substantially, by 24.5% in the export-oriented sectors and 2.8% in the domestic sector. 3.06. An important byproduct of the dualism in the manufacturing sector is the wak linkage between firms producing for the domestic market and those producing mainly for exports. This is especially evident in Tunisia. A recent survey5 indicates that off-shore enterprises, which account for 40% of merchandise exports, obtain most of their inputs, except labor and energy, from abroad as local inputs are either not available or when they are available, their quality is not acceptable by the exporting firms.' The smaller size of the domestic-market oriented firms and the resulting low financial, technical, and marketing capabilities have prevented these firms from becoming indirect exporters. Weak linkages also exist in Morocco where imports under temporary admission (i.e., for exports) represented 25% of merchandise imports in 1991. 3.07. A third important feature of exporting firms in both countries is foreign participation (see Table 16 in Annex I). Foreign participation is predominant in large firms, with more than 100 workers, and in the exporting sectors. Subcontracting 3.08. The importance of foreign participation in the export sector needs to be qualified. In both countries a significant proportion of exports, especially in the TCF sector, is made by firms that are either subsidiaries of foreign firms or domestic enterprises operating on subcontracting terms. In Morocco, subcontracting accounted for 26% of exports of merchandise productse in 1992; in Tunisia, its contribution to exports was even higher standing at 50% in 1991. The growth rate of subcontracting exports has been, in recent years, higher than that of other exports; and the share of subcontracting has been rising fast. 5/ See API (1991), Etude sur les entreprises totakment exportatrices en Tunisie. 6/ In the case of foreign-owned off-shore enterprises, 80% of raw materials were imported in 1991. See Etude sur les Entreprises Totalement Exportatrices en 7unuie, API, August 1991. 7/ In Morocco. subcontracting exports are reported in the trade statistics under the heading of services (as value added) rather than merchandise exports. The figures in Table 3.2 have been constructed by adding to the figures of value added from subcontracting activities (reported in services) the related expenditure on intermediate imports. Disaggregated data on subcontracting for Tunisia were provided by the INS. In Tunisia, subcontracting is included in the trade figures as merchandise exports. This must be borne in mind when comparing the export performance of the two countries. - 24 - Table 3.2: SUBCONTRACING EXPORTS (nominal vaues, millions of local currency) __ __ _ _ 18 1989 1990 1991 1992 Morocco Export growth of:- (1) - Merchandie (X 27.4 -5.1 23.4 7.3 -8.8 (2) - Subcontracting 43.3 36.7 35.5 18.6 24.2 Value of (2)/(1) percent e 10.9 15.6 17.2 19.0 25.9 Tunisia Export growth of: (1) - Merchandise (1) 5.1 36.1 4.7 9.2 n.a. (2) - Subcontracting 18.9 28.3 30.0 13.8 n.a. Value of (2)/(1) percent 0 40.4 38.1 47.3 49.3 1) Excluding subcontracting. 2) Percentage share of total subcontrcAing in total merchandise (excluding subcontracting) Source: Tunisia, INS; Morocco, Ministry of Industry and Commerce. 3.09. The increase in subcontracting can be first explained by the international restructuring of the TCF sector, as industrialized countries abandoned the production of low quality garments while still maintaining the initiative with respect to more sophisticated and technologically advanced segments.! In Morocco and Tunisia, subcontracting dominates the clothing sector, particularly in low technology, low skill activities such as garment assembly. During the 1980s, it represented the privileged instrument by which the European TCF industries maintained a predominant position in their own market. 3.10. A second reason for the importance of subcontracting is the existing system of quotas, or voluntary exports restraints (VERS) on a few TCF products that the two Maghreb countries have agreed with Europe (see Chapter V). VERs concerns trousers, blouses, shirts and dresses for both Morocco and Tunisia (and a few additional products for Tunisia); they vary by country of destination and according to whether these products are produced from European or non European raw materials. TCF exports produced under subcontracting (or "Traffic de Perfectionnement Passif") using fabric imported from Europe are partly excluded from VERs or have higher quotas than exports of the same goods produced with indigenous inputs or inputs from other countries. This might explain the extraordinary development of subcontracting in recent years. 8/ See M. Royon, 'La trannauonalradon de la production, ka cas des t:eiles chimiques", Presso Universitaires de Lyon, 1982, u well as D. Jacomet, 'Le texaik-habillnent: une induwric de poimn", Economica, Pars, 1989. - 25 - Lack of Diversification 3.11. The EU has traditionally represented the main destination market for Moroccan and Tunisian exports. Indeed, the share of merchandise products that is exported to the EU increased from 62.7% in 1980 to 64% in 1992 in Morocco and from 72.1% to 78.0% in Tunisia during the same period (see Tables 7-9 in Annex I). In Europe, both countries are now exporting even more to the French market. In spite of a diversification from primary to manufactured goods, within the manufacturing sector, the TCF sector has also increased its already high export orientation. The lack of both market and sectoral diversification can be seen from the indicators reported in Table 3.3. Table 3.3: INDICES OF SECTORAL AND GEOGRAPHICAL CONCENTRATION ______________________________ 1980 1983 1987 1990 1992 Morocco Geographical Concentration .358 .352 .418 .411 .399 Sectoral Concentration .208 .175 .299 .327 .373 Tunisia Geographical Concentration .244 .259 .285 .283 .265 Sectoral Concentrtion .254 .308 .360 .396 .398 3.12. During 1980-1990, the Herfindhal index of geographical concentration for the exports to the EU increased in both countries; it decreased, but only marginaly, during 1990- 1992. The increase in the Herfindhal index of sectoral concentration was even more pronounced, from 0.21 in 1980 to 0.373 in 1992 in Morocco and from 0.25 to 0.39 in Tunisia. This pattern highlights the vulnerability of both countries to the vagaries of market and policy conditions in a few products and markets. C. FACTORS AFFECTING THE DECISION TO BECOME EXPORTERS 3.13. Which factors have influenced the decision of some domestic firms in Morocco and Tunisia to become (and not just to be) exporters? Do the characteristics of the firms that became exporters differ significantly from those that remained domestic sellers? Answering these questions would deepen the understanding of the microeconomic effects of trade liberalization and help governments to better design export promotion policies. The analysis has been performed separately for Morocco and Tunisia on the basis of information from annual enterprises' surveys in both countries. - 26 - 3.14. Morocco. Table 3.4 shows the charactristics of new entrant exporters and of firms that switched from being domestic sellers to exporters in Morocco. Export-oriented firms are defined as those firms with an export to sales ratio greater than 20 percent. The cut-off point is the same as that used for Tunisia. Different cut-off points would not affect the results much given the bimodal distribution of export shares across Moroccan firms. Newly exporting firms can be either wholly new firms (entrant exporters) or firms that have switched from domestic to export markets (EDS). The number of newly created exporting firms was 478 during 1985-1989 and 137 during 1989-1990. The large weight of export-oriented finms among entrants increased their aggregate share from 13.4 percent in 1985 to 17.8 percent in 1990. Entrant exporters were bigger than firms selling in the domestic market and their foreign ownership share was larger. Table 3.4: MOROCCO - NEW ENTRANT EXPORTERS AND FIRMS SWITCEIING FROM DOMESTIC TO EXPORT MARKETS (domestic sellers at t-1, exportg at t (EDS)) New Entrant exporters EDS 1985-89 89-90 1985-89 89-90 Number of firms 478 137 119 108 In % of exporters (domestic sellers) 19.5 2.7 at t-1 Export share (') (in %) 88.9 88.5 62.3 54.8 Size X 104.5 67.7 109.7 100.8 Share of foreign ownership (in %) 19.5 18.2 10.9 14.3 Note (1) Share of exports in percentage of total sales. End of period values for EDS firms (2) Number of employees Source: Kingdom of Morocco, Ministry of Commerce Industry and Privatization, Annual Surveys of enterpises. 3.15. Firms switching from domestic to export markets shared many characteristics with entrant exporters. First, their foreign ownership share was considerably larger than that for domestic sellers. Second, their size was greater; the average size of switchers was 100.8 employees in 1989-90 against a value of 49.8 for domestic sellers. A further characteristic of switching firms was that their export orientation (54.8 percent in 1990), on average smaller than that of either entrant exporters (88.5 percent) or steady exporters (82.2 percent). However, a troubling characteristics of firms switching to export markets is that they do not seem to do so for long. The number of switching firms between 1985 and 1990 was equal only to 135. Given - 27 - that firms switching from domestic to export markets numbered 119 between 1985 and 1989, and 108 between 1989 and 1990, it is manifest that in the latter period many early switchers reverted to domestic markets. 3.16. Tunisia. The analysis for Tunisia has been based on the annual enterprises' surveys prepared by the INS covering 1985-1990. Because of the partial representativeness of the sample of firms in the surveys, only the characteristics of new entrants in the export markets that were previously selling on the domestic market are discussed.9 On the other hand, an even larger proportion of firms tried to switch from the status of exporters to domestic sellers. In both cases, only about half of the firms that switched remained in the new status. The results of Table 3.4 suggest that trade liberalization and export incentives policies succeeded in affecting the perception that profitable opportunities existed in the export sector. In fact, the share of domestic sellers that became exporters doubled from 2.7% of total domestic sellers in 1985-87 to 5.4% in 1988-90. These firms tended to be larger, have a bigger foreign ownership share, and have a higher capital stock per employee than domestic sellers. 2/ See Francewco Daveri, 1994, 'Whicd Tnisian Fiims becme Expolters? EWdence from Survey data. Table 3.5: TUNISIA - FIRMS SWITCKING FROM DOMESTIC TO EXPORT MARKETS (domestic selers at t-1, epot at t (EDS)) Number of Ratio of EDS Exports of EDS in percentage Average number Net r aeta Sbures of foreign ownhip at t EDS rfms to domestic of total EDS sals of enployees of stock per unployee (in %) (1) selers at t-1 EDS at t Ratio of EDS to (in %) (increase from t-1 domestic sdks at t t-1 in parensib) (m %) Yers (t) Dometc dllers EDS 1986 26 2.7 0.04 0.44 129.5 (-5.5) 90.8 2.5 11.7 1987 34 2.7 0.05 0.52 107.0 (+9.3) 182.0 2.5 16.7 1988 46 4.0 0.03 0.44 98.0 (+5.6) 239.2 2.6 5.9 1989 56 5.6 0.08 0.46 128.3 (+12.7) 142.3 2.4 6.8 1990 48 5.2 0.04 0.52 103.3 (-2.8) 178.5 2.4 8.0 Averqge 42 4.0 0.05 0.48 113.2 (+3.9) 165.9 2.5 9.8 HaW: (1) RPw data comes from the INS survey of entepxise (1985-90) covering approximately 2000 firms. The dimintion of non nmufaictring firms and unavaiability of certain variables have reduced the sample sam to some 13,50 observations per year. - 29 - 3.17. The characteristics of successful exporters. Do successful exporters share the same characteistcs in Morocco and Tunisia? The question has been investigated, using linear regression analysis. The analysis may help to identify the strengths and vulnerabilities of the etpor sector and possible areas of policy intervention in the two countries.10 3.18. The major findings for Morocco are as follows: * A positive and statistically significant relationship between export performance (measured by the export to production ratio) and theforeign share in total equity of both enterprises and sectors. This indicates that enterprises that have partnership with foreign firms are more successful in penetrating external markets"1 (and vice versa). * A positive and significant correlation between the size of the firms and export performance, implying that the larger a firm, the better it can afford the requirements of entering export markets. * As sectoral concentration increases, the export performance first deteriorates and then improves12. Low levels of concentration are consistent with open entry; similarly, economies of scale may be important for increasing the export orientation of firms with high levels of concentration. * As geographical concentration of industries (within Morocco) increases, industrial firms become less export oriented. This may be because of lower productivity due to infrastructural bottlenecks and the cost and availability of industrial land. 3.19. The main results for Tunisia are as follows: * As in the case of Morocco, there is a positive and statistically significant relationship between export performance and the foreign share in total equity of IQ/ About 5200 manuficring firms in Morocco and 970 i Tunisia have been included in the smple. Rasits for Morocco are taken from World Bank (1993), 'Developing Private Indusry in Morocco', Vol. II, Annex I. The anlysis for Tunisia is ba1d on the sm explanatory variables used for Morocco. 111 It is also interesting to note that the firms with foreign partnership are in general larger than other private firms, but smaller than public enterprises. JV To capture the relationship betwoee concentraton and export share, we have used the square of the oectord concentration ratios a an explanatory vanable. The estimated coefficient is positive and significant. - 30 - manufacturing firms, indicating that enterprises with a foreign partnership are better able to meet price and quality standards of the export markets than firms without such a partnership. * As in the case of Morocco, there is a positive and significant correlation between the size of the firm and export performance. * There is a negative and significant correlation between average wages and export performance, which underlines where Tunisia's comparative advantage has lain. It may also indicate that the sklll requirements for assembly-type subcontracting operations are relatively low. D. THE TEXTILE, CLOTHING AND FOOTWEAR SECTOR 3.20. The sector that contributes most to exports in both Morocco and Tunisia is the TCF sector (see Box IH.1). In Morocco, public investments have traditionally focussed on the textile sub-sector ("spinning and weaving") to secure key supplies to state-owned enterprises such as sugar refineries (bags); neglecting, at the same time, the dyeing and finishing sectors and impairing the creation of strong linkages with the garment exporting industry. Thus, Morocco is now a major importer of synthetic and blended yarns and fabrics, printed, dyed, and specially processed fabrics (the garment sector relies on foreign cotton fabrics for 90% of its needs). 3.21. In Tunisia, the TCF sector is dominated by the clothing sub-sector ("garments and knitwear", employing almost 70% of total workers in the TCF). Until very recently the structure of the sector was totally dualistic, with manufacturers producing for the domestic market operating in an import-protected environment and those producing for exports mostly operating with subcontracting arrangements. The lack of integration between the textile and the clothing sectors is even more accentuated in Tunisia than in Morocco. In 1990,13 most of raw materials of the TCF were imported. These inputs covered 93% of the inputs needed by the off-shore enterprises and 12% of those operating in the domestic market. 3.22. In the past, the growth of the TCF sector in both Morocco and Tunisia has been sustained by cheap labor, proximity to Europe, and cultural ties, especially with France. Both countries have enjoyed preferential access to the European market (see Chapter V) for their TCF products with the exception of only three items for Morocco and two for Tunisia that are "voluntarily restrained", that is under quota. But quotas have not represented a constraint: in 13/ See Tunisia, Ministry of Economy, 'Le secteur tcaile tunisien - situation actuele et perspectives de developpement". - 31 - Morocco, they have been surpassed even by 200% and 300% without corrective actions being taken: in Tunisia, quotas have been filled only by around 50%. 3.23. Many recent developments related to the TCF sector will present Morocco and Tunisia with challenges and opportunities in coming years: (a) The Future of Multi-Flber ts. International trade in textiles and clothing has so far been governed by the Multi-Fiber Agreement (MWA). However, recent Uruguay Round negotiations have agreed to dismantle the MPA and subject trade in textiles to general GATT rules. A transitory period of ten years has been allowed for this merger to take place starting from January 1994. Although Morocco and Tunisia are not part of the MFA, its dismantling may seriously affect their preferential access to the European market; intense competition will in fact develop as other countries, in particular the Asian competitors, are granted equal access. (b) Restructuring of the Textiles and Clothing Industries In Europe. The European TCF sector is undergoing a deep restructuring. EirS, firms are specializing in the upper segments of the clothing industry: more technology is involved in this trend, mainly a higher degree of automation, and a better management of supply and raw materials, semi-products and output and distribution. Second, the manufacturing of non labor-intensive products are being delocalized to developing countries. Finally, a special fund (RETEX) of ECU 500 million has been set up and will be allocated to restructure the TCF in countries such as Greece, Portugal and Spain which are faced with strong competition from outside Europe. (c) Eastern European Competitors. The Eastern European countries have recently restructured their textiles industries, partly with the financial and technical assistance of the EU, and have succeeded in negotiating favorable bilateral trade agreements with the EU. In addition, like Morocco and Tunisia, these countries enjoy the advantages of cheap labor and proximity to the EU, and can therefore present major challenges for TCF exports from Morocco and Tunisia, especially as far as subcontracting is concerned. 3.24. In recent years, TCF exports from Morocco and Tunisia may have lost competitiveness, relative to other Mediterranean and Asian countries"4 (see Box I1. 1). The slow 14/ Table m. 1 in Box 11. 1 shows indicators of cost-competitiveness in a sample of countries competing in the European TCP mauket. The non-EC countries were included if their hare in total EU imports of TCF products was relatively significant and increasing over 1985-1990. Two moawres of cost competitiveness are unit labor costs and real exchange ratos. Unit labor coats ar calculatd as the ratio of average wages to labor productivity (defined as the ratio of value added to labor), both expressed in nominal tems. Real - 32 - growth of productivity; the focus on a few products (low quality and low technology) and markets; the small size of garment-producing firms; and the weak linkages between spinning, weaving, and finishing, on the one hand, and garment production, on the other, are some of the problems shared by both countries. 3.25. To solve its problems, and meet the new challenges ahead, the textile industry's continued export drive must be fueled by an increasing amount of investment. Modernization and restructuring of inning and weaving sectors and development of the finishing sector are crucial in enhancing the competitiveness of the textile industry. In this endeavor, attracting foreign textile companies (French, American, and Japanese) which are undertaking a delocalization process can be instrumental. exchange rate baud on natioal currmae per urepean Currcy Unit (ECU), deflated by relevant consOunor pre indices (CPI). Rel wages per employoe and rel value added per employee, ar calculat in natonal c_nci and deflatd by the CPI and the wholesle price indices, repctively. -~~~~~=~~~~= 0~~~~0 Z a I ~~~~~~!. AW0 tIn. A ii I ::~~~~~~~~~*~~~pG 'T tI I ~~~~~~~~~~~ ~~O.1f 4 *1 ~~~~~~~ V441 I r I~~~~~~~....... U jil I~~~~~~~.......... > 1 ~~~~~~~~~~~...... ..F.... .... . ....A Jj.... ~~~~~~~~~--~~~~~~~~~~~~~.. ...... ~~~~~Iv~~~... ... 0 . ...... - 34 - E. BUILDING EXPORT CAPABILITIES 3.26. International experience has shown that while policy reform to get the prices right is a necessary condition for international competitiveness, it does not by itself guarantee the ability to compete in export markets. The spread of new information-based technologies, even in the traditional labor-intensive export sectors such as textiles and garments, is reducing the incidence of labor into total costs and putting a greater premium on quality, speed, and reliability of delivery." Therefore, unless macro reforms are supported by measures aimed at enhancing exporters' capability to produce goods that conform to international norms for price and quality, a sustained export growth is unlikely to materialize."6 3.27. Moreover, as shown in chapter IV, the emergence of the South East Asian countries, able to compete on the basis of lower costs, and the ongoing technological progress in virtually all industrial segments underscore the importance of export-push strategies centered more on quality and adaptability rather than on cost competition. For a quality-based export strategy to succeed, the existing and potential exporting firms must be supported by measures that develop their technical capabilities. 3.28. The development of technological-based export capabilities in Morocco and Tunisia would include: (i) building firms capabilities-to aborgb new/existing technology; (ii) the diffusion and adaptation of technology"7 through improved standards and qgilily control systems and through industrial extension services' and (iii) export promotion services, especially to potentially exporting firms. 15/ For an analysis of the role and importance of information tochnology at different stages of textiles and garment production, as well as the role it plays to simplify the production cycle and improve quality, important for developed countries in competition with low labor-cost rivals, see Financial Times Survey, October 18, 1993, p. m . 16/ In a sense, what matters most for Morocco and Tunisia is achieving the long-term ability to compete in the intemational markets. This refers to the ability to create an economic suctre and export composition that adjusts flexibly to rapidly changing patterns of world demand. For further analysis of this issue see Alavi, H., 1990, 'International Competitiveness: Determinants and Indicators,' Industry Series Paper No. 29, The World Bank. 1j/ The focus on the diffusion of available technology is justified for three main reasons. Eizg, both countries have already developed the conditions necessary for attracting foreign technology and expertise, and have therefore a relativey esy access to foreign technology. Second given its availability from foreign sources, the local developmet of technology is both expensive in human and financial resources and its commercialization cannot be guanteed. 3ird, the majority of potentially exporting firms in the two countries are small firms which need basic technical assistance. ( - 35 - 3.29. Standards and quaiy control.' An effective standards and testing regime is critically important in entering and maintaining new export markets where product quality influences buyers' decisions. For example, the standards set by the International Standards Organization (the so called 'IS09000") are becoming increasingly recognized and required in a range of industries and products ( in the EU they have been adopted but are not yet obligatory). Even in the garments sector where buyers often supply the material and designs and take responsibility for checking quality, the adoption of IS09000 by subcontractors is becoming an important element by which European firms discriminate among countries to relocate part of their production. The EU is also setting the rules for common health and environment standards that will be shared by member countries and will soon be required by those that wish to export in the European market. 3.30. A standard and testing regime has been in place for some time in both Morocco and Tunisia. However, because of its inadequacies in promoting the upgrading of technology, manufacturing enterprises are at a disadvantage relative to foreign enterprises. For example, in Morocco there exists a metrology system (to define basic measurements and weights to be used in industrial production and trade), a legal framework and a representative body to develop standards and certify product adherence to these standards. But the heavy involvement of government agencies, with different priorities and lack of coordination, has reduced the effectiveness of the process of creating and managing standards.1' In addition, there is no accreditation system capable of ensuring that the existing testing laboratories ( approximately 130, operated by both public and private institutions) have adequate technical competence and equipment, and follow agreed procedures. Thus, the testing laboratories are not recognized internationally. 3.31. In Tunisia, the Instiut National de la Normalisation et de la Propriete Industrielle (INNORPI) is the main public agency in charge of registering patents and issuing standards. Product certification is beginning to be contracted out to private laboratories. Unlike the case of Morocco, the private sector has been actively adopting improved standards, sometimes ahead of INNORPI, in particular those of the EU. Therefore, increasing private sector representation in INNORPI may help the further involvement of the private sector in the design of quality schemes relevant for export. In addition, in Tunisia, as in Morocco, there is a need for internationally recognized laboratories and for testing and certification organizations. 18/ The concept of standards and quality control includes metrology and testing activities. Metrology, or measurement systems, can be classified into kai and industnal metrology. The former deals with the maintenance of basic measurement standards, while the latter refers to calibration of equipment used in the industrial process. Standards relate to the definition of the conditions that must be fulfiUed for a product or process to attain international standards such as IS09000. Testing is a process by which products or processes are examined to verify their conformation to set standards. 