Doc. 8348

10 March 1999

Need for increased economic co-operation in the Mediterranean Region

Report

Committee on Economic Affairs and Development

Rapporteur: Mr Giuseppe Turini, Italy, European Democratic Group

Summary

      Following on to the Parliamentary Assembly's Resolution 1174 (1998) on economic development in the Middle East and North Africa, this report focuses on the 'micro' aspects of the process, in particular the multitude of cooperation initiatives under way between Europe and the non-European countries in the Mediterranean basin - including at parliamentary level through a series of Assembly Conferences of Mediterranean regions. Special attention is given to efforts to harness the region's human potential and to encourage the development of small and medium-sized enterprises, which the report considers vital to economic development and peace through the intensified business and human contacts across borders to which they give rise. Europe is in an ideal position to assist in this process – a support which is in its own interest since peace around the Mediterranean can only be ensured through rising overall prosperity.

I.        Draft resolution

1.        As the Euro-Mediterranean Partnership - launched in 1995 through the so-called Barcelona process - approaches its fifth anniversary, it is becoming increasingly clear that lasting security and prosperity in the Mediterranean region cannot rest exclusively on a political basis, but that they must be equally built on economic progress such as more open trade and the development of small and medium-sized enterprises (SMEs).

2.        However, economic development in many less advanced countries around the Mediterranean is being hampered by an underdeveloped private sector, especially SMEs; by numerous trade obstacles, not only with European countries but also between the countries concerned; and by an insistence on national economic self-reliance instead of freer trade. European institutions must assist more resolutely than hitherto in the process of freeing the economic potential of the countries concerned, including in the educational field and as regards the contribution of women to society.

3.        The Assembly considers the development of SMEs in the Mediterranean region of particular importance given their potential for offering local employment and professional and entrepreneurial development for especially women and young people, for rapid company growth, for co-operation with other SMEs including in Europe, and for stimulating economic activity at local and regional level.

4.        In conclusion, the Assembly:

i.       supports the Euro-Mediterranean Partnership ambition progressively to establish a free-trade area between the European Union and numerous Mediterranean Association (MEDA) countries by the year 2010 - an arrangement which it sees as an important means for economic development, political stability and reduced migratory pressure in the region;

ii.        welcomes the negotiations for free-trade agreements now underway between the European Free Trade Association (EFTA) and numerous non-European Mediterranean countries, considering them as important instruments for developing the region and its economic links with Europe;

iii.        encourages the Council of Europe's Lisbon-based Centre for Global Interdependence and Solidarity ("North-South Centre") to further expand its trans-Mediterranean activities aimed at furthering understanding among all the countries around that sea, and calls on all Council of Europe member states, whether members of the Centre or not, to join in these activities;

iv.        calls on the European Union and EU member states, as well as the European Investment Bank, to expand their Euro-Mediterranean Partnership activities related to economic and financial co-operation, and in particular the resources devoted to the development of small and medium-sized enterprises and of links between companies and branch organisations in different Mediterranean countries;

v.        strongly supports the Euro-Mediterranean Parliamentary Partnership launched in 1996 at the initiative of the Italian parliament, and the Euro-Mediterranean Parliamentary Forum. It considers these initiatives - as well as the Assembly's own work over many years devoted to the Mediterranean region - as potential major vehicles for involving the governments and the peoples of the countries concerned in a process of ever deeper co-operation leading to sustainable development and democratic stability – also as regards the implications of differing demographic growth rates in the various regions around the Mediterranean.

5.        Finally, the Assembly recognises that although political stability in the region will be furthered by economic co-operation, the latter can only materialise within a context of overall peace, respect of human rights, democracy and the rule of law. The Assembly therefore calls on all Council of Europe member states to do their utmost to further the peace process between Israel and the Palestinian Authority and in the Middle East in general, in accordance with Assembly Resolution 1103 (1996) on the situation in the Middle East.

