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Evaluation of Economic Co-operation between the European Commission and Mediterranean countries*

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(*) Countries under consideration in this study are: Algeria, Egypt, Jordan, Lebanon, Morocco, Syria and Tunisia

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EVALUATION OF ECONOMIC COOPERATION BETWEEN THE EC AND MED COUNTRIES ADE - EPU-NTUA - IBM

Final report – Volume 1 – November 2003 Table of contents

Table of Contents

LIST OF ACRONYMS

1. EXECUTIVE SUMMARY .................................................................................................. I 1.1 BACKGROUND AND SCOPE OF THE EVALUATION .................................................................... I 1.2 ECONOMIC, SOCIAL AND POLITICAL CONTEXT OF MED PARTNER COUNTRIES................. I 1.3 EC INTERVENTIONS IN THE FIELD OF ECONOMIC COOPERATION ...................................... II 1.4 EC ECONOMIC COOPERATION WITH MED PARTNERS – MAIN FINDINGS AND

CONCLUSIONS ..............................................................................................................................IV 1.5 RECOMMENDATIONS..................................................................................................................VI

2. BACKGROUND...............................................................................................................1 2.1 ECONOMIC, SOCIAL AND POLITICAL CONTEXT IN MED PARTNERS.................................... 1

2.1.1 Economic situation............................................................................................................. 1 2.1.2 Social situation..................................................................................................................... 3 2.1.3 Political situation................................................................................................................. 5

2.2 THE BARCELONA DECLARATION AND THE EC POLICY TOWARDS MED COUNTRIES .................................................................................................................................... 6

2.3 PRINCIPLES GOVERNING THE EC COOPERATION WITH MEDITERRANEAN COUNTRIES FROM THE PROTOCOLS TO MEDA I AND MEDA II........................................ 7

2.4 OUTLINE OF THE EC COOPERATION WITH MED PARTNER COUNTRIES .......................... 8 2.4.1 Support to economic transition and private sector development................................ 8 2.4.2 Structural adjustment facilities .......................................................................................... 8 2.4.3 Intervention in the social and cultural fields................................................................... 9 2.4.4 EIB interventions................................................................................................................ 9 2.4.5 Links between EC interventions .................................................................................... 11

2.5 MAIN CONCLUSIONS OF PREVIOUS EVALUATIONS ON THE EC MED COOPERATION ............................................................................................................................ 12

2.5.1 Structural adjustment facilities in the MED partner countries .................................. 12 2.5.2 Financial assistance managed by the European Investment Bank (EIB) ................. 13 2.5.3 MEDA Global Allocation ............................................................................................... 13 2.5.4 Evaluation of the MEDA Democracy Programme - 1996-1998............................... 14 2.5.5 Evaluation of the MEDA regulation ............................................................................. 14

3. OBJECTIVES AND METHODOLOGY OF THE EVALUATION ............................................15 3.1 OBJECTIVES AND SCOPE OF THE EVALUATION...................................................................... 15 3.2 DEFINITION OF ECONOMIC COOPERATION........................................................................... 16 3.3 MEDA INTERVENTION LOGIC ................................................................................................ 17 3.4 EVALUATION QUESTIONS, CRITERIA AND INDICATORS ....................................................... 18

4. FINDINGS....................................................................................................................21 4.1 OVERVIEW................................................................................................................................... 21 4.2 ACTIVITIES AND OUTCOMES OF THE EC INTERVENTIONS WITH RESPECT TO

STRENGTHENING THE ECONOMIC AND INSTITUTIONAL ENVIRONMENT......................... 22



4.2.1 Structural Adjustment Facilities ...................................................................................... 24 4.2.2 Technical assistance projects in support of changes in the institutional

environment....................................................................................................................... 25 4.2.3 Projects relative to infrastructure and public services ................................................. 28

4.3 ACTIVITIES AND OUTCOMES OF THE EC INTERVENTIONS WITH RESPECT TO PRIVATE SECTOR DEVELOPMENT ........................................................................................... 30

4.3.1 Direct support to small and medium enterprises ......................................................... 31 4.3.2 Projects in support of quality enhancement ................................................................. 34 4.3.3 Projects related to the development of human resources........................................... 34 4.3.4 Projects related to the financing of enterprises ............................................................ 35

4.4 ACTIVITIES AND OUTCOMES OF THE EC INTERVENTIONS WITH RESPECT TO TRADE FACILITATION ............................................................................................................... 37