19/ Over the last ten years, a total of 600 standards have been developed in Morocco, half of which are for the manufacturing sector, compared to about 15,000 on average for industrial countries. - 36 - 3.32. Industrial Extenson Services to Promote Exports. An improved standards and testing regime is an important condition for upgrading quality and penetrating export markets. Once in place, it has to be understood and appropriated by enterprises . This calls for a structure of firm-level extension services (to advise on product adaptation, management, marketing). These services are provided in LTnisia, for certain sectors, by a few relatively sophisticated technical centers;' however, an information and referral mechanism is needed that makes private enterprises aware of the services available to them and helps them select the best provider. Morocco has a similar but relatively weaker structure ; and it also needs information and referral mechanisms to support industrial firms. 3.33. Export promotion services. Well developed export promotion services exist in both Morocco and Tunisia. In Mooc, the Centre Marocain pour la promotion des exportations (CMPE), under the supervision of the Ministry for Foreign Trade, is the main organization in charge of export development. It carries out sectoral and market studies and product tests in foreign markets; it organizes trade fairs and participation in international exhibitions; and, most importantly, it helps firms to identify new markets and to establish trade contacts. The CMPE has become more effective and efficient after the recent restructuring carried out in 1991;21 it now targets exclusively new markets (for example, it does not cover the traditional markets of France and Belgium ) and it is being involved in helping exporters to adapt products to international demand. It has recently started making exporters pay for some of the services provided. The remarkable success registered in 1992-93 by Moroccan exporters in the British market can be largely attributed to the promotion efforts of the CMPE. 3.34. In Tunisia, the Center for the Promotion of Exports (CEPEX), a parastatal organization, is the main agency in charge of export promotion. The National Center for Fairs and Exhibitions (CNFE), attached to the CEPEX, organizes the participation of firms to fairs abroad; and the FOPRODEX, a fund for the promotion of exports (also managed by CEPEX), allocates grants and loans to support export promotion actions. The services provided by these agencies have been valued by exporters; but targeting ( of export markets and activities) is weak and monitoring of the effects on the beneficiaries rarely undertaken; moreover, most services are free while they could, instead, be marketed at a price, so that scarce public resources can be channelled to non traditional markets and to support new potential exporters. To increase the participation of the beneficiaries, the boards of these agencies should also include more representatives private sector exporters. 20/ The most importat technical centers are: the newly created (1992) and efficient Centre Technique du Twaile (CETTEX), the Centre Technique des Industries Mccaniquw et Electriques (CETIME), the Centre National du Cuir et de la Chaussure (CNCC), and the Centre National de l 'Iformwique (CNI). 211 It is organized in three technical (Information, Reearch, Technical assistance) and five regional departments: USA, Canada and UK; Germany, Austria, Switzerland and Scandinavia; Spain, Portugal, Italy and Greece; Maghreb, Africa; and Middle East and Asia. It has a staff of 80 people. - 37 - F. CONCLUSIONS 3.35. Adjustment policies and trade liberalization reforms have enhanced, in both Morocco and Tunisia, the export orientation of the industrial sector, but have not led to a significant diversification of the export base. The manufacturing sector is characterized by the existence of many smal and a few large firms, even in export-oriented sub-sectors. The exporting firms are in general larger and typicaUy associated with a foreign enterprise. They have access therefore to financial, technical, marketing, and other expertise which enhances their ability to meet norms and standards of the importing markets. The empirical evidence discussed in this chapter has also shown that in both Morocco and Tunisia (i) smaU firms are less likely to be or become exporters, probably because of the high entry and transaction costs of accessing foreign markets; (ii) many exporters, notably in Tunisia, are subcontractors of European firms; (iii) industrial linkages between exporting and non-exporting firms are weak; and (iv) there is a lack of product and market diversification. Is there a role for public intervention? 3.36. Does public intervention have a role to play in any of the issues described above? As export growth is the key element of the development strategy adopted by the Governments of both Morocco and Tunisia, the next paragraphs outline some possible answers. 3.37. Strengthening the support to small ffums. World' experience suggests that support mechanisms for providing technological and marketing services are important for the development of smal and medium enterprises (SMEs), especialy in export markets. But should governments provide such support? International experience indicates that private support mechanisms, such as industrial and exporters' associations, chambers of commerce and export traders can be more effective than public institutions with weak institutional capacity, bureaucratic structures and limited direct expertise. 3.38. Public authorities should limit themselves to fostering a favorable business environment, exposing firms to domestic and international competition, supporting education and training, and minimizing administrative constraints on the working of markets. Pro-active efforts by governments to promote exports should not include the direct delivery of export services. However, financial public support could be allocated to encourage the use of export marketing supports and to facilitate the establishment of associations that respond to the needs of SMEs; in turn, these associations should use these funds exclusively to provide export marketing and other services to the SMEs. 3.39. Subcontracting appears to be the privileged form of foreign participation in the industrial sectors of both Morocco and Tunisia. Subcontracting has developed on the basis of 22/ See Brian Levy, 1994, 'Successful small and medium enterprise and their support systems: a comparative analysis of four country studies', mimeo. - 38 - cheap labor and extremely generous fiscal incentives and has been encouraged by the current system of export quotas agreed with Europe. Most off-shore enterprises operating in both countries are subsidiaries of foreign firms that import all the inputs and use local manpower and infrastructures. Because the links with the local economy are tenuous, they can easily relocate when the conditions offered by other countries become more favorable. The restructuring that is currently being undertaken by major European industries and the upgrading of the current Association Agreements between the Maghreb countries and the EU into free trade agreements (see Chapter V) may have negative effects on the amount of future subcontracting that Morocco and Tunisia will be able to attract. Thus in the 1990s, a much more aggressive subcontracting policy should be developed. This is because subcontracting can be an important channel to accumulate industrial and technological experience from which local capacity can develop. Industrial and exporters' associations should help SMEs to actively seek and initiate subcontracting arrangements with strategic foreign industries. In addition, establishing technical assistance and quality control programs to increase the efficiency of local subcontractors' in order to (i) strengthen the linkages with the domestic economy, and (ii) upgrade, with time, some of subcontracting relationships into full partnerships relationships are also important. Finally, investment abroad by Moroccan and Tunisian firms would help them to establish technology dissemination channels and to obtain shares in foreign markets. 3.40. Industrial linkages. Industrial inter-firms linkages, backward and forward, and intra-sectoral, are scarce in Morocco and Tunisia. Thus, technical knowledge and export capabilities of larger firms are not disseminated to smaller firms that may have export potential. To promote industrial linkages, public support could be reallocated to sustain the development of industrial associations, that provide common services to all members and in particular to small firms; and of subcontracting relations between large and small firms.2' The incentive framework may also play a role. In Tunisia for example, the recently approved Unified Investment Code has extended to indirect exporters the fiscal advantages previously enjoyed only by exporters; this new framework should help to promote some integration between domestic producers and exporting firms. 23/ A first step in this direction has been taken in the new Investment Code, by extending to partial and indirect exporters the same fiscal incentive given to totally exporting firms. 24/ In recommending policies and programs to promote industrial linkages, the experience of countries that have succeeded in linkage development could be instructive. For example in Singapore, the govermment has actively encouraged the formation of subcontracting networks through the Local Industries Upgrading Program (LIUP). The government agency responsible for this program (ITe Economic Development Board) has provided a package of assistance including cost sharing grants to obtain consultancy assistance, loans for the purchase of equipment, and support for the provision of relevant courses by training institutions, in return for a commitment from multinational companies to provide on-the-job training, advice and other assistance to participating firms. - 39 - 3.41. Diversification. The increase in the geographical and sectoral concentration of exports for both countries indicates a need of diversification. As the search for a radical and systematic market diversification may need long and costly efforts, sectoral diversification should perhaps be the priority, through a strengthening and broadening of upstream segments in the existing export sectors. A diversified production structure and an export sector built on strong comparative advantages represent a necessary condition for a future geographical diversification. To sustain diversification efforts, many countries have adopted special 'Funds", supported partly by the State and partly by the exporters themselves. In 1993, the 'Soci6t6 Marocaine d'Assurance a 1'Exportation" proposed the creation of a 'Fonds de Prmotion Economique EtWrieure des Eporations", to finance the CMPE, and subsidize the creation and diffusion of documentation on foreign markets and all activities related to the promotion of exports. However, the 1994 Finance Law did not approve the financing of the Fund, due to budgetary constraints. 3.42. International experience on the effectiveness of similar Funds is mixed.2' In Morocco, it would be advisable to let most current export promotion activities become private- supported. At the same time, the idea of a Fund whose resources are geared to increasing the technological and export capabilities of all firms, particularly small ones, should be retained. Public intervention in this domain may be justified because of the existence of informational and other market failures associated with the provision of financial, marketing and technical support to small firms. The development of a broader private, export-oriented sector composed of small and medium enterprises would imply less industrial concentration, a more flexible and competitive domestic economy and the creation of new job opportunities. The following section suggests some ideas for a program for building export capabilities that could be financed by the Fund and tested on a pilot basis. It would have to be of a short term nature, up to eight years, which is the maximum lenght of time allowed by the recent GATT agreement to phase out export subsidies.' 25/ Intemational experience (see Keesing, D. and A. Singer (1990), 'How support services can expand manufactured exports', PRE Worling Paper no. 544, World Bank) shows that six factors have contributed to the ineffectiveness of public trade promotion organizations: the unsuitability of government employees to the task, the inflexibility of government procedures in regard to expenditures and staffing, the confusion of purpose resulting from the assumption of regulatory and administrative roles, the perpetuation of wrong attitudes and strategies, misguided evenhandedness, and the neglect of the development of commercial services. More recent evidence on the effect of promotion efforts on small and medium enterprises, (see 'Can Intervention work? The role of Government in SME success', World Bank Conference, February 1994), suggest that collective export marketing supports are indeed very important. However, private mechanisms seem to be more efficient than public ones. The support mechanisms most valued by small enterprises are: (a) participation in trade fairs at home and abroad; and (b) information on export opportunities abroad. 26/ Moreover, the authorities should make sure that public funds are reallocated from other export promotion activities to the suggested export program and no additional public money is spent on it. In fact, according to the recent GATr agreement developing countries are subjct to a 'standstill agroement' whereby existing export subsidies must be frozen at the current level and phased out over an eight year period, strting from -40 - 3.43. The proposed program would provide assistance to potential exporte -- mostly small enterprises - to design and introduce their products in foreign markets. It would be based on a cost-sharing scheme with the participating firms, and managed by the two export promotion agencies, the CMPE in Morocco and the CEPEX in Tunisia, in close association with private sector groups such as CGEM and UTICA as well as the existing technical centers. 3.44. The program would ideally follow these steps: Ei= products with export potential would be identified by the firms interested in participating in the program and submitted to the CMPE and CEPEX. Seod, the selected products would be presented to potential buyers to solicit their interest and to help meeting importers' standards. Buyers' feedback would be important regarding the quality requirements in export markets. Ihird, buyers' feedback would be communicated to the participating firms by the foreign experts and through the assistance of specialized technicians, technical and design information would be incorporated in the firms' products. Finally, CMPE and CEPEX would prepare promotional campaigns in collaboration with buyers' organizations to market the upgraded products. January 1995. - 41 - CHAPTER IV: COMTITIVENESS AND COMPARATIVE ADVANTAGES A. INTRODUCTION 4.01. The previous chapters analyzed the export performance of Morocco and Tunisia during the 1980s. Overall, the two Maghreb counties just managed to retain their market shares in both the EU and the OECD, but did not succeed inincreasing their overall penetration in the main destination markets. 4.02. How does this performance compare with that of other countries competing in the European market? The question is investigated in the next two sections by looking at: (a) the evolution of the market shares, and (b) the specialization patterns in Morocco, Tunisia and in some of their competitors. It is shown that during the last decade, the latter strengthened their market share in the European market despite the fall in demand. Why and how did these countries succeed? Did they emerge because of advantages in costs, productivity, technology? Comparisons of cost competitiveness (unit labor costs, real exchange rates, energy and transportation costs) are shown in section D to give a measure of the relative competitive standing of Morocco and Tunisia. Finally, the last section compares indicators of factor endowments: what counts in the long run is a country's ability to compete and grow, which in turn depends on the endowments, natural and created (e.g., the education of the labor force and the status of infrastructure). B. THE PENETRATION OF THE EUROPEAN MARKET 4.03. The openness of European markets. Increasing protectionism in the industrial countries, notably in the European market, is often blamed for the poor performance of developing countries' exports. Did Europe become more protected during the last decade? Indeed, in value terms the ratio of total European imports to GDP decreased from 24.6% in 1980 to 23 % in 1991. But relative prices (notably fuel imports) were largely responsible for this result as they grew much slower than the GDP deflator. In fact, in constant 1987 dollar prices, the ratio of European imports to GDP rose from 20.9% in 1980 to 23.4% in 1991. Moreover, there is no evidence of increased protectionism against Morocco and Tunisia: in 1991, the ratio of European countries' imports from Morocco and Tunisia to their GDP increased by 4% and 5% respectively.' 1/ The slight difference bewoen Morocco and Tunisia is mostly due to the larger share in Germany's imports. In Germany the ratio of imports to GDP reached 10.7% in 1991. - 42 - 4.04. The global sharing of European markets. The analysis of the intra-European trade (see Table 4.1) highlights the uneven resistance opposed by EU countries to non-EU competitors during 1970-1991. In most labor intensive sectors the share of EU members in global EU imports fell significantly. However, EU countries were able to stabilize and even to increase their shares of capital and technology intensive products. Table 4.1: T1E SHAtE OF EU COUNTRIES IN GLOBAL EU IMPORTS IN % 1970 1991 Manufactured Fertilizers 68.2 55.6 Other Chemicals 65.4 72.3 Clothing 70.5 43.7 Yarns & Fabrics 74.2 66.9 Footwear 78.2 60.2 Leather 59.7 51.6 Machines, Tr. Eqpt., Elect. Mach. 68.5 61.3 Other Manufactures 53.8 58.7 Source: COMTRADE-United Nations 4.05. The biggest loss in the market share of European countries occurred in the textile, clothing, and footwear industries. In particular, only 44% of imports of clothing still came from European countries in 1991, relative to more than 70% in 1970. Taken together, the share of Morocco and Tunisia increased from 0.2% in 1970 to 5.2% in 1991. Though satisfactory, this result pales in comparison to the penetration of the market gained, mostly in recent years, by Asian challengers (see Box IV.I). The EU's loss was substantial in the footwear industry (from 78% of global EU imports in 1970 to 60% in 1991). By contrast, the EU industry of yarns and fabrics successfully resisted foreign competition: imports from EU member countries, which represented 74% of total EU imports in 1970, sfill accounted for 67% in 1991. The winners were developing countries, mostly Asians, and Turkey (that increased its share by about five percentage points) while the gains of Arab countries, including Morocco and Tunisia, were modest. 4.06. In other sectors, the loss in market share of European member countries was limited. For example, within the broad aggregate of metallic industries the EU preserved its supremacy in technology and capital-intensive products, whereas new competitors increased their exports of electrical and electronic equipment (still highly labor-intensive products). Finally, European chemical industries (mostly capital and technology intensive) augmented their share from 65% in 1970 to 72% in 1991, thereby reinforcing the degree of European industrial interdependence. Among chemical products, manufactured fertilizers appear to be an exception, as non-EU competitors (in particular the Arab countries) increased their share of imports by 13 percentage points. - 43 - BOX IV. 1 ~~~~~M M t on ': ',: '';"' "A :i''."":" . : ::: .; ~~~~~~~... .... -.:. . :. - .... . . . :. . : ., ..... . The t m n ---. r. do- M.. dotli :'.'- 7 M..: -, '' secto, clthin (in199 loh rreeted 27 % of tiota auatrdeprsi ooc nd ''- 43%- inTnisi.a). Morocco and .T s hed 'o 0.1%- f E o of oth i 1 decades later.heyheld % 2.5'% otismarketpetvey. Thpaceoftisxanioni was uneven, the`bu lf iiangan qocurg between 197f and 1983, wr .mrket shdarepaddailyi the'ig't. Althoquh t tse g.amut be c e (Spaln,'Prua and Greece),Cother M.dite anco itis: ''urkey1, s n E East Eropean countrie (Poland,. Ccoslovaki and Hugr) h orNCs(ogKn, ra iirop..~~~~~~~~~~~ngr) UU: .i ti lo(Hu , Singapore, Taiwan),.the-new Asian NICs (Thailand, Malaysia, Philippi'es), 'China nd .-n'a. Perhaps the best perfonner was 'ey, Which . icreased its are of EU imr rom b sally zero in 1970 to 6% of EUimporis ofclothing. in 1990. Portuga aso iwcrease very'' fast is re in the EU market: athugat a slower pace thahnTrkey. Taen together, these two competitors represented more tha 11% of otail EU imports of clothing in 1990, relave to 1 .3% in 1970. Egypt, Israel adSpai dl increa their shares which remained below-. 1% ..c manae to increase 4itssharef fom 0.8%:in 1970 to 5% i k1980 but then failed to kee ace. Among the o-Asia countries te shae of the four NICs dined from 20% of M 9 to 1 in- I 990. T ,countries :proed capable of moving from clothing to. 'mor e tehn lo.iy intensive prodctsfr exaple he in elmt s. By mfvg uptmor room to other developinig: :countries. Such lspace wa occupieby the b new Asan chlegr, aiand .. Malaysia and Philipp ie:aby Chi.n lad Iia. :The -share' of these. conre, taken: gth picke ,up. fom 4.7% of EUp imports i1980 to 11.5% in 1990.-Ci aln a duld its sharefrom'3.7%in 419884to 6.9% in 1991. : Finally,the sha-e of th'ethree East Eu"oean countries: declined from 1974 to 1988 increasing then: from 2.2% ofthe m'arket, i 1989 to 3.2% in 1991.'T "reects probably t dirp of trade: flows with. te cnie of th f oi re S oviat Union and its a ds the': Europea Un nd pli ,by th U iself' to' he th i or t the desire to tes the quity of Eat-Eo p, wh wre not av b if this performance proves t:oblongsin, EatEpencounies may. pse aral th t te'th growth opportunities'of Moroo n: nisia, C. COMPARATIVE ADVANTAGES OF MOROCCO AND TUNISIA 4.07. The progressive penetration of the European market achieved in the last twenty years by Morocco, Tunisia, and their competitors may be explained by changes in intemational - 44 - comparative advantages. Following the seminal work of Bela Balassa2 in 1965, the concept of "comparative advantage' has been often used to compare the specializtion pattern of different countries. In what follows, we measure the 'revealed comparative advantages"3 by effective international trade flows, that is, by the patten of surpluses (strehs) and deficits (weaknesses) across products for any given country. In turn, these advantages stem from natural resources, lower relative costs of production and monopoly elements gained through the creation of 'new' products, and their efficient diffusion and marketing. 4.08. For any individual country comparative advantages are far from being fixed. With the exception of natural resources endowments, they evolve over-time, depending on micro and macroeconomic policies. New sources of comparative advantages can emerge in dynamic enter- prises at the micro level. Nations able to generate, or attract, these enterprises are thus capable of challenging even more developed countries, that had previously acquired absolute advantages. 4.09. Table 4.2 presents the evolution of revealed advantages and disadvantages for Morocco and Tunisia. Some cautions should be taken in interpreting these results, in particular those concerning the disadvantages, as imports may be highly influenced by existing rates of protection. 2/ See Balassa B., 1965, 'Trade Uberalization and Revealed Comparive Advantages", Manchestr School of Economic and Social Studies; see also Lary H, 1968, 'Imports of Manufactures for Less Developed Countries", National Bureau of Economic Researh. l/ lTh indicator of compartive advantages adopted in this Chapter was developed at the Centr d'EBtde Prospectives et d'lnfornion Intenationales in Paris (see G. Way 'La mesure der, avantaga compami rivls", Economie Prospective Intenationale, La Documentation Frangaise, no 41, Spring 1990). For a single product k, in any given year, the indicator is au follows: Ik= (X, - MY - [ ((X. -M)/Y) * (x + M/(X. +M) I Where Xk, Mk are respectively exports and imports of product k measured in dollars, and X., M anr total merchandise exporb and imports , and Y is the country's GDP. For any given year, the sum of the indicatos acros all k products is equal to zPro. For any single k product, a high value of 1' indicates that the country has a strn compaaive adg otage ( a streg) in product k. Conversely, a high negative value indicates a st-ang disadvantae in product k. If k is close to zeto, the product in queston reprents neither a strength nor a weakness for the country. The higher the individual indicators, the more specializt is the country. A country with a low value of 'k has a broad-based economy, but without strong leading positions at the international level. Of course, the more detailed the sectoral breakdown used for the analysis, the higher the absolute values of the indicators tend to be. In the fottowing analysis, 51 cateois of products ue distinguished, from the two digit level of the Stndard International Trade Clasification. -45 - Table 4.2: REVEALED COMPARATIE ADVANTAGES AND DISADVANTAGES MOROCCO TUNISIA 1970 V91 MO _ _ _ _ 1V70 Clothing 1.3 34.2 Clodhing 0.3 95.5 Fish and Prepared 8.7 27.0 Animal, Vegetable oil 5.6 21.5 Fruits and Vegetables 52.8 24.8 Fertilizrs manufict. 13.7 20.9 Fertilizers Manufact. 0.9 15.2 Mineral Fuels 35.5 19.9 Crude Fertilizers, Mines 33.4 9.9 Fnrits & Vegetables 12.1 6.6 Transport Equipment -13.8 -14.2 Transport Equipment -8.2 -15.4 Mineral Fuels -7.3 -22.8 Textile yarn, Fabric -8.4 -43.5 Machinery non elect. -21.2 -26.1 Machinery non elect. -21.7 -51.6 Cereals and preparation -2.7 -6.0 Cereals and prepaation -17.9 -5.4 Iron and steel -11.5 -10.4 Crude fertilizers, Minerals 15.7 -7.4 Sorce: See Annex IV. 4.10. The specialization pattern of Morocco and Tunisia changed substanally during the last two decades. At the beginning of the 1970s, both countries had surpluses in traditional resource-based sectors and deficits in manufactured products, such as machines, engines and transport equipment. At the beginning of the 1990s, the two countries' relative disadvantages were still concentrated in heavy industrial products but new advantages had emerged, especially in clothing. In 1970, Morocco's comparative advantages were highly concentrated in 'fruits and vegetables" and "ferdlizers", while its disadvantages were split between non electrical machinery, transport equipment, and fuels. Twenty years later, Morocco showed a more balanced specialization with clothing, fruits and vegetables and fish as the main advantages. This evolution reflects a progress in traditional labor-intensive manufactured products and a reliance on specific opportunities stemming from favorable natural endowments. 