II.        Explanatory Memorandum by Mr Turini

Contents

I. Introduction

II. Preparing for 2010: Mediterranean Co-operation the Road to Economic Prosperity

III.       The Parliamentary Dimension of the Euro-Mediterranean Dialogue

IV. The Role of Small and Medium-sized Enterprises in Economic Development

V. Concluding remarks

Appendix:       European Investment Bank projects in certain Mediterranean countries

I.       Introduction

1. On 1 October 1997, Mr Gonzalez Laxe and several of his colleagues in the Parliamentary Assembly presented a motion for a Resolution (Doc. 7931) on the need for increased co-operation in the Mediterranean region, in which they called for greater attention to be paid to the difficult challenges facing the Mediterranean basin. Over the past several years, the Council of Europe’s Parliamentary Assembly has been following with great interest the economic developments in the Mediterranean region. The Assembly's Political Affairs Committee, its Committee on the Environment, Regional Planning and Local Authorities and its Committee on Migration, Refugees and Demography have been especially active – the latter in launching, already in 1985, a series of Conferences of Mediterranean regions to be discussed in Section III below. As far as our own Committee on Economic Affairs and Development is concerned, its most recent report on the region was on Economic Development in the Middle East and Northern Africa (Resolution 1174; Doc. 8069; Rapporteur: Mr Blaauw) adopted in November 1998. The present report can in many ways be said to build on that effort and will therefore concentrate on slightly different areas deemed of particular importance by your Rapporteur.

2. As regards co-operation between the European Union and countries around the Mediterranean, a general framework for political, economic and cultural co-operation was put in place at a top-level meeting in Lisbon in 1992. There followed the Barcelona Conference of November 1995, which our Assembly helped launch through its Committee on the Environment, Regional Planning and Local Authorities, and in which the Euro Mediterranean Partnership was officially established with the twelve so-called MEDA (MEDiterranean Association) countries. (They are: Algeria, Cyprus, Egypt, Israel, Jordan, Lebanon, Malta, Morocco, the Palestinian Authority, Syria, Tunisia and Turkey.) Here, three major areas of co-operation were identified: (i) a political and security partnership aimed at creating a common area of peace and stability; (ii) an economic and financial partnership meant to foster a common zone of prosperity by gradually introducing free trade; and (iii) a partnership in social, cultural and human affairs. In April 1997, a second Ministerial conference was held in Malta, in which the participating countries reaffirmed their willingness to foster the socio-economic development in the Mediterranean basin.

3. During the British Presidency of the European Union in 1998, an ad hoc Euro-Mediterranean Ministerial Meeting was held in Palermo with a view to taking stock of the progress made since the launching of the Barcelona Conference and to preparing the ground for the third Ministerial Conference, to take place in Stuttgart in April 1999. In Palermo, participants stressed the need for further efforts to combat terrorism, which poses a serious threat to the initiatives undertaken by the EU in the interest of peace, stability and socio-economic development.

4. Similarly, the Council of Europe's Centre for Global Interdependence and Solidarity has developed a specific trans-Mediterranean programme, with projects focussing on the role of civil society, inter-cultural dialogue, youth and education, communication and networking, and human rights. The Centre, often referred to as the North-South Centre, was started in 1990 and is located in Lisbon. Its vocation is to increase public awareness of global interdependence issues and to promote policies of solidarity in conformity with the aims and principles of the Council of Europe. An intergovernmental 'Partial Agreement" of the Council of Europe with at present 16 member states (and the Holy See), the Centre functions on the basis of a so-called "quadrilogue" involving parliamentarians, governments, local and regional authorities and non-governmental organisations.

5. The ultimate objective of all these initiatives, as stated in the Barcelona Declaration, is to turn the Mediterranean into “an area of dialogue and genuine co-operation guaranteeing peace, stability and prosperity". The declaration goes on to say that "…this requires a strengthening of democracy and respect for human rights, sustainable and balanced economic and social development, measures to combat poverty as well as promotion for greater understanding between cultures”. In other words, all these endeavours aim to create an area of shared prosperity with a view to transforming the traditional recipient-donor relationship into one of active partnership.

6. Many of the less advanced MEDA countries are marked by a strong dualism between, on the one hand, a few industrial giants (often indirectly or directly controlled by the State) and a large variety of small and medium-sized enterprises (“SME”) that may be rural, manufacturing or commercial, not to mention the bulk of family-run micro-enterprises.

7. Such small and medium-sized enterprises - employing, say, about a dozen people - are beginning to be recognised by national governments as making an important contribution to the development of the national economy. They employ an increasing share of the working population and usually operate in new and profitable areas such as textiles or pharmaceuticals. In Egypt and Lebanon, for example, 90% of enterprises employ fewer than 10 persons.

8. Nor should the burgeoning service sector in these economies be forgotten. Lebanon’s banking sector, for example, is one of the surviving industries of the civil war and has never defaulted on its obligations. Meanwhile, the country is on the way to again becoming a financial centre in its region. The Jordanian economy is also strongly linked to private sector services in the financial, industrial, tourism, transport and communications sectors although a large share is still in public hands.