4.5 PROGRAMME MANAGEMENT.................................................................................................... 39

5. ASSESSMENT OF EC ECONOMIC COOPERATION WITH RESPECT TO THE

EVALUATION QUESTIONS............................................................................................43 5.1 TO WHAT EXTENT DID EC ECONOMIC COOPERATION CONTRIBUTE TO

STRENGTHEN THE ECONOMIC AND INSTITUTIONAL ENVIRONMENT ................................ 43 5.1.1 Observations...................................................................................................................... 43 5.1.2 EC contribution ................................................................................................................ 46 5.1.3 Conclusions........................................................................................................................ 48

5.2 TO WHAT EXTENT DID EC ECONOMIC COOPERATION CONTRIBUTE TO THE DEVELOPMENT OF THE PRIVATE SECTOR............................................................................... 49

5.2.1 Observations...................................................................................................................... 49 5.2.2 EC contribution ................................................................................................................ 50 5.2.3 Conclusions........................................................................................................................ 53

5.3 TO WHAT EXTENT DID EC ECONOMIC COOPERATION CONTRIBUTE TO DEVELOP TRADE RELATIONS...................................................................................................................... 53

5.3.1 Observations...................................................................................................................... 53 5.3.2 EC contribution ................................................................................................................ 56 5.3.3 Conclusions........................................................................................................................ 57

6. ASSESSMENT OF EC ECONOMIC COOPERATION WITH RESPECT TO THE

EVALUATION CRITERIA ...............................................................................................59 6.1 RELEVANCE ................................................................................................................................ 59 6.2 EFFECTIVENESS.......................................................................................................................... 61 6.3 EFFICIENCY................................................................................................................................. 65 6.4 IMPACT AND SUSTAINABILITY .................................................................................................. 65

7. CONCLUSIONS ............................................................................................................67 7.1 RELEVANCE ................................................................................................................................ 67 7.2 EFFECTIVENESS.......................................................................................................................... 67 7.3 EFFICIENCY................................................................................................................................. 70 7.4 IMPACT AND SUSTAINABILITY .................................................................................................. 71



8. RECOMMENDATIONS..................................................................................................73 8.1 STRATEGIC LEVEL ...................................................................................................................... 73

8.1.1 Design at the country level an explicit and regularly up-dated strategy for the achievement of MEDA cooperation objectives, notably in the field of economic cooperation...................................................................................................... 73

8.1.2 Assist partner countries at designing their own strategies and programmes ........... 74 8.2 PROGRAMMING LEVEL .............................................................................................................. 74

8.2.1 Coordinate SAFs and technical assistance .................................................................... 75 8.2.2 Create synergies between technical assistance projects ............................................... 75 8.2.3 Link bilateral and regional projects ................................................................................ 75 8.2.4 Develop complementarities with EIB lending activities ............................................. 76 8.2.5 Adopt a comprehensive approach to the financing of SMEs .................................... 76 8.2.6 Devote more attention to the enhancement of trade and external economic

relations .............................................................................................................................. 77 8.3 IMPLEMENTATION LEVEL ......................................................................................................... 77

8.3.1 Devote more resources to the preparation of the projects......................................... 77 8.3.2 Support the development of local consultancy ............................................................ 78 8.3.3 As regards institutional reform, closely link policy dialogue and project

implementation.................................................................................................................. 78 8.3.4 Ensure a close follow-up of the projects and intervene promptly when a

project is facing problems................................................................................................ 78 8.3.5 Where conditions are met give full responsibility to local authorities on the

management of projects................................................................................................... 79