4.11. Tunisia started in the early 1970s with a specialization pattern similar to that of Morocco, with a relative strength in mineral fuels, crude and manufactured fertlizers, and fruits and vegetables. The evolution of oil prices in the 1980s, and the rapid decline of its net exporting capacity in fuels, forced Tunisia to diversify the economy. At the beginning of the 1990s, the main comparative advantage was in clothing, followed by olive oil, manufactured fertilizers and mineral fuels. But the traditional fragilities in transport equipment and non electrical machinery have accentuated. In 1991 Tunisia presented also a net deficit in yarns and fabrics, which have been increasingly imported duty free to supply the growing garment export industries. Tunisia seems to have been unable to develop its own competitive yarns industry, or to move upstream in segments of the textile industry with higher value added. - 46- T'he Speialization Pattemn of Competitors 4.12. The results of the speializaion pattern of Morocco's and Tunisia's main competitors are developed in Annex IV. This section summarizes the main trends. Among Mediterranean competitors: in the last twenty years Sain maintained a comparative advantage in the agricultural sector (fruits and vegetables), while kg=al acquired new comparative advantages in traditional labor-intensive sectors such as clothing and footwear, as well as in vehicles and electronics (more capital-intensive). Tukey was extremely successful. Starting from a specialization in raw materials in the 1970s, Turkey diversified its comparative advantages between fruits and vegetables, tobacco and clothing; and it succeeded in producing a relative surplus in yarns, iron and steel, thus proving that it was able to create a larger industrial base. 4.13. The main feature of the specialization pattem that existed until the collapse of the Soviet block for the East European Countries (Poland, Hungary, Czechoslovakia) was the lack of strong, well-defined comparative advantages4. The effect of the liberalization policies pursued by these countries in recent years has been dramatic. However, the success in gaining market shares may only reflect the need to redirect their exports westward, through aggressive prices and marketing policies. The capacity to consolidate these newly acquired comparative advantages will depend on their capacity to restructure the industrial base. 4.14. Finally, the comparative advantage of Maasia, Thailand and the Philpines in the 1970s was in a few raw materials. In the 1990s, the specialization of these countries was broadly based: clothing, miscellaneous manufactures, fruits and vegetables, oils and fats, wood and cork, cereals, fish. The success of the most traditional labor intensive industries is progressively attracting other capital-intensive industries with higher value added. These countries were able to avoid deficits in the upstream sectors of the textile industry (yarns and fabrics) and to create new comparative advantages in sectors (footwear, furniture, electrical machinery) where they might soon be competing with industrialized countries. 4.15. It appears therefore that although Morocco and Tunisia have managed to transform and diversify their economy, other countries have done so with more success. It is most likely that more market shares will become available soon in the European market as the old NIC's countries specialize in more capital and technology intensive products. But Morocco and Tunisia will also have to fight against Turkey, and the new South-east Asian countries. They will have to face the competition of countries with very low labor costs. In this situation, there is no other alternative than to strengthen the global competitiveness of the economy and remove all structural constraints to an enlargement of the industrialization process. 4/ Clearly trade deficits and surpluses are not good indicators of comparative advantages if the structure of prices is very distorted. - 47 - D. COMPETITIVENESS: INTERNATIONAL COMPARISONS 4.16. The typical indicators of international competitiveness are the price and quality of products. The latter is more difficult to assess and compare among countries because of product differentiation. Thus, this section will rely on measures of labor costs, productivity and exchange rates to compare the price competitiveness of Morocco and Tunisia with that of other countries.5 Other indicators, such as energy and transport costs, wiUl give an indication, although partial, of the total cost competitiveness. 4.17. Labor costs and productivity. Table 4.3 shows measures of labor and productivity competitiveness in the manufacturing sector. The first column gives the ratio of the average wage in the manufacturing sector to GDP per capita, an indication of the return to labor relative to its return in the economy. Morocco displays, after the Philippines, the highest value of this ratio. Morocco and Tunisia are the countries where wages represent the highest proportion of value added, an indication of the predominance of "clothing", a highly labor- intensive sector; and labor costs, as a percentage of GDP per capita, are also relatively high in Morocco and Tunisia. 4.18. The last four columns present the evolution of labor costs from 1985, the base year. The index of real value added per worker shows a slight upward trend in the two Maghreb countries, against a remarkable increase in some other competitors: Turkey, the Philippines, Indonesia. Real wages, measured in ECU, decreased, in percentage, much more in the Maghreb than in the Asian countries. Yet, because of the lower productivity, in 1990 unit labor costs in Morocco and Tunisia were relatively higher, despite the sharp fall of real wages since 1985. Turkey, Indonesia, Thailand and the Philippines were able to combine real wages and real productivity growth (see Table 1.6 in Annex m). The analysis of the evolution of the real exchange rate,' in the last column of the table, shows a generalized depreciation of national currencies against the ECU (except for Portugal) but at a quite different pace across countries. Asian countries recorded the largest rates of depreciation, while the analysis of bilateral exchange rates (see Table 1.9 and 1. 10 in Annex mII) confirm that the Moroccan and Tunisian currencies depreciated in real terms only against the Portuguese and the Greek currencies. Thus, Asian countries were able to increase the competitive edge in their labor costs through a more pronounced devaluation of their currencies. 51 Details are provided in Annex m. 6/ The real exchange ratoe has been calculated by dividing the nominl exchange rate (unit of national currency per ECU) by the ratio of national to European consmer prices. - 48 - Takle 4.3: LAOR COSTS AND PRODUCTIVITY IN THE MANUFACTURING SECTORI- INTENATIONAL COMPARISONS (1990) Rel Value Rl Uk Real Ratio of Radb of labor Wages a add per W_i In Labor Eyane WageJGDP Comb/GDP per % of value Worlk ECU Coab In n t. per capita capia adde (ma al E ECU curry Ts cqeaY) ECU W (ai 195 - 100) Morocco 3.02 3.49 0.36 106 70 80 75 Tunisia 2.42 2.97 0.49 111 62 69 64 Turkey 2.71 3.27 0.22 167 120 89 84 Hungary 0.93 1.33 0.41 117 87 91 77 Greece 1.88 2.35 0.40 126 95 93 95 Portugal 1.06 1.33 0.36 131 119 112 100 Indonesia 1.79 1.82 0.27 106 47 55 49 Malaysia 1.23 1.39 0.19 110 50 56 42 Philippines 3.13 3.19 0.28 130 87 82 63 Thailand 1.68 1.75 0.24 141 84 73 54 China 1.42 1.45 0.17 129 59 56 50 (1) An increase in the index mean depreciation. Source: UNIDO, Yearbook of Industrial Sbaimlc; IMP, Intanatoml Finacial statistic; Price Wathou, 1992, 'Doing Business in Turkey, Greoe, Porul, Philippins, eto..'; Dank of Thailand, 'Ihmlamnd Key Eoonomic Indicators, 1993; Morocco - Ministry of Industry; Tunisia - Ministry of Plnning. 4.19. Energy and transportation costs. Table 4.4 presents intemational comparisons of energy and transportation costs. Data show that in Morocco the price of energy paid by the manufacturing sector is, on average, higher than in competitor countries. On the contrary, Tunisia energy prices are in line with those of othe countries. The higher cost of energy in Morocco is mainly due to heavy taxation. -49 - Tabe 4.4 COMPARISONS OF ENERGY AND TRANSIORTATION COSTS HWAVY FUEL OIL ELCTICITY WATER1 TRANSPORTATION Pries pwOm tek %ofTalin l ie. pw KwihE Is Pa perble Nomlea. Nominl cmuSS$ the PSe of cm US$ 104er i US$ d rnM trip6ma (1M) Hu" Fual 99) (19) (92) rat (19) __2) Morocco 215.7 45.0 0.0S 0.33 7.10 9.06 TuniBia 113.1 25.0 0.05 0.54 3.11 9.49 Turkey 164.6 47.5 0.09 - 4.32 S.56 Hungary 117.0 0.0 0.06 - 0.76 0.76 Greece 162.3 41.7 0.06 - 4.07 7.58 Portugal 196.4 41.5 0.14 - 437 6.S8 Indoneia - - 0.07 0.52 4.14 7.24 Malaysia 108.4 - 0.05 - 4.92 6.42 Philippines 139.S - 0.04 0.21 7.62 10.08 Thailand - - 0.03 0.24 4.50 6.19 China - - 0.02 - - 3.43 Source: Iuternational Energy Agecy, 'En*y pric ad tas' (1993); AnmIm S quc du Muacm (1992); Sacim T'nusnne do I'Electricitd etd du Gaz; Ba ofTaila-n, Key Economic ndictos (1993); Mlaysia, Miuy of Mine and NEr, 'Reviw of Electricity Tariffs in Devloping Corie durizg the 19S0', Enegy Swos Par o. 32 (1990); DIP clmnce of pay_mc dati; and *Pow Sector Sttics for Deveoping Countries' (1937 - 1991) by Z_mhd Heddniean a Guy Wks , Jan. 1994. Values in % of total trd. eData for Morocco aen for 1991 4.20. The last two columns of Table 4.4 show nominal shipment and transportation rates as percentage of total merchandise exports and imports.7 Although caution must be taken in analyzing these figures, it appears that on average Morocco and Tunisia have freight and insurance costs, as well as transportation costs, well above intenational standards. These data are confirmed by a recent transport study in the Magreb:$ freight and insurance costs in the Maghreb countries are about five times higher than in the EU and nearly twice as high as the average cost in developing countries. 7/ The two indicators are bid on tie traport rlted item ahmw in the cumre accoun part of to balance of payment. Fright ad insurance coats are under tie voice 'shipmet' wheras 'total transport' includes various forms of transport coats (pasngs, port ervicoe oe.). Coanqumely two indicators of the weight of transport costs in the intrnational tanction can be built fkg, the ratio between the suw of 'shipment' (credit plhs debit) and the sum of nmchandise export and import (both in absolute value). This ratio is called 'nominal shipment rate'. By adding to 'shipment the other transport costs, tie socond indicator, i.e., the *nominal transport rate is obtained. Becaus of tho lack of homogeneity in the way transactions are recorded, and the abeno of product tes murs annot provide an exact indication of 'how much' the transport costs in one country ar higher tn in othes Howev , they show a hierarchy thit reflecto an 'ordinal' umea of trsport costs. 8/ See World Bank, 1993, 'Maghreb Transport and Trade Facilitation Study', dra. - 50 - E. INDICATORS OF FACTOR ENDOWMENT: INTERNATIONAL COMPARISONS 4.21. Price competitiveness is a necessary but not sufficient condition to maintain export success. Endowments, both natural and created represent the means by which countries modify, in the long run, their comparative advantages.' This section discusses whether differences in factor endowments can be associated to the differences in Morocco's and Tunisia's comparative advantages with respect to their competitors. Factors taken into account are physical capital, human capital and infrastructures."0 4.22. Structural comparisons. Table 4.5 shows different indicators measured over long periods of time. Between 1966 and 1986 all the economies in the sample increased their openness to international trade. As the level of the openness ratio depends, among other factors, on the size of the economy, what matters is not the absolute level of the ratio but the change over time. In this respect, Turkey was the best performer followed by Spain and Tunisia. The last column shows a measure of the distortion of the real exchange rate. It indicates the extent to which the real exchange rate deviates from a hypothetical free-trade level"1 because of protection and incentives geared to production for the domestic market. Within the sample of countries, Morocco and Tunisia presented the largest real exchange rate appreciation of their currencies. 2/ Historical comparisons of indicators of factors endowments are provided in Annex V. ji/ The indicator are consbtced from raw data published as a by-product of the rcent reappaisal in applied growth theory. Sources of data are: Barro. R.J. and J.W. Lee. 1993, 'International Comparsons of Educational Attainmmt', unpublisd; Summer. R. and A. Heston 1992, *Ibo Penn World Table: An Expanded Set of Intenational Compaison, 1950-1988', Quarterly Journal of Economics, no. 106. Behnabib. J. and M.M. Soie"el 1992, 'The Role of Human Capital and Political Instability in Economic Development', unpublished, New York University. Benbib. J. and M,M. 5Ripgd. 1991, 'Growth Accounting with Physical and Human Capial Accumulation', New York University, C.V. Starr Center Working Paper, Deember. Dolar, D., 1992, 'Outward-oriented Developing Economies really do grow more rapidly: Evidencoe from 95 LDC8, 1987-1985, Economic Development and Cultural Change, 40 (3). Levine. R. and D. Renelt. 1991, 'Cross-country Studies of Growth and Policies', World Bank, PRE Workdng Paper No. 608, March. haau olos G. and A.M. Arriagad. 1986, 'The Educational Atinment of the IAbor Force: An intenational Comparison', International Labor Review, 125, 5, September, hg A., 1993, 'Economic regrs: Concepts and Features', mimeo. il/ Calculated as the estimated relationship betwoen the price level and per capital GDP (see Dollar (1992), op. cit.). - 51 - Table 4.5: STRUCTURAL COMOPARISONS Trade Openness Ratios Growth of Reduction Capital Labor Grow Real Average (1) Real GDP of under S Ratio (3) Frxed Capital Appreciation per capita moraity cm %) Fonration per Index (higher employee In value means more the manuf. appreciated (5) secor (1960489) (1974-89) Ranking in a smple of (1985) (1989) (1976-85) 150 counties 1960 - 1985 (2) (1985=100) Morocco 46 52 24 57 16 79 123 Tunisia 65 77 26 45 34 86 104 Spain 31 37 28 7 100 131* 89 Portugal 61 69 14 6 63 N.A. 92 Turkey 23 30 41 56 53 100 99 Poland N.A. N.A. N.A. N.A. 56 163 N.A. Czechoslovakia N.A. N.A. N.A. N.A. N.A. 126 N.A. Malaysia 94 106 13 31 109 117 88 Thailand 44 52 18 36 26 N.A. 75 Philippines 39 44 67 80 34 N.A. 92 Notes: (1) Openness ratio = (exports + imports)/GDP from the Levine-Renelt data sa. (2) Data from Amartyn Scn (1993). (3) Data on capital stocks in USS are from Benhabib-Spiegel (1992); data on population aged 25 and over are from Barro-Lee (1993). (4) Data from UNIDO. Base 1985=100. * Data for Spain are for 1988. (5) From Dollar (1992). An index value of 100 means that the country has no price and incantive distorsions, given its per capita income. 4.23. Over 1960-85, all the countries listed in Table 4.5 experienced significant increases in their GDP per capita. Out of a larger sample comprising 150 developed and developing countries, Morocco ranked 24, and Tunisia 26. However, they performed worse in reducing mortality rates of children under five years old: Morocco ranked 57 and Tunisia 45. Only the two European countries, Spain and Portugal, were better performers in the reduction of under five mortality than in GDP growth. 4.24. Looking at estimates of capital-labor ratios"2 and investment-GDP ratios, Morocco, Thailand and, to a lesser extent, Tunisia were found to be, in 1985, labor-abundant countries, while Malaysia and Spain were abundant in physical capital. Flow data on investments for more 12/ Data on capital stocks come from Benhabib-Spiegel (1992) and data on economically active population from Barro-Lee (1993). Physical capital stock values are computed through the perpetual inventory method with an assumed yearly depreciation rate of 7 % and staing from an estimated initial capital stock in 1960. By dividing capital stockis by the number of economically active people, an admittedly imperfect mease of capital-labor ratio obtains which is comparable acros countries. - 52 - recent years confirm that Morocco and Tunisia may still belong to the labor-abundant countries while Poland and Czechoslovalia may have moved towards the group of capital-abundant countries. 4.25. HIuman capital endowment and Investment in human capital Table 4.6 shows different indicators of educational attainment for a sample of countries. They give an indication of the competitive advantage of each of these countries in the development of human resources, which are essential for increasing labor productivity."3 Morocco and Tunisia exhibit the highest index of illiteracy in the sample. The discrepancy in illiteracy rates with respect to Southern and Eastern European countries (and Malaysia) finds a plausible explanation in large per capita GDP differentials. However, in 1990 Tunisia and Thailand had very similar per capita GDP levels, but their illiteracy rates were respectively 35% and 7%. Likewise, in the same year, Morocco and the Philippines, despite very similar per capita incomes, showed illiteracy rates of 51 % and 10%. In both cases, therefore, the discrepancy was substantial and has not narrowed since 1970. Morocco has the lowest rank in all the indicators. Eastern European countries' educational mastery is apparent, compared to all other countries. The Philippines ranks relatively high, compared to the overall level of development. 13/ The mmn secnday sources for years of schooling and oducaonal attainments data are Barro-Lee (1993, Kyraacou (1991) and Psacharopoulos-Ariagada (1986). En turn, UNESCO Yearbooks are their main primary sources. Educational attainment data provide the dse of people aged 25 and over, who enrolled, respectively, in the primay, the scondary md higher loveol of schooling. Data on completion ratios ar also available from the sm data sot. lliteracy rats and nrollment ratios ar from World Bank sources (World Development Report and World Tables). - 53 - Table 46: I-EDUCATIONAL ATTAINMENT INDICES Illiteracy Primary Net Secodary Number of Eduational Attainment Rate Enrohnent Enrobment Years of (185) (4) (1990) (1) Ratios Rafios (190) Sdhoon (1990) (2) (2) (198 (3) Sewndary Higher _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ L evel Level Morocco 51 55 36 3.5 N.A. N.A. Tunisia 35 95 45 5.6 6.5 2.4 Spain 5 100 107 9.7 8.7 3.9 Portugal 1S 99 59 6.5 6.1 2.1 Turkey 19 99 54 6.3 4.9 2.3 Poland N.A. 97 82 N.A. 14.6 6.4 Czechoslovalia N.A. N.A. 84 N.A. 17.1 6.4 Malaysia 22 N.A. 58 5.7 11.9 1.7 Thailand 7 N.A. 32 5.5 3.2 4.9 Philippines 10 99 73 9.4 8.7 11.6 Notes: (1) Data publied in the World Development Report. (2) Data from the World Tablos 1992. (% of age group enrolled). (3) The index is based on the avenge number of years of schooling taken from Kyriacou (1991). (4) The index is based one sihare of people aged 25 and over who enrolled in the secondary school (or higher) for at leat one year as reported in Barro-L.e (191). Data for Morocoo are missing. 4.26. Infrastructure endowments. Physical infrastructure is a necessry condition for productivity, growth and international competitiveness. Data on five types of infrastructures (telephones, electric power, roads, railways and aircraft) are shown in Table 4.7. In general, infrastructure endowment has been found to be strongly linked with per capita-GDP, population density, size and other geographical and locational factors. Compared with other countries in the sample, Morocco has a much poorer infrastructure endowment. Tunisia ranls poorly in power generating capacity and air traffic, while ranking in the middle as to telephones, roads and railways traffic. Telephone density (as a proxy for communication services) is highly correlated to the level of GDP per capita. Quite naturally, telephone density is far lower in Morocco and Tunisia than Spain. However, the gap between the indicator in Tunisia and those of the other countries in the sample has stayed roughly constant since 1970, while it widened for Morocco. Electrical power generating capacity depends strongly on past public investment policies. Not surprisingly previous socialist countries display the highest value of the indicator, followed by Spain and Portugal. Asian countries show, in general, a much lower capacity than European countries. Morocco and Tunisia show a worse indicator than Asian countries; however, they exhibit a railways endowment double than countries in the South-East Asia. Road density is lowest in Morocco, Thailand and Tunisia. Finally, Asian countries appear to be relatively well endowed with aircraft infrastructures, after Spain. Morocco and Tunisia are at the bottom of the ranking. - 54 - Table 4.7: iFRASIrUCTURE ENDOWMENTS Telephone Electrical Power Railways Traffic Road Density (4) Air Traffic (5) Density (1) Generating (3) (1989-90) (1991) (1989) Capacity (2) (1989) ('000) l _ _ _ _ (1990) l Morocco 13.4 4.8 11.2 .08 19 Tunisia 33.4 9.7 11.2 .17 12 Spain 304.0 85.8 22.5 .78 263 Portugal 191.5 79.3 16.8 .64 47 Turkey 103.3 21.1 11.2 .46 33 Poland 82.1 98.8 35.4 1.16 20 Czechoslovakia 142.8 162.0 562.4 .66 20 Malaysia 79.0 14.6 56.2 .11 146 Thailand 21.3 19.4 56.2 .14 70 Philippines 91.2 22.7 _ .52 63 Notes: (1) No. of telephones per 1,000 inhabitants, published in the U.N. Statistical Yearbooks. Data for 1989 ar reported in Italtel, Communications Atlas 1992. (2) Raw data in thousand kilowaus per squared Km, reported in the U.N. Energy Statistics Yearbook. (3) Railways traffic (measured as million tons-Kms per squarr Km), reported in U.N. Statistical Yearbookx. (4) Road density data (KIna of total network per square Km), reported in the U.N. statistical Yearbooks. (5) Total number of departures (in thousand) of domestic and international flights from the country's airports F. CONCLUSIONS 4.27. This chapter has compared indicators of cost competitiveness and comparative advantages in Morocco, Tunisia and in a sample of countries that compete in the main destination market, Europe, and in the sectors that are most relevant to the two Maghreb countries. 4.28. The specialization pattern of Morocco and Tunisia evolved significantly during the last two decades and new comparative advantages were acquired in manufacturing products. However, some competitors, notably Turkey, Malaysia, Thailand, and, in recent years, the Eastern European countries, were even more successful. They managed not only to strengthen their traditional comparative advantages in labor-intensive products; but also to diversify their economies and specialize in new, technological and capital- intensive products. 4.29. Cheap labor has traditionally been the key determinant of the competitiveness of Moroccan and Tunisian exports. Real wages are still low, relative to competitors, and they have been declining in recent years. But productivity (measured by value added per employee) is also low, so that the level of unit labor costs is relatively high. By contrast, countries like Turkey, - 55 - the Philippines, Indonesia, Thailand and China have been able to combine low but increasing wages with a fast rise in productivity. The computation of labor costs in a common currency, the ECU, shows that during 1985 to 1990 both Morocco and Tunisia improved their price competitiveness against European competitors (Portugal, Greece, Hungary, Turkey); but failed to catch up with the increased strength of Asian competitors, China, Malaysia, Indonesia; countries that devalued their currencies much more than Morocco and Tunisia. 4.30. Energy and transportation costs are high in the two Maghreb countries, in particular in Morocco. They decrease the profitability of exports and therefore the incentive of producing tradables. The case for advocating lower energy taxes is particularly strong in Morocco, as the price of energy is higher than in all competitors. 4.31. Productivity growth is the challenge that Morocco and Tunisia will face in the future to improve competitiveness and the living standards of the population. International competitiveness requires the broadening of existing and the creation of new comparative advantages, which is a complex task. Previous chapters have already discussed the role of macroeconomic and exchange rate policies in providing an environment that is competitive, stimulates investments and the acquisition and internalization of technology. 4.32. Evidence from this chapter shows two important areas that need public intervention: human capital and infrastructure. Investments in these areas may significantly improve, in the long run, the productivity of labor and the growth path of the economy. A reduction in the illiteracy rate should be a priority in both countries, but especially in Morocco. A second priority would be the improvement in technical education and training. Most of this training could be actively designed and managed by the private sector itself, with minimum involvement from the State. 4.33. Significant public investments is required, especially in Morocco, to improve the quality of infrastructure services and expand the existing stock. Public investment may be insufficient, and complementary financing will be necessary. To this aim, private participation should be fostered by deregulating the provisions of these services, in particular in transport and communication; and by developing a framework for concession contracts with private investors. - 56 - CHAPTER V: TOWARDS A CS6EIR ASSOCIATION WITH EUROPE A. INTRODUCTION 5.01. The unificaton of the European market represents new opportunities and challenges to the Maghreb countri. The removal of internal barries in Europe may accelerate economic growth, increase the demand for imports and facilitate the circulation of these products within national markets. On the other hand, it will aso facilitate the creation of more competitive domestic suppliers, reative to those outside the community. The restructuring of European industries may also move some production outside the European Union (EU) to countries that are able to attact forign investments. How these changes will affect Morocco and Tunisia largely depends on the content of the agreements that in the next few months will be re- negotiated with the EU. 5.02. The cooperation between the Maghreb countries (Morocco, Tunisia, Algeria) and the EU is currently governed by three Coopation Agreements signed in 1976 and revised in 1982 and 1988 by Protocols to accommodate the accession of Greece, Spain and Portugal. Some of the benefits that derive from these arrangements, such as the preferential access to the European market, were diluted significantly after six Eastern European countries signed their own Association Agreements with the EU in 1991. Following their exnample, Morocco and Tunisia applied to upgrade te existing arrangements with the EU into full free-trade agreements. In response, the Commission of the European Union proposed, in early 1992, the negotiation of a so-called Euro-Maghreb association agreement' that would include: the institutionalization of political dialogue between the EU and Morocco and Tunisia; reciprocal free trade in industrial products; reciprocal liberalization of trade in agriculture and services; and expansion of the scope of technical, economic, social, cultural and financial cooperation. A commitment to respect human rights and to adhere to democratic principles would also be a key element of the agreement. 