9. This report will take stock of the progress made within the Euro-Mediterranean partnership in four selected fields - financial institutions, small and medium-sized enterprises, human resources and technology transfer – and make a number of concrete proposals to improve the situation further. A main argument will be that SME development and networking will be vital for increased economic co-operation in the Mediterranean basin, especially if assistance is forthcoming from the international community within a framework such as the Euro-Mediterranean Partnership .

II.       Preparing for 2010: Mediterranean cooperation the road to economic prosperity

10. The Euro-Mediterranean Partnership represents a deepening of past efforts. The budget for EU assistance to the Mediterranean region amounts to over ECU 9 billion1 for 1995-1999, divided evenly between funds of EU as such and loans from the European Investment Bank. As has been mentioned, the partnership is to be pursued in three areas: strengthened political dialogue; economic and financial co-operation; and co-operation in the social, cultural and humanitarian fields.

11. The second aspect of the partnership – the development of economic and financial co-operation – calls for the progressive establishment of a free-trade area by the year 20102. Its realisation will depend on agreement on such things as rules of origin, certification, protection of intellectual and industrial property rights and competition.

12. Even though the free-trade area is to be set up through bilateral agreements among any two countries, the Euro-Mediterranean Partnership clearly creates a multilateral framework for the region. Furthermore, EU financial assistance to the countries of the southern basin of the Mediterranean area will be allocated on a conditional basis linked to reforms undertaken by each. Thus, aid goes beyond mere project financing since it encompasses support for broader macroeconomic and structural reform.

13. A second initiative is the MENA (Middle East- North Africa) economic summits and conferences. The first MENA summit was held in Casablanca, Morocco, in 1994 in order to translate political progress into economic dividends that would, in turn, foster peace. The Casablanca summit was the first step in a process designed to build cross-border links between regional governments and the private sector3.

14. One of the main objectives of this process is to bring about economic co-operation at the company level. Strategic alliances among Middle Eastern business executives can greatly favour economic development by opening up new markets, providing outsourcing opportunities, lowering production costs, improving know-how and transferring technology. Following the summit a secretariat was established in Rabat to oversee the process and build public-private partnerships.

15. Casablanca was followed by a second summit held in Amman, Jordan, in October 1995. At the time of the summit the peace process was showing considerable progress, improving the prospects for economic co-operation. Therefore, discussions focused on the need for countries in the region to achieve macroeconomic stability, create the right environment for investment and savings, and liberalise international trade and capital markets.

16. The European Investment Bank - the European Union’s long-term financing institution - is also supporting the Euro-Mediterranean Partnership with some ECU 2.5 billion for the 1997-99 period. The Bank places particular emphasis on liberalisation and privatisation efforts and on helping the private sector restructure and expand in preparation for free trade with the EU in 2010. In 1997 alone, the Bank lent over ECU 200 million (see Appendix) to support the development of industry and the private sector in Mediterranean Partner countries.

17. Moreover, two other multilateral banks participate in the MEDA programme, namely the recently established Bank for Economic Co-operation and Development in the Middle East and North Africa and the African Development Bank. Both seek to promote commercially viable private sector projects through investment operations and the mobilisation of domestic and foreign capital.

18. Relatively high oil prices and progress in industrialisation permitted the MEDA countries to grow faster than most other world regions in the 1960s and 1970s. The pace slowed in the 1990s, however. Today, the economic situation differs considerably in the different MEDA countries. Thus, for example, the economic development of the Palestinian Authority is directly linked with progress in its peace process with Israel. Israel and Turkey’s economic development surpasses that of many other countries in the region. Two states, Libya and Syria, are internationally isolated and do not benefit from World Bank and IMF structural adjustment programmes. Algeria continues to be torn apart by terrorism and civil war-like conditions. Morocco, Egypt, Tunisia and Jordan have managed to avoid this fate while seeking macroeconomic stabilisation under the auspices of the IMF.

19. In terms of the economic co-operation in the Mediterranean, the geographic location of Malta and Cyprus is of considerable importance, forming as they do the limits of Europe in the central and eastern Mediterranean. Thanks to their strategic positions, Malta and Cyprus can build upon their strong trade links with the entire Mediterranean world and become a strong cultural and economic connection between continental Europe and the countries of northern Africa and the Middle East. (The participation of Cyprus in the 'first wave' of EU enlargement talks is a further significant factor.)

