lundi 3 mai 2010

Wave of optimism falters in Mediterranean

By Victor Mallet

The Mediterranean, the “wine-dark sea” of Homer that links Europe, Africa and Asia, has been given many names in its long history: cradle of civilisations, Islamic lake, Middle Sea and, by the Romans, simply mare nostrum – our sea.
Since the second world war, however, the Mediterranean has developed a more prosaic identity as a profitable place to do business. The sea has become an important transit zone, a body of water criss-crossed by gas pipelines, container ships, cruise liners and flimsy boats packed to the gunwales with illegal immigrants bound for Europe.

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With European economies now beginning a tentative return to growth from the depths of crisis, investors on the north side and their potential partners on the southern shore are hoping for a revival of once vibrant trading relations.
As recently as 2008, the idea of linking the developed economies of Europe through increased trade and investment to Africa – the last great untapped zone of the world’s emerging markets – was generating enormous excitement on both sides of the western Mediterranean.
Just as the US was connected commercially to Mexico, and Japan to south-east Asia, the idea was that investment would flow south while natural resources, labour and cheaply made industrial products would go north.
The theory of mutual enrichment remains as attractive to some of the former colonies on the southern shore as it does to Spain, France or Italy.
“Morocco is oriented towards Europe. We are 14km away, closer than people in the Baltic countries or the Czech Republic,” says Mohammed Bernoussi, secretary-general of the ministry in Rabat responsible for an estimated 4m Moroccans overseas. He quotes the former King Mohammed V as saying Morocco has its roots in Africa but breathes through its foliage in Europe.
Europe migrationBut the economic crisis of the past two years has slowed economic integration drastically across the Mediterranean in spite of a few prominent investments such as Morocco’s Tanger-Med container port and the nearby Renault car plant.
“The crisis has affected the attractiveness of that area more than any other global region,” says Marc Lhermitte, partner at Ernst & Young, which less than two years ago hailed the “Euro-Mediterranean zone” as a region of opportunity for investors. “The only global area that has not grown [in attractiveness] over the past year has been the Euro-Mediterranean area, and specifically the south Mediterranean rim.”
Recession in Europe has exposed North Africa’s lack of competitiveness when compared with other emerging markets in eastern Europe, Asia and Latin America. It has also demonstrated the flimsiness of multilateral institutions such as the French-inspired, Barcelona-based Union for the Mediterranean, a body further weakened by the Arab-Israeli conflict.
The end of the Euro-Mediterranean vision is the title of a recent analysis by Kristina Kausch and Richard Youngs of Fride, the Madrid-based foreign policy think-tank. Investors are asking whether, or when, the relationship can recover its former strength.

Future of the Mediterranean

This is the first in a three-part series in which FT writers look at how the global recession has hit economic relations between Europe and north Africa. Tomorrow, the future of energy

Blame lies on both sides. In North Africa, hostility between Algeria and Morocco, and Algeria’s suspicion of outside investors, mean there is no coherent trading bloc to attract non-energy businesses.
“It’s very difficult to have integration and dialogue between two blocs when one bloc is not working at all,” says Eneko Landaburu, European Union ambassador to Morocco.
Europeans are also discouraged by a combination of authoritarian governments and Islamist opposition groups. In “second tier” countries south of the Maghreb, some Islamists have links to al-Qaeda and have been kidnapping westerners.
For Europe, the ideal relationship would be a close economic and political concord with moderate, middle-class Muslim nations in northern Africa. Yet western diplomats are far from confident of such an outcome.
“The real threat for Europe is not coming from Russia, and not coming of course from America, but from any wrong development of the countries south and east of the Mediterranean,” says Mr Landaburu.
Europe’s own failings have contributed to the weakening of ties with north Africa. Economies in deep recession have reduced sharply imports of gas and other products, and cautious investors have lost ground to competitors from the Gulf states and from China, especially in infrastructure projects such as ports and roads.
The EU remains highly protectionist in those economic sectors, not least agriculture, where low-cost producers in countries such as Morocco and Tunisia are potential exporters. “The French and Spanish in particular are afraid of tomatoes and so on,” says Ms Kausch. “The south says, ‘You want our markets and then you want exceptions for the only goods where we can be competitive.’ ”
Finally, the combination of recession and Islamist terrorism has made European voters and governments more sceptical than ever about the benefits of mass immigration from the Muslim south and east.
“Over the past five years, European policies have turned very defensive,” says Ms Kausch. “It’s basically about keeping them out, about securing the borders.”
Perhaps John Julius Norwich, the historian, was too pessimistic when he judged in The Middle Sea, his 2006 book, that the Mediterranean had lost the cultural, military and commercial significance it had for 7,000 years and was little more than a tourist playground.
Europe, after all, depends increasingly on the oil and gas that flows north and may one day benefit from electricity from vast solar plants in the Sahara.
The crisis in Europe and the failings of North Africa have not ended the dream. Those who live on its shores or benefit from the trade across the sea want to ensure that what Norwich termed the “world’s most historic body of water” regains its significance.

The popularity of different emerging markets can wax and wane with surprising speed in spite of long lead times for foreign investment projects – and no region has suffered more from the global crisis in terms of its attractiveness to investors than north Africa, write Victor Mallet, Delphine Strauss and Stefan Wagstyl.
That at least is the preliminary conclusion of an annual survey of more than 800 companies to be published in June by Ernst & Young, the professional services group.
North Africa’s poor performance contrasts starkly with those of other emerging markets in Asia, Latin America and eastern Europe. Marc Lhermitte, E&Y partner, says China’s “attractiveness rating” rose about 15 per cent and eastern Europe’s 7 per cent over the year, while the southern edge of the Mediterranean was up by less than 1 per cent.
“There’s a big difference between pursuing your investments in China and India, where the system of investment is known, and looking at priorities number four, five or six,” says Mr Lhermitte. “Every company we’ve talked to has focused on the safer, better-known and higher-potential areas.”
Turkey, meanwhile, has enjoyed one of the strongest economic recoveries in the Mediterranean, with the help of a healthy banking sector and rapidly returning confidence in its domestic market. Turkish exporters, although hit by the slump in their main EU export markets, also did well last year in increasing sales to Middle Eastern countries.
Central and eastern Europe have been hard hit by the crisis, but are still seen as more attractive than north Africa. The European Bank for Reconstruction and Development expects a gross domestic product rise across the region – including Turkey – of about 3.5 per cent this year.