5.03. What is to be gained by Morocco and Tunisia from such a proposal and what can they learn from the recent negotiating experience of the Eastern European countries? These are the questions investigated in this Chapter. Section B reviews the content of the existing 1/ There amr three baic types of ewonomic agreemt tha the EU may conclude with non-member counties: coopeaton, fvee trade, and alciacion agremts. oowration agreements tend to be non- reciprocal ad lagely limited to the anting of prefernal access for induhrial products to EU markets. ree trade agreemtb ae reiprocal, but ar largely limited to trade in industrial products. The Union hs concluded such areumts with the EPTA countries (1973) and with Iaed (1975). ciation agreemnta o imply reciprocal trade hlealization, but cover in addition: labor mobility, capital mobility (including establishmet or fbreig direct invoetment), and freedom of supply of services (i.e., cros-border trade in services). - 57 - cooperation agreements with the EU. Section C provides some indications of the costs and benefits to Morocco and Tunisia of different agriculture trade arrangements with the EU. Finally, Section D summarizes the main elements of the agreements concluded by the EU with the East European countries and identifies some of the implications for Morocco and Tunisia of signing analogous agreements. B. THE EXISTING COOPERATION AGREEMENT 5.04. The 1976 Agreement2 provided the three Maghreb countries (Morocco, Tunisia and Algeria) with quota and tariff free access into the European market for their industrial products.3 The exception to this arrangement was a system of voluntary restraints or quotas, on specified items of textile and clothing. Fewer quotas, and less restrictive, were applied to export items produced with raw materials originating from Europe. The Agreement also provided preferential treatment to agricultural exports under the EU Common Agricultural Policy (CAP). The CAP maintains EU prices above world pdces through minimum entry or reference prices, a variable import levy equal to the difference between the EU and world prices, customs duties, and quantitative restrictions in some cases. The Maghreb countries are granted entry of agricultural products with significant reductions in tariffs (between 20% and 100%). However, the tariff reductions only apply to a given quota (the so-called 'tariff quota'), beyond which exports to the EU are subject to higher tariffs. In addition, these exports are subject to seasonal restrictions to protect EU producers. Finally, Maghreb producers are also obliged to sell at the EU reference prices. Although this limits their capability to compete through prices, their profits are enhanced as reference prices are much higher than supply prices. 5.05. Following the accession of Spain and Portugal to the EU, and the resulting fears of the Maghreb countries for the disruption of their agricultural exports, the 1976 Agreement was amended by a 1988 Protocol' which included: the phasing out of customs duties on agricultural products within the tariff quotas by 1996 (the same timetable that applied to Spain and Portugal); an enlargement of the quotas; and a new agreement for gradually reduced duties on agricultural products that previously had not been considered in the 1976 Agreement. 5.06. The 1988 Protocol succeeded in preserving and enhancing existing benefits and the export patterns of the Maghreb countries. Most importantly, their industrial products were 2/ This section draws from Alan Roo (1992), 'The Maghreb Countries: Stratgies for Closer European Community Association'; and Alan Roo (1993), 'The Maghreb Countries: Purthr Aspects of Closer European Community Association'; MN1 unpublished papers. 3/ European firms exportig to the Maghreb were just granted most-favored nation treatment. 4/ The loss of benefits that derived from the accesion of Groce to the EU was taken into account in the 1982 Protocol. - 58 - shielded from the competition against Asian countries whose access to the EU market was much more restricted. The almost free access of industrial products, and the preferential treatment granted to agricultural products represented a most important determinant of the strong performance of Maghreb exports in the 1980s. There is also evidence that voluntary export restrictions have rarely been binding. For example, Morocco's dollar earnings at the end of the 1980s were four times larger than a decade earlier, when these quotas were introduced. Between 1985-88 and 1989-91, exports to the EU of major fruits and vegetables grew by 50% in Morocco and by 88% in Tunisia. This was probably due to increased sales beyond the quota levels. In recent years agricultural exports from the two countries have systematically exceeded the EU quota. The need for a change 5.07. Several reasons explain the need felt by Morocco and Tunisia to redefine the extent of their cooperation with the EU: fi=, the EU is imposing common industrial, environment and safety standards, and a system of certification and compliance to enforce these standards to all member countries. Products that enter the European market will be increasingly asked to meet these standards; achieving full conformity with the new EU regulations will be easier with the full cooperation of the EU in these areas; this could be made possible by the inclusion, in the agreement to be negotiated, of technical and financial assistance by the EU. Second, the scope of the recent agreements concluded between the EU and some Eastern European countries (the so-called 'Europe-Agreements') as well as the one with Turkey (which should lead to a customs union in 1995) go much further than those signed with the Maghreb countries. The Europe agreements provide for duty and non tariff barrier free access to the EU for all industrial products (including textile and steel) within ten years and a greater access for agricultural products. They go beyond simply accepting the principle of free trade by including arrangements on competition policy, subsidies, foreign investment, intellectual property rights and a commitment to harmonize the economic legislation with that of the EU. The possibility of eventually achieving full membership with the EU for many East European countries may also result in significant trade diversion away from the Maghreb. Third, the benefits of a closer cooperation with Europe may be larger, in the long run, than any of the adjustment costs to be suffered in the short run. 5.08. Estimates of the benefits and costs from an enlargement of the existing Association Agreements between the EU and the Maghreb largely depends on the specific details of such agreements and on the transition period allowed before implementation. Recent research indicates that the main costs arise, in both countries, from the loss of jobs in the industrial sector, as tariffs are reduced. The main benefits would come from increased export level, enhanced levels of foreign investment and from the efficient working of a liberalized economy. - 59 - C. AGRICULTURAL TRADE ARRANGE:MENTS W1TH THE EU: SIMULATIONS OF COSTS AND BENEFIS 5.09. This section provides some indications of potential costs and benefits that would arise under different agricultural trade arrangements between Morocco and Tunisia (M1I) and the EU. Three alternative simulations are carried out: (a) MT have no preferential access for their agricultural exorts to the EU. The price received for their exports is then the world price and not the higher EU price. This scenario is clearly not part of the negotiating agenda; it is analyzed just to give a rough estimate of the 'price rents" currently received by MT because of the privileged access to the European market granted in the 1976 Associations Agreements and the subsequent Protocols. (b) A free trade agreement with the EU. Under this scenario MT would receive duty-free access to all their exports, including agricultural products, but they would also have to pay the higher EU prices on their imports from the EU. (c) The effect of the recent GATT Uruguay Round. The EU agreed to partially liberalize the CAP, which is expected to lead to a moderate increase in the world price of some major agricultural products. It is assumed that this will not concern the products currently exported by MT. 5.10. The structure of agricultural trade in both Morocco and Tunisia is shown in Tables 4-6 of Annex I. The simulations consider only the major export items for both countries,5 with the exception of olive oil for Tunisia. This is because there is a large variation in the quality, and therefore in the price, of the oil sold in different EU countries. Thus, the average EU price may differ from the ROW price because of differences in quality and not because of EU agricultural policies. 5.11. The simulations consider only short run effects, and therefore take quantities produced, exported and imported as given. Neither long term effects nor policy responses to the different scenarios are analyzed. Moreover, they take into account only a small percentage of exports; thus, caution should be taken in interpreting the results, which are reported in Table V. 1. 5/ The data used in the simulations are export, import and unit values of products from MT to the EU and to the rest of the world. AU data are from Comtade, and are taken as averags for 1985-1992. Products considered for Morocco are SMTIC categories 031 (fresh fish), 032 (fish prepar.), 0541 (fresh potatoes), 05712 (frsh mandarins), 0577 (edible nuts), OS8 (fruits preserv.). ese categories represent about 45 % of total agricultural exports to the world. Products considered for Tunisia are SMTIC categories 037 (fish prepar.), 048 (cereals and prep.), 052 (dried fruit), 0541 (fresh potatoes), 0546 (veget. simply prep.), 056 (veget preserv.), 062 (sugar candy); they represent about 38.5% of total agricultural exports (excluding olive oil) to tho world. - 60 - Table S.1: COST/BENEFTr SIMULATIONS OF EU POLICY SCENARIOS (198S-92 averae, percnt) Simnulaoon MNrocco Tunia 1 - Removing preferential EU access -21.8 -12.0 -15.1% -10.6% 2 - Free Trade Agreement (PTA) 17.7 9.8 -49.7 -34.9 3 - Uruguay Round -6.2 -3.4 -11.3 -7.9 * The first column for each country indicates the loss (or benefit) as a percent of the value of agicultu>rl exports to the EU. The second column indicates the loss as a percent of the value of agricultual exports to rest of the world. 5.12. No preferential access to the EU. According to this hypothesis MT receive the low world price rather than the higher EU price for their exports to the EU. The difference between the EU and the rest of the world (ROW) prices is multiplied by the value of exports to the EU to calculate the potential loss. As Table V. 1 shows, the potential loss that would arise to MT from no preferential access to the EU (or, equivalently, the rent that is being enjoyed from such access) would be substantial, 21% and 15 % of the value of agricultural exports to the EU in the two countries respectively.' 5.13. Free trade agreement. The scenario of a free trade agreement with the EU implies that all restraints on MT agricultural exports to the EU are eliminated; MT would then redirect all their exports to the EU but would also have to import from the EU at the higher prices.7 The net effect would be positive for Morocco and negative for Tunisia.' Why? The gains are on the products previously sold to the ROW that could now be exported to the EU at 6/ For Morocco, the loss would be equal to 5.1% and 3. 1% of merdcandise exports to the EU and to the ROW respectively; or 0.42% of average GDP. The equivalent values for Tunisia would be 1.4%, 1.1% and 0. 27 %. 7/ The EU import prices have been calculated by applying to slected imports the following nominal protection rates: 0.98 for beef, veal and sheep; 1.89 for dairy; 0.65 for wheat; 1.14 for rice; 0.91 for coarse grains; 1. 18 for sugar and zero for oils. See Brandao A. and Martin W. (1993) 'lmplications of Agricultural Trade Liberalization for the Developing Cotmtries' in Agriculturl Economics, Vol.8. 8/ An important issue which has not been included in the calculations of Table V.1 is that of trade creation and diversion. Under a free-trade agreement, the optimal policy for both MT would be to sl as much u possible to the EU because prices are high and import a much as possible from the ROW. However, if MT apply import tariffs which are higher than those of the EU, importers will fac EU price whAich ae lower than tariff-inclusive ROW prices, and they will choose to import from the EU. Tis will relt in significant losse for both MT. - 61 - EU pnces. The losses are on the products that would be imported from the EU, at the higher EU price ratier than the world price. Contrary to Morocco, Tunisia has a higher share of its exports that already go to Europe, so the potential gains are relatively minor. In addition, if the cu t structure of high nominal protecton is maintained against the ROW, it might still be convenient to import from Europe, although European prices are higher than world prices.9 5.14. Uruguay round. The partal lbealization of the CAP agWeed under the recent Uruguay Round will lead to an increase in the price of some agricultural products10 which in turn will increase the cost of imports for MT. Thus, both countries will experience some losses."' 5.15. In spite of their obvious simplification, the simulations reported in Table V. 1 show that Morocco and Tunisia have benefitted from the preferential access granted by the EU to their agricultural products in the EU. A free trade agreement with the EU may or may not benefit the two countries. The possibility of reaching a free trade agreement calls for lower MT tariffs to the ROW. In fact, with high tariffs importers will buy from the EU when ROW prices (not inclusive of tariffs) are lower. Such trade diversion can turn out to be very costly for the two Maghreb countries. D. TIHE EUROPE-AGREEMENTS AS A MODEL FOR MOROCCO AND TUNISIA: ISSUES AND OPTIONS 5.16. The Maghreb countries have set a broad negotiating agenda, ranging from free trade in agricultural and industrial products, free movement of labor and enhanced financial cooperation. But how much of this agenda can be effectively achieved? The experience of the 2/ For Morocco, the gain would represont 4.1% and 2.6% of merchandis exports to the EU and to the ROW, or 0.34% of GDP; for Tunisia, the loss would represent 4.94% and 3.75% of mrchandise exports to the EU and to the ROW; and 0.94% of GDP. 10/ Many studies have suimated the effect of the Uruguay Round on agricultual pnces and btade. Theso are summarized in Valdes A. and Zietz J. *Price Distortions in World Food Markets: Quantitative Evidence', Technical Department, LAC, World Bank, August 1993. The effect of the Uruguay Round on world prices used for our smuation ar: wheat, 6.3 %; coars grains, 4.4%; rice, 4.2X; sugr, 10.2%; soy oil, 3.8%; milk, 10.1%; butter, 6.9% and cheese, 36.2%. These values are taken fiom Brandas and Martin (1993) op. cit.. L/ The loss for Morocco would repreaent 1.4% and 0.9 % of merchandise exports to the EU and to the ROW; and 0.12% of GDP. For Tunisia, the equivalent values would be 1.1%, 0.8% and 0.2%. These results should be intepreted with aution. They may overstgte the impact of higher food import prices because food imports, due to the drought, weo very high in rocent years, opelly in Morocco; while the impact of improved market accs for agricultual products and the dynamic effects of trad liberalizaon are not included. - 62 - Eastern countries is illuminating. The Europe Agreements (reported in Box V. 1) were not easily negotiated. Eastern European countries were unable to achieve free market access for their agricultural products because the budgetary consequences of extending the existing price support system of the CAP would have been too large for the EU. Freedom of movement for services and full capital freedom were included as long-term goals. Free movement of workers, strongly advocated by the Eastern Europeans, was kept off the agenda, not being even a long-run objective. The next paragraphs discuss some of the issues and policy options that will be confronted by Morocco and Tunisia in their negotiations with the EU. 5.17. Preferential versus nondiscriminatory trade lberlizafon. A customs union with the EU, instead of a free-trade agreement, would have the advantage of liberalizing trade (although not so much agricultural trade) against the rest of the world, thus reducing the trade diversion that would occur from a preferential liberalization vis-a-vis the EU. In fact, preferential liberalization is inherently associated with some degree of trade diversion. Even though the EU is by far the largest trading partner of the Maghreb countries, the costs of trade diversion resulting from an Association Agreement are likely to be high. A recent study concluded that the welfare benefits of trade liberalization by Morocco almost double if such liberalization applies to all potential trading partners and not just to the EU.12 On the other hand, the costs associated with such global liberalization are not significantly higher than those that would result from free trade with just the EU: in fact inefficient sectoral adjustments (i.e., the trade diversion) does not occur if liberalization is nondiscriminatory. 5.18. The objective of a Euro-Maghreb Agreement is, however, a free-trade agreement, not a customs union. Even if the latter is not under negotiation, the unilateral pursuit of a trade policy stance that implies the adoption of something analogous to a customs union would be beneficial to the Moroccan and Tunisian economies. Such a unilateral policy would also have the important benefit of avoiding the costs of adopting all of the EU's common commercial policy (such as the EU-wide safeguards, antidumping, and related import restraints). A free-trade agreement with the EU accompanied by substantial lowering of trade barriers against third parties could prove to be more beneficial than just the pursuit of a customs union. A practical corollary of this recommendation is that barriers against non-EU partner countries should be reduced according to the same timetable as tariffs and other barriers against imports from the EU. 5.19. A possible undesirable effect of an exclusive Maghreb-EU agreement would be to create forces against inward foreign direct investment by EU firms. This is because the EU has concluded or will conclude many bilateral free-trade agreements with different partner countries. Given that EU-based firms have free access to all partners' markets, they have an incentive to stay (or to re-locate) in the EU if the costs of production and transport are lower 12/ Rutherford, Thomas, E. Rutstrom and David Tanf (1993). 'Morocco's Free Trade Agreement with the EU: A Quantitative Asseasment', World Bank PPR Discussion Paper. - 63 - than elsewhere."3 The extent to which investment diversion will occur greatly depends on the attractiveness of Morocco and Tunisia as production platforms. This, in turn, depends on the regulatory environment and the efficiency of infrastructure and support services, as well as relative wages. To limit investment diversion, partner countries should therfore negotiatefree trade agreements with one another. Thus, a Euro-Maghreb agreement should explicitly allow for the negotiation of free trade agreements with other partners than the EU. 5.20. Industrial products. As the expence of the recent Europe Agreements has shown (see Box V.1) not much should be expected from the EU in terms of significant immediate improvement in market access. The recent Uruguay Round negotiations have indicated that quantitative import restrictions on textiles and clothing will be eliminated and substituted by tariffs in about ten years. Morocco and Tunisia should then try to obtain immediate duty free access to the EU for the products that are currently constrained by the "voluntary export restraints". 5.21. Agricultural products. The Europe Agreements show that trying to obtain improved market access for agricultural products is liliy to run into strong opposition by vested interests in the EU. The concessions that might be granted will be highly dependent on what happens to the CAP. Currently, the reductions in trade barriers that the EU concedes are mostly in the form of levy reductions. Following the recent Uruguay Round Agreement, levies will have to be decreased and non-tariff barriers eventually eliminated. Maghreb countries should therefore focus the negotiations on the elimination, or at least an enlargement, of their quotas for their agricultural products in the very near future. 5.22. Services. The main potential benefits that may derive from a Euro-Maghreb agreement with the EU may come from the reduction in barriers to imports in service sectors (e.g., telecommunications, transportation, insurance, bankdng, financial and legal consultancy, data processing, etc.). The lack of attention given to services in the Europe Agreements is mostly a reflection of the weakness of services, and their regulatory framework, in the Central and East European countries. This is not the case in the Maghreb countries: because of historical links, similarities in training and education, and the advantage of the proximity to Europe, substantial advantages may derive from pursuing free trade in specific services. For example, the liberalization of maritime transport, and possibly air and inland transport, would lower transportation costs and significantly increase the cost competitiveness of Moroccan and Tunisian exports. 5.23. Liberalization of capital flows. Obligations regarding freedom of capital movement are significant in the Europe Agreements, but are limited to current account transactions and financial flows related to establishment. Liberalization of capital account transactions is a longer-term objective for which no time period was established. The Maghreb countries may have to provide a more explicit commitment towards establishing capital account 13/ That is, the lowering or elimination of tariffs will eliminate the incentive for EU firms to locate in any particular country in order to sell in that market. - 64 - liberalization within a given time frame, as current account convertibility has already been achieved. 5.24. Right of establt. Central and East European countries agreed to allow establishment by EU-based firms in virtually all sectors of economic activity. Although transitional arrangements and temporary exceptions were negotiated, the number of sectors excluded indefinitely were very limited (largely restricted to agricultural land, natural resources and historical monuments). Morocco and Tunisia should and are in fact adopting a similar strategy. This is because in many sectors - both tradable ad non-tradable (services) - establishment is the most direct method of enhancing competition and efficiency, subject to the existence of appropriate regulatory structures. 5.25. Harmonization of laws. The Europe Agreements devote much attention to the approximation of laws and the implementation of EU competition policy disciplines. Similar provisions, likely to be included in a Maghreb agreement, will have major implications for Morocco and Tunisia. They might include the adoption of more stringent industrial standard and certification rules, to fully conform to EU regulations, and the mutual recognition of certification and testing procedures. 5.26. Approximation of laws is important not just in terms of facilitating exports to the EU, but also in terms of establishing a regulatory environment that is more conducive to competition. An agreement with the EU will probably require only the adoption of a principle of 'non-discrimination' or national treatment, that is the obligation not to discriminate between foreign and domestic firms. But national treatment will often not be sufficient to ensure that Morocco and Tunisia are attractive for foreign direct investment. Similarly, if markets are not competitive, domestic firms may not benefit from the presence of European firms. Thus, the Maghreb countries should aim at harmonizing both the legal frameworks and the institutional arrangements regarding competition with those of the EU. 5.27. The rules of origin that are maintained by the EU in the context of the Euro- Maghreb agreement will have an impact on both trade and investment diversion incentives. The EU tends to apply the same rules of origin to the countries with which it has cooperation or association agreements. However, Morocco and Tunisia may seek to obtain more generous rules regarding cumulation for origin determination purposes. This is one concrete reason why the pursuit of intra-Maghreb liberalization would be beneficial, as it would allow each Maghreb country to argue that for rules of origin purposes, the region should be treated as a whole. More generally, an attempt should be made to argue that goods originating in the Central and East European and EFTA countries, as well as the Mediterranean countries with which the EU has negotiated trade agreements (especially Turkey, Israel, Tunisia, and Egypt) should also be included in those towards which cumulative origin criteria apply. 5.28. TransIton periods. The Europe Agreements (see Box V.1) have ten-year transition periods, with Central and East European countries offering immediate duty-free access to their markets for a substantial part of their manufacturing sector. Would Morocco and - 65 - Tunisia be willing to offer such immediate access, or will they want to liberalize more gradually? Although a gradual approach may be less painful, the phasin peiod for lowering tariffs should not be longer than five years. Trade may simply move eastwards unless Maghreb counties can match the liberaliation moves of the Eastn European countries. Moreover, it is important that transitonal prottion be trsparent, that all industies concerned be aware of the liberalization schedule negotiated with the EU, and that the government pursue poLcies that facilitate the restructuring or exit of firms and indus fahcing large adjustment needs. 5.29. Finally, the cooperation between the Maghreb cute and the EU Should also extend to education and training, research and development and cultural matt. It should also provide for regular political dialogue of a consultative nature. -66 - BOX V.1 M . - ,, -.i 0 -AS[Ei . . ..T... S Czc n lvk1euIc h rgnlareetwCzeczeholvei wl be ple .tosprt eeia. rules andM p s, establisi et n upyo erie;()pyet,cpia,cmeiinadaprxmto fl n (L4) economiC and financial Cooeain (i), Free Movemen of Goo The objective of the Agreements is free tade in Industrial products, not a customsunion.pThdu,ts not Atrultand East Europea counties will not dopt te scommon c c i. T EU td t tttiit d 0~~~~~~~~~~~~~l e t e d -;=: ' = : t trade bariersi willb implemetedmr rpdlya liberalization by thes coun6tries (wih wlhl aUPpl tasiOn eue from three to ten yeArs). Upo atnf nt EU has industrial products. Duties on ~~~~bb-e-sitiv~e:pout ame to be reue rda vrtwo t fou yer,dpnigo h product. 'All AKi ae to+~ Veeiiae by&d20004had areto be' tincasd bd 10pretpeerdrngn the. trasiio eriod : I X~~~~~~~~~~~~~~~~~~~~~~~~~~~. ,;f. . . . . . . . . . . . . . s ,. . . . xinle QRs oneiPortsof t0 % aOddlot ac 60% riJver clothing is t' becoe a e f ye,t M,i aa1, ,199. Afiuir.Tecnesongr anted h U aesbfimila Atou thoe inbe wo6CneUto n tb Meditetwanes Xthe EUjXor t~~~~~~~~~~:A" 0 of - yfllS~ hi4a0 Ca mare0of zu>,: I- t ........ cooperatin agreemenys. Thf meatrequent frd .. .d tA ae wt t annual steps: :o0f 20% eac .g.ob, putr, laob, -pok and d ir dt fYuits a- egt$e, dt orlv ul:fgns vX0 f ve ya reeduction o6f som'e 30% t 50 ilbepsdinover a perio of ieyas uty freqoa ilepn yoetidt one-hal f by J 1996.. 0 t ' t "X e a - ....fi' .g.,,, ;.'W .,........... .i...'........ Continge protection The' contai er articles of sfe t .ll. ai to e e i ' 'ports from Central anid a en n u ue anl seIouaiNj1ry tU pocr Thl for antiupmpig: atOnstM etkn ossetwt AI biain1a ela cin t safeur pubi elt,sft and morals, a n:dth e balance:d 'o f payment. howe er, thy huld not affec trnfirs reaeltayegndrc ietent from:]~ the EUj or repatration of Cin a. etral anid EasWuoencutismytmoaiy rtc natidsreo etr un3der economi'c rsrcnig u.ett anme)fcsdtos(arfsaentt xed2%:Epoue r ob ie a margi o preference, qutsaenttxed15% ofthe ttlinstalmprsfothEU daconmyonyb taken within]treyaso ierlzto fmre accessand aentt atmr hnfv er) Rules of orsginwi Thdsa6e foigntlsfrcutdie wit rfrniltaigarnemnswt h Uapy hs a produc snral coniderd domstie ifpow~Offreinipt ssfiin ola o lig ntetuii bt to ahiniiua cunrt conmtneco beorei taoet.awnrr.# f,..~aa 1993' onl h #emnawt oadan wgr aebe aiid - 67 - BOX V.1 (Cont'd) ,,,,~~~~~~~~~~~~~~~.. , ..,S ...'" ..' , ....... AM: exEET WrIE T_ _ * 3MI .,_a......~~~....... Supply ,..2.........i tre Motmen t of Wof d - ujp':'' S ''' sanp ..d...iontun. 'ii =OP=44 -u1X=> .'.. on t,,,,,,,, + : ?,99+0<=,............ repect to dffu&fw',' ' ':' "" 4 " bnh thexept i GaTT41 and0 Wnsdwtrtasotsdmrtm Aboiag~Teascae onrs ilas rn reatyedoi takinginto acount thedvlpeto f h ericsetor in Centalad 4fteaturencntes ubicii) Comptto ~iyadAjr~into fL sompe teiti poicy ai optiinrlso h EU 4rCobeitoucdi h.ascatdcunre,inprhmerwt respect to coliusivebabavior, dominant position. public undertakings and compe ition.4lstordrtg itate aid (Atticle.........s..8. ... 6,0A nd9ppteEUtet)mlaeta rlsaet eaotdb h soitin(omi ihntreyas ni thn ATrue raet oci.evalrgo sbiiswllapy ltead opail "t M.t.frdiavnae rsegion (Artiet9jn rayo lm) a eapie oteetr ertre fteasoitdsae uigtefrtlv years.~~~~~~~~...... *nela ecsia ppetrIh.Th soitdcntiswl trdelast rttinelcalldkm adomril propety rihs qiaett hs realn nteSnbdh n o h rtsa.o h rnito eid(ieyaa~T areovlso toxceeb ht iet h 9$ uihCnetcao h rn f uoenpsns dtezztltea ovnin onv iwntelcul reiama ndcmeca roet ih Ph ubipropwrenr Ao'ne rmteascae ttswl eal o at~pt t ulepoueeti h Uo h same trm as' new lnsa h ieo nr nofreo soito gemns Aproximato flw.Teascae enre hl nevrt amnz hi ea yt rdal ihE ast foser urter nteraton.Thi aplie. lperlcsar~ tocaiton, cmpay, nd ankng aw,accux.ir......o o.t..a~ as,ite llculpretmihswrc aey fnnilsrie,cr o oiy onue rtcip,idrc aain ANNEX I STATISTICAL TABLES Table 1: Morocco - Balance of payment (millions of US dollars) 1980 1985 1986 1987 1988 1989 1990 1991 1992 1993 Exports of GNFS 3272.5 3184.9 3615.8 4234.3 5474.3 5038.2 6306.2 6116.9 6414.8 6494.6 - Merchandise (f0b) 2414.5 2145 2410.5 2781.5 3608.9 3312.9 4210.4 4277.7 3977.4 3888.3 - Mawufictured 381.2 474.1 649.8 870.7 974.6 1124.4 1517.8 1566.7 1543.9 1608.7 - Non facto servicre 858.1 1039.9 1205.3 1452.9 1865.4 1725.3 2095.7 1839.3 2437.3 2606.3 - of which Tourism 453.4 606.2 739.2 933.1 1101.8 1014.9 1279.8 1013.2 1371 Imports of GNFS 5247.3 4341.4 4691.9 5062.5 5575.6 6287.4 7850 7689.8 8228.5 8307.6 - Merchaddise (fob) 3769.7 3513 3476.9 3850.1 4359.9 4991.5 6281.6 6252.8 6693.9 6705.9 - Non fc4tor services 963.5 480.7 870.7 830.2 782.1 798.7 941.6 817.6 872.6 935.7 Resource balance -1974.7 -1156.5 -1076 428 -101.4 -1249.2 -1543.8 -152m.9 -1813.7 -1813 Net fiator ino -562.1 -765.7 -688.5 -766.7 -1036.8 -1159.4 -985.3 -1115.4 -1055.8 -1153.3 - toal intbest payments 736 688 806 759 957 1177 955 1130 995 1143.1 Net current trsfers 1116.4 1063.5 1549.1 1758.8 1595.8 1602.7 2320.4 2270.2 2402.7 2388.9 - vwoders rinittume 1053.7 967.2 1398.3 1587.2 1303.5 1336.5 2006.4 1990.1 2165.3 2273.6 Curr.acc.bsl.]IMF def. -1323 -558.7 -199 163.9 547.5 -805.9 551.2 155 -466.8 -532.4 L,og twem cap. inflows 1330.8 637.9 832 927.7 858.6 766.3 891.2 963.5 1243.3 900.7 - Direct foreaig kivestmnet 142.8 54.9 89 111.7 128.6 226.3 227.2 375.5 503.3 480 - Net long taem brofwinig 1188 583 743 816 730 S40 664 588 740 375.7 Chages m n nt resrves 249.2 -18.6 -366.8 -287.9 -280.7 -73.8 -1797 -43.2 -559.6 -323.2 - Net creit from IMF 190.1 54.2 -312.6 -137.9 -104.8 -82.7 -162.4 -171.6 -116.1 -152 - Reservo ch ngern..i. 59.1 -72.8 -54.2 -150 -175.8 8.9 -1634.6 -781.6 -443.5 -171.2 - Grcs resrves (incl.gold) 814 345.2 486.2 751.8 835.8 770.3 2337 3348.9 3818.6 3989.8 Table 1: Tunisia - Balance of payment (millions of US dollars) 1980 1985 1986 1987 1988 1989 1990 1991 1992 1993 Exports of GNS 3517.5 2699.9 2721.9 3376.9 4242.2 4480.9 S190.8 5112.2 5990.3 S9935 - Mehc&andi (fob) 2395.1 1729.2 1768.0 2136.6 2396.2 2930.6 3516.6 3709.6 4034.5 3995. - Mnufiured 905 87 1175 1431 178S 2117 2621 2791 3123 3 - Non faco srvice 1122.5 970.8 9S3.9 1240.3 1846.0 1550.3 1674.5 1402.6 19S7.6 1997. - of which Tourim 682.7 498.5 48S.9 686.5 1266.2 927.7 942.5 683.5 1068.5 1075. lupwts of GNFS 3986.4 3207.1 3364.0 3472.8 4205.9 4814.2 598S.8 565S.6 6794.9 6641.1 - Mehandi (fob) 3453.3 2SS7.2 2750.5 2824.4 3443.9 4137.6 5193.0 4894.5 5895.7 5738. -Non fwtor sarvicos S33.1 649.9 613.5 648.4 761.9 676.6 792.8 761.1 899.2 Resmirco balane -468.9 -507.1 642.1 -95.9 36.4 -3333 -794.7 -543.5 401.9 -647 Net cor income -2933 -3S1.7 421.7 486.1 497.8 470.0 -509.8 -60.9 466.2 -566. - intee paymes 255.0 270.9 327.0 376.6 413.0 431.3 448.6 443.6 483.6 S13. Netcurrn am 348.1 270.2 358.8 483.5 557.9 493.2 625.9 573.7 626.4 616. woks remitnece. 303.2 270.6 361.6 4863 S43.9 487.7 S9S.S S69.9 577.9 577. Curr.acc.balance -414.1 -588.6 -704.9 -98.5 98.5 -331.5 460.6 -S79.0 -743.1 -597. Long term cap. inflows 588.4 459.0 452.4 102.5 363.7 323.8 373.0 S48.9 569.4 771. -Direct foreign investment 236.0 139.5 155.0 92.3 110.2 144.2 185.2 165.8 186.0 219. - Not long term borrowing (DRS 3423 295.0 293.4 34.5 244.3 189.5 194.8 381.1 503.5 552.5 Changes inet resers -64.9 112.6 192.3 -116.4 -378.3 -97.2 83.0 102.7 42.0 -100. - Net credit from IMP -31.2 0.0 175.7 53.0 20.2 0.0 -111.3 77.1 43.6 -5. - Reserve change n.e.i. -33.7 112.6 16.6 -169.5 -398.5 -97.2 194.3 25.6 -125.6 -94.8 - Grows reerve (ncl.gold) 700.4 293.8 378.4 616.0 976.0 1036.9 6.8 865.9 912.9 1012. 1~~~~ Table 2: Morocco - External sector indicators 1980 1985 1986 1987 1988 1989 1990 1991 1992 1993 Mercdiafse export volume (S) 2414.5 2904.4 3015.4 3325.8 3947.2 3451.2 4191.3 4245.6 3976.2 4076.8 exp. volume (1980 $) 381.2 618 709.1 903.2 940.8 1108.5 1378.9 1406.4 1287.9 1335.4 volume (1980 $) 3769.7 4188.8 4308.3 4769.4 5237.5 5640.4 6357.1 6564.6 7120.2 6763.7 erch, terms of trade 100 88.1 99.1 104.2 109.8 108.5 101.7 105.8 106.4 105 effective exchange rate (IMF) 100 74.6 71.3 68.9 67.5 67.7 64.4 64.4 65 61.2 ercb. exportlGDP 12.83 16.67 14.18 14.84 16.26 14.50 16.23 15.41 14.00 14.45 radebabumcGDP -9.9 13.3 8.3 -7.7 -5.3 -9.5 -10.4 -9.3 -11.9 -12.9 .acc.balance/GDP -7.03 -4.34 -1.17 0.87 2.47 -3.53 2.12 0.56 -1.64 -1.98 debt/GDP 51.6 127.2 104.3 109.5 93.9 93.9 89.7 75.7 74.2 79.8 vseriiccGDP 7.5 10.7 10.7 9.3 7.9 9.2 6.8 7.7 7.3 10.1 intebrntional reserves 1.7 0.8 1.1 1.5 1.5 1.2 3.1 4.5 4.8 4.9 m mndus of imports) oRgby1mqinpor*)IGDP -10.49 -8.99 -6.33 -4.42 -0.46 -5.47 -5.95 -5.67 -6.39 -6.74 hare of manumdSkcred exports to EU 58.88 53.86 55.06 60.71 55.43 68.61 65.34 61.69 65.16 Table 2: Tunisia - External sector indicators 1980 1985 1986 1987 1988 1989 1990 1991 1992 1993 Merchandise export volume (1980 $) 2395 2350 2625 2779 2970 3564 3613 3720 3944 4006 M nexp. volume (1980 $) 905 1233 1394 1588 1811 2154 2380 2461 2557 2685 erchandise imports volume 3453 3246 3347 3182 4528 5264 5703 4998 5395 5731 erch. terms of trade 100.0 93.4 82.0 86.6 87.2 87.3 89.7 90.3 86.9 89.1 effective exchange rate 100.0 95.1 81.6 69.6 67.7 67.8 66.0 66.6 68.0 67.0 Mach. export/GDP 27.4 20.9 20.0 22.1 23.7 28.8 28.1 28.1 25.5 26.4 radebalance/GDP -12.1 -10.0 -11.1 -7.1 -10.3 -11.9 -13.4 -9.0 -11.8 -11.6 .acc.balance/GDP -4.7 -7.1 -8.0 -1.0 1.0 -3.1 -5.4 -4.4 -5.2 -4.0 debt/GDP 40.3 59.0 67.2 70.6 67.2 68.5 61.9 63.0 53.6 58.6 service/GDP 6.4 9.8 12.1 8.5 9.9 8.9 10.5 10.8 8.2 9.5 international reserves 2.1 1.1 1.4 2.1 2.8 2.6 1.7 1.8 1.6 1.3 months of imports) (Export*-Import*)IGDP -5.4 -6.1 -7.3 -1.0 0.4 -3.3 -6.4 -4.1 -5.1 -4.3 IGNFS hare of manufactures to EU 76.89 69.68 67.26 73.04 69.88 69.68 73.26 74.70 76.44 Table 3: MOROCCO - Structur of memhandise exports (at current prim, in percentage) C _mft 1980 1965 1986 1987 1968 1969 190 1991 AGRICULTURE 19.6 18.1 21.3 20.5 18.5 17.5 16.8 20.1 13.6 AGRO-NDUS PRODUCrS 3.3 7.8 3.2 7.1 7.0 8.6 9.4 3.5 3.5 MIERALS ECCL. FUELS 41.2 28.2 22.7 19.2 20.3 22.3 16.3 13.4 13.5 MINERALS FUELS 4.3 3.9 2.6 2.7 2.1 2.6 3.6 2.5 3.1 CHEDUALS 10.2 21.1 13.3 20.7 25.6 16.0 19.4 20.2 13.7 TEXnLE YARNS-PAB CIS 5.1 5.3 5.6 5.9 4.3 5.0 4.3 43 4.5 CLATHING 4.6 9.1 12.3 16.0 13.5 15.2 17.1 1i.1 20.3 FOTWEAR 1.0 1.5 1.6 1.6 1.6 1.9 1.9 1.9 1.7 LEATHUURS 0.4 0.4 0.6 0.4 0.4 0.6 0.7 0.6 0.6 TIDrILE AND LEATIE 11.0 16.4 20.1 23.3 20.3 22.7 24.4 24.9 27.0 MACHINEAND TRANSEQPr 0.6 1.2 2.5 1.9 1.S 4.7 5.2 6.1 5.9 OTErS 33 3.1 3.1 3.5 3.5 4.5 4.5 3.8 4.2 TOTALTRADE 100 100 100 100 100 100 100 100 100 MOROCCO - Rate of growt of aerdamadise enpowb (jDll.. of cmenmtu 1960 ddhr.) __t~~~~~E [!-L_' 197 163 19 190 191 19 .. . ......... - . - . ........ AGRCULTURE 0.31 5.65 -2.20 11.30 4.35 -3.63 23.95 -16.70 AGR04INDUWI PODUCrS 4.54 13.73 -1337 7.54 20.49 18.22 4.0B -.95 MINERALS EXCL FUES -2.48 -4.69 -2.57 11.74 4.16 -5.55 -14. 38.9 MINERALS FUELS -4.95 2.92 7.63 10.12 2.94 34.75 -21.62 23.44 CHEICALS 24.12 4.06 30.45 35.92 -42.74 58.32 3.95 -9.71 TnxnCLEYARNS-FA3RK 9.03 21.51 25.52 -3.35 1.23 13.32 -9.17 -7.91 CLOFHN 13.21 28.39 36.18 1.97 4.44 34.59 4.92 0.31 FOOTWEAR 7.55 0.82 4.49 22.42 3.69 18.43 1.60 -22.34 LEATHEIP,FURS 11.03 46.03 -16.36 14.56 51.68 46.40 -11.53 -10.59 TEXTILE AND LEATHER 10.79 23.91 27.57 0.95 4.89 27.93 -1.04 -4.19 MACHIES AND TRANS BQPr 13.21 95.97 -17.97 12.23 141.35 32.81 16.19 -13.67 OTHS -2.36 -6.72 19.96 21.40 13.15 19.72 -15.2 -2.7 SUm 3.31 5.35 10.39 16.46 -13.51 21.32 1.16 -5.49 TCrALTRADE 3.61 3.32 10.17 13.43 -12.47 2134 0.97 -3.14 Table 3: TUNISIA: Struture of nexhandise exports (at current prim, In pereendge) C _edIy 1980 195 1966 187 1 1963 1969 19 19 1992 AGRICULTURE 3.5 5.8 7.5 7.6 7.6 5.8 6.3 5.2 4.8 AGRODUST. PRODUCTS 3.7 3.9 4.8 5.0 4.7 4.1 4.7 9.7 5.4 MINERALS EXCL FUELS 3.1 3.2 3.0 2.9 3.4 33 2.4 1.7 1.8 INERALS FUELS 52.5 42.2 24.3 23.6 16.1 20.0 17.3 143 15.1 CHEMlCALS 13.2 17.0 20.0 15.1 21.2 19.2 14.5 14.0 12.1 TEXlZC YARNS-FABRICS 2.4 2.8 3.4 3.5 33 3.0 3.1 2.7 2.9 CLaEII 15.2 17.2 24.5 255 27.0 26.5 323 33.1 36.7 FOOTWEAR 033 03 0.4 0.4 0.4 0.5 0.7 1.0 1.1 LEATHUR RS 0.3 0.9 1.4 13 13 13 1.6 1.7 23 TEXTE .AND LEATHER 18.7 21.2 29.7 30.6 31.9 31.2 37.6 38.4 43.0 MACHSI AND TRANS EQFr 2.4 3.8 5.5 6.1 7.2 6.6 7.9 S3 3.9 OTHS 2.1 2.6 4.9 5.7 7.5 9.5 9.0 3.1 7.9 TOTAL TRADE 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 TUNISA: Rate of growth of mcihandhe orts (nilE. of constan I dolkn) C_dily 18 196 1"7 196 1989 19"0 11 1 AGRICULTURE 9.1 3.0 27.6 -5.1 -33 11.4 -13.6 1.9 AGFRO-INDUrR.. PRODUCTS 2.6 6.0 17.2 1.0 8.9 1I.5 113.2 -31.4 MlNERALS EXCL FUELS -2.5 -6.3 32.2 1.S 123 -36.5 -22.8 21.6 MINERALS FUELS -5.2 173 -6.2 -3.6 25.3 -16.4 -4.1 19.3 CH]DACALS 6.4 25.6 20.1 6.7 4.5 -12.6 -2.3 5.0 TEXTIEYARNS-FABRICS 2.7 0.3 7.6 0.S 12.9 3.9 -11.3 7.0 CLOTHI 2.4 17.6 11.1 12.4 22.7 25.S 6.2 3.7 FOOTWEAR -3.9 16.4 -3.9 10.2 70.5 37.6 49.0 12.1 LEATHFUR 2.1 303 -4.2- 12.9 19.6 26.0 9.5 363 TEXILEAND LEATHER 23 15.9 9.7 11.1 22.1 24.4 5.6 9.9 MACIE AND TRANS BQPr 10.2 29.9 19.4 24.5 143 243 3.4 S.4 OTHERS 4.7 61.9 23.9 49.5 73.9 27.0 2.3 1.1 TOALTRADE -0.2 13.2 7.1 6.0 -4.3 27.2 3.2 6.S Table 4: Morocco - Exports of agriculture and agro-Industry (milliuos f current dollars) 1980 1985 1986 1987 198 1989 1990 1991 1992 FISH AND PREPARATIONS 110.63 220.93 306.57 357.29 414.2 422.91 523.78 607.31 554.19 FISH ETC TINNED,PREPARED 85.16 71.93 96.05 94.16 110.28 118.31 141.93 154.9 159.34 FRUrr AND VEGETABLES 498.6 319.51 396.5 391.18 457.7 412.76 499.88 568.47 468.89 3 FRUrT PRESERVED,PREPARBD 19.3 32.93 29.66 23.91 57.79 60.54 71.11 55.13 29.25 355 VEGTBLES ETC PRSVD,PREPD 59.27 52.6 57.73 63.84 72.11 88.8 119.26 123.79 111.39 oftobltrade - -QN B 198S L986 1987 1988 9 L99 V9l L"2 . ... ... .. . _ _ ..... ... . . _ _ ._ . .. . ..... .................................... . . . . . .......... ... . . .............. FISH AND PREPARATIONS 4.60 10.20 12.63 12.73 11.42 12.68 12.38 14.17 13.93 - 032 FISH BrC TINNED,PREPARED 3.54 3.32 3.96 3.35 3.04 3.55 3.35 3.61 4.01 FRuIT AND vEEABLEs 20.75 14.76 16.33 13.94 12.62 12.37 11.81 13.26 11.79 - 053 FRUTr PRESERVED,PREPARED 0.80 1.52 1.22 0.85 1.59 1.81 1.68 1.29 0.74 - 055 VBGTBLES ETC PRSVD,PREPD 2.47 2.47 2.38 2.27 1.99 2.66 2.82 2.89 2.80 (i %of total tade) 25.35 24.96 28.96 26.67 24.05 25.05 24.19 27.43 25.72 ~Ap ra of grwth In loant 190 dolls 198085 1966 1967 1988 1969 1990 1991 1992 F1SH AND PREPARATIONS 20.18 8.62 4.46 10.71 7.37 1.43 22.81 -14.28 - 032 FISH EBC TONMMD,PREPARED -3.41 29.31 -15.01 -1.90 14.68 2.83 23.26 FRUITAND VBGETABLES -4.26 -2.86 -11.57 11.74 -5.16 -3.62 20.46 -22.52 - 053 FRTJr PRESERVED,PREPARED 11.17 -12.78 -30.11 102.45 11.98 0.68 -12.44 - 055 VBGTBBS ETC PRSVD,PREPD -2.45 6.28 -4.13 -5.39 31.63 15.12 17.23 Table 4: Tunsia - Fxports of ricultore d agr dustry (mis of current dollan) Comodty 1960 195 1966 1987 1966 19 199 19 192 03 FISH AND PREPARATIONS 28.2 32.6 59.5 81.8 106.9 90.9 106.3 82 72.9 04 CEREALS AND PREPARAIIONS 5.1 4.3 5.2 8 9.3 11.4 19.6 15.9 28.5 05 FRUIT AND VEGrABLES 41.7 4S.1 64.5 77.6 68.3 65.1 76.4 87.8 83.9 - 053 FRUIT PRESERVED,PREPARED 2.35 0.56 0.68 0.81 0.55 0.62 0.53 0.5 0.3 - 055 VEoTLESTrC PRSVD,PREPD 1.41 1.53 2.77 9.86 9.27 5.24 0.88 1 1.8 12TOBACCOANDMFRS 2.6 0.6 2.3 1.2 1.3 6 17.5 25.1 22.1 4215 OLIVE OIL 61.5 48.3 67 79.5 82.3 86 121.2 290.7 158.4 Poremq of tol trade C_mmndky 19 1M 16 1967 1f 196 O 191 1 03FISHANDFREPARATIONS 1.26 2.00 3.38 3.80 4.47 3.10 3.10 2.22 1.30 04 CEREALS AND PREPARATIONS 0.23 0.26 0.30 0.37 0.39 0.39 0.56 0.43 0.71 05 FRUrr AND VE(rABLES 1.87 2.96 3.67 3.61 2.85 2.22 2.18 237 2.08 -053 FRUIT PRBSRVED.PRBPARED 0.11 0.03 0.04 0.04 0.02 0.02 0.02 0.01 0.01 -055 VEClESErCPRSVD,PRMD 0.06 0.09 0.16 0.46 0.39 0.18 0.03 0.03 0.04 12 TOBACCO AND M 0.12 0.04 0.13 0.06 0.05 0.20 0.50 0.68 05S 4215 OLIVE OIL 2.75 2.97 3.81 3.69 3.44 2.93 3.46 7.86 3.92 Toad(inSofteultra*&) 6.23 8.23 11.28 11.53 11.20 8.85 9.30 13.56 9.05 Averagamumalrates gt hi a9UM1906dlor CeMoiy 19 1 17 1906 199 19t 1 03 FISH AND PREPARATIONS 11.5 44.9 34.1 17.8 -12.6 2.2 -25.9 -9.1 04 CEREALS AND PREPARATIONS 1.3 -5.4 48.9 5.0 26.0 49.5 -20.5 83.3 05 FRUIT AND VEGTABISM 11.4 6.4 17.4 -20.7 -2.1 0.6 12.4 -2.3 - 053 FRUIT FRESERVED,PRARED -18.7 -3.6 16.2 -38.8 15.8 -26.7 -7.7 -31.9 - 055 VEarBLES ETC PRSVD,PREPD 10.1 43.7 247.2 -15.3 -41.9 -85.6 11.2 82.0 12 TOBACCO AND MFRS -19.2 204.3 -49.1 -2.4 374.2 150.1 40.3 -10.1 4215 OLIVE OIL 3.2 10.1 15.7 -6.7 7.4 20.9 134.7 -44.3 _~~~~~~~~~~~~~~~~~~~~~~~~ Table 5: Morocco: Imports of goods and non factor services (millions of current dollars) 1980 1965 1986 1987 1988 1989 1990 1991 1992 Food, Beverages, Tobacco 722.7 509.7 478 477.6 511.5 588 581.7 592.1 892.3 Other consumer goods 335.6 275.3 383.1 493.2 529.1 591.1 803.2 856.9 716.1 Energy 1010.5 1079.1 599.5 7403 631.6 843 1169.4 993.2 1122.1 Intermediate goods 1406 1344.5 1449.9 1637.7 2049.4 2057.6 2500.3 2559.6 263.5 prlmuy 502.7 603.6 618.8 654.4 784.9 628.1 834.2 808.2 927.8 manufactures 903.3 740.9 831.1 983.3 1264.5 1429.5 1666.2 1751.4 1735.7 Cap goods 809 52.1 910.7 883.8 1072 1408.9 1853.7 1870.4 1961.8 Merchandise Imports (cif) 4283.8 3860.7 3821.1 3850.1 4359.9 4991.5 6281.6 6252.8 Non facor serviks 963.5 480.7 870.7 830.2 782.1 798.7 941.6 817.6 872.6 GNFS 5247.3 4341.4 4691.8 4680.3 5142 57902 7223.2 7070.4 7566.5 Pwrcetage compoolon Food, Beverages, Tobawco 13.77 11.74 10.19 10.20 9.95 10.16 8.05 &37 11.79 Ottwrconsumer goods 6.40 6.34 817 10.54 10.29 10.21 11.12 12.12 9.6 Enegy 1926 24.8S 12.78 15.82 12.28 14.56 16.19 14.05 14.83 IeredIate goods 28.79 30.97 30.90 34.99 39.8 35.54 34.61 38.20 35.20 prlmay 9.8 13.90 13.19 13.98 15.28 10.85 11.55 11.43 12.26 manfwactur 1721 17.07 17.71 21.01 24.59 24.69 23.07 24.77 22.84 CaititS goods 15.42 15.02 19.41 18.88 20.85 24.33 25.66 2&45 25.93 Merdhandise Imports (chi 81.64 88.93 81.44 82.26 84.79 88.21 88.96 88.44 8847 Nonfaor servlces 1836 11.07 18.56 17.74 1521 13.79 13.04 11.56 1153 100 100 100 100 100 100 100 100 100 Rate of growth In condt 190 dollas 1960-85 1986 1987 1988 1989 1990 1991 199Q FooCd Beveages, Tobacco 0.06 4.44 16.18 -15.54 -621 7.90 16.64 47.44 Othe consumer goods -2.9 1801 1722 0.00 12.52 28.61 4.46 -19.89 Energy 5.85 -1.63 a76 2.50 14.69 5.45 -0.50 110 IntrAnmedia goods 2.30 0.46 21.91 24.97 -1.68 10.81 4.10 5.12 priuy 5.01 6.32 12.22 20.30 -23.34 24.86 -277 20.39 manufactures 0.86 -57 29.27 28.04 11.75 4.93 7.56 -1.83 Capta goods -330 1&45 -11.86 13.9 32.34 2453 1.18 1.08 Merchandise Imports (ci) 1.45 2.86 11.36 921 7.71 12.72 3.20 8.44 Nonfactorservkes -12.14 53.62 -13.19 -12.18 2.3 11.9 -14.6 2.20 Table 5: Tunisia - Imports of goods & non factor saerca (miions o current dollars) 1960 1965 196 1967 1988 199 190 19 192 Food 337.9 33337 361.46 312.42 55421 578.32 505.36 33625 429.67 C_or Goods 594.S7 54236 622.17 777.24 932.5 1122.62 IS70.42 1522.93 1396.69 Pad 79926 369.56 251.76 31S21 243.41 379.65 486.35 395.63 449 --amedde Goods 1096.77 89227 103013 1100.04 134425 1455.81 1726.4 1620.92 1396.31 Caital Goods 741.96 603 635.77 S19.73 617.51 IS3S.3 1235 1303.31 15S7.39 I I - of Total Goods (CIF) 3622.47 2740.56 290139 3M7.63 3691.39 4372.27 55243S4 517954 6231.7 No. fetr ewe 363.95 466.51 462.S9 445.16 513.99 509.53 610.16 576.6S 683.51 Totdl 3966.42 3207.07 3363.93 3472.79 4205.33 4331.3 6134.7 5756.22 6915.06 Nood 9.73 10.39 10.75 9.00 13.13 1.3 5.25 5.64 6.21 Co _ os 14.91 16.91 18.50 2233 22.17 23.00 25A0 26.46 27.46 PNd 20.05 11.52 7.48 9.16 5.79 7.73 734 6.87 6.49 ri-nAd.Goods 27.56 27.32 30.63 31. 31.96 29.12 25.14 25.16 27.42 C*t Goods 18.61 13.30 13.90 14.97 14.63 17.12 20.13 22.65 22.53 q- of Ttal Goods <1F) 90.37 SS.45 3625 57.13 37.73 39.56 90.0S S9.9A 90.12 No. si1 9.13 14.55 13.75 12.82 12.22 10.44 9.ff 10.02 9.3 100 100 100 100 100 100 100 100 100 Food 2.53 23.60 -7.79 50.06 -12.72 -19.07 -35m2 21.92 Co.usm Goods 2.96 -4.11 0.0S 19.26 27.40 32.36 402 9.10 Nad -11.07 7.22 22.56 -11.32 35.47 40.74 -13.19 22.09 Iuis,rn Goods 0.77 7.89 4.13 17.13 10.97 4.00 -4.90 13.94 Cqital Goods 0.39 -10.32 -11.58 15.49 19.72 1315 -3.59 7.55 IhIout. of Totl Goods (CIF) 0.63 1.07 -2432 14.00 33.00 23.16 3.74 12.23 No. 6coor nvios 10.70 -22.44 -3.34 9.73 0.02 2.96 -9.79 7.33 Table 6: Morocco - Imports of mah agriulual products (miio of current dollars) 1980 1985 1986 1967 1988 1989 1998 1"1 1992 00 LIVE ANIAALS 10696 5799 20549 13134 6215 2840 7762 12897 21078 02 DAIRY PRODUCTS AND EGGS 57507 24631 31767 29352 36904 59939 67060 62974 69936 04 CEREALS AND PREPARAnoNS 337423 291170 191416 202481 200628 230948 210163 216641 406489 06 SUGAR AND PREPS HONEY 157283 40026 45612 45606 68616 30223 82340 69336 9s952 07 COFFEE TEA COCOA SPICES 82174 90099 98S41 104390 116685 114507 112213 101412 117966 12 TOBACCO AND MFRS I 32732 32205 48504 47058 39538 54275 43710 77545 66163 Paesmtage of OeW b b.. .. in crre.t d.i_r. 00 1OVE ANIALS 0.26 0.15 0.54 0.31 0.13 0.05 0.11 0.19 0.29 02 DAIRY PRODUCTS AND EGGS 1.37 0.64 0.84 0.69 0.77 1.09 0.97 0.92 1.22 04 CEREALS AND PREPARATIONS 8.07 7.56 5.05 4.79 4.20 4.21 3.04 3.15 5.53 06 SUGAR AND PREPS HONEY 3.76 1.04 1.20 1.08 1.44 1.46 1.19 1.01 1.30 07 COFFEE TEA COCOA SPICES 1.96 2.34 2.60 2.47 2.44 2.06 1.62 1.48 1.60 12 TOBACCO AND MFRS 0.78 0.34 1.28 1.11 0.83 0.99 0.63 1.13 0.90 Total (n % of toal m_ handg) _ 16.21 12.57 11.51 10.45 9.82 9.U8 7.56 7.87 10.34 ogink euitat I96 dol.. 19 ..L6 8 7 198 198 " 1" lm 00 LIVE ANIMALS -5.06 261.07 -25.68 -6268 42.72 198.11 90.40 59.90 02 DAIRY PRODUCTS AND EGGS -9.44 31.42 7.44 0.85 32.52 22.07 7.58 39.72 04 CEREALS AND PREPARATIONS 4.18 -33.01 23.00 -21.86 -6.08 .0.74 18.13 83.57 06SUGARAND PREPS HONEY -11.39 16.12 16.26 18.65 -4.61 11.95 -3.50 35.39 07 COFFEE TEA COCOA SPICES 9.30 11.44 23.18 -11.85 -19.93 6.89 3.56 13.31 12 TOBACCO AND MFRS 6.92 53.47 12.81 -33.74 12.00 -12.16 103.30 -16.52 Table 6: Tunisia - Imports of main agricultural products (millim of curren dollars) __t_ 19M0 195 869 1967 1988 199 19 11 192 01 MEAT AND PREPARATIONS 7999 15175 17276 21443 19273 19368 27213 19253 24234 02 DAIRY PRODUCTS AND EGGS 43049 40202 45627 32203 50814 S6932 4200 31506 60982 04 CEREALS AND PREPARATIONS 185344 100136 154113 128376 299816 294720 220401 107385 145403 06 SUGAR AND PREPS HONEY 76364 24313 34135 35617 41674 51916 S3031 48431 6619 07 COFFEE TEA COCOA SPICES 26627 41034 39769 31475 42929 31317 30357 32834 37285 0S ANDiAL FEEDING STUFF 22645 12994 25402 13890 38699 39309 33907 30391 35016 12 TOBACCO AND MFRS 17606 20796 19537 20323 15635 23309 29041 34258 52736 350S706 2556932 2897696 3021729 3680947 4365990 5471095 5134856 6425382 Po . 1~ ofem lo uop la h r~delar 01 MEAT AND PREARATIONS 0.23 0.59 0.60 0.71 0.52 0.44 0.50 0.37 0o3 02 DADtY PRODUCrS AND B3S 1.23 1.55 IS7 1.07 1.33 1.30 0.77 0.61 0.95 04 CEREAIS AND PREARATIONS 5.28 3.90 5.32 4.2S 3.15 6.75 4.03 2.0S 2.26 06 SUGA AND MPS HONEY 2.19 0.94 1.18 1.13 1.13 1.19 1.52 0.93 1.03 07 COFFEETEA COCOA SPIS 0.76 IS9 137 1.04 1.17 0.72 0.55 0.63 0.58 0 ANDIAL FEEDING STUFF 0.65 0.50 0.38 0.46 1.05 0.90 0.62 0.59 0.54 12 TOBACCO AND MFRS 0.50 0.30 0.68 0.67 0.42 0.53 0.53 0.66 0.32 TarAL (in X of toW meband) 10.U3 9.87 11.59 9.38 13.32 11.34 8.52 5.87 6.57 .1 pwlh la ~ ~ ll" m 1966 i sbnm __________1986I MacMwhimy 4.0 3.7 1.0 5.2 4 32 Office Mwaxcinry/lPrcsion 0.1 0.2 0.0 0.0 0 1 Mdlhmiaufacsutaring 0.1 0.1 12.2 14.1 0.0 0.1 3.4 9.3 0 IS 17 40 reOAL 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 13 25 25 35 urcen: Morocco - Ministry of Iaduwty; Tunisia - Minisuy of Plan TA8E 15 EXP6 T IEIITATIU OF TMIE AUFACLIUIUB SECTOR (iatio of Empwrt to Prodiitlen) 1980 1990 Above Clos to Below Above Close to Below Average Average Average Average Average Average Manufacturing 0.133 0.249 Agro Industries Food Products 0.013 0.020 Other Food Prod. 0.197 0.349 Beverages & Tobac. 0.024 0.021 Textile & Leather Spinning & Weav. 0.134 0.324 Clothing 0.131 0.879 Leather & Footwr. 0.219 0.579 Chemical & Related Wood & Wood Products 0.247 0.161 Paper & Printing 0.128 0.140 Mineral Products 0.019 0.025 Chemicals 0.342 0.355 Rubber & Plastic 0.010 0.090 Other Manufacturing 0.151 Metals & Machinery Basic MetaLs 0.028 0.167 Mtetal Products 0.008 0.035 Machinery & Equip. 0.004 Transport Equip. 0.051 0.179 Electric & Related 0.043 0.316 Office Mach./Precf. 0.01 ------------------------------- --------------- TtIISIA ------------------------------------ 1983 1988 Above Close to Below Above Close to Below Average Average Average Average Average Average Manufacturing 0.25 0.35 Agro-industries 0.07 0.11 Chemicals 0.40 0.34 Textile and Leather 0.47 0.63 Machinery 0.10 0.25 Others 0.17 0.40 SOURCE: Morocco - Calculated based on dats from the Ministry of Commerce and industry. Tunisia - Calculated based on enterprise surveys by Institut National de Statistique. Tabe 16: PERCENTAGE SHARE OF ]FOREIGN OWNERSEiP Expect - od &mm Domues - m a orkerid firms (qxpot sbam > = 10%) (exorvt abawe < 10%) Morocco Tunisia. Moroco Tunsia Agro - Industries 20.8 10.0 6.8 2.3 less than 100 workers 23.3 0.0 5.1 1.7 100 workem and more 20.0 51.0 7.7 6.2 extiles, dothing and Footwear 16.8 52.9 15.3 na. less than 100 workers 19.8 40.9 7.2 n.a 100 workers and more 16.0 62.0 21.6 n.a. Chemnical 70.0 10.6 18.3 5.7 less than 100 workers 23.0 4.5 12.1 5.4 100 workers and mxre 72.3 25.0 21.6 6.8 Metals and Mlachinery 38.9 37.7 19.5 6.8 less than 100 workes 18.4 33.9 18.6 5.9 100 workers and more 42.4 42.8 19.9 9.1 Other Manufacturing n.a. 22.7 U.a 4.5 les thanl 100 workes 11.9 18.2 10.8 4.1 100 workers and more n.a. 40.0 n.a. 6.5 ANEX Page 1 of 6 THIE EXPORT DEMAND AND SUPPLY FUNCTIONS This Annex describes the theoretical specification of the export supply and demand equations discussed in Chapter II. The Export Suply E4uation The export supply equation was derived from a simple model of firm's behavior. Productive capacity (Y*) is assumed to be fixed in the short-run but the firm can vary the rate of capacity utilization. Total production (Y) is then equal to the rate of capacity utilization (h) multiplied by the level of capacity. In addition to h, the firm must determine the allocation of output between domestic and foreign markets. Commodities produced for domestic and foreign markets are not perfect substitutes, but are related through a constant elasticity transformation (CET) curve. It is assumed that (variable) costs of production are a convex function of the level of capacity udlization. Fonnally, the firm's problem can be described as follows: max pY + pD - wo (h1h, Y*h, (Al) s.t. xi- + AD" = B )Y eu (A2) The firm maximizes short-run profits subject to pnces and the production technology. X, D, px, pd denote exports, domestic sales, export prices and the price of domestically sold output, respectively; h. represents the 'normal' level of capacity utilization, u is a stochastic exponential shock, while A are B parameters in the production relationship. In eq. Al, variable costs of production increase as a function of the base wage (wa) and of the ratio between the actual level of capacity utilizadon (h) and the normal (h.) level of capacity utilization. Equation A2 represents the CET curve, T = -1/k is the elasticity of transformation, and -y is a parameter measuring the shift in the transformation frontier following a change in productive capacity YE.. Short-run profit maximization subject to eq. A2 leads to the following export supply equation: ,ANNEX I Page 2 of 6 X = (p) (h4fP7) (Yhn)`Y-) (A3) In general, export supply will be an increasing function of the relative price of exports and of the existing productive capacity. Eq. A3 also shows that domestic demand pressure, measured by the rate of capacity utilization, will have a negat;ve impact on export supply, even after controlling for prices, provided that the second-order condition fa > -y is satisfied. In order to carry out the regression analvsis for the purpose of estimation, proxies are needed for both the level of productive capacity and the rate of capacity utilization. For the level of capacity utilization we selected the fitted value of a regression of actual industrial value added on a time trend and other determinants (wages, cost of capital); for the rate of capacity utilization we selected the ratio between actual and estimated industrial value added. Following Pagan (1984),' we included among the regressors the level of actual value added rather than the estimated proxy for the level of capacity. The latter is used instead as an instrument for the former. The procedure is designed to yield consistent estimates of the variance-covariance matrix of the coefficients. Equation A3 was estimated for both Tunisia and Morocco. For Tunisia, manufacturing exports were deflated by the United Nations unit value index of Tunisia's manufactured exports. For Morocco, existing deflators for finished products exports were used.2 The latter exclude resource-based exports (mainly phosphate derivative and processed food) from total manufacturing exports. For both Morocco and Tunisia, lack of reliable data on wages prompted the use of alternative indicators. After experimenting both with the minimum wage and the Consumer Price Index, the latter was chosen on the ground of statistical performance. The estimation results are presented in Table Al. Export supply appears to be significantly responsive to price incentives in both Tunisia and Morocco. Furthermore, domestic demand conditions, as measured by the proxy for the rate of capacity utilization, have a significant impact on the export supply in both countries. The statistical properties of the two equations are quite satisfactory. The Sargan test does not provide any indication that the (overidentifying) I/ Pagan, A., (1984), Econometric Issues in the Analysis of Regressions with Generated Regressions," International Economic Review 25, 221-247. 