20. This role comes all the easier since Cyprus and Malta have consistently maintained particularly close relations with the countries in the Middle East and North Africa. In addition, many international corporations have installed their regional headquarters there for this very purpose. In many ways, these investments are understandable considering the strategic positions of these countries, the availability of a highly educated population, modern transportation and communications networks and other infrastructure advantages such as good legal framework. Their importance for Europe as a whole in building links across the Mediterranean cannot be overstated.

21. Both Greece and Turkey are making important contributions to Euro-Mediterranean economic co-operation, not least through their intensive trade relations in the region. For example, Turkey has recently signed a customs co-operation agreement with Israel in preparation for a free-trade zone. This type of economic co-operation augurs well for future initiatives, which could be replicated by other European states and their Mediterranean basin partners.

22. Nevertheless, several issues continue to impede increased Euro-Mediterranean co-operation involving Greece and Turkey. These are notably Turkey’s so far unsuccessful attempts to join the EU (even though it enjoys privileged trade links with it) as well as the strained relations between the two countries over the Cyprus issue and territorial rights in the Aegean Sea. It can only be hoped that these issues can soon be settled so that Greece's and Turkey already major contribution to Mediterranean economic development can be enhanced even further.

23. Some MEDA countries have pursued policies of import substitution, that is, of discouraging imports of certain products in order to reach greater self-sufficiency and to promote industrialisation. Often such policies are unsuccessful since the country may not enjoy any inherent advantage in producing such products itself, scarce investment resources may not be used to the best effect, and the domestic industry may become less effective due to a lack of competition. The scope and persistence of such programmes differed among countries. Algeria, for example, has pursued it for a long time, whereas countries like Tunisia and Morocco abandoned it relatively soon in favour of more liberal policies.

24. Historically, however, many of the MEDA countries in their quest for rapid development pursued restrictive import policies aiming to save a maximum of foreign currency for the import of capital goods, considered necessary for nurturing cash-stripped and obsolete industries. Both tariff and non-tariff devices were used to achieve this goal. Trade restrictions were also used to protect local infant industries. There was also a strong concentration on exports of a few products to a few markets, particularly in Europe, leading to a situation where the economies of the countries became excessively dependent on these products and markets and vulnerable to fluctuations in them. Often countries like Morocco, Algeria and Tunisia forewent the opportunity to broaden their production base and to trade more with one another. Thus, over many years few initiatives were taken to step up regional economic co-operation, leaving trade in the Mediterranean basin at the mercy of bilateral agreements and at a wholly insufficient level.

25. The global marketplace of today requires long-term economic strategies capable of creating new employment across the whole spectrum of economic activity. Business-to-business alliances should therefore be encouraged and considered a main vehicle for intra-Mediterranean co-operation, overlooking political obstacles wherever possible. There is evidence that this is already happening. Thus, there are already some 35 Israeli-Jordanian joint ventures in operation.

26. For Israeli and Turkish companies, co-operation with their MEDA partners can open up new markets and lower production costs. At the same time Israeli and Turkish firms - in industries that have been local, such as services - can use alliances as a means of building up trade and foreign investment. For MEDA partners such as Jordan, Egypt and the Palestinian Authority, co-operation with Israel and Turkey and with one another can have similar advantages. Companies acquire technological and other know-how, improve their access to regional and global markets and increase their productivity. This type of economic co-operation can be carried out more efficiently in the region than with countries further afield. Entirely new industries may come into existence, and existing industries may become more competitive.

27. Politics and bureaucratic bottlenecks have often stood in the way of increased commercial co-operation. For example, until mid-1997 there was no transport agreement between Jordan and Israel. This meant that a company transporting goods between the two countries had to load the goods in a Jordanian truck in Jordan, unload them at the Israeli border and reload them onto an Israeli truck for delivery in Israel. This costly and inefficient process was ended only as a result of the peace treaties and strong lobbying efforts on the part of Israeli and Jordanian business leaders. However, many bottlenecks of this kind remain in intra-Mediterranean co-operation, calling for outside, especially European, mediation to resolve them.

28. There are few, if any, regions in the world where a company, by forming a joint venture with a company in a neighbouring country, may so quickly gain access to a previously inaccessible market. To create such bonds, however, assistance is needed. Europe can play an important role in this area by encouraging MEDA governments to see their role less as one of dirigism than as that of facilitating trade and co-operation. European-sponsored assistance projects could address trade liberalisation such as harmonised reduction in barriers between MEDA partners, financial sector development and the encouragement of business associations and chambers of commerce.