ANNEXES ANNEX 1 – TERMS OF REFERENCE

ANNEX 2 – MEDA INTERVENTION LOGIC

ANNEX 3 – MED COUNTRIES BACKGROUND DATA

ANNEX 4 – METHODOLOGICAL NOTE

ANNEX 5 – MISSION REPORT EGYPT

ANNEX 6 – MISSION REPORT JORDAN

ANNEX 7 – MISSION REPORT MOROCCO

ANNEX 8 – MISSION REPORT SYRIA

ANNEX 9 – MISSION REPORT TUNISIA


Final report – Volume 1 – November 2003 List of Acronyms

List of Acronyms

AAEU: Association Agreement with the European Union

AFD: French Development Agency

AfDB : African Development Bank

AFTA: Arab Free Trade Agreement

AICE: Institute of Arab Businessmen

ANAPEC: Agence Nationale de Promotion de l’Emploi et des Compétences

ANPME : Agence Nationale des Petites et Moyennes Entreprises

ANRT: Agence Nationale de Régulation des Télécommunications

API : Agence de Promotion de l’Industrie

ASDP: Agriculture Sector Development Programme

ATE : Agence Tunisienne de l’Emploi

BSSP: Banking Sector Support Programme

BST: Business Service Team

BTAP: Banking Sector Reform Technical Assistance Programme

BWI: Breton Woods Institutions

CBE: Central Bank of Egypt

CCG : Caisse Centrale de Garantie

CEFE: Création d’Entreprises – Formation d’Entrepreneurs

CEJJ : Centre d’Etudes Juridiques et Judiciaires

CEPEX : Centre de Promotion des Exportations

CEPII: Centre d’Etudes Prospectives et Informations Internationales

CG: Consultative Group

CGEM : Confédération Générale des Entreprises du Maroc

CIDA: Canadian International Development Agency

CIH : Crédit Immobilier et Hôtelier

CIR: Regional Investment Centres

CNCA : Caisse Nationale du Crédit Agricole

CPI: Consumer Price Index

CSP: Country Strategy Paper

DAC: Development Assistance Committee



DAD : Dar ad Damane

DAG: Donors Action Group

DFID: Department for International Development

DLCG: Donor/Lender Consultation Group

E.T.E.: Euro-Tunisie Entreprise

ECES : Egyptian Centre for Economic Studies

EEP: Education enhancement programme

EIB: European Investment Bank

EICC: European Information Correspondence Centre

EJADA: Euro Jordanian Action for Development of Enterprises

EME : Euro-Maroc Entreprise

EMP: Euro – Mediterranean Partnership

ESSP: Electricity Sector Support Programme

FAMEX : Fonds d’Aide à la Maîtrise de l’Exportation

FAO: Food and Agriculture Organization/ Fonds des Nations Unies pour l’Agriculture et l’Alimentation

FAS: Facilité d’Ajustement Structurel

FDI: Foreign Direct Investment

FEMIP : Facility for Euro-Mediterranean Investment and Partnership

FEMISE: Euro-Mediterranean Forum of Economic Research Institutes

FIAP : Fonds d’Insertion et d’Adaptation Professionnelle

FIPA : Foreign Investment Promotion Agency

FNUAP: Fonds des Nations Unies pour la Population

FOPRODEX : Fonds de Promotion de Développement de l’Exportation

FOPRODI : Fonds de Promotion et de Développement Industriel

FSDP: Food Sector Development Programme

FTA: Free-Trade Area

GA : Global Allocation

GAFI: General Authority for Investment

GAFTA: Greater Arab Free Trade Area

GATT: General Agreement on Tariffs and Trade

GDP : Gross Domestic Product

GNI: Gross National Income



GNP: Gross National Product

GOE : Government of Egypt

GTZ: Gesellschaft für Technische Zusammenarbeit

HIBA: Higher Institute of Business Administration

HIBA: Higher Institute for Business Administration

HSRP: Health Sector Reform Programme

ICT: Information and Communication Technology

IDB: Industrial Development Bank

IMC: Industrial Modernisation Centre

IMF: International Monetary Fund

IMP : Industrial Modernisation Programme

INTAJ: Information Technology Association of Jordan

IS: Interest Subsidies

ISMF: Institutional and Sectoral Modernisation Facility

ISO: International Standards Organization

JEDCO : Jordanian Export Development and Commercial Centres Corporation

JICA: Japan International Cooperation Agency

JISM: Jordan Institution for standards and Metrology

JLGC: Jordan Loan Guarantee Corporation

JUSBP: Jordan-US business partnership

MANFORM: Mise à niveau de la formation professionnelle et de l’emploi (support to vocational training)

MDP : MEDA Democracy Programme

MFA: Multi-Fibre Agreement

MFN: Most-favoured-nation

MS: Member States

MSSP: Multi-Sector Support Programme

MU: Management Unit

NGO: Non-Governmental Organizations

NIP: National Indicative Programme

ODA: Official Development Assistance

OECD : Organization for Economic Cooperation and Development

OFPPT : Office de la Formation Professionnelle et de la Promotion du Travail



OMS: Organisation Mondiale de la Santé

PAAP : Appui aux associations professionnelles

PAM: Programme Alimentaire Mondial

PEDEEE: Public Establishment for Distribution and Exploitation of Electrical Energy