2/ Deflators obtained from 'Ls Direction de la Statistique", Ministry of Economic and Social Affairs. ANNEX I Page 3 of 6 instruments are correlated with the efror term, while the Chow test, in its instrumental variable version (Kiviet, 1985)3 indicates that the equation is stable. Table Al: THE EXPORT SUPPLY EQUATION Dep. Var.: In X(t) Morocco Tunisia Constant -22.76 -39.13 l _____________________________________ (12.6) (1.14) Relative prices (a) 1.01 2.71 (.41) (.55) Capacity 3.39 1.99 (.12) (.06) Cap. util. rate -2.08 -2.48 (1.23) (.40) np1 .98 .96 DW 1.38 .60 Sargan test (f) (b) 12.90 14.30 Chow test F(li) 1.99 .01 Sample period 1968-91 1971-91 Legend: Standard Errors in parenthesis. X: manufwturing exports. Notes: (a) relative prices measured au the ratio of export price to CPI. (b) with ten (eight) degrees of freedom for Morocco (runisia). The Export Demand Equation The specification of the export demand equation is fairly standard. Export demand was assumed to be a function of international demand and competitors' prices. In turn, international demand was measured as a weighted average of the real imports of the main trade partners of Morocco and Tunisia, with weights reflecting the relative importance of each trade 3/ Kiviet, Jan P., (1985), 'Model Selection Test Procedure in a Single Equation of a Dynamic Simultaneous System and Their Defects in Small Samples.' Joumal of Econometrics. 28, 327-62. Page 4 of 6 partner. As far as prices are concened, a distinction was introduced between competition with developed countries and competition with other developing countres. The former was measured by a weighted average of manufacturing export prices of Morocco's and Tunisia's main trade partners. Developing countries competitors were asmed to be located mainly in the Mediterranean area and defined to include Turkey, Portugal and Greece, in addition to Morocco and Tunisia. Formally, this set-up can be justified by appeling to a separability assumption where consumers in importng countries determine first the aggregate level of manufacturing imports and then allocate such total among the competing sources of foreign supply. The estimating equation reads: lnX - bo + blh} + b *' + bInp3 + bJnp' + bInYW-l) (AS) + b6bP'(-1) + b_pM(-1) + buIp(-1) + bAX(-l) where YW denotes world demand and pr and p' represent the price of developed and developing competitors respectively. The equation can be reparametrised to test for short-run and long-run homogeneity in prices. Equation A4 was estimated for both Morocco and Tunisia. Starting from equation A4, a model selection procedure was followed whereby the variables with contribution to the equation not significantly different from zero were eliminated. The final estimated equations are reported in Table A2. For both countries the hypothesis that the long-run elasticity of export demand with respect to international demand was equal to one could not be rejected. The restriction was accepted at fairly comfortable levels of significance. Price factors appear to have played a crucial role in determining the evolution of manufacturing exports in both countries. The short-run elasticity was estimated to be equal to .46 in Morocco and 1.5 in Tunisia. The long-run elasticities are equal to 2.73 and 8.8 for Morocco and Tunisia, respectively. The statistical properties of the two equations are more than satisfactory. The Sargan test does not provide any indication that the (overidentifying) instruments are correlated with the error term, while the Chow test, in its instrumental variable version, indicates that the equation is stable. ANNEX E Page 5 of 6 Table A2: THE EXPORT DEMAND EQUATION Dep. Var.: A In X(t) MbroCCo Tuisa (a) Constant 3.9 -7.23 l_________________________________________ (1.86) (1.82) In YW .17 .17 (.05) (.04) In (px/p') -.23 -1.50 l ___________________________________ (.13) (.39) In (pX/p) -.23 (b) _ In p - In pn (-1) -1.38 -1.53 (.26) (.41) In X(-1) .83 (b) .83 (b) .65 .75 DW 2.25 2.06 Sargan test () (c) 6.33 12.4 Chow test F(jj) .41 .10 Sample period 1971-91 1971-91 Legend: Standard errors in parenthesis. X: manufactuing exports, YW: intemational dem_nd, p: export prices, pn: price of Northem competitors, r: price of Souterm competitors. Notes: (a) A dummy variable for 1974 was also introduced in the equation. (b) constrained coefficient. (c) with six (seven) degrees of freedom for Morocco (Tumisia). Simulating the Determinants of Export Growth The export demand equation includes some dynamic elements. Some care must be taken in decomposing the contribution of different fators to export growth. Suppose in general that export can be described by the following equation: ANNEX1 Page 6 of 6 (A4) where X denotes exports (or its log) and Z denotes the determinants of exports. Abstrting from the stochastic term, export growth is then equal to: X,-X,- I=(Z,-Z,_X)'g+(X_I-X, -)Wp After repeated substitution of the previous equation, it can be easily shown that cumulated export growth after three years is equal to: -yI 3 -X,= [(Zt-3 -Z,@ +( + PXZt-2 Z2,vl) + + (1+p+p) (Zt.1-Z)] + (p+p2+pIXX__1) This is the basis for the simulation exercise. ANNEX m Page 1 of 26 JINSERNATIONAL COMPARISONS OF COST CONMTITIVENESS INTRODUCTION 1. The aim of this annex is to compare indicators of cost competitiveness in Morocco, Tunisia and in a sample of countries identified as current or potential competitors in the European market. Competitiveness is broadly defined as the capacity to "sustain the country participation in the international markets, being abk to meet the standards of efficiency of the rest of the world as to the utilization offactor of production and the quality of products f.I The two main indicators of such a concept of competitiveness are the price and the quality of products. 2. Analytically, if prices track costs closely, they can be decomposed in the following identity:2 Price = ULC*R*(l/e) where ULC = Unit Labor Cost = Labor cost*reciprocal of labor productivity; R=profit margin; e= nominal exchange rate.3 In addition to unit labor costs, this Annex provides an analysis of the costs and availability of factors (such as energy and transport) that are likely to affect the overall cost competitiveness of exports and some partial estimates of the evolution of quality in the textile and clothing sectors. 3. The sample of countries includes: (i) China, Indonesia, Philippines, Malaysia and Thailand, the new Asian countries that during the 1980s managed to increase rapidly their share in the European market and are competing with Morocco and Tunisia in the textile and clothing I/ Joao Paulo dos Reis Velloso: "International Competitiveness and the Creation of an Enabling Environment'; in Intemational Competitiveness Edited by Irfan ul Haque; EDI Seminar Series, 1991. 2/ See Hopper A. and Larin K.:"International Comparison of Iabor cost in Manufacturing", International Finance Discussion Paper August1988; Hickman B.: "International Productivity and CompetitivenessI OUP 1992; Maciejewsli E.: 'Real effective exchange rates indices", IMF Staff Paper, 1983.. 3/ This decomposition relies on the assumption that pricos of raw material inputs, being freely tradable, are governed by the law of one price and that the incidence of other costs is similar across competitor countries. Therefore, ULC provide a measr of profitability in the tadable sector (see L. Lipschite and D.M. MacDonald "Real exchange rate and competitiveness", IMF Working Paper, March 1991). ANNEX m Page 2 of 26 sectors. Their importance in the European market may furher increase as MFA quotas are progressively removed; (ii) Portugal and Greece, two countries with an industrial structure very similar to that of Morocco and Tunisia, rdatively cheap labor, and a large share of textile and clothing in the manufacturing value added and in total exports. Although these countries are slowly moving to less labor intensive products, they are still powerful competitors in the textile and clothing sector; (iii) Eastern European countries, enjoying the same advantages of Morocco and Tunisia, proximity to Europe, cheap sad weJl trained labor force, are becoming serious competitors. Finally, among the Soutn Mediteanean countries, Turkey has been chosen as the most successful country in penetrating the EC market. I. 4. Aggregate measures of labor market competitiveness. Table I. 1 shows the ratio of the average wage in the manufacturing sector to GDP per capita (its evolution during the period 1975 and 1990 is in Table I.2).4 Morocco displays, together with the Philippines and Turkey, the highest value of this ratio. Tunisia presents a slightly lower value but still higher than the majority of the countries listed in the sample. Morocco and Tunisia, together with Turkey, also have the highest ratio of non wage costs to GDP per capita. 5. Real wages. Table I.3 shows the dynamics of real wages in national currency (nominal wages per employee deflated by the consumer price index) during the period 1985- 1991: real wages decreased in Morocco, Tunisia, and only slightly in Greece while recording an upward trend in all the other countries. 6. Productivity. Table 1.4 examines the evolution of productivity (real value added in national currency per employee) from 1985 to 1991. It shows the relatively poor performance of both Morocco and Tunisia. The index of real value added per employee increases only slightly in the two Maghreb countries and substantially in all the other countries (except Hungary and Malaysia). 7. Unit labor costs. Table 1.5 reports the share of wages in the value added of the manufacturing sector while Table 1.6 presents an estimate of the unit labor cost calculated in 4/ Provided thst GDP per capita is a good proxy for the opporbmity cost of labor, this ratio gives an indication of the return of labor in manuIrcuring rlative to its rtun conomy-wide. Since this ratio is also affected by the retive weight of the agriculturn sector in the oconomy (because the earnings in agriculture are usually lower than eanings in the industril sector), the shar of agriculture in GDP is also presonted in the table. A high value of this ratio may be interpretod as s igal of a distortion in the labor market. ITue can be thoe rt of govenment poles such a a high level of the minimum wage; lack of flexibility in the labor market (because of legilation maling difficult to lay off employ..); and/or high non wage labor cost. ANAEfm Page 3 of 26 national currency. This indicator is calculated as the share of labor cost (that is wages plus contributions to the social security system) per unit of value added. The figures show wide differences in unit labor costs levels across countrie. During 1985-1991, the index of unit labor costs C(able 1.7) decreased relatively more in Morocco and Tunisia than in other countries. On the other hand, Tables I.3 and I.4 suggest that this outcome was achieved through a combination of slow productivity growth and falling real wages whereas countres such as Turkey, Thailand and the Philippines were able to combine real wages and real productivity growth; in addition, the level of unit labor costs, although decreasing, is relatively higher in Morocco and Tunisia than in other countries. 8. Real exchange rates. The real exchange rate indexs (Table I.8) shows a generalized depreciation of national currencies against the ECU (except for Portugal) but at a quite different pace across countries. Asian countries and China recorded the sharpest rate of depreciation between 1985 and 1991. The analysis of bilateral real exchange rates (Tables I.9 and I.10) suggest that the Moroccan and Tunisian currencies depreciated in real terms only against the Greek and Portuguese currencies. 9. Wages in ECU. Data from Tables 1.11 and I.12 indicate that in Morocco and Tunisia the decline in real wages (measured in national currencies), was not sufficient to improve competitiveness (measured in ECU) vis-a-vis the Asian countries. In fact, despite higher wages, Malaysia, Thailand, Indonesia, Philippines and China maintained or increased their competitive edge through a more substantial exchange rate devaluation. 10. Unit labor costs in ECU. Table I. 13 shows unit labor costs in ECU. Between 1985 and 1990 Morocco improved its price competitiveness against Greece, Portugal, Hungary and Turkey.6 However, it lost ground against the Asian countries. Tunisia's competitiveness improved more than in Morocco but lagged behind China, Malaysia and Indonesia. Interestingly, China, Indonesia and Malaysia were the best performers both in terms of price competitiveness and of growth in the export share in the European market C(ables 1.14 and I.15). 5/ The ECU wu chosen as the conmon currency. The red exchang rate has been calculabt dividing the nominal exchange rate (unit of national currency per ECU) by the ratio of national to european consumer prices. 6/ But only because sudden increas of this indicator in Turkey in 1990 due to the fact that the currency devaluation did not keep the pace with the strong inflationary proces taking place in this country. ANNEX I Page 4 of 26 FOOTWEAR INUSMY 11. The textile, clothing and footwear sector (TCF) has a crucial role in the process of industrialization of developing countries. Textile (ISIC 321) and wearing apparel (ISIC 322) are the two most important sub-sectors of the TCF in all the counties in the sample, accounting for more than 80% of the sector's value added (Table II. 1). Between 1985 and 1990 clothing became by far the most important sub-sector in most countries. This because the garment sector is much more labor intensive than spinning and weaving (and so more suitable for developing countries). Moreover, the starting of production in the garment sector needs only 10-20% of the capital per worker needed for starting production in spinning or weaving. As shown in Table 1. 1 the gap in value added per worker (a measure that reflects the capital labor ratio) among the two sub-sectors is generally wide. In the last 15 years the TCF industry in Morocco and Tunisia concentrated on garment manufacturing, with close tiers to EEC through offshore plants, joint venture and sub-contractors. The characteristics of the industry are: (a) the large use of unskilled labor (abundant in Morocco and Tunisia and scarce in Europe); (b) low invested capital; (c) close proximity to final markets; and (d) privileged access to the European market as granted in the 1976 Association Agreements. 12. Real wages. During 1985 and 1990 real wages, measured in national currency (Table I1.2), declined relatively more in Morocco, than in any other countries. They increased slightly in Turkey, Portugal, Malaysia and China, and more significantly in Thailand, the Philippines and Indonesia. 13. Productivity. On the productivity side, the Moroccan performance (together with Hungary) was the worst in the sample (Table II.3). Tunisia performed moderately well. The Asian countries and Turkey experienced significant increases in productivity. 14. Unit labor costs. Between 1985 and 1990 unit labor costs, measured in national currency,7 (Table 11.5) decreased in most countries. But only in Morocco and Hungary this was the outcome of lower real wages. In Tunisia instead the growth in productivity allowed a moderate decrease in unit labor costs. Yet, because of a gap in productivity, the share of wages in the value added of both Morocco and Tunisia remains relatively higher (Table 11.4) than in the other countries. 15. Labor costs In ECU. Table 11.6 shows the evolution of annual wages costs in the textile, clothing and footwear sector in ECU.' Tables 11.7 and I1.8 present the ratio between labor cost in the two Maghreb countries and the remaining countries in the sample. Two 7/ Calculated in nominal tems. 8/ Calculated deflating the nominal wage in Ecu by the EEC consumar price index. Page S of 26 considerations emerge: first, Morocco and Tunisia face competition from countries, such as Thailand and Malaysia, which have lower wage levels, measured in ECU; second, these countries depreciated their currencies, vis-a-vis the ECU, more substantially than Morocco and Tunisia. 16. Unit labor costs in ECU. The index of unit labor costs in Ecu (Table 11.9) indicates that during the 1985-91 period, Indonesia, Malaysia, the Philippines, and China were the best performers in terms of price competitiveness. Tunisia also did well but not Morocco, because of a low productivity. Looking at the evolution of the share in the EEC imports of textile and clothing (Tables 1. 10 and 11. 11) it appears that Indonesia, China and, to a lesser extent, Malaysia, translated this increase in competitiveness in an actual expansion of market shares.9 Indonesia, for example, reached the same share in the EC imports of TCF achieved by Morocco and Tunisia although starting from a much lower level. Morocco and Tunisia performed satisfactorily, yet they appear vulnerable to the competition from very low labor cost countries. 17. Quality. The quality of products is extremely important in a competitive market such as the TCF. Upgrading production is a key strategy in countries that, reaching higher level of development, tend to lose their previous cost advantages. Unfortunately quality is not easy to measure and compare. A rough measure of wqualityw is given by the Unit values" (calculated dividing the value for the quantity of imports). In Tables 11.12 and 11.13 unit values are calculated for imports in the EC and France of two garment products.1" The data show that during the 1980s Morocco and Tunisia maintained the quality level of their products; but China 2/ Although the sample showed in Table 11.8 reprosnts only around 20% of EEC imports,it must be taken into consideration that more than 50% of textile and clothing imports is intra-EEC trade. The negative export performance of the Philippines is explained by the sharp decrease in competitiveness experienced by this country in the first half of the 1980s. 10/ The use of unit value as a proxy for the products' quality is linked to the assumption that product differentiation is reflected in price differentiation, namely that a higher quality product melis at a higher price. As an approximation of price levels, unit value ought to be interprd carefully for two main reason: first of all changes in unit value can be conaequent to changes in the compositiom of the flow of trade. On the other hand as long - the higher price reveals a higher value added per physical unit the changing composition does not compromise the broad m_nin of the indicator. Seoond, movemnt in unit value can stem simply from price movement. Restiin the compaon only to comtries that have increased their share of clothing export in the EEC nrkicot and taking the reative unit value (that is dividing the nominal unit value to the world's unit value of EEC imports) should make this effect negligible. 11/ The SlTIC commodity 8411 (textile clothes) represents 70% and 80% of the EEC clothing import from Morocco and Tunisia respectively. The commodity 84111 represents almost 30% and 50% of France clothing imports from both countries. ANNEX M Page 6 of 26 and Indonesiai2 improved very rapidly and are now able to produce in the same quality range occupied by the two Maghreb countries. Within Europe, Portugal and Greece shifted to higher unit value products. IL A 18. Energy and transporation costs are perhaps the two most important items (after labor) in the cost structure of the manufcturing sector. Energy prices vary widely from country to country because of different tax poliies. Energy subsidization or heavy taxation can affect not only the final price of products but also influence the choice of production techniques. 19. The effects of transport (and insurance) costs, like that of tariffs and non tariffs barriers, can significantly increase costs. Table 11. 1 shows that in Morocco the price of energy paid by the industrial sector is, on average, higher than in other countries. For gasoline, heavy fuel and electricity, the Moroccan industry pays, respectively, 51%, 54% and 47% more than what is paid on average in OECD countries. On the contrary, Tunisian prices of energy are in line with those of others countries. The higher cost of energy in Morocco is largely the result of a Government policy aimed at capturing the spread between domestic and international prices. To evaluate the importance of the higher energy costs for the competitivity of the national industry it would be necessary to estimate the share of energy costs in the total input costs (or in the manufacturing costs) of each industrial process. As an approximation, the weight of the electricity cost in the input cost will be estimated for the whole manufacturing sector and then for the textile sector. 20. Table m.2 shows the average electricity consumption per employee in the manufacturing sector. Although the electricity consumption per employee in Morocco in 1989 was half the consumption in Hungary and less than 1/4 the consumption in Greece and Turkey, the estimated electricity bill (as a share of input costs) was only slightly lower than in Turkey and Hungary and higher than in Greece C(able l1.3).13 To assess the loss of competitiveness caused by the higher electricity costs in Morocco, the electricity consumption in the manufacturing sector has been calculated at both the average OECD price and the domestic price; the difference between the two evaluations' represents almost 1 % of the input cost in the 12/ The comparison with thesw two counWies is puticulrlay significant because of their much lower labor cost. !I/ The cost of electricity was estimated multiplying the average consumption for the average tariff. The ratio of this value to input costs give us the share of the electricity expenditure. JA/ At the average 1990 OECD price, the power consumption per employee in 1990 would have been 416.47 US dollars, and 613.45 US dollars if calculated at 1990 domestic tariffs. The input costs of the manufacturing sector in 1990 are estimated in 744.13 millions of dirhams. The difference between ANNEX m Page 7 of 26 manufacturing sector. The same calculation appLied to the textile sectr yields an excess cost of 1.15% of the input cost. Thus, what at first could be considered a small difference has on the contrary a non negligible impact on the value added: a decrease of 1% in the input costs would increase by almost 3% the value added and it would result in a 2% increase in competitiveness. S 21. A more specific estmate of the impact of high electicity tariffs on manufacturing costs can be made using data from the Int ional Textile Manufactures Federation. A recent study reproduces the cost structur of two standard productions of the textile sector in several countries: as shown in Table m4, in the spiiig process the share of power cost in the total manufactured costs ranges from 3% in USA to 7% in Germany. In Brazil and India, this share is 4% and 5%. As no data are available for Morocco, we assume, for simplicity, that the structure of the spinning process in Morocco is similar to that of Brazil. The items in which the manufactured costs are broken down and then evaluated at the Moroccan prices. In spite of its obvious simplification, this exercise suggests the lack of competitiveness of Moroccan textile products, due to the large share (8%) of energy costs. 22. Transport costs. Two methodologies are usually employed to assess transport cost: The first is based on the comparison of the f.o.b. (free on board) with the c.i.f. (cost- insurance freight) value of exports. The ratio of the c.i.f. to the f.o.b. value provides an indicator of the ad valorem incidence of transport and insurance costs on the value of trade."6 There are two drawbacks to this method: (a) discrepancies, among countries, in the way the goods are registered can produce poorly consistent estimate; (b) nominal ad valorem freight rate for two countries, for the same product, can differ because of different unit prices even if charges are identical. Thus, ad valorem freight rates reflect movements in the monetary price of exports as well as in the freight rates. estimated clectriitq costs at 1990 trif (2218 milL of Dh alulated multipliying the total electicity consumption in manufacturing 2329.9 milL of Kw, to the average tariff, 0.952 Dh per kw) and at OECD prices (1421 milL Dh) is 797 milL Dh Subtracting thia value from the input costs and calculating the value added (VA. - Output- Input) we obtain an eathmate of the value added after removing these excess costs. 1S/ Notice that tbos esotm take as reformce the OECD avege taiffs which are often higher than LDCs tariffs (for example in the sample of countris included in this udy oily Philippines, Morocco, Turkey and Portugal show highr lectricity taiffs than the OECD averae). 16/ The formula used to calculate the ad valorem freight and innce cods for the product i exported from the country j is as follows: f, (VjVf) - where V. is the c.i.f and V( the f.o.b value of exports (Cfr. A. Yeats 1989). ANNEx m Page 8 of 26 23. The second methodology is based on the transport related items reported in the current account part of the balance of payment. Here, freight and insurance costs are under the voice 'shipment"; the item 'total transport' also includes various forms of transport costs (as passengers, port services etc.). Consequently two indicators of the weight of transport costs in the value of trade can be calculated: first, the ratio of the absolute sum of 'shipment" (credit plus debit) to the absolute sum of merchandise export and import, i.e., the 'nominal shipment rate". Adding to "shipment" the other transport costs, the second measure, i.e., the "nominal transport rate' is obtained. The main limitation of this methodology resides in the lack of homogeneity in the way transactions are recorded. Thus, these measures cannot provide an exact indication of "how much the transport costs differ among countries: however, they can show a hierarchy that reflects an "ordinal' measure of transport costs. 