29. Although policy-makers in developing countries now widely recognise that opening economies to other markets will bring long-term benefits, many have been hesitant in carrying out the necessary policies out of fear for the immediate social and economic costs. Continuous dialogue is therefore needed between the MEDA partners in this field. The “costs” of trade liberalisation must be understood and solutions found in order to sustain the reform process. For example, developing countries depend more for their tax income on taxes on trade than do industrial countries, making them less eager to undertake liberalisation in the trade sector. In the long run, however, gains from trade reform are significantly larger than adjustment costs and result in a higher domestic tax base. To offset these initial potential losses in tax revenue, governments may need to improve overall tax collection, raise rates or introduce measures such as a value-added tax (VAT).

30. A concerted effort by all parties concerned, including Europe, should permit the less advanced economies of the region gradually to abandon their past excessive concentration on large industrial projects in favour of smaller initiatives drawing on their inherent comparative advantages. This transformation, a driving force behind the concept of intra-Mediterranean co-operation, could then become a catalyst for trade liberalisation, the sine qua non for sustained economic development. Once this process is set in motion, the goals envisioned for 2010 could become a reality. But it is also clear that the economic opening between countries is a lengthy process requiring substantial changes, not least as regards domestic institutions and structures of production and trade. When seen in this light, the 2010 time horizon may seem realistic.

31. An open and competitive economic context is crucial for the development of SMEs in the region, so that they can offer their services and extend their markets on a regional level while introducing new technologies and know-how. Conversely, SME development is essential if regional co-operation is to take place. As SMEs are bound to drive the MEDA economies in the future, it is of paramount importance that their expansion proceed in an efficient and well-directed manner. It is here that the international community can and must play a vital role.

III.        The parliamentary dimension of the Euro-Mediterranean dialogue

32.        The Parliamentary Assembly has addressed the problems of the Mediterranean Basin on a number of occasions. Through the activities of its committees, it has concerned itself with various regional issues, such as migration, culture and the environment.

33.       Furthermore, since 1985 the parliamentary Committee on the Environment, Regional Planning and Local Authorities has periodically held conferences of the Mediterranean regions, in co-operation with the Council of Europe's Congress of Local and Regional Authorities of Europe. The aim is to foster co-operation between regions of the Mediterranean basin on matters of common interest, thereby helping to establishing conditions conducive to the area's development, while preserving its cultural and historical assets.

34.        The first four conferences dealt with the problems of the environment, safeguarding resources, inter-regional co-operation, training and migration. The conference proceedings and the reports subsequently debated by the Assembly clearly showed the need for a genuine strategy for the Mediterranean, to be implemented in the framework of the Council of Europe.

35.        Following the fourth conference, which was held on Cyprus in September 1995 - two months before the European Union's Euro-Mediterranean Conference in Barcelona, which launched the process of the same name - it was decided to take account of the fact that the Mediterranean and Black Sea basins formed a single ecosystem, warranting an overall approach, and that, Georgia apart, all of the countries bordering on the Black Sea were members of the Council of Europe, in order to expand the scope of the discussions to the entire region formed by the two basins.

36.        The fifth conference was therefore named the "Fifth Conference on the Mediterranean and Black Sea Basins". This conference, which was held in Marmaris, Turkey, from 25 to 27 February 1999, focussed on interparliamentary and inter-regional co-operation for peace, democratic stability and sustainable development, and aimed to strengthen and enhance interparliamentary and inter-regional dialogue in the area.

37.        The Inter-Parliamentary Union has established the CSCM interparliamentary process (Conference on Security and Cooperation in the Mediterranean). The first conference was held in Malaga in 1992, and the work continued with a second conference in Valletta in November 1995. Preparations are under way for a third conference, to be held in Tunis in the year 2000.

38.        At the initiative of Mr Luciano Violente, President of the Italian Chamber of Deputies, a Euro-Mediterranean Parliamentary Partnership has been set in motion involving all the countries surrounding the sea in question. Following preparatory meetings in Palermo in November 1996 and Athens in April 1997, a major conference was held in Palermo in late spring of 1998 between Presidents of Parliaments of the region as well as the European Parliament.

39.        The process is intended to promote dialogue between Parliaments with different systems of government. The so-called Palermo Declaration on Euro-Mediterranean Parliamentary Cooperation was adopted at the conference. It was refined further at a meeting between the four Speakers of the lower chambers of Egypt, Italy, Spain and Tunisia in Tunis in September 1998 and is to be finally approved at a meeting between Speakers of the Parliaments in March 1999, in Palma de Majorca.