PEE: Public Establishment of Electricity

PEEGT: Public Establishment of Electricity for Generation and Transmission

PEO: Public Enterprises Office

PERPP: Public Enterprises Reform and Privatization Programme

PIN: Programme Indicatif National

PIU: Programme/Project Implementation Unit

PJD : Parti de la Jeunesse et du Développement

PME : Petites et Moyennes Entreprises

PMU: Project Management Unit

PNUD: Programme des Nations Unies pour le Développement

PRONAFOC: Programme National de Formation Continue

PSAP: Power Sector Action Plan

PSDP: Private Sector Development Programme

QIZ: Qualifying Industrial Zone

RAM: Royal Air Maroc

RCO: Risk Capital Operations

RIP: Regional Indicative Programme

RMP: Renewed Mediterranean Policy

RNI : Rassemblement National des Indépendants

SAF: Structural Adjustment Facilities

SBDC: Small Business Development Centre

SCR: Service Central Relex

SDDS: Special Data Dissemination Standard

SDF: Social Fund for development

SDF: Social Development Fund

SEBC: Syrian-European Business Centre

SEDO: Small Enterprise Development Organization

SICAR : Sociétés de Capital à Risque



SME: Small and Medium Enterprises

SRRP: Support for Regulatory Reform and Privatization

STE: Syrian Telecommunication Establishment

STE: Syrian Telecommunication Establishment

SWOT: Strengths, Weaknesses, Opportunities and Threats

TA: Technical Assistance

TEP: Trade Enhancement Programme

TSSP: Telecommunication Sector Support Programme

TTN: Tunisian Trade Net

TVT: Technical and Vocational Training

UMCE: Union of Mediterranean Employers’ Federations

UNCTAD: UN Conference for Trade and Development

UNDP: United Nations Development Programme

UNICEF: United Nation Children’s Fund/ Fonds des Nations Unies pour l’Enfance

UNRWA: UN Relief and Works Agency

USAID: US Agency for International Development

USFP: Union Socialiste des Forces Populaires

VAT: Value Added Tax

WIPO : World Intellectual Property Organization

WP: Work Plan

WTO: World Trade Organization


Final report – Volume 1 – November 2003 Page i

1. Executive Summary

1.1 Background and scope of the evaluation

Through the Barcelona Declaration, signed in November 1995, the 15 EU Member States and 12 countries of the Mediterranean region decided to establish between themselves a Euro-Mediterranean Partnership encompassing three dimensions: A political and security dimension whose objective is the establishment in the region of

an area of peace and stability; An economic and financial dimension that aims at creating an area of shared prosperity

through the gradual establishment between the signatory countries of a Euro-Mediterranean Free-Trade-Area and a EU financial support to the partner countries;

A social and cultural dimension leading to closer relations and better understanding between the peoples.

The Barcelona declaration gave rise to the negotiation between the EU and its Mediterranean partners of Association Agreements, which state in more detail the objectives bilaterally targeted by the partners and the content of their cooperation. Agreements with Tunisia, Morocco, Israel Jordan and the Palestinian Authority have entered into force. Negotiations have been concluded with Egypt, Lebanon and Algeria and are underway with Syria. As far as Turkey, Cyprus and Malta are concerned, their relations with the EU are governed by pre-existing Association Agreements. The scope of this evaluation is the economic cooperation between the EC and seven of its Mediterranean partners (hereafter referred as MED partners): Algeria, Egypt, Jordan, Lebanon, Morocco, Syria and Tunisia. Economic cooperation is defined here as those cooperation activities that aim at promoting in the partner countries: The strengthening of the economic and institutional environment, The development of the private sector, The enhancement of trade.