24. Table 11.7 shows the incidence of transportation costs in the total trade (import and export) of Morocco and Tunisia and in France and other countries using the cif/fob methodology. Although these figures must be assessed with caution, it appears that on average the two Maghreb countries have freight and insurance costs well above international standards. The nominal shipment rate and the nominal transportation rate are then calculated in Tables 11.8 and 11.9. The results confirm the previous estimates: transportation costs are the highest in the two Maghreb countries and in Thailand. 25. An assessment of the excessive burden that transport and insurance costs put on the productive sector can be calculated using ad valorem excess costs as estimated in a recent study (see 'Maghreb Transport and Trade Facilitation Study", op. cit.).'7 For textile and clothing exports, this study estimates ad valorem excess costs as high as 0.1 % for Morocco and 0.4 % for Tunisia (excluding the excess costs paid on the imported raw material). This translates into an estimated excess costs for textile exporters of eight millions dollars and one million dollars respectively. Otherwise said, 1.5 % of the total value added of the TCF sector in Tunisia is lost in transport excess cost. The estimated increase in export benefits, assuming the elimination of transport related distortion, would be 2% in Tunisia and 1% in Morocco. CONCLUSIONS 26. The analysis carried out in this Annex has highlighted some important cost disadvantages of Morocco and Tunisia relative to a sample of countries that compete in the European market. In recent years, price competitiveness has been improving in both countries, but not as much as in most competitors, in particular the Asian challengers; this was due not so much to real wages increases, but to the slow growth in productivity; and to the sharp rate of 17/ The ad valorem excex cost reted to total import is 2.05% for Morocco and 1.13% for Tunisia. For total exports is 0.34 for Morocco and 1.24 for Tunisia. T'h. value on totWl imports plus exports is 1.36 for Morocco and 1.17 for Tunisia. ANNEX m Page 9 of 26 depreciation of Asian currencies relative to the ECU. Finally, energy costs in Morocco and transport costs in both Morocco and Tunisia add a substantial burden to the price of their exports and therefore lower competitiveness. F ANNEX m Page 10 of 26 APPENDIX: SOURCES OFINFORMATION Wages, value added and output data are from the UNIDO, the United Nations Industrial database. They are based on the national anual surveys of the manufacturing sector carried out by the statistical offices in member countries. The size of the enterprises included in each national survey is reported in Table Al. These data cover only the urban formal sector and not the informal sector.' Data on wages and employees include payments in cash or kind made to all personnel engaged directly or indirectly in the production (that is managerial, technical, supervisory, clerical staff and skilled and unskilled workers). The payments include (unless otherwise specified): (a) direct wages and salaries; (b) remuneration for time not worked; (c) bonuses and gratuities; (d) housing allowances and family allowances paid directly by the employer; and (e) payments in kind. Excluded are employers' contributions paid to social security funds, pensions and insurance schemes, as well as the benefits received by the employees under these scheme and severance and termination payments. As the number of hours worked are not specified, the average annual wage (the ratio of total wages to total employees) reflect both the wage rate and the length of time worked. Labor costs are calculated as wages plus the contribution to the above mentioned funds (social security etc.). This portion of the labor cost is estimated using the information from the Price Waterhouse publications (Doing Business in...).1 LABOR COSTS AND PRODUCTIVITY: METHODOLOGICAL NOTES The unit labor cost is a widely used indicator of price competitiveness. It expresses the share of labor cost in output: ULC = (WIH)I(Q/H) where (W/H) is the hourly compensation and (Q/H) is the output per hour. Since hourly wages and output per hour were not available for some of the countries in the sample, annual wages and annual value added per employee were used as proxies. To compare UCL across countries, the following identity was used: ULC = E*(WtL)/(Q/L) where E is the exchange rate. Thus, nominal labor costs have been converted in a common currency. They have then been divided by an indicator of productivity expressed in local currency. This ratio provides an indication of relative unit labor costs but it cannot be used to compare unit labor cost levels.3 I/ Moreover the smalledt units (under 10 or 20 employee) are often not included in the surveys. 2/ The esimates of the labor cost were calculated applying the percetage chages for social security payroll taxes and other funds pa by the employer to the totd wages. Therefore this value can overestimate the labor cost for two reoa: some employee may not be eligible for this kind of benefit (or the employer may evade the contributions); the percentage of the employer contribution is generally computed on the basn salary and not on the verage wage paid (namely it does not include bonuses and other kind of paymont that are instead included in our wages data). On the other hand, for lack of reliable information, other costs associated with employment (for example training and hiring costs) cannot be considered. 1/ Comparin of unit labor cot in national currency implicitly assume the use of the current exchag rate for the two comWonents of the ratio. Yet, as pointed out by Hopper and Larin (1988), a more comct way to compare unit labor cost levels in a common currency would imply measuring the productivity component with Purchasing Power Parity values instead of the currmt exchange rate; this woud avoid errors induced by differecs in the price of the output components for the reference year. Since this further calcultion is beyond the scope of this study, the unit labor cost levels are reported as shares calculated in national currency. ANNE m Page 11 of 26 Table LI - Labor Market Competidveneu Ratio of Ratio of Ratio of Ratio of non Share of manuiacturiman uanufacturing minimum wage wage cost agriculture wage to GDP labor cost to to GDP per to GDP per in GDP per capita GDP per capita capita capita 1991 Morocco 3.02 3.49 1.75 0.47 19 Tunisia* 2.42 2.97 0.77 0.47 18 Turkey 2.71 3.27 0.53 0.57 18 Hungary 0.93 1.33 - 0.40 10 Greece 1.88 2.35 0.85 0.40 17 Portugal 1.06 1.33 0.62 0.26 Indonesia* 1.79 1.82 0.49 0.04 19 Malaysia 1.23 1.39 0.16 Philippines* 3.13 3.19 1.59 0.06 21 Thailand* 1.68 1.75 0.71 0.06 12 China 1.42 1.45 - - 27 *Annual minimum wages estimated multiplying the daily minimum wage by 288 (24 working days 12 months) ource: Manufacturing wages - Unido, 'Yearbook of Industrial Statistics; GDP per capita - IMO 'International Fiancial Statistcs; Minimum wages - Turkey, Greece & Portugal: Price Waterhouse 'Doing Busines in ..' 1992; Morocco: Ministry of Industry; Tunisia: Institut National de la Statistique; Thailand: 'Thailand Key Economic Indicators', Bank of Thailand, March 1993; Philippines: 1991 Philippines Statistical Yearbook; non wage cogt - 'Doing Busines in..' (Price Waterhoue) Business in... '(Price waterhouse) Table 1.2 - Manufacturing Wage to GDP per capita 1975 1980 1985 1990 Morocco* 5.00 4.91 4.41 3 02 TunisTa n.a. n.a. 2.57 2.42 *1976 instead of 1975. 3ource: Wages - for Morocco Unido Industrial Statistics and Ministry of Industry (Annual Industrial Survey); for Tunisia, Ministry of Planning; GDP & population - IMF Statistics various Issues ANNEX III Page 12 of 26 Tabl 1.3- Man-ufactcurg sector - Red b4e pper empoyiu. hi kloa currency (1985=100) Morocco T_r 1_ H_ f .- - 1ida 1is, T11and Chia 1985 100 100 100 100 100 100 100 100 100 100 100 1986 93 92 96 102 92 108 104 99 111 108 108 1987 92 91 102 103 88 113 104 97 133 119 107 1988 9t 91 95 115 93 115 108 94 142 128 113 1989 87 96 119 117 100 116 113 95 146 137 109 1990 93 97 144 112 100 119 120 96 155 139 118 1991 93 140 101 99 - 122 100 174 - 124 : wages e deled by the IMF CoonW PdIc nde waep data ae from the UNIDO dhO_a UtUc da tabas e O socco (#y of CawOfr NOd induhy Tunih (Ministry of Pla"n). rTakWe 1.4 - maunuSEKSrign sector - RbEW au added per ernployees In kcd ctn3ency (I 985= 1 0)) MorKoco TuSdha Turay Hwn -Y Greece Ponq^d , Iod Mhbyfo RWpk-b" 7hbraft Cnu 1985 100 100 100 100 100 100 100 100 100 100 100 19Bt; 104 96 132 103 106 107 102 106 126 109 100 1987 112 102 137 114 1039 122 95 104 116 115 110 1988 118 104 149 117 118 125 83 102 126 115 122 1989 99 106 151 134 123 126 95, 108 129 125 130 1990 108 111 167 117 126 131 110 106 141 130 129 1991 - 110 173 107 129 - 116 113 171 - 138 ;: value added Is deaed by Ve wholesae price idex MF 11 fincl attalltc) except for Mahks producr pc) aNd Chin nnufactung delor from Wodd 9w* Table 196) rca: dda for vau added awe from th Unrido idutrl Staic ddabws exoW or Morocco (Misry of Commerc and industry) and unsa (Mlnsty of Planning); stat eshibe Table 15 - Marwfact sector - Wages.a percentage of value added in nomnal value Morocco TUdt Tufty unmy a- H Porina bidoinal.b 11 PhOppr TheNind Chia 1985 0.41 0.60 0.21 0.33 0.42 0.39 0.19 0.30 0.23 0.27 0.15 1986 0.37 0.56 0.16 0.34 0.39 0.39 0.19 0.30 0.20 0.28 0.16 1987 0.34 0.52 0.17 0.33 0.39 0.36 0.21 0.29 0.25 0.28 0.15 1988 0.32 0.49 0.15 0.39 0.39 0.38 0.22 0.27 0.24 0.28 0.16 1989 0.36 0.51 0.19 0.36 0.40 0.36 0.20 0.26 0.24 0.28 0.16 1990 0.36 0.49 0.22 0.41 0.40 0.36 0.19 0.27 0.24 0.28 0.17 1991 - 0.48 0.22 0.43 0.40 - 0.19 0.27 0.24 - 0.17 Wage Incude npby'M co*b I pen m hk hun h am - ihdud anc pay. Sourco: dala fom UNIOO idustIl tai ecr O Tuniera (Hry o plof in) o do r Mooo, Misry d indusy (mual indut Survey). esf linse ANNEX lIf Page 13 of 26 Tabb 1.6 - l a n sockw - Unt labor cost in nona vlue mo Tua n Hunwy one ~ hbl_ M Rt* Th_d Cha* 1985 0.47 0.73 0.28 0.48 0.53 0.49 0.19 0.34 0.23 0.28 n.a. 1986 0.42 0.69 0.19 0.49 0.49 0.48 0.19 0.34 0.21 0.29 n.a. 1987 0.40 0.64 0.21 0.47 0.48 0.45 0.21 0.33 0.26 0.29 na. 1988 0.37 0.61 0.19 0.56 0.48 0.45 0.22 0.31 0.24 0.30 n.a. 1989 0.41 0.62 0.23 0.51 0.50 0.45 0.20 029 0.25 0.29 n.a. 1990 0.42 0.60 0.26 0.59 0.50 0.45 0.19 0.31 0.25 0.29 n.a. 1991 - 0.59 026 0.61 0.50 - 0.19 0.31 0.24 - n.L urce: data for wages and value added m from UNIDO Ixndutra Staodtstc excce for Tunisi (Ministry of plMing) mid for Maracco Minlety of Industry (Annual Industhlal Survve; data for non ww lNor cost mr from Pric Waterouse: 'DoIN Business .S edu0mae Table 1.7 - Manufacturn sector - Unit labor cost in nomna vakue (1985-100) MoroCco Tuniia TW Hung y Padugl inenes M PeIfpinm Thadui Chdti 1985 100 100 100 100 100 100 100 100 100 100 100 1986 90 94 75 102 92 99 100 100 90 102 111 1987 84 87 81 98 91 93 113 97 112 103 106 1988 78 83 73 117 91 93 118 91 105 105 110 1989 87 85 90 106 94 92 107 87 107 103 109 1990 89 82 103 123 94 92 100 91 108 103 119 1991 - 81 103 128 94 - 100 90 105 - 115 *The index is based on the ratio of wage (and not kbbo costs) to value added per wnployes. ANNEXI111 Page 14 of 26 Table LU - dex of em: n onal currey ve ECU i6 is low ISII is 11m00 lam caoeo tlo0 90 83 82 83 75 75 TundS l1 63 71 a U 64 64 Tn"Y 100 78 a 70 76 64 a6 HMgwy l1 as 75 77 78 77 B9 I o, 100 e1 91 93 04 06 97 10 ao II a 97 100 107 1dr tD 46 46 60 42 42 MWYNS IO0 73 92 67 5u 49 49 RSpphz IO0 so Si Ss a 54 s6 rhaland 100 79 a a 72 63 66 Cha 100 aos 67 a6 76 50 46 No: Increm Issie hde m s apprcilon The red uchng rats ha been catdded dMdhg li nonmn xchange rate ( cum /Ecu) by me rato of nmnl lo Europen com e pice heds _ue: daa we hom IM iriicl attsca. vulots bmu, S c c,cdO_ Table 1.9 - Morocco - Bilteal real exchange rat" 1966 t19 1967 19 1969 1990 1991 morocco Vs: TiHla 100 106 111 113 116 106 107 Turwy 100 119 126 132 12D 106 106 Hun1wy 100 107 116 126 123 122 100 Gmem 100 104 101 102 103 93 93 100 94 01 U lt 75 70 hidoneslm 100 136 172 1s9 1s 160 156 Matayda 100 132 137 141 141 1S0 150 hI'plnesl 100 133 136 129 121 132 133 100 116 118 114 III 115 106 100 133 154 160 143 191 204 t: detor used hi ite two Uftes whol orpro e piles Idlom Table 1.10 - Tunisia - isateral ral exchange rat" 196 1m i9n7 19l9 im 1990 190 Tunhab va: Morocco 100 96 90 B9 66 92 94 Urkmy 100 112 116 117 104 97 102 Hunywy 100 101 106 112 III 113 102 F e r100 6 el 90 6o as 67 100 67 77 74 70 64 so 100 126 156 150 146 148 146 100 126 123 126 121 138 140 100 126 122 116 106 122 124 100 110 106 101 96 106 101 100 126 139 133 123 177 191 .W 15 d2S Table 1.11 - Maufacturing Sedor: Rea Wagu in ECU (1965=100) Mgrn T-bh T B Gm- r 1m M ndb p Thd 19S5 100 100 100 100 100 100 100 100 100 100 100 1986 *4 76 75 SB 4 101 71 72 76 85 74 19S7 76 64 70 73 s0 104 50 60 78 S1 61 1983 75 62 67 SS 86 107 52 54 U3 37 73 1939 72 65 94 92 94 113 56 55 ff 96 S2 1990 70 62 120 37 95 119 50 47 34 37 59 1991 - 60 119 90 96 - 52 49 97 - 57 Saurce: Damam fran UNIDO 1*auh Sw_d= -ep for M cco- ( y dof btay) _d T1ah (fiM y at 1d. ITh index is calculaed deflatg do nb wp = i%4 do EfBC e_mw prime inde. Table I.12 - Ratio bewee te id of real wag i ECU and the idul of real wag. in naonal currency M)n& ThWa I7qy y GcP 7 hib ad 19S5 100 100 1t0 1oo 100 100 100 100 100 100 100 1986 90 U3 7S S6 91 96 69 73 69 79 68 1937 33 71 69 75 91 92 4S 62 59 63 57 1933 32 6S 70 77 93 93 43 57 53 68 65 1989 U3 63 78 78 94 97 50 5S 65 72 76 1990 75 64 34 77 95 100 42 49 54 63 50 1991 - 64 35 89 97 - 42 49 56 - 46 See Tabla 1.11 and 1.13 Table 1.13 - Manufacturing Sector - Unt labor cost in ECU (198=100) MDo Tnla Urkey H-wa Grece PWtd Indm Malyd Ihbppi. Thand Chin 1985 100 100 100 100 100 100 100 100 100 100 100 1986 83 32 59 SS 32 96 72 70 63 31 77 1937 73 6a 55 73 79 91 57 62 72 76 59 1933 70 66 49 U3 31 95 69 5 73 33 66 1989 S4 71 72 so 39 104 6a 60 36 91 74 1990 30 69 39 91 93 112 56 55 73 32 56 1991 - 70 39 109 96 - 53 56 73 53 Table 1.14 - EC hnporb of maufactured products - Averw e annual rate of growth In nmina vaue orc TAUad Turke Hugaz Grec Norumd r dmeda Malyd Nhhppdn Thalad Chin W 1985-91 25.6 21.6 30.3 23.5 14.5 24A 47.3 30.5 19.4 39.2 43.4 18.5 Soumo: data re ffum Ca a1e (UJ. N.) ANNEX M Page 16 of 26 Table 1.15 - EC Imports of manufactured products - Share In the eample 1985 1986 1987 1988 1989 1990 1991 1992 Morocco 5.03 4.84 4.89 4.89 4.75 4.89 4.15 4.12 Tunisia 5.61 5.49 5.00 4.46 4.35 4.34 3.82 4.04 Turkey 10.15 11.55 12.38 11.95 12.56 12.15 10.47 10.50 Hungary 7.39 6.89 6.04 5.49 5.14 5.37 5.53 5.94 Greece 12.65 12.94 11.59 9.91 8.70 7.19 6.01 5.32 Portugal 25.29 25.40 24.07 22.99 22.83 22.93 19.71 18.80 Indonesia 2.41 2.47 2.80 3.49 3.60 4.32 5.19 5.92 Malaysia 7.56 6.14 5.93 6.49 6.84 6.95 7.86 8.22 Philippines 4.16 3.43 3.53 3.25 2.79 2.45 2.54 2.47 Thailand 5.05 5.46 5.89 6.79 7.14 7.17 7.76 7.32 China 14.70 15.39 17.89 20.29 21.29 22.24 26.96 27.34 Sample 100 100 100 100 100 100 100 100 Source: Data are from Comtrade (UN) ANNEX lil Page 17 of 26 Table: 11.1 - Suctur of the taodol, lOthing & bohtWer aeco (IPIC 32)* Sha h in vane aded of SlhM hi b O dW d atlie TVW le, Cibig VOe added Pe PIa~ tae imnu_fcn aed Footwe ecor ot Rlo O fohing bo t (n %) T_e Weu1og Apm" (n %) (1WC 21) OmC 3 1985 1990 1985 1990 1985 1990 1965 1990 Morocco 22 25 69 52 18 37 52 59 Tunisia 24 32 33 31 53 53 61 65 Turkey 14 14 86 75 10 22 69 79 Hungary 11 9 54 51 26 31 75 75 Greece 24 21 58 52 29 38 80 98 Portugal 24 20 69 68 18 17 77 81 Indonesia 10 14 82 79 13 15 66 66 Malaysia 5 6 55 51 42 48 66 55 Philippines 7 10 48 37 46 59 71 92 Thailand 21 25 49 47 39 41 78 85 China (a) 12 13 n.a. n.a. n.a. n.a. n.a. n.a. in ine isic c_ lcaton (Intmnonal Sidrd hkduele CmlNkan) Ve ItLe aeclor ('32) hkldu a e dIP isaggregatlon level: TetIle (321), Wemtng APPte (2, Lelhe (323). md Footwe (324). (a) Only Textl (321) and Leater (323) ource: Da from UNIDO knuta sttic en Tunla minliy of Runnig abl 112 - Textie, cklthing & footwear sector - Real wages pw employee In natonal curmncy (1965=100) Morocco m 4. 1nMIu Hwmgy Qm Pal_ idan _M Rqapf&M lhnd aCia 1985 100 100 100 100 100 100 100 100 100 100 100 1986 84 97 100 101 94 108 103 100 111 109 111 1987 82 106 104 101 88 118 101 102 126 124 104 1988 79 110 101 106 92 111 108 99 135 136 106 1989 88 109 111 106 98 109 112 102 143 135 103 990 90 105 100 100 96 108 119 111 145 133 112 1991 - 96 108 88 91 113 121 112 160 - 117 niv TeaS021) NW khpmdcu PM Do a Ts 01)b hid kk; toudco Table 11.3 - Tetle, clothing & footwer - Rel value added per empWo (1965 100) Joiomo e Tudm 4 Tubmy HUm-y Grow P~ htdamm I Riipu 11ouid c Whs" 1985 100 100 100 100 100 100 100 100 100 100 100 1986 102 101 112 99 110 103 132 130 122 109 101 1987 102 111 145 104 112 102 117 139 128 121 107 1988 91 114 139 107 108 95 109 129 183 126 116 1989 95 115 136 111 106 94 150 130 195 126 127 1990 94 112 130 99 113 92 152 138 206 126 129 1991 89 105 145 87 111 100 154 142 237 - 126 a) * Tudil 021) mNd WOWhs Pos PM22 ) OrdyTEI*.321)miWIs pmIu (22) Oda = uma kknw sbucs daAcddon 2 OOnyT p")ZS WShnp^^botf 00 2~~~~~~~~~~~~~~~~~~t Table 11.4 - Textile, clothing and footwear sector - Unit labor cost Moro= Tunisa Turkey HunFay Greem Pougal Indon Malaph PhlppI TlalbUd China 1985 0.78 0.72 0.34 0.62 0.51 0.53 0.29 0.59 0.71 0.37 n.a 1986 0.69 0.71 0.32 0.66 0.46 0.51 024 0.49 0.66 0.38 n.a. 1987 0.66 0.70 0.27 0.65 0.45 0.56 0.26 0.45 0.68 0.38 n.a. 1988 0.72 0.69 0.29 0.74 0.50 0.55 0.29 0.45 0.49 0.38 n.a. 1989 0.75 0.69 0.32 0.73 0.55 0.55 0.22 0.46 0.49 0.38 n.a. 1990 0.76 0.69 0.32 0.81 0.52 0.55 0.21 0.48 0.49 0.38 n.a. 1991 na. 0.68 0.33 0.85 0.51 0.55 0.21 0.47 0.49 n.a Data frhom Undo hindrid, StgtMU SW C,LAon Table 11.5 -Textile, clothinga ndf ootwear ector - Unilabor coct (1965=100) IIo Tun Z Tulft Hunal A: Ioil meo_ Wk mnk 11111V111 phllp_ Th_I Clhf 1985 100 100 100 100 100 100 100 100 100 100 100 1986 88 99 92 105 90 97 81 82 93 102 112 1987 85 98 78 104 88 105 89 76 96 102 105 1988 93 97 83 119 99 105 99 76 69 102 110 1989 96 96 92 117 107 104 75 77 69 102 105 1990 97 96 92 130 102 104 72 80 69 103 112 1991 n.a. 95 95 137 101 103 72 79 69 n.a 120 Sdex cdcuhjd from ma dMde by red v addd Table 11.6- Textile, clothing & footwer sector - Index el reel wages per mplrye In ECU (196M=100) leom T T'd.y H_ esc. o Po b MdWm N Th7_Wd Ch 1985 100 100 100 1 100 100 100 100 100 100 100 1986 76 81 78 87 86 103 71 72 76 86 76 1987 89 74 72 76 80 108 49 63 74 85 59 1988 63 75 71 81 85 102 52 57 79 92 69 1989 60 74 87 83 92 106 56 59 93 97 78 1990 58 68 84 77 91 108 50 54 79 84 55 It 1991 - 62 92 79 88 122 51 55 89 - 53 roure: Data from UNIDO Industral Stallslics; tif calatIon Table 11.7 - Labor cost in Ecu: ratio to Morocco Morocco Tunisia TuflCy Hungfy Groece Poftual Indonria Mabaysba Phlppnes M Chia 1985 100 125 123 88 302 128 33 121 51 66 18 1986 100 129 122 97 329 167 29 111 49 72 17 1987 100 127 120 91 329 188 22 103 51 77 14 1988 100 131 122 100 359 183 24 96 56 85 17 1989 100 108 125 85 323 158 21 84 55 76 16 1990 100 102 124 82 323 166 20 79 48 67 12 Data bmun Ulo inkustfti Stacs,e ut caiculdan Table 11.8 - Labor coat In Ecu: ratio toTunisa leOO Tut T. H y P- wi Fn Th _ CMhs 1985 80 to 98 70 241 102 26 96 41 53 14 1986 77 10 76 75 254 129 23 86 38 56 13 1987 79 100 70 71 259 147 17 81 40 60 11 1988 76 100 70 76 274 139 18 73 43 65 13 1989 92 100 85 78 298 146 20 77 51 70 15 1990 98 100 82 80 316 IN 19 78 47 66 11 1991 n.a. icc 90 89 333 200 22 86 58 n.a. 13 DMt hom Unid kxawluua sailcs; sm caiwaon Table 11.9 - Textile, clothing and footwear sector - Unit labor cost In Ecu (1985=100) Moro= TtWaf T.W HGma Miay M Thldo_ CI* 1985 100 100 100 100 100 100 100 100 100 100 100 1986 77 83 72 91 81 96 55 58 65 89 77 1987 72 72 53. 78 76 103 45 48 62 90 59 1988 79 73 57 84 88 107 53 49 48 102 65 X 1989 91 75 74 87 101 118 43 53 55 113 71 1990 88 74 80 96 99 127 40 48 47 103 53 J 1991 n.a. 76 82 117 102 144 43 50 49 n.a. 55 ic:Data fromi Unido IndusIflal Statistcs; staf calculatlon ANNEX III Page 21 of 26 Table 11.10 - Shar In the total EC Imports of Textile and Clothing 1985 1986 1987 1988 1989 1990 1991 1992 Morocco 0.87 0.98 1.15 1.21 1.36 1.55 1.54 1.63 Tunlsia 1.03 1.11 1.12 1.07 1.19 1.41 1.42 1.62 Turkey 2.59 2.88 3.53 3.55 3.95 4.06 4.01 4.22 Hungary 0.58 0.59 0.58 0.56 0.56 0.62 0.69 0.81 Greece 2.56 2.80 2.75 2.33 2.21 1.98 1.88 1.83 Portugal 3.02 3.00 3.14 3.23 3.53 3.73 3.76 3.84 Indonesia 0.22 0.23 0.38 0.56 0.74 0.98 1.34 1.60 Malaysia 0.28 0.27 0.35 0.40 0.52 0.57 0.70 0.74 Philippines 0.30 0.29 0.39 0.43 0.44 0.40 0.47 0.43 hailand 0.74 0.79 0.93 1.11 1.11 1.13 1.23 1.15 China 2.26 2.30 2.71 2.98 3.20 3.61 4.91 4.86 Sample 14.45 15.25 17.02 17.45 18.81 20.04 21.96 22.73 Source: Data wer frxn Corr.rade (U.N .) Table 11.11 - EC Imports of Textile and Clothing - Share In the total of the sample 1985 1986 1987 1988 1989 1990 1991 1992 Morocco 6.05 6.45 6.75 6.95 7.24 7.75 7.02 7.17 Tunisia 7.10 7.30 6.59 6.15 6.34 7.04 6.45 7.12 Turkey 17.96 18.88 20.72 20.37 21.01 20.28 18.28 18.58 Hungary 3.98 3.84 3.40 3.22 2.97 3.10 3.14 3.56 Greece 17.73 18.38 16.16 13.34 11.74 9.88 8.54 8.04 Portugal 20.88 19.67 18.42 18.52 18.75 18.61 17.14 16.90 Indonesia 1.51 1.53 2.21 3.23 3.96 4.87 6.10 7.05 Malaysia 1.91 1.77 2.08 2.30 2.75 2.85 3.17 3.26 Philippines 2.10 1.92 2.29 2.47 2.32 1.97 2.15 1.8 Thailand 5.11 5.21 5.46 6.36 5.89 5.63 5.62 5.04 China 15.66 15.05 15.92 17.09 17.03 18.03 22.39 21.39 Sample 100 100 100 100 100 100 100 100 Source: Data aer from Comitmad (U.N.) ANNiEX m Page 22 of 26 Table II.12 - EEC imports - Unit value - Commodity 541.1 (Textile clothes) Ratio to the average world value Morocco Tunisa Indonuia China Group 1* Group 2** World 1980-82 0.66 0.72 0.55 0.53 0.92 0.77 1.00 1983-85 0.67 0.72 0.53 0.55 0.94 0.74 1.00 1986-88 0.77 0.78 0.44 0.56 1.11 0.62 1.00 1989-92 0.74 0.71 0.66 0.74 1.21 0.73 1.00 *Greece and Portugal **Indonesia, Malaysia, Philippines, Thailand Source: Data are from Comtrade (U.N.) Table 11.13 - France imports - Unit value - Comm. 84111 (mens outwear not knitted) - ratio to the average world value Morocco Tunisia Indonesia China Portugal Group 2* World 1980-82 0.70 0.71 0.49 0.60 1.15 0.80 1.00 1983-85 0.68 0.68 0.38 0.64 1.08 0.79 1.00 1986-88 0.72 0.77 0.47 0.66 1.31 0.73 1.00 1989-92 0.72 0.76 0.83 0.72 1.52 0.86 1.00 * Indonesia, Malaysia, Philippines, Thailand Source: Data are from Comtrade (U.N.) ANNEX III Page 23 of 26 Table 111.1: Prices of Energy for Industrial Use Electical utlitiles In curent US dollars - 1992 finance Gasoline Heavy fuel EWctrity Water AVerag Agr litre) ol (ton) (kw/h) (cubic mete) eu (i) *inAa cod 2) 1991 1991 Morocco* 0.80 215.7 0.080 0.33 8.3 n.a. unlsia* 0.59 118.1 0.055 0.52 5.8 5.9 Turkey 0.75 164.6 0.093 n.a. 6.0 n.a. Hungary 0.85 117.0 0.060 n.a. 5.6 n.a. Greece 0.82 162.8 0.065* n.a. n.a. n.a. Portugal 1.08 196.4 0.145 n.a. n.a. n.a. Indonesia 0.27 108.4 0.050 n.a. 5.8 5.2 Malaysia n.a. n.a. 0.070* 0.52 6.7 5.2 Philippines n.a. n.a. 0.085* 0.24 5.2 5.4 hailand 0.37 139.8 0.040* 0.21 4.9 4.3 China n.a. n.a. 0.022 n.a. 2.2 n.a. Taiwan 0.68 153.1 0.087 n.a. n.a. n.a. India 0.65 163.5 0.066 0.58 4.6 4.8 Poland 0.50 75.0 0.035 n.a. 3.4 n.a. Spain 0.94 129.6 n.a. n.a. n.a. n.a. OECD 0.53 140.3 0.074* n.a. Sources: Intenatnal Energy Agency *Enwgy prcm and thum (1993). Annust SWistqu du Mwoc; Soclbtb Tunshnne de L'E3tct dt du G (STEG);Thallnd - Key econoffic hBdm (BD* d Thaand) March 1993; Malay - Minby of Mne and Erwgy - Pow Secor Staic br Developing Coutatle (World Bank 1994) and Review of elcWclty tatin Devopin Co anrIe during te 19W0s; Energy Ser8e Paper n. 32 Nov. 190 (1) Average rewnue - total sal t a gwon UUty ditded by th tol sale of GMh of tha iAIy epsed in US cet/KWh. (2) Average financal cosbt - Wt operating cosb + intrt on dt and minus deprecaon dhded by tot sales In In GWh o that utlIty exprsed in Us cet/KWMh Table 111.2 - Electricity consumed per employee (KWh) in manufacturing sector Morocco Tunisia Turkey Hungary Greece Indonesia Malaysia Phfippines 1986 6424 6322 20478 11118 22353 8238 8848 7827 1987 6166 6894 20125 11589 20691 9516 8489 11252 1988 5766 7028 19934 11796 22929 8483 9110 7770 1989 5416 7224 24120 12231 22620 6242 9255 1990 5628 7343 11685 - - - edimiad Ii'W dim from UNIDO hWdUbl uIbl WIMa beaS, Anumlr du -uo md MWAnu&* Swidhiq de la Tunbie Table 111.3 - Electric"t ptwctased In mianufacturing sector as prcentage of Input Morocco Tunisia Turkey Hungary Greece Indonesia Malaysia Phllppnes 1986 3.41 - 5.99 3.70 3.19 - 1987 3.44 2.18 4.58 3.99 2.71 - - 1.89 1988 3.57 2.02 4.01 4.32 2.95 4.12 11.74 2.50 1989 3.40 1.79 4.49 4.02 2.46 3.96 10.02 1.88 1990 3.61 1.51 - 3.87 - 2.71 - Emfnred mul the ae price per bn for th awage emamy consmpoin h ma or Mdng by th vika d hlptL Dom m ftrom Unido hxdktl SaImc ArnuW St&tqwe du Mac, b tsmona Enirgy AgenCy (OCSE) and STEG - de rEXsrca de ha Tunbbl. , . _ b~~~~~~~~~~~~~~~~~~~~4 ANNE lil Page 25 of 26 Table 111.4 - Total Yam cost In 1991 Cost element Brazil Germiany India Japan Korea USA Morocco US $ per kg of yarn Waste 0.17 0.16 0.13 0.19 0.19 0.16 0.17 % 5 5 5 5 6 5 5 Labor 0.13 0.35 0.08 0.54 0.1 0.48 0.15 % 4 10 3 14 4 14 4 Power 0.13 0.23 0.15 0.24 0.13 0.11 0.2 % 4 7 5 6 4 3 8 Auxiliary material 0.13 0.09 0.11 0.09 0.09 0.08 0.13 % 4 3 4 3 3 3 4 Capital (depreclacion and Interest) 1.08 0.54 0.94 0.8 0.59 0.81 0.8 % 31 16 33 21 19 24 25 Raw material 1.79 2.05 1.4 1.94 1.97 1.72 1.79 %/0 52 59 50 51 64 51 54 otal yam costs 3.43 3.45 2.81 3.80 3.07 3.36 3.3 100 100 100 100 100 100 100 source: Intematlonail Tetile Manufacturm Fedwtlon - khteralnal Pmodulon Cost Compabo in Spnning/Wavlng and st stimates Table 111.5 - Trade with world: Incidence of transportation costs 1988 1989 1990 1991 Average Morocco 1.8 9.2 6.4 10.0 7.1 Tunisia 6.5 7.0 7.9 5.7 8.7 France 2.1 1.0 2.0 2.7 6.8 EEC 1.5 1.2 1.4 1.9 2.0 Industrialized countries 3.6 3.6 3.4 3.5 3.5 Developing countries 3.5 4.5 4.5 4.2 4.2 /Yorld 3.0 3.2 3.2 3.5 3.2 UrCe: Maghreb Tmrapoft wn Trde Fatn _ Sudy (Wo Bo" ANNEX JII Page 26 of 26 Table 111.6 - Nominal shipment aes 1985 1986 1987 1988 1989 1990 1991 1992 Morocco 6.98 6.97 6.89 6.92 6.93 6.80 6.67 7.10 Tunisla 5.81 5.11 4.72 4.55 3.40 3.29 3.37 3.18 Turkey 4.59 4.77 4.28 4.59 4.47 4.24 4.59 4.32 Greece 3.70 3.73 3.82 3.92 4.00 4.26 4.02 4.07 Hungary 2.53 2.48 2.62 2.61 2.64 1.51 1.03 0.76 Portugal 4.52 4.45 4.58 4.63 4.46 4.42 4.53 4.37 Indonesla 4.46 4.90 4.55 4.51 4.51 4.85 4.99 4.92 Malaysia 5.44 5.97 5.67 5.60 5.07 4.66 4.49 4.14 Philippines 5.21 4.76 4.51 4.65 4.98 4.93 4.65 4.50 Thailand 9.28 8.41 7.93 8.06 7.84 7.74 7.66 7.62 China 3.41 3.08 3.49 3.72 4.30 4.68 Average 4.66 4.55 4.42 4.48 4.38 4.28 4.18 4.09 Table 111.7 - Nominal transportaton rates 1985 1986 1987 1988 1989 1990 1991 1992 Morocco 8.61 8.62 8.56 8.53 8.47 8.32 8.00 9.06 Tunisia 12.30 11.01 11.58 10.76 8.94 8.56 8.65 9.49 Turkey 5.97 6.04 5.59 5.50 5.89 5.11 5.66 5.56 Greece 6.69 6.50 6.16 6.64 6.00 6.46 6.55 7.58 Hungary 2.53 2.48 2.62 2.61 2.64 1.51 1.03 0.76 Portugal 8.30 8.22 7.66 7.47 6.99 7.45 7.51 6.88 Indonesia 5.63 6.11 5.55 5.58 5.89 6.42 6.38 6.42 Malaysia 8.76 9.85 9.39 9.06 8.17 7.63 7.38 7.24 Philippines 5.98 5.74 5.89 6.32 6.30 6.22 6.38 6.19 Thalland 10.97 9.79 9.95 10.21 9.86 10.02 9.72 10.08 China 2.52 2.64 2.51 2.85 3.19 3.56 2.50 3.43 Average 6.52 6.42 6.29 629 6.03 5.94 5.81 6.06 urce: Baklu" O payma d"a ae from IMF ANIiLLLI Page 1 of 