40.        The text foresees the establishment of a permanent secretariat among the Presidents of Parliament of the Euro-Mediterranean Region in order to give new life to the Barcelona process – in areas such as the strengthening and promotion of human rights, the fight against drugs, terrorism and organised crime. It also aims to create a Forum for women parliamentarians and a Forum for young people.

41.        Another parliamentary initiative was taken in October 1998 by the European Parliament, through the convening of a Euro-Mediterranean Parliamentary Forum. The first such Forum took place in October 1998 in Brussels, with a follow-up meeting foreseen for in Malta in May 1999.

42.        The text adopted at the Euro-Mediterranean Parliamentary Forum tried to define the overall situation in the Mediterranean, highlighting the importance of a stable parliamentary dialogue. It also called for an increase in the financial resources placed at the disposal of the European Union for the so-called MEDA project. Greater openness in trade was requested, as well as debt alleviation for certain of the poorer countries in the region. The text also expressed the hope that a summit of heads of states and government of the Euro-Mediterranean Partners could be convened. It also took up the problem of immigration, calling for a Charter of Rights for immigrants. Finally, the EU was asked to extend its various programmes for young people and for the promotion of the situation of women to Mediterranean countries not yet comprised in them. Countries were also called on to co-operate more in the fight against terrorism and organised crime. A further meeting is foreseen for October 1999.

IV.       The role of small and medium-sized enterprises in economic development

43. Given the important role that the Europe could play in SME development in the Mediterranean Basin, the Rapporteur feels that it is important to recall the European Union experience in this area. It is that integration should not be seen as a process whereby countries necessarily become more uniform, but rather as one where they become more compatible with each other while preserving their cultural, historical and social particularities.

44.        SMEs can contribute to the social and economic stability of individual MEDA countries and the entire region via intra-Mediterranean co-operation by:

-       supporting self-employment, especially among young people and women;

-       fostering activities that at present are directed only at local markets but which have the potential to marketed more widely;

-       creating networks of specialised SMEs in a region, possibly with European partners;

-       helping to reduce unemployment by contributing to human resources development and investing in educational projects.

45. SME development depends on a co-operative economic framework: public and private actors must play an active role in creating conditions favouring SMEs. European assistance and governmental policies should be tailored accordingly.

46. Recent progress in the Palestinian Authority territories illustrate the type of support institutions needed. The government created the Small Business Authority (SBA) which co-ordinates all actions in favour of SMEs while supporting the activities of the Palestine Chamber of Commerce. The main goal of the SBA is to help SMEs overcome obstacles that impede their development on a regional level. The SBA is divided into several Small Business Development Centres (SBDC), which provide counselling, facilitate access to funds and organise courses and workshops for managers. In Turkey, an SME set-up called KOSGEB pursues similar functions.

47. As regards the financial context of SME activities in the Mediterranean Basin, the existence of an open and flexible financial sector is considered as a crucial element for sustained development of the socio-economic fabric of the MEDA countries. In most MEDA countries, however, the financial sector often does not possess these qualities.

48. In Jordan, specialised banks have been created to provide medium- to long-term credits in the industrial and agricultural sectors. However, there are still many constraints on development, not least because of low maximum ceilings on loans. The Industrial Development Bank offers limited credit on certain investments in the industrial and tourist sectors, but the repayment period is often short and interest rates high. The World Bank completed a study in 1994 in Lebanon, which concluded that, notwithstanding the fact that Lebanon has traditionally been a relatively open economy driven by the private sector, the access to credit for Lebanese enterprises is very limited and interest rates high.

49. Major reforms are needed to address the following problems:

50.        The International Finance Corporation (IFC) has recently launched a study aimed at defining “What the IFC Can Do” in SME development in central and eastern Europe. Similarly, a similar project should be launched for SME development in the MEDA region.

51.       On the other hand, the input of the European Investment Bank (EIB) and the IFC could be oriented towards stimulating more intra-Mediterranean and MEDA-EU joint-ventures involving SMEs. The EIB has been very active in financing SMEs in the MEDA region and has developed a two-pronged approach of both strengthening the financial sector and promote the modernisation of SMEs.

52.       Moreover, technical assistance should be provided for local SME development agencies and investment-orientated banks in the MEDA region, in order to assist with business plans and feasibility studies.

53.       Morocco, for example, has created the Group Banque Populaire, involving 22 regional banks with over 280 branches. This institution has financed over 60% of projects presented by younger entrepreneurs. The Banque National pour le Développement Economique (“BNDE”), a private institution created by the Moroccan government, contributes to the financing of SME investments in the manufacturing sector. This institution grants medium- and long-term credits and can take up to a 15% stake in a given project. Lastly, the parliament has adopted the Crédit Jeune Promoteur law, which allows for financing with “privileged” interest rates of 90% of start-up SMEs initiated by young graduates.