1.2 Economic, social and political context of MED partner countries

MED countries represent a heterogeneous group of countries that rank among middle-income to lower-income economies. Until the mid-80s for some of them, but much later for others, these countries have implemented economic policies focused on inward-looking and state directed development, import substitution and a highly protected manufacturing sector. These policies did not prove very effective at supporting rapid growth of the economies and


Final report – Volume 1 – November 2003 Page ii

generated serious macroeconomic imbalances. Although the pace of reforms is very uneven from one to the other, all these countries have now embarked on a radical revision of their strategies of economic and social development that imply a disengagement of the State from productive activities, the development of private enterprises, and a greater openness to external economic relations. But the success of this strategy is hampered by remaining weaknesses of these countries, notably an institutional environment which is not as enabling as would be desirable to the development of the private sector, poorly efficient public services, a lack of competitiveness of small and medium enterprises that make up the bulk of the productive sector, an underdeveloped banking systems and a bias of banks against the financing of SMEs, an education system that does not meet the needs of the economy for a qualified labour force, a narrow productive base, and small internal markets. Insufficient rates of growth of the economies combined with high rates of population growth result in high levels of unemployment and a high percentage of the population living under the poverty line. Achievements in the social field vary widely from country to country, but social protection systems generally lack coverage and effectiveness. Conflicts in the region have impeded several MED countries from achieving stability. While democracy and human rights are enshrined in legal texts, freedom of expression and association are often limited. The quality of governance does not match the needs of a competitive open economy. Unbalanced growth feeds social tensions and the risk of exploitation of people’s demand by political Islam.

1.3 EC interventions in the field of economic cooperation

From 1995 to 2001, the European Commission committed Euro 1.8 billion to economic cooperation with the seven MED countries considered in the evaluation. These funds are mainly related to the MEDA programme, which is the major instrument of financial co-operation with the above countries. Interventions targeting the strengthening of the economic and institutional environment were allocated Euro 1,059 million. One of the major instruments utilised to support reforms of the institutional environment were Structural Adjustment Facilities. Five out of the seven countries were granted a SAF for a total amount of Euro 510 million. Reforms implemented in MED countries with the support of SAFs encompassed a large variety of issues: Design of an economic and social medium term strategy (Morocco), Improvement of public resources management (Morocco), Liberalisation of trade (Algeria, Jordan, Tunisia), Restructuring of state-owned companies and privatisations (Algeria, Jordan, Tunisia), Reform of the financial sector (Morocco, Tunisia).


Final report – Volume 1 – November 2003 Page iii

SAFs also included measures targeting social issues and intended to mitigate the social consequences of the liberalisation of the economies. The institutional environment was also addressed by technical assistance projects for a total amount of Euro 295 million. The restructuring and privatisation of state-owned enterprises was supported by the provision of technical assistance to the departments or agencies in charge of these operations in Algeria, Egypt, Morocco and Tunisia. Large projects aiming at a strengthening of public administrations were implemented in Lebanon and planned in Syria, while smaller projects focusing on specific tasks of the administrations were implemented in Morocco and Tunisia. The planning of public investments and the management of public services was addressed by technical assistance projects in Lebanon, Morocco and Syria. MEDA resources also contributed to the financing of a road in Morocco. The MEDA programme supported the development of private enterprises, especially SMEs, in all seven MED countries through the implementation of Business Centres whose core activities consisted of: Developing the management skills of enterprise managers; Supporting an up-grading process of enterprises; Providing enterprises and professional associations with an up-date information on

markets and technology developments. Some Business Centres extended their activities to the strengthening of professional organisations and to the enhancement of the quality of products, whereas these activities were carried out in other countries through separate projects. The qualification of the labour force was addressed in Morocco and Tunisia through large projects aiming at a renovation and extension of the vocational education system, and a Higher Institute of Business Administration was established in Syria. In order to ensure a larger access of SMEs to external financial resources a project targeted the restructuring of the financial sector in Egypt and training was delivered to the staff of commercial banks in Tunisia, a credit guarantee line was provided to commercial banks in Morocco, and funds managed by the EIB were made available to Risk Capital Companies in Egypt, Jordan, Morocco, and Tunisia. Altogether MEDA resources devoted to private sector development amounted to Euro 719 million. With the exception of an assistance to the Tunisian Agency for the Promotion of Investments, financed under the 4th Protocol, and a small project of simplification and computerisation of trade formalities in Tunisia, EC interventions related to trade and external economic relations were implemented in the framework of regional projects that organised meetings bringing together entrepreneurs of both side of the Mediterranean Sea and created networks of business organisations. Euro 27 millions were devoted to these activities.