10 THE EVOLUTION OF COMPARATIVE ADVANTAGES: INTERNATIONAL COMPARISONS This Annex presents the evolution of comparative advantages in: Morocco Thunia Spain Portugal Turkey Hungary Poland Czechoslovakia Malaysia Ibailand Philippines during the period 1970-1991. The methodology is explained in Chapter IV. The sectoral breakdown is performed at the two-digit level of the Standard International Trade Classification. Products appear in a different order from country to country: for each country those in which there is the largest comparative advantage in 1991 are classified first. ANNEX IV REVEALED COMPARATIVE ADVANTAGES & DISADVANTAGES MOROCCO Commodity (SITC revl 2-digits) 1970 1980 1987 1991 CLOTHING 1.3 7.3 28.7 34.2 FISH AND PREPARATIONS 8.7 7.5 22.9 27.0 FRUIT AND VEGETABLES 52.8 33.2 24.6 24.8 FERTILIZERS MANUFACTURED 0.9 0.4 5.3 15.2 CHEM ELEMENTS,COMPOUNDS -2.9 9.7 22.3 13.1 CRUDE FERTLZR,MINRLS NES 33.4 48.7 14.0 9.9 FOOTWEAR 0.3 1.6 2.8 3.6 TRAVEL GOODS,HANDBAGS 0.8 0.7 0.8 0.7 WOOD,CORK MANUFACTRS NES 0.5 0.8 0.6 0.6 PERFUME,CLEANING ETC PRD 0.5 -0.0 1.1 0.5 MISC FOOD PREPARATIONS -0.1 -0.1 -0.0 0.2 BEVERAGES 2.3 0.6 0.2 0.1 LEATHER,DRESSED FUR,ETC 1.2 0.3 -0.4 0.0 OTHER BASIC MANUF 0.0 0.0 0.0 0.0 OTHERS NOT ESLSEWHER SPEC. 0.0 0.0 0.0 0.0 OTHER CHEMICALS 0.0 0.0 0.0 0.0 OTHER BEVERAGE 0.0 0.0 0.0 0.0 OTHER MACHINES 0.0 0.0 0.0 0.0 OTHER MISCELLANEOUS MANUF 0.0 0.0 0.0 0.0 COAL,PETROLEUM ETC CHEMS -0.0 -0.0 -0.0 -0.0 ANIMAL FEEDING STUFF 2.0 0.3 -0.2 -0.0 EXPLOSIVES,PYROTECH PROD -0.2 -0.1 -0.1 -0.0 PLUMBG,HEATNG,LGHTNG EQU -0.8 -0.5 -0.2 -0.1 GOODS NOT CLASSD BY KIND 0.0 0.0 -0.0 -0.1 MEAT AND PREPARATIONS 0.4 0.3 -0.3 -0.2 FURNITURE -0.0 0.0 -0.0 -0.3 OTHER FOOD -0.3 -0.4 -0.6 -0.3 NON-FERROUS METALS -1.1 1.3 0.7 -0.3 RUBBER MANUFACTURES NES -1.6 -0.9 -0.6 -0.8 MEDICINAL ETC PRODUCTS -2.1 -1.7 -1.7 -1.6 DAIRY PRODUCTS AND EGGS -2.9 -2.2 -1.3 -1.8 SUGAR AND PREPS HONEY -5.0 -5.7 -1.7 -1.8 NONMETAL MINERAL MFS NES -1.0 -1.0 -1.8 -1.8 DYES,TANNING,COLOUR PROD -1.3 -1.1 -1.7 -1.9 COFFEE TEA COCOA SPICES -5.6 -3.0 -3.9 -2.1 INSTRMNTS,WATCHES,CLOCKS -1.2 -1.4 -1.8 -2.1 TOBACCO AND MFRS -0.9 -1.3 -2.0 -2.1 ANIMAL,VEGETABLE OIL,FAT -3.2 -2.3 -3.4 -2.7 TEXTILE YARN,FABRIC ETC -3.9 3.1 0.5 -2.7 CHEMICALS NES -1.7 -1.9 -3.0 -3.0 PAPER,PAPERBOARD AND MFR -1.8 -2.3 -2.9 -3.1 MISC MANUFCTRD GOODS NES -1.7 -1.7 -2.5 -3.2 OTHER RAW MATERIALS EXCL. FERT 7.3 3.2 -3.7 -3.8 PLASTIC MATERIALS ETC -2.3 -3.0 -4.0 -4.5 METAL MANUFACTURES NES -4.2 -2.8 -2.8 -4.6 ELECTRICAL MACHINERY -9.9 -5.6 -6.8 -5.6 CEREALS AND PREPARATIONS -2.7 -12.4 -8.6 -6.0 IRON AND STEEL -11.5 -9.4 -9.4 -10.4 TRANSPORT EQUIPMENT -13.8 -7.3 -11.6 -14.2 MINERAL FUELS ETC -7.3 -30.4 -26.5 -22.8 MACHINERY,NON-ELECTRIC -21.2 -20.5 -21.2 -26.1 TOTAL TOTAL TRADE 0.0 0.0 0.0 0.0 ANNEX IV REVEALED COMPARATIVE ADVANTAGES TUNISIA Commodity 1970 1980 1987 1991 CLOTHING 0.3 40.3 59.1 95.5 ANIMAL,VEGETABLE OIL,FAT 5.6 4.0 5.6 21.5 FERTILIZERS MANUFACTURED 13.7 21.3 30.5 20.9 MINERAL FUELS ETC 35.5 99.1 33.4 19.9 CHEM ELEMENTS,COMPOUNDS -2.2 12.6 8.0 13.2 FISH AND PREPARATIONS 2.3 3.9 9.9 7.2 FRUIT AND VEGETABLES 12.1 4.0 8.6 6.6 NONMETAL MINERAL MFS NES -0.6 -7.3 1.1 4.6 FOOTWEAR 0.0 1.0 0.9 3.0 LEATHER,DRESSED FUR,ETC -0.6 1.0 1.5 1.8 BEVERAGES 7.9 1.0 1.0 1.7 TRAVEL GOODS,HANDBAGS -0.1 0.6 0.8 1.0 PERFUME,CLEANING ETC PRD 0.5 -0.4 -0.3 0.6 FURNITURE -0.3 -0.3 -0.1 0.3 TOBACCO AND MFRS -0.5 -1.2 -1.6 0.1 WOOD,CORK MANUFACTRS NES -0.2 -0.6 -0.5 0.0 GOODS NOT CLASSD BY KIND 0.1 -0.2 -0.0 0.0 OTHER BASIC MANUF 0.0 0.0 0.0 0.0 OTHER MISCELLANEOUS MANUF 0.0 0.0 0.0 0.0 OTHER BEVERAGE 0.0 0.0 0.0 0.0 OTHERS NOT ESLSEWHER SPEC. 0.0 0.0 0.0 0.0 OTHER MACHINES 0.0 0.0 0.0 0.0 OTHER CHEMICALS 0.0 0.0 0.0 0.0 COAL,PETROLEUM ETC CHEMS 0.0 -0.0 -0.0 -0.0 OTHER FOOD 1.1 -1.4 -0.2 -0.0 EXPLOSIVESPYROTECH PROD -0.3 -0.7 -0.2 -0.1 MISC FOOD PREPARATIONS -0.4 -0.5 -0.7 -0.4 MEAT AND PREPARATIONS 0.7 -0.7 -1.8 -0.7 PLUMBG,HEATNG,LGHTNG EQU -0.3 -0.8 -0.5 -0.7 COFFEE TEA COCOA SPICES -2.7 -1.6 -1.9 -1.1 ANIMAL FEEDING STUFF 3.1 -1.9 -0.8 -1.7 RUBBER MANUFACTURES NES -1.9 -3.2 -1.9 -1.7 DAIRY PRODUCTS AND EGGS -3.0 -3.7 -2.7 -2.0 DYES,TANNING,COLOUR PROD -1.0 -1.7 -2.5 -2.2 METAL MANUFACTURES NES -4.2 -9.7 -4.6 -2.3 SUGAR AND PREPS HONEY -4.7 -6.3 -3.0 -2.7 INSTRMNTS,WATCHES,CLOCKS -2.4 -3.0 -2.5 -2.9 CHEMICALS NES -1.5 -2.3 -3.2 -3.1 NON-FERROUS METALS 3.6 -0.5 -2.8 -3.2 PAPERPAPERBOARD AND MFR -3.4 -3.4 -4.4 -3.5 CEREALS AND PREPARATIONS -17.9 -15.8 -10.1 -5.4 MISC MANUFCTRD GOODS NES -2.2 -3.1 -3.6 -6.1 ELECTRICAL MACHINERY -11.1 -10.3 -5.4 -6.3 PLASTIC MATERIALS ETC -1.7 -5.9 -6.3 -6.4 CRUDE FERTLZR,MINRLS NES 15.7 -1.8 -8.0 -7.4 MEDICINAL ETC PRODUCTS -4.0 -5.4 -8.2 -8.2 OTHER RAW MATERIALS EXCL. FERT 4.2 -8.4 -10.1 -9.2 IRON AND STEEL -1.0 -17.8 -8.9 -9.9 TRANSPORT EQUIPMENT -8.2 -19.2 -8.7 -15.4 TEXTILE YARN,FABRIC ETC -8.4 -13.9 -26.1 -43.5 MACHINERY,NON-ELECTRIC -21.7 -35.9 -28.5 -51.6 TOTAL TOTAL TRADE 0.3 0.0 -0.0 0.0 ANNEX IV REVEALED COMPARATIVE ADVANTAGES SPAIN Commodity 1970 1980 1987 1991 TRANSPORT EQUIPMENT 4.0 10.7 9.1 16.6 FRUITAND VEGETABLES 15.1 10.9 12.1 9.3 IRON AND STEEL -4.6 8.4 3.7 3.2 FOOTWEAR 3.6 3.1 4.1 2.5 NONMETAL MINERAL MFS NES 0.3 4.0 2.6 2.2 ANIMAL,VEGETABLE OIL,FAT 4.4 2.3 1.7 2.2 RUBBER MANUFACTURES NES 1.3 2.4 1.7 1.2 BEVERAGES 2.5 2.4 1.5 1.0 GOODS NOT CLASSD BY KIND 0.1 0.1 0.2 0.7 FURNITURE 0.6 0.7 1.0 0.4 LEATHER,DRESSED FUR,ETC 0.6 1.6 1.6 0.4 METAL MANUFACTURES NES 1.7 3.5 1.4 0.4 COAL,PETROLEUM ETC CHEMS -0.1 0.3 0.4 0.2 NON-FERROUS METALS -0.9 2.6 0.5 0.2 DYES,TANNING,COLOUR PROD -0.3 0.0 0.0 0.1 WOOD,CORK MANUFACTRS NES 1.1 1.1 0.6 0.1 PLUMBG,HEATNG,LGHTNG EOU 0.5 0.4 0.4 0.1 SUGAR AND PREPS HONEY -0.2 0.1 0.4 0.0 EXPLOSIVES,PYROTECH PROD 0.0 0.0 0.0 0.0 TEXTILE YARN.FABRIC ETC 1.8 2.8 1.1 0.0 OTHER MISCELLANEOUS MANUF 0.0 0.0 0.0 0.0 OTHERS NOT ESLSEWHER SPEC. 0.0 0.0 0.0 0.0 OTHER BEVERAGE 0.0 0.0 0.0 0.0 OTHER BASIC MANUF 0.0 0.0 0.0 0.0 OTHER CHEMICALS 0.0 0.0 0.0 0.0 OTHER MACHINES 0.0 0.0 0.0 0.0 CRUDE FERTLZR,MINRLS NES -0.2 -0.5 -0.1 -0.0 MEDICINAL ETC PRODUCTS -0.7 0.2 0.3 -0.0 TRAVEL GOODS,HANDBAGS 0.3 0.2 0.2 -0.1 PERFUME,CLEANING ETC PRD 0.1 0.4 0.2 -0.1 FERTILIZERS MANUFACTURED 0.1 0.3 -0.0 -0.1 CEREALS AND PREPARATIONS -1.5 -2.9 0.5 -0.3 MISC FOOD PREPARATIONS 0.1 0.1 -0.0 -0.3 COFFEETEA COCOA SPICES -1.5 -1.8 -1.0 -0.4 OTHER FOOD 0.1 0.0 -0.3 -0.4 DAIRY PRODUCTS AND EGGS -0.5 -0.2 -0.4 -0.4 TOBACCO AND MFRS -1.0 -1.0 -0.8 -0.6 PLASTIC MATERIALS ETC -1.0 0.1 -0.4 -0.6 MEAT AND PREPARATIONS -1.1 -0.2 -0.6 -0.6 ANIMAL FEEDING STUFF -0.3 0.0 -0.7 -1.0 CHEMICALS NES -0.6 -0.3 -0.9 -1.0 CHEM ELEMENTS,COMPOUNDS -2.0 -1.6 -1.9 -1.0 PAPER,PAPERBOARD AND MFR -0.4 0.8 -0.0 -1.1 MISC MANUFCTRD GOODS NES 2.6 2.7 0.2 -1.3 CLOTHING 1.5 1.3 1.0 -2.1 FISH AND PREPARATIONS 2.9 0.1 -1.8 -2.3 INSTRMNTS,WATCHES,CLOCKS -1.7 -2.2 -3.0 -3.1 OTHER RAW MATERIALS EXCL. FERT -10.9 -10.4 -6.4 -3.6 ELECTRICAL MACHINERY -1.1 -0.6 -4.1 -4.3 MACHINERY,NON-ELECTRIC -8.3 0.0 -9.5 -7.3 MINERAL FUELS ETC -6.5 -42.1 -14.3 -9.0 TOTAL TOTAL TRADE -0.0 -0.0 0.0 0.0 ANNEX IV REVEALED COMPARATIVE ADVANTAGES PORTUGAL Commodity 1970 1980 1987 1991 CLOTHING 15.2 34.3 64.6 62.0 FOOTWEAR 2.4 7.9 21.7 22.6 WOOD,CORK MANUFACTRS NES 9.1 15.1 14.3 12.8 NONMETAL MINERAL MFS NES 2.7 8.2 8.0 10.0 BEVERAGES 14.0 13.1 9.6 7.2 OTHER RAW MATERIALS EXCL. FERT 2.2 2.7 3.0 6.6 TEXTILE YARN,FABRIC ETC 25.6 23.9 10.0 3.9 FURNITURE 0.1 0.7 0.6 1.4 COAL,PETROLEUM ETC CHEMS -0.1 -0.1 0.8 1.0 DAIRY PRODUCTS AND EGGS 0.7 0.1 0.2 0.9 PAPERPAPERBOARD AND MFR -0.5 2.5 0.2 0.8 GOODS NOT CLASSD BY KIND 2.6 3.0 1.2 0.7 ANIMAL,VEGETABLE OIL,FAT 1.0 1.2 1.4 0.5 PLUMBG,HEATNG,LGHTNG EQU 0.2 0.1 0.2 0.4 CRUDE FERTLZR,MINRLS NES 1.4 -0.7 0.1 0.3 METAL MANUFACTURES NES 1.2 3.3 1.2 0.2 OTHER BEVERAGE 0.0 0.0 0.0 0.0 OTHER CHEMICALS 0.0 0.0 0.0 0.0 OTHER MISCELLANEOUS MANUF 0.0 0.0 0.0 0.0 OTHER BASIC MANUF 0.0 0.0 0.0 0.0 OTHER MACHINES 0.0 0.0 0.0 0.0 OTHERS NOT ESLSEWHER SPEC. 0.0 0.0 0.0 0.0 CHEMICALS NES 3.8 1.7 0.2 -0.1 EXPLOSIVES,PYROTECH PROD 0.2 0.7 -0.3 -0.1 TOBACCO AND MFRS -1.0 -1.0 -0.5 -0.2 TRAVEL GOODS,HANDBAGS 0.1 0.0 -0.1 -0.2 OTHER FOOD -0.1 -0.2 -0.7 -0.3 FERTILIZERS MANUFACTURED 0.9 1.6 -0.1 -0.3 MISC FOOD PREPARATIONS 0.3 0.1 -0.4 -0.4 ELECTRICAL MACHINERY -3.9 0.9 -2.1 -1.1 RUBBER MANUFACTURES NES 0.7 -1.0 -1.5 -1.2 COFFEE TEA COCOA SPICES -1.3 -1.3 -2.1 -1.3 FRUIT AND VEGETABLES 8.6 4.3 -0.3 -1.7 PERFUME,CLEANING ETC PRD 0.5 0.4 -1.1 -2.1 LEATHER,DRESSED FUR,ETC -0.1 -0.2 -2.3 -2.2 MEDICINAL ETC PRODUCTS -1.7 -2.2 -2.0 -2.3 PLASTIC MATERIALS ETC -3.9 -6.8 -2.8 -2.4 SUGAR AND PREPS HONEY -3.6 -3.0 -2.4 -2.4 MEAT AND PREPARATIONS -0.8 -0.5 -1.9 -2.5 DYES,TANNING,COLOUR PROD -1.5 -1.5 -2.7 -2.6 ANIMAL FEEDING STUFF -1.2 -3.0 -2.6 -2.7 FISH AND PREPARATIONS 5.4 3.9 -4.4 -3.6 NON-FERROUS METALS -5.3 -5.0 -4.8 -3.9 CHEM ELEMENTS,COMPOUNDS -4.0 -5.6 -6.9 -4.0 MISC MANUFCTRD GOODS NES -1.0 1.4 -3.1 -4.7 CEREALS AND PREPARATIONS -6.9 -14.2 -3.9 -4.8 INSTRMNTS,WATCHES,CLOCKS -2.6 -1.7 -3.9 -5.1 IRON AND STEEL -8.3 -6.0 -7.3 -7.0 MINERAL FUELS ETC -13.1 -46.7 -29.7 -21.2 TRANSPORT EQUIPMENT -15.9 -6.4 -18.5 -22.3 MACHINERY,NON-ELECTRIC -22.0 -23.9 -28.8 -28.5 TOTAL TOTAL TRADE -0.0 -0.0 -0.0 -0.0 ANNEX IV REVEALED COMPARATIVE ADVANTAGES TURKEY Commodity 1970 1980 1987 1990 CLOTHING 0.4 3.3 37.8 39.3 FRUIT AND VEGETABLES 14.2 23.8 24.4 19.9 TEXTILE YARN,FABRIC ETC 1.3 7.9 17.9 12.4 IRON AND STEEL -4.2 -2.6 -0.3 9.0 TOBACCO AND MFRS 7.5 5.9 3.2 2.9 NONMETAL MINERAL MFS NES -0.2 1.5 1.0 2.5 CRUDE FERTLZR,MINRLS NES 1.3 3.3 2.9 2.2 OTHER FOOD 1.4 2.5 3.0 1.6 PERFUME,CLEANING ETC PRD 0.1 0.0 0.5 0.8 MISC FOOD PREPARATIONS 0.0 -0.0 0.7 0.8 FISH AND PREPARATIONS 0.6 0.9 1.9 0.7 COFFEE TEA COCOA SPICES -0.0 0.5 0.3 0.7 TRAVEL GOODS,HANDBAGS -0.0 -0.1 0.3 0.4 PLUMBG.HEATNG,LGHTNG EQU -0.0 0.1 0.7 0.3 FOOTWEAR 0.0 0.0 0.4 0.3 MEAT AND PREPARATIONS 0.3 0.5 0.7 0.2 BEVERAGES 0.0 0.1 0.0 0.1 WOOD,CORK MANUFACTRS NES -0.0 0.1 0.5 0.1 FURNITURE -0.0 0.0 0.3 0.0 COAL,PETROLEUM ETC CHEMS -0.0 0.5 0.0 0.0 DAIRY PRODUCTS AND EGGS 0.0 0.0 0.6 0.0 OTHER BASIC MANUF 0.0 0.0 0.0 0.0 OTHER MACHINES 0.0 0.0 0.0 0.0 OTHER BEVERAGE 0.0 0.0 0.0 0.0 OTHER CHEMICALS 0.0 0.0 0.0 0.0 OTHERS NOT ESLSEWHER SPEC. 0.0 0.0 0.0 0.0 OTHER MISCELLANEOUS MANUF 0.0 0.0 0.0 0.0 EXPLOSIVES,PYROTECH PROD -0.0 -0.0 -0.1 -0.0 GOODS NOT CLASSD BY KIND 0.0 -0.0 0.4 -0.1 METAL MANUFACTURES NES -1.5 -0.4 0.5 -0.1 RUBBER MANUFACTURES NES -0.1 0.1 0.3 -0.2 ANIMAL FEEDING STUFF 2.1 -0.0 0.5 -0.3 ANIMAL,VEGETABLE OIL,FAT -0.3 -1.0 -0.4 -0.4 LEATHER,DRESSED FUR,ETC 0.1 -0.0 -0.9 -0.7 PAPER,PAPERBOARD AND MFR -0.8 -0.5 0.1 -0.8 NON-FERROUS METALS -0.6 -0.3 -2.9 -0.8 FERTILIZERS MANUFACTURED -2.0 -3.8 -1.4 -0.8 MEDICINAL ETC PRODUCTS -0.8 -0.5 -1.4 -0.9 MISC MANUFCTRD GOODS NES -0.3 0.2 -0.3 -1.3 PLASTIC MATERIALS ETC -1.0 -1.1 -1.0 -1.4 CHEMICALS NES -0.8 -1.0 -2.3 -1.6 SUGAR AND PREPS HONEY 0.5 -0.9 -0.0 -1.7 DYES,TANNING,COLOUR PROD -0.8 -0.5 -2.0 -2.0 CEREALS AND PREPARATIONS -3.4 2.6 0.4 -3.0 INSTRMNTS,WATCHES,CLOCKS -0.9 -0.4 -2.5 -3.2 CHEM ELEMENTS,COMPOUNDS -3.3 -3.5 -7.2 -4.1 OTHER RAW MATERIALS EXCL. FERT 18.1 8.7 -10.4 -5.0 ELECTRICAL MACHINERY -4.4 -2.5 -7.8 -6.2 TRANSPORT EQUIPMENT -5.5 -0.6 -4.8 -8.2 MACHINERY,NON-ELECTRIC -12.9 -8.1 -18.7 -23.2 MINERAL FUELS ETC -3.9 -34.7 -35.0 -28.0 TOTAL TOTAL TRADE 0.0 -0.0 -0.0 0.0 ANNEX IV REVEALED COMPARATIVE ADVANTAGES HUNGARY Commodity 1970 1980 1987 1990 MEAT AND PREPARATIONS 4.4 11.6 8.1 10.1 FRUIT AND VEGETABLES 8.4 5.5 4.9 4.5 IRON AND STEEL 0.0 0.9 0.0 2.8 MEDICINAL ETC PRODUCTS 6.8 3.8 3.4 2.6 CLOTHING 5.9 4.9 3.6 2.5 GOODS NOT CLASSD BY KIND -0.1 1.2 1.7 2.5 NON-FERROUS METALS -2.5 -1.8 -0.7 2.3 OTHER FOOD 6.3 5.0 2.6 2.0 CEREALS AND PREPARATIONS 2.8 3.1 2.1 1.4 ANIMAL,VEGETABLE OIL,FAT 0.2 1.2 1.1 1.3 DAIRY PRODUCTS AND EGGS 1.2 1.3 0.3 1.2 PLASTIC MATERIALS ETC -2.1 -2.4 -0.2 1.1 FURNITURE 0.3 1.3 0.8 0.8 BEVERAGES 2.3 2.7 1.3 0.8 WOOD.CORK MANUFACTRS NES -0.7 0.0 0.3 0.7 FOOTWEAR 4.0 2.7 1.7 0.6 RUBBER MANUFACTURES NES -0.1 -0.0 0.2 0.5 FERTILIZERS MANUFACTURED -2.4 -0.7 -0.6 0.4 TRAVEL GOODS,HANDBAGS 0.5 0.6 0.4 0.3 PLUMBG,HEATNG,LGHTNG EOU 0.1 -0.1 0.3 0.3 MISC FOOD PREPARATIONS -0.1 0.1 0.1 0.2 LEATHER,DRESSED FUR,ETC 0.6 0.3 -0.3 0.1 FISH AND PREPARATIONS -0.1 0.1 0.1 0.1 SUGAR AND PREPS HONEY -0.0 0.8 0.3 0.0 OTHER RAW MATERIALS EXCL. FERT -12.0 -5.6 -2.3 0.0 EXPLOSIVES,PYROTECH PROD 0.1 -0.0 0.0 0.0 OTHER MISCELLANEOUS MANUF 0.0 0.0 0.0 0.0 OTHERS NOT ESLSEWHER SPEC. 0.0 0.0 0.0 0.0 COAL,PETROLEUM ETC CHEMS -0.1 0.0 0.0 0.0 OTHER BASIC MANUF 0.0 0.0 0.0 0.0 OTHER MACHINES 0.0 0.0 0.0 0.0 OTHER CHEMICALS 0.0 0.0 0.0 0.0 OTHER BEVERAGE 0.0 0.0 0.0 0.0 TEXTILE YARN,FABRIC ETC 1.3 -0.3 -0.5 -0.1 TOBACCO AND MFRS -0.1 -0.3 -0.2 -0.2 METAL MANUFACTURES NES 1.7 -0.5 -0.3 -0.3 NONMETAL MINERAL MFS NES -2.4 -1.2 -0.6 -0.3 MISC MANUFCTRD GOODS NES 1.1 0.1 -0.8 -0.4 PERFUME,CLEANING ETC PRD -0.0 -0.4 -0.3 -0.4 TRANSPORT EQUIPMENT 3.5 4.6 5.4 -0.5 CRUDE FERTLZR,MINRLS NES -1.9 -2.1 -1.3 -0.6 INSTRMNTS,WATCHES,CLOCKS 1.0 1.3 2.0 -0.7 DYES,TANNING,COLOUR PROD -0.5 -1.0 -0.8 -0.7 COFFEE TEA COCOA SPICES -1.7 -3.7 -1.8 -0.9 ELECTRICAL MACHINERY 7.6 4.6 4.3 -1.3 PAPER,PAPERBOARD AND MFR -3.4 -2.8 -2.0 -2.1 CHEM ELEMENTS,COMPOUNDS -3.1 -2.5 -3.1 -2.6 ANIMAL FEEDING STUFF -4.0 -3.7 -2.6 -2.7 CHEMICALS NES -2.0 -4.0 -3.3 -3.3 MACHINERY,NON-ELECTRIC -8.2 -4.3 -5.1 -8.9 MINERAL FUELS ETC -12.5 -20.2 -18.4 -13.2 TOTAL TOTAL TRADE -0.0 -0.0 -0.0 0.0 ANNEX IV REVEALED COMPARATIVE ADVANTAGES POLAND Commodity 1981 1987 1990 MACHINERY,NON-ELECTRIC 8.3 -0.8 -3.8 ELECTRICAL MACHINERY 3.1 0.4 -0.9 CLOTHING 3.0 0.8 0.4 NON-FERROUS METALS 2.8 1.8 2.8 TRANSPORT EQUIPMENT 2.7 0.9 1.1 OTHER BASIC MANUF 2.2 1.3 0.2 OTHER MACHINES 2.1 0.5 -0.7 TEXTnLE YARN,FABRIC ETC 1.7 -0.1 -0.1 METAL MANUFACTURES NES 1.6 0.8 1.0 FOOTWEAR 1.6 0.7 0.5 CRUDE FERTLZR,MINRLS NES 1.3 0.7 0.5 OTHER FOOD 0.6 1.3 1.4 FURNITURE 0.5 0.6 0.7 DYES,TANNING,COLOUR PROD 0.5 -0.0 -0.1 FRUIT AND VEGETABLES 0.4 1.2 0.8 MEDICINAL ETC PRODUCTS 0.3 -0.5 -0.4 MISC MANUFCTRD GOODS NES 0.3 -0.5 -1.2 FISH AND PREPARATIONS 0.3 0.4 0.1 TRAVEL GOODS,HANDBAGS 0.3 0.1 0.0 PERFUME,CLEANING ETC PRD 0.2 -0.1 -0.1 MEAT AND PREPARATIONS 0.1 1.5 1.0 NONMETAL MINERAL MFS NES 0.1 0.1 0.4 GOODS NOT CLASSD BY KIND 0.1 3.0 2.6 OTHER CHEMICALS 0.0 -0.4 -0.1 PLUMBG,HEATNG,LGHTNG EOU 0.0 0.0 0.0 BEVERAGES 0.0 -0.3 -0.2 OTHER BEVERAGE 0.0 0.1 0.0 OTHERS NOT ESLSEWHER SPEC. 0.0 0.0 0.0 EXPLOSIVES,PYROTECH PROD 0.0 0.0 0.0 COAL,PETROLEUM ETC CHEMS 0.0 0.0 0.0 OTHER MISCELLANEOUS MANUF -0.0 0.0 -0.7 WOOD,CORK MANUFACTRS NES -0.1 0.2 0.3 CHEM ELEMENTS,COMPOUNDS -0.1 0.3 1.0 LEATHER,DRESSED FUR,ETC -0.1 -0.2 -0.1 MISC FOOD PREPARATIONS -0.2 0.0 -0.1 RUBBER MANUFACTURES NES -0.3 -0.3 -0.0 INSTRMNTS,WATCHES,CLOCKS -0.3 -0.6 -0.7 TOBACCO AND MFRS -0.4 -0.2 -0.4 PAPER,PAPERBOARD AND MFR -0.4 -0.2 -0.0 SUGAR AND PREPS HONEY -0.5 0.1 0.3 ANIMAL,VEGETABLE OIL,FAT -0.6 -0.2 -0.1 PLASTIC MATERIALS ETC -0.7 -0.7 -0.2 CHEMICALS NES -0.8 -0.8 -0.0 DAIRY PRODUCTS AND EGGS -0.9 -0.0 0.3 COFFEE TEA COCOA SPICES -1.3 -1.3 -0.6 FERTILIZERS MANUFACTURED -1.4 -0.3 0.3 IRON AND STEEL -1.5 -0.1 1.4 ANIMAL FEEDING STUFF -2.2 -1.5 -0.4 OTHER RAW MATERIALS EXCL. FERT -4.6 -2.4 -0.3 CEREALS AND PREPARATIONS -7.8 -1.2 -0.1 MINERAL FUELS ETC -10.2 -3.7 -5.7 TOTAL TOTAL TRADE -0.0 -0.0 0.0 ANNEX IV REVEALED COMPARATIVE ADVANTAGES CZECHOSLOVAKIA Commodity 1972 1979 1986 MACHINERY.NON-ELECTRIC 10.1 16.4 25.4 TRANSPORT EQUIPMENT 11.7 12.7 20.5 IRON AND STEEL 8.1 11.7 9.2 FOOTWEAR 6.5 6.4 5.4 TEXTILE YARN,FABRIC ETC 3.2 3.8 5.3 NONMETAL MINERAL MFS NES 3.9 3.9 4.7 CLOTHING 1.9 3.1 4.1 FURNITURE 1.1 1.2 2.6 MISC MANUFCTRD GOODS NES 2.6 2.3 2.6 WOOD,CORK MANUFACTRS NES -0.1 0.4 1.7 PLASTIC MATERIALS ETC -1.5 0.9 1.1 DAIRY PRODUCTS AND EGGS -0.1 0.5 0.9 DYES,TANNING.COLOUR PROD 0.6 0.3 0.9 TRAVEL GOODS,HANDBAGS 0.1 0.2 0.9 METAL MANUFACTURES NES 0.4 0.3 0.8 ELECTRICAL MACHINERY 4.5 -0.7 0.8 RUBBER MANUFACTURES NES 0.4 0.7 0.7 PLUMBG,HEATNG,LGHTNG EQU -0.2 0.5 0.5 MEAT AND PREPARATIONS -0.5 0.3 0.4 EXPLOSIVESPYROTECH PROD 0.2 0.6 0.2 PAPER,PAPERBOARD AND MFR 0.0 0.3 0.1 BEVERAGES -0.4 0.6 0.1 OTHER FOOD -0.2 -0.1 0.1 OTHER CHEMICALS -0.0 0.0 0.1 TOTAL TOTAL TRADE -0.0 0.0 0.0 OTHER MACHINES 0.0 0.0 0.0 COAL,PETROLEUM ETC CHEMS 0.2 0.8 0.0 OTHERS NOT ESLSEWHER SPEC. 0.1 -0.1 0.0 OTHER MISCELLANEOUS MANUF 0.0 0.0 0.0 OTHER BEVERAGE 0.0 0.0 -0.0 OTHER BASIC MANUF 0.0 0.0 -0.0 MEDICINAL ETC PRODUCTS 0.4 0.0 -0.1 LEATHER,DRESSED FUR,ETC -0.1 -0.5 -0.1 MISC FOOD PREPARATIONS -0.2 0.2 -0.1 CEREALS AND PREPARATIONS -3.3 -4.0 -0.2 INSTRMNTS,WATCHES,CLOCKS -0.1 -1.0 -0.2 PERFUME,CLEANING ETC PRD -0.2 -0.3 -0.4 SUGAR AND PREPS HONEY 0.3 0.3 -0.5 ANIMAL.VEGETABLE OIL,FAT -0.9 -0.7 -0.5 FISH AND PREPARATIONS -1.2 -0.9 -0.7 CHEMICALS NES -1.3 -2.3 -0.8 CHEM ELEMENTS,COMPOUNDS -1.4 -2.4 -0.9 TOBACCO AND MFRS -2.4 -1.4 -1.0 CRUDE FERTLZR,MINRLS NES -2.4 -2.1 -1.3 ANIMAL FEEDING STUFF -2.5 -2.1 -1.4 FERTILIZERS MANUFACTURED -1.1 -1.0 -1.7 GOODS NOT CLASSD BY KIND -0.1 -2.1 -2.3 COFFEE TEA COCOA SPICES -1.4 -2.2 -2.3 FRUIT AND VEGETABLES -3.4 -2.9 -3.3 NON-FERROUS METALS -8.1 -7.2 -5.3 OTHER RAW MATERIALS EXCL. FERT -12.7 -9.2 -8.0 MINERAL FUELS ETC -10.7 -25.1 -58.0 TOTAL TOTAL TRADE 0.0 0.0 0.0 ANNEX IV REVEALED COMPARATIVE ADVANTAGES NEW ASIAN NICS (MALAYSIA + THAILAND + PHILIPINNES) Commodity 1970 1980 1987 1991 CLOTHING -0.6 7.9 18.9 34.0 MISC MANUFCTRD GOODS NES -3.0 -0.3 2.7 17.2 OTHER RAW MATERIALS EXCL. FERT 87.5 66.1 35.0 17.0 FISH AND PREPARATIONS 0.9 5.5 9.0 15.1 ANIMAL,VEGETABLE OIL,FAT 11.0 23.0 14.5 14.2 FRUIT AND VEGETABLES 7.4 14.4 9.8 12.0 FOOTWEAR 0.0 1.4 2.2 6.3 WOOD.CORK MANUFACTRS NES 4.2 5.5 4.3 5.3 FURNITURE -0.1 1.3 1.4 4.6 CEREALS AND PREPARATIONS 5.5 10.6 6.1 4.1 SUGAR AND PREPS HONEY 10.1 7.0 2.5 4.0 ELECTRICAL MACHINERY -11.8 -8.8 -2.1 2.9 GOODS NOT CLASSD BY KIND -1.8 -3.2 -16.2 2.8 MEAT AND PREPARATIONS -0.7 -0.2 1.1 2.1 TRAVEL GOODS,HANDBAGS -0.0 0.2 0.7 1.8 COFFEE TEA COCOA SPICES 0.6 1.8 3.8 1.7 RUBBER MANUFACTURES NES -0.8 -0.4 0.5 1.3 OTHER FOOD 0.1 -0.2 0.2 0.5 MISC FOOD PREPARATIONS -0.5 0.1 -0.1 0.4 MINERAL FUELS ETC -13.7 -33.3 0.9 0.4 PLUMBG,HEATNG,LGHTNG EQU -0.4 -0.2 -0.0 0.2 LEATHER,DRESSED FUR,ETC -0.0 -0.1 0.9 0.1 TOBACCO AND MFRS -0.5 -0.3 -0.8 0.1 OTHER MISCELLANEOUS MANUF 0.0 0.0 0.0 0.0 OTHER MACHINES 0.0 0.0 0.0 0.0 OTHER BASIC MANUF 0.0 0.0 0.0 0.0 OTHERS NOT ESLSEWHER SPEC. 0.0 0.0 0.0 0.0 OTHER BEVERAGE 0.0 0.0 0.0 0.0 OTHER CHEMICALS 0.0 0.0 0.0 0.0 EXPLOSIVESPYROTECH PROD -0.3 -0.4 -0.2 -0.1 COAL.PETROLEUM ETC CHEMS -0.0 -0.1 -0.5 -0.1 ANIMAL FEEDING STUFF -0.1 -0.4 -0.8 -0.5 BEVERAGES -0.4 -0.7 -0.5 -0.8 CRUDE FERTLZR,MINRLS NES -0.5 -1.2 -0.9 -1.0 PERFUME,CLEANING ETC PRD -1.1 -1.2 -1.4 -1.0 DAIRY PRODUCTS AND EGGS -4.0 -2.9 -2.5 -2.2 MEDICINAL ETC PRODUCTS -3.5 -2.2 -2.7 -2.3 CHEMICALS NES -3.4 -3.4 -3.0 -2.4 FERTILIZERS MANUFACTURED -2.2 -5.0 -2.9 -2.5 DYES,TANNING,COLOUR PROD -1.8 -1.8 -2.3 -2.5 TEXTILE YARN,FABRIC ETC -8.1 0.2 -2.4 -3.4 INSTRMNTS,WATCHES,CLOCKS -2.4 -2.9 -3.2 -3.6 NON-FERROUS METALS 20.6 18.2 0.1 -4.3 PAPER,PAPERBOARD AND MFR -4.8 -3.7 -4.1 -4.4 METAL MANUFACTURES NES -5.8 -4.7 -3.2 -4.8 NONMETAL MINERAL MFS NES -1.3 -0.7 2.1 -5.2 PLASTIC MATERIALS ETC -3.5 -4.6 -7.0 -7.9 CHEM ELEMENTS,COMPOUNDS -4.2 -8.5 -10.7 -9.3 TRANSPORT EQUIPMENT -20.9 -22.5 -9.6 -21.5 IRON AND STEEL -13.4 -15.1 -13.0 -24.0 MACHINERY,NON-ELECTRIC -32.1 -34.3 -26.7 -44.2 TOTAL TOTAL TRADE -0.0 -0.0 0.0 0.0 ANNEX V Page 1 of 8 EUSTORICAL COMPARISONS OF FACTOR ENDOWMENTS This Annex provides indicators of factors endowments for a sample of ten countries during the period 1960-1989. The counties in the sample differ, sometimes sharply, for their per capita income levels; they have been chosen because they all compete to penetrate the EC markets for the products exported by Morocco and Tunisia. The countries are: CZE - Czechoslovakia MAL - Malaysia MOR - Morocco PHI - Philippines POL - Poland POR - Portugal SPA - Spain THA - Thailand TIN - Tunisia TUR - Turkey The information comes from a variety of sources, the World Bank Development Report, U.N. Statistical Yearbooks and files of published raw data.' References are given in of Chapter IV. Most information is presented in index form. Indexes are constructed taking a benchmark country (usually the best performer) and rescaling actual values for other countries after setting to 100 the value in the benchmark country. The benchmark country's actual value of the variable is reported in the last row of the table. 1/ Some of the findings overlap with those of World Bank (1993), Kingdom of Morocco 'Developing private industry", op. cit. Compared to that study this Annex provides a narrower set of factors but a larger variety of indicators and a longer period of time. ANNEX-V Page 2 of 8 ___________ Table V.1: Per capita GDP 1970 1980 1985 1988 Morocco 15 17 16 28 Tunisia 19 26 28 39 Spain 76 88 87 100 Portugal 45 53 50 72 Turkey 30 33 34 49 Poland 68 71 66 55 Czechoslovakia 100 100 100 n.a. Malaysia 27 44 46 64 Thailand 18 24 26 39 Philippines 19 22 18 26 CZE 5732 CB7002 CZ$P24SA 7406 Note: The index is based on raw data on per capita GDP levels, measured at 1980 international prices (except for 1988 data, which are at 1985 international prices). Source: Summers-Heston (1988, 1991). Table V.2: CAPITAL-LABOR RATIO INDEXES 1960 1970 1980 1985 SPA 100 SPA 100 SPA 100 MAL 109 MAL 74 MAL 55 MAL 72 SPA 100 TUR 55 POR 49 POR 56 POR 63 POR 53 TUR 41 TUR 49 POL 56 TUN 48 TUN 34 PHI 32 TUR 53 PHI 46 PHI 31 TUN 30 PHI 34 THA 26 THA 22 THA 22 TUN 34 MORll MOR 13 THA 26 MOR 16 SPAm-o 0091 $At.Y0 P''.~OSA0O9 Note: The index is computed from raw data on capital labor ratios. Data on capital stocks in thousands of US dollars are from Benhabib-Spiegel (1992). Data on population aged 25 and over are from Barro-Lee (1993). ANNEX V Page 3 of 8 Table V.3: NO-SCHOOL ATTAINMEPN 1960 1970 1980 1985 TUN 100 TUN 100 TUN 100 TUN 100 TUR 63 POR 79 TUR 73 TUR 64 MAL 62 TUR 68 SPA 49 MAL 45 THA 51 MAL 48 MAL 48 POR 37 POR 48 THA 40 POR 38 THA 30 PHI 36 PHI 23 THA 28 PHI 14 SPA 26 SPA 15 PHI 16 SPA 8 POL 9 POL 6 POL 4 POL 4 CZE 1 CZE 1 CZE 0 CZE 1 : - - - g~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~. 2. .. . . . . . .....-j --. 4.. , U 5.2 . ........TUN' -72. TWN*66.3 Note: The variable indexed is the share of people aged 25 and over having attained no-schooling. Data are taken from Barro-Lee (1993). Data on Morocco are missing. Table V.4: IHLITERACY RATE 1985 1990 MOR 145 MOR 145 TUN 100 TUN 100 MAL 58 MAL 62 T|JR 56 TUR 54 POR 35 POR 42 PHI 30 PHI 29 THA 19 THA 20 SPA 13 SPA 14 MOR=67 - : :51: Note: The index is computed from raw data on illiteracy rates taken from the World Development Report, 1993. ANNEX V Page 4 of 8 Table V.5: NUMBER OF YEARS OF SCHOOLING A. Data from Kyiacou (1991) & bah pouWks-Apiade (186 1970 10 1985 PHI 100 SPA 100 11001 SPA 100 POR 80 PHI 95 [112] PHI 91 SPA 74 POR 86 [721 POR 67 MAL 67 MAL 66 [801 TUR 65 THA 62 TUR 65 [82] MAL 59 TUR 46 THA 59 [661 TUN 58 TUN 42 TUN 56 [35] THA 57 MOR 25 MOR 36 [19] MOR 36 PBIt.6.6 81~:-4A8:A [62J P1 Note: The index is based on the average number of years of schooling taken from Kyriacou (1991). Figures in brackets are from Psacharoupoulos-Arriagade (1986). B. Data from Barro-Lee (191) 1970 1980 198S CZE 100 CZE 100 CZE 100 POL 86 POL 91 POL 89 PHI 54 PHI 64 PHI 69 SPA 54 SPA 48 SPA 60 THA 40 MAL 48 MAL 53 MAL 36 THA 40 THA 52 TUR 24 POR 34 POR 39 POR 14 TUR 28 TUR 34 TUN 11 TUN 20 TUN 27 Note: The index is based on the average number of years of schooling reported in Barro-Lee (1993). Data on Morocco missing. ANLX V Page 5 of 8 Table V.6: EDUCATIONAL ATTAINMENT A. Secondary Level 1970 1980 1985 CZE 183 CZE 136 CZE 117 POL 100 POL 100 POL 100 PHI 73 MAL 74 MAL 82 MAL 41 PHI 60 PH1 60 TUR 34 SPA 43 SPA 60 SPA 32 TUN 36 TUN 45 TUN 26 POR 34 POR 42 THA 18 TUR 29 TUR 34 POR 11 THA 17 THA 22 .Q 5 . .. ..... .. . ........... . ........ Note: Tbemindex is basmd on theuhare of people aged 25 and over who nrolled the sooondary school for at least one year reported in Barro-Lee (1993). Data for Morocco are missing. B. Higher Levels 1970 1980 1985 PHI 100 PHI 100 PHI 100 POL 76 CZE 52 CZE 55 CZE 56 POL 49 POL 55 SPA 34 SPA 40 THA 43 MAL 31 THA 30 SPA 34 TIHA 18 TUR 20 TUN 21 TUR 14 POR 17 TUR 20 TUN 13 TUN 16 POR 18 POR 8 MAL 12 MAL 15 : - - ~~~~.2 ::: Note: The index is based on the shre of people aged 25 and over who earolled higher-a-second levels of schooling for at least one year reported in Barro-Lee (1993). Data for Morocco are missing. ANNEX-V Page 6 of 8 Table V.7: COMFIETION RATIO 1970 1980 1985 TUN 100 TUN 100 TUN 100 POL 98 CZE 98 CZE 97 MAL 97 POL 97 POL 95 CZE 95 MAL 97 MAL 95 PHI 75 PHI 73 PHI 73 TUR 67 SPA 63 SPA 64 SPA 64 TUR 63 TUR 63 POR 56 POR 55 POR 53 w~"UNI=19: U-9UN4 Note: The completion ratio is calculated for people aged 25 and over as the ratio between the number of those who reached a certain educational attainnent and the total number of people enrolled that level of education for at least one year. The index is based on actual completion ratios taken from Barro-Lee (1993). Data for Morocco are missing. Table V.8: TELEPHONE DENSY ___ 1970 1980 1985 1989 CZE 102 SPA 100 SPA 100 SPA 100 SPA 100 CZE 80 CZE 64 POR 63 POR 62 POR 51 POR 50 CZE 47 POL 42 POL 34 POL 31 TUR 34 TUR 12 TUR 11 MAL 22 POL 27 MAL 12 MAL 11 TUR 18 MAL 26 TUN 12 TUN 10 TUN 10 TUN 11 MOR 8 PHI S THA 4 THA 7 PHI 5 MOR 4 PHI 4 MOR 4 THA 3 THA 3 MOR 4 PHI 3 SPA- 135 "31PA-22Q SA33 -PA=- 0 Note: The index is based on the number of telephones per 1000 inhabitants published in UN Statistical Yearbooks. Data for 1989 are reported in Italtel, Communications Atlas 1992, and are not strictly comparable with those for previous years. ANNEXY Page 7 of 8 Table V.9: ELECTRICAL POWER GENERATING CAPACITY 1983 1985 1989 CZE 100 CZE 100 CZE 100 POL 60 POL 60 POL 61 SPA 43 SPA 44 SPA 53 POR 43 POR 43 POR 49 PHI 13 PHI 14 PHI 14 THA 8 THA 9 TUR 13 MAL 7 MAL 8 THA 12 TUR 6 TUR 8 MAL 9 TUN 4 TUN 6 TUN 6 MOR 3 MOR 3 MOR 3 CZE443.1 - - < iSZ7: . ....... Note: The index is based on the data on raw data in thousand kilowatts per squared kilometer reported in the UN Energy Statistics Yearbook. Table V.10: RAILWAYS TRAFC 1970 1980 1 1989 CZE 100 CZE 100 CZE 100 CZE 100 POL 67 POL 76 POL 67 POL 63 SPA 4 SPA 4 SPA 4 SPA 4 POR 2 POR 2 POR 2 POR 3 TUN 2 TUN 2 TUN 2 TUN 2 TUR I MOR I MOR 2 MOR 2 MOR I TUR 1 TUR 2 TUR 2 THA I THA I THA 1 THA I MAL 1 MAL I MAL 0 MAL I PHI 0 PHI 0 PHI 0 PHI 0 CZE=476.5 - ZE-S6 :.: : : B:562 .4 Note: The index is based on the data on railways traffic (measured as million tons-kilometers per square kilometer) reported in U.N. Statistical Yearbooks. ANNEXY Page 8 of 8 Table V.11: ROAD DENSlTY 1983 1985 1990 POL 100 POL 100 POL 100 SPA 66 SPA 66 SPA 68 (*) PHI 54 CZE 60 SPA 55 TUR 41 PHI 56 CZE 49 MAL 22 TUR 42 PHI 45(***) TUN 15 MAL 24 TUR 40 THA 15 THA 17 TUN 15 (**) MOR 8 TUN 16 THA 12(**) MOR 8 (*) MAL 10 (**) MOR 7 (**) (*) 1986; (**) 1989; (**) 1988. Note: The index is based on road density data ilomeers of total network per square lilometer) reported in UN Energy Statistics Yarbooks. Table V.12: AIR TRAFFIC 1985 1988 1991 SPA 100 SPA 100 SPA 100 MAL 57 MAL 53 MAL 55 PHI 32 PH1 34 THA 27 THA 26 THA 27 PHI 24 TUR 18 POR 19 POR 18 POR 17 TUR 18 TUR 12 POL 15 POL 15 POL 8 MOR 13 CZE 11 CZE 8 CZE 12 MOR 7 MOR 7 TUN 8 TUN 6 TUN S SPAsw 182 S?A~~~~~201 SPA 263 Note: The index is based on the total number of departure (in thousands) of domestic and international flights from the country's airports.