54. When approaching the subject of human resources in the MEDA countries, one of the greatest obstacles to social and economic development is illiteracy. Secondary and university education has been hamstrung by outdated infrastructure and equipment, insufficient teaching qualities and a lack of international and intra-regional co-operation. As a result, higher education in MEDA countries cannot adequately underpin economic reform measures such as privatisation, trade liberalisation, business development, marketing and networking.

55. Among the difficulties facing MEDA SMEs are inadequate protection of rights for intellectual property, a lack of knowledge about foreign markets as well as about new technologies. In most cases, training centres do not have inadequate equipment to carry out their mission.

56. This is an area particularly ripe for European involvement, as today’s MEDA students and young entrepreneurs will determine the regions’ economic and political future. Given the urgency of the situation, European assistance could take the following forms:

-       the creation of closer links between professional organisations, schools (both professional and secondary) and universities;

-       the training of SME managers;

-       support programmes for women and young unemployed people via vocational training activities;

-       the creation of databanks and internet sites;

-       the creation of technical centres, quality control and certification centres, centres for carrying out tests and analyses on new MEDA products and agencies for the guarantee of intellectual property on a MEDA-Europe wide basis;

57. A good example of co-operation in this regard is the initiative of the Danish Federation of Small and Medium-Sized Enterprises. It has started “business-to-business” partnerships for technological and training collaboration between MEDA and EU SMEs. The principal objective is to increase the international competitiveness of MEDA SMEs via direct co-operation between businesses.

58. The Egyptian government has dedicated itself to modernising public education with new computer infrastructure and teacher curricula reflecting the reforms undertaken over the past few years. Moreover, Egypt has proposed the creation of two specialised centres (similar to the Danish Federation of SMEs) - one in a MEDA country and the other in an EU country - to promote both intra-Mediterranean and EU economic co-operation with Egypt.

V.       Conclusions

59. The most profound and encouraging change in the world economy over the past decade has been the rapid integration of many developing and transition countries into the global marketplace. Some are today opening their markets, winning foreign investment, and increasingly providing a dynamic source of growth for industrial economies as well as their own. For less developed countries, higher growth in the best of cases translates into reduced poverty, better education and health care, and improved infrastructure. For the more industrialised world a better situation for developing countries means expanded markets, stronger trading partners and a more stable international system.

60. The MEDA countries have a great opportunity to increase their socio-economic development through increased co-operation with their European and intra-Mediterranean partners. There is considerable willingness, indeed a sense of urgency, on the part of Council of Europe and European Union member states to deepen the level of co-operation, as symbolised for example by the planned establishment of an Euro-Mediterranean free trade area by 2010.

61. The period leading up to that time will, however, be crucial. It is here that work must continue, even if sometimes against great odds, to build bridges between the MEDA states as well as between them and their partners across Europe. Two interrelated and inter-dependent policy ideas have been discussed in this report: the need for increased MEDA intra-regional co-operation coupled with the development of SMEs in Mediterranean Basin.

62. If the Rapporteur has taken up SME development in some length, it is because he considers the strengthening of that sector to be the sine qua non for flourishing intra-Mediterranean co-operation and a mutually beneficial partnership with Europe. Solemn speeches may be good for boosting morale, but it is on the ground - in the living conditions and hopes for the future of millions of people in the poorer countries around the Mediterranean that future stability for the whole region must be built. SMEs, if properly supported and encouraged, will be crucial for that to happen, and they can only develop if the countries work increasingly closely together and open their economies to one another. Members of the Committee on Economic Affairs and Development at the adoption of this report have also pointed to the major differences in population growth between the regions around the Mediterranean, with Europe showing much slower growth than other regions.

63. In the area of human resources and technological development priority should be given to literacy projects and workplace training, with particular emphasis on young girls and women. Attention should also be given to the modernisation of educational centres. Finally, a network of Euro-Mediterranean agencies should be established to protect intellectual property and to further the availability and exchange of information for MEDA SMEs. Members of the Committee have also pointed to the importance of teaching foreign languages, especially among young people. This is important for tourism development, trade, joint ventures, etc.

64. Another important aspect of modernisation relates to a modern, efficient infrastructure. Without adequate roads and ports to link towns and continents, stable energy production to power factories and sewage systems, clean water and effective sanitation services to help lower health care costs, and modern communications technology to exchange information, growth will be difficult to sustain. It is for this reason crucial to build public-private sector partnerships for the realisation of infrastructure projects that are beyond the capacity of governments alone.