Final report – Volume 1 – November 2003 Page iv

1.4 EC economic cooperation with MED partners – main findings and conclusions

Economic cooperation of the EC with MED countries during the 1995-2001 period was highly relevant. It addressed at the macroeconomic and microeconomic levels the major weaknesses hampering the development in these countries of a competitive private sector and a closer integration into the world economy. However the lack of an explicit strategy at the country level during this period does not allow one to conclude that in each single country MEDA economic cooperation targeted the most acute constraints to the achievement of the Barcelona goals. One can also regret that few resources were devoted to the enhancement of trade and other external economic relations. Overall effectiveness of the EC economic cooperation with MED partner countries was reasonably good. Structural Adjustment Facilities effectively contributed to the implementation of sound macroeconomic policies, to reforms of the institutional environment that made it more enabling to the development of the private sector, and to progress towards the liberalisation of trade. These interventions would have however benefited of a coordination with technical assistance projects addressing the institutional environment. As for the latter, their relatively limited effectiveness can be attributed to a lack of commitment to reform of the beneficiary institutions, which would have called for a continuous policy dialogue on the issues targeted by these projects. As regards interventions in public services, they delivered positive results as far as they limited their scope to technical issues. But potential synergies in this area between technical assistance projects and EIB loans were not mobilised. Development of the private sector was effectively supported by Business Centres, which delivered training courses attended by several thousands of entrepreneurs, contributed to an improvement of the competitiveness of hundreds of Small and Medium Enterprises, supported the strengthening of professional associations. These actions directly targeting enterprises and the business community were complemented by projects renovating education systems and developing their capacity, and by projects that improved the quality of products and strengthened the institutions dealing with this issue. Regional programmes organised meetings that brought together thousands of enterprises of the MED region and established networks between business associations, thus supporting the development of external economic relations between MED countries and between these and the EU. These interventions suffered from the lack in the partner countries, except in Tunisia, of national policies addressing the main weaknesses of the economies. The development of private enterprises and the improvement of their competitiveness implies a large variety of complementary interventions: strengthening of the institutional environment, enhancement of entrepreneurs management skills, renovation of the vocational education system, enhancement of product quality, strengthening of professional organisations, etc. Although some Business Centres covered several of these


Final report – Volume 1 – November 2003 Page v

activities, they were more frequently addressed through separate projects. Coordination between these projects was deficient because the Terms of Reference of the various projects disregarded the need for a close coordination of their activities, and because their implementation time schedules were uncoordinated. A change of the European Commission approach, already during the MEDA I period, from a project approach (relatively small size, focused on one area) to a programme approach (consisting of several integrated projects/components) should eliminate this difficulty. Access to external financing sources is a crucial condition to complete success of the activities supporting the development of SMEs. This issue was addressed from one country to another through a variety of interventions: technical assistance was provided to the central bank and to commercial banks; credit guarantee lines were made available to commercial banks; funds were brought in risk capital companies. For lack of a comprehensive approach none of these attempts to solve the problem delivered fully satisfactory results. Trade facilitation, and more generally the development of external relations of the MED partner countries was mainly addressed by regional projects. While these ones were quite effective, they remained disconnected from bilateral activities. Management of the EC economic cooperation programmes revealed serious inefficiencies, which resulted in implementation delays and interruptions. Many MEDA projects, most notably the Business Centres, suffered of serious weaknesses of their design which prevented them over a difficult and long starting phase to deliver the services they were intended to provide. These problems were addressed with the introduction of the regional framework contract at the end of 1999 and other measures which resulted in a considerable improvement in the performance of the projects. An explanation of these inefficiencies lie in the distribution of management responsibilities between several entities (Delegations, MEDA teams, EC headquarters), the ultimate decision being entrusted to EC headquarters which does not have direct contact with the projects. In “decentralised” countries, national and EC procedures compounded one another with the result that the decision process was further slowed down. In response to these weaknesses, which constituted an important constraint during the period 1995-2001, the European Commission has undertaken a reform of its external co-operation activities. From January 2002 onwards, a devolution process has taken place in which all activities related to project management have been organised at the level of delegations. The staff of the Delegations has been considerably enlarged, notably through the integration of sector experts (equivalent to the former MEDA teams). The outcome of the EC economic cooperation with MED countries is likely to be durable. However sustainability would have been better secured if more had been done to develop in MED countries a market for consultancy services and a local capacity to supply these services.


Final report – Volume 1 – November 2003 Page vi

1.5 Recommendations

At the strategic level, recommendations are: Design an explicit and regularly up-dated strategy at the country level for the

achievement of MEDA objectives, notably in the field of economic cooperation. This need has been acknowledged in the revision of the MEDA Regulation and Country Strategy Papers for the period 2002-2006.

Assist partner countries in identifying their strengths and weaknesses with respect to social and economic development, and in designing their own strategies and programmes to prepare the establishment of the Euro-Mediterranean Free-Trade-Area.

At the programming level, recommendations are: Coordinate Structural Adjustment Facilities and technical assistance projects. While

there are strong reasons to avoid a close link between these two types of intervention, the adoption of a medium-term strategy for EC interventions should make it possible to provide technical assistance in preparation of reforms whose implementation could then be supported by SAFs.

Create synergies between technical assistance projects. Improving the competitiveness of enterprises implies a large variety of actions whose effectiveness is enhanced provided they are coordinated. This should be reflected in the terms of reference of complementary projects as well as in the scheduling of their implementation.

Link bilateral and regional projects. The expected contributions of regional projects should be indicated in the Country Strategy Papers, while Delegations should promote regional projects and, when possible, favour synergies between bilateral and regional projects.

Develop complementarities with EIB lending activities. As regards the provision of public services in particular, useful complementarities can be created between technical assistance projects in support of improvements in their management, and the European Bank in financing an up-grading of infrastructure and equipment.

Adopt a comprehensive approach to the financing of SMEs. The lack of access to finance is a major hindrance to the development of SMEs in MED countries. Tackling this issue implies reform of the financial and banking system as well as the provision of resources in various forms. The newly created Facility for Euro-Mediterranean Investment and Partnership (FEMIP), whose top priority is the financing of private sector development, and which combines the provision of financial resources with technical assistance to financial institutions, is a very important step in this direction.

Devote more attention to the enhancement of trade and external economic relations. Here again, this need has been taken into account in the programming documents of MEDA II.


Final report – Volume 1 – November 2003 Page vii

At the implementation level, recommendations are: Devote more resources to project preparation. In particular, assumptions and risks

should be investigated in depth and lessons learnt from previous projects should be incorporated in the terms of reference of new projects.

Support the development of local consultancy capacities through different means, such as an invoicing of the services provided to enterprises and the obligation for European consultancy companies to enter into consortia with local firms.

Link closely policy dialogue and project implementation. Technical assistance projects tackling sensitive issues such as privatisations or other institutional issues should be backed by a continuous policy dialogue with the Government.

Ensure close follow-up of the projects and intervene promptly when a project is facing problems. At the end of the inception phase, and whenever a project is facing difficulties, it is advisable that the Delegation brings together all stakeholders of the project to work out the measures that are needed to ensure successful implementation. As far as it brings the decision capacity closer to the projects, “deconcentration” should favour more efficient management of the projects.

Where the conditions are met, give full responsibility to local authorities on the management of the projects. Provided they have a proven positive track record with respect to the management of public resources, governments should be given full responsibility for managing projects in compliance with their own procedures, as they do for the resources made available to them through SAFs.


Final report – Volume 1 – November 2003 Page 1

2. Background

2.1 Economic, social and political context in MED partners

2.1.1 Economic situation

MED partner countries of the EC represent a heterogeneous group of countries1 that rank among middle-income to lower middle-income economies, with Gross National Income per capita ranging between $1000 and $ 2000 in 2001 with the exception of Lebanon with an estimated GNI per capita reaching $ 4000. In the region, population growth rate is high, population under 25 years old represents a large share of the total (up to 40%) and the new labour force entering the market every year is huge2. Previous economic policies focused on inward-looking and state-directed development, import substitution and a highly protected manufacturing sector. In the 1990’s, nearly all partners - though unequally across the region – began undertaking substantial structural reform programmes designed to restore macroeconomic balances, to progressively open their economies and to take steps towards private sector support policies. Given the high population growth rate, the low or stagnant real GDP growth in the 1990s was insufficient to raise living standards. Additionally the intensive fluctuations of the prices of oil and agricultural products – major export products for several MED countries – caused growth instability. The MED region’s strengths, opportunities, weaknesses and threats as regards competitiveness, sustainable economic growth and integration into the world economy can be briefly outlined as follows on the basis of similar SWOT analyses undertaken for seven individual countries3. It is noteworthy that, as stated above, the MED partner Countries represent a heterogeneous group; the measures they have taken during the last decade towards integration into the world economy and to improve their macro-economic situation vary very much in their intensity.