65. The vital role of the EU for building bridges with the MEDA countries has already been highlighted. That of the four-member EFTA (European Free Trade Association; Iceland, Liechtenstein, Norway and Switzerland) deserves mentioning as well. As these lines are written (in December 1998), EFTA is signing an interim free trade agreement with the Palestinian Authority that is expected to enter into force in July 1999. A similar agreement with Egypt can be expected soon. All in all, EFTA has concluded fourteen free trade agreements with countries in central and eastern Europe and, more recently, with non-European countries around the Mediterranean. Talks are under way with Jordan, Tunisia and Cyprus and preliminary contacts have been made with Malta, Lebanon and Syria.

66. The initiatives outlined in this report can only be implemented successfully if all MEDA partners are able to put their own house in order and start co-operating fully, with European partners supporting them in every way they can. Every step towards peace, such as the recent Wye Plantation agreement reached between Israel and the Palestinian Authority, brings us closer to the time when trust and understanding will pervade Mediterranean relations. Every day that a country like Algeria can live without people being massacred by bomb or murder squads brings new hope. Europe is a perfect partner to guide the MEDA countries down the road to greater economic co-operation and sustained development, owing to Europe’s own diversity, history and successful efforts at co-operation and integration. The Mediterranean Basin now has a similar potential, and a framework for deepening the Euro-Mediterranean partnership is in the making. The momentum must not be wasted and the will to move forward on all sides should be find its expression in a series of concrete actions.

Appendix

European Investment Bank projects in certain Mediterranean countries in 1997

Country        1997

Cyprus       25

Egypt       52.5

Gaza/West Bank       15

Jordan       45

Malta       3

Tunisia       15

Turkey       50

Total       205.5

Source:       European Investment Bank

Reporting committee: Committee on Economic Affairs and Development

Budgetary implications for the Assembly: none

Reference to committee: Doc. 7931 and Reference No. 2323 of 21 November 1998.

Draft resolution unanimously adopted by the committee on 8 March 1999

Members of the committee: Mrs Degn (Chairperson), MM. Valleix, Bloetzer, Elo

(Vice-Chairmen), Aliko, Andreoli, Attard Montalto, Billing, Mrs Blattmann, MM. Bonet Casas, Brunhart, Mrs Calner, MM. Cunliffe (Alternate: Davis), Cusimano (Alternate: Turini), Dumitrescu (Alternate: Baciu), Mrs Durrieu, MM. Eyskens, Frey, Mrs Freyberg, Mrs Frimannsdottir, MM. Galvao Lucas, Gonzalez Laxe, Lord Grenfell, MM. Gusenbauer, Gylys, Hempelmann (Alternate: Behrendt), Mrs Hoffmann, Kacin, Kiratlioglu, Kirilov, Kittis, Kuznetsov, Lazarenko (Alternate: Kosakivsky),  Leers, Liapis, Lotz, Mateju, Mautner Markhof, Mezeckis, Mitterrand, Nagy, Nothomb, Obuljen, Pereira Coelho, Popescu, Prokes (Alternate: Osvath),  Puche, Regenwetter, Rigo (Alternate: Mrs Pozza Tasca), Rutskoy, Schmitz, Shuba (Alternate: Averchev), Sorocean, Mrs Squarcialupi, Mrs Stepova, Mrs Stoyanova, MM. Tekir, Telgmaa, Townend, Vasile (Alternate: Gabrielescu), Verbeek,Verivakis, Wielowieyski, N. … (Alternate: Connor)

NB. The names of those members present at the meeting are printed in italics

Secretaries of the committee: MM. Torbiörn, Mezei and Ms Ramanauskaite

1 About half the funds are earmarked to prepare for free trade (private sector development, trading infrastructure) while the remainder will be allocated to environment protection, poverty alleviation and rural development.

2 The Declaration states that, with a view to developing gradual free trade in this area, tariff and non-tariff barriers to trade in manufactured products will be progressively eliminated in accordance with timetables to be negotiated between the partners. Moreover, as far as the various agricultural policies allow and with due respect to the results achieved within the WTO framework, trade in agricultural products will be progressively liberalised. Finally, trade in services, including right of establishment, will be progressively liberalised with due regard to the GATS (General Agreement for Trade in Services) agreement.

3 Increasing regional trade is of the utmost importance as only less than 8% of Middle East exports are destined for other countries of the region.