1 This report covers Algeria, Egypt, Jordan, Lebanon, Morocco, Syria and Tunisia. 2 See UNDP’s Arab Human Development Report 2002, Indicators: labour force annual growth rate from 2.6% in

Morocco to 4% in Algeria. Unemployed youth as a share of total unemployed: from around 40 (Morocco) to 73% Syria).

3 See the respective Country Reports for Egypt, Jordan Morocco, Syria and Tunisia in annex.



Tunisia for instance launched its efforts towards maintaining a macro-economic equilibrium and promoting a growth strategy based on exports and investments in 1986. Its has since fairly improved its economic and social indicators, though unemployment remains high (15%). Syria in contrast has shown little interest in the 1990s in developing a competitive private sector and better integration into world trade. But reform orientation became more perceptible with the accession of the new President in 2000 and a number of significant initiatives have been undertaken since. However common features can be identified in regional strengths, opportunities, weaknesses and threats facing the MEDA programme objectives:

Strengths Weaknesses

First measures towards macro-economic stabilisation taken in the 1990’s.

Privatisation of major enterprises (i.a.

telecom, sugar refineries, banks). Progressive price liberalization.

Rents (incl. oil exports) offering a margin of

manoeuvre to cope with the transition costs of reforms.

Awareness of social development needs –

important steps already taken in some countries.

Large bureaucracy. Reduced capacity of the State to design and

implement development policies. A negative average overall budget

balance/GDP. Balance of payments highly dependent on rents

(oil exports, remittances, tourism, foreign aid). High involvement of the State in production. Inefficient public sector in terms of quality of

services and costs. Underdeveloped banking system. Lack of a strategy to enhance competitiveness

of the private sector and prepare for the establishment of a FTA. Lack of competitiveness of SMEs. Low productivity. Limited attractiveness to foreign investment. Protectionism in favour of local manufacturing

industry. Narrow product base. Small internal markets (except for Egypt and

Algeria). Inadequacy between the output of the

school/training system and the needs of the economic sector. Female capabilities far under -utilized through

political and economic participation. Deterioration of environment. Regional political instability.



Opportunities Threat

Progressive changes on government policies in favour of gradual opening and modernisation of the economy.

Closer integration with the EU- closeness

to the large European market. Participation to regional FTAs (the Greater

Arab Free-Trade Area, and bilateral FTAs). Young population. Weak salaries as compared to European

level.

High levels of unemployment and underemployment, income differentials and poverty. Job losses due to liberalization. High number of new entrants on the labour

market annually. The dismantling of tariff protection will put

competitive pressure on economies that are, for their majority, not prepared yet to take up the challenge and will cause adverse fiscal revenue impact on the budget. High concentration of exports on a limited

range of products with relatively low growth potential. Potential competition from Eastern and Central

Europe engaged in the accession process.

2.1.2 Social situation

In most Arab countries, the population growth rate and the share of the population under 25 years are very high. This population growth offsets much of the economic growth.

Economic growth was weak in the 1990s. That fact, together with the increase of the population, led to a worsening of unemployment and poverty. Unemployment (regional average: 15-20%; in Algeria: 29.8%) and underemployment are widespread in the region, in particular among the 15-24 years old population where it reaches up to 70 % (Algeria - Syria), and in urban areas (21% in Morocco)4.

The evolution of the labour market is characterized in several countries (i.a. Morocco, Tunisia) by a sharp increase of educated unemployed, this factor reflecting the lack of capacity of their economic sector to absorb or retain well-qualified people. Among the causes of unemployment are also the industrial upgrading (“mise à niveau”) undertaken in some countries and its subsequent laying-off process; and the restructuring or privatisation process of public enterprises. In Algeria, 450.000 people lost their jobs during the 1995-1998 restructuring process.

This high unemployment level has led to a sharp increase of the population under poverty line, and to an exacerbation of the “low growth/unemployment/ poverty/migrations” sequence. The income per capita stagnated or decreased in the region in such a way that a higher percentage of the population now lives under the poverty line (20% in Morocco and in Syria). This explains the growing pressures on migration to Europe.

4 A UNDP opinion poll of Arab youth in 14 Arab countries indicated that job availability is the most common concern

of the youth, followed by education, health care and environment. Unemployed youth represents from 40% up to 73% of total unemployed. See Arab Human Development report 2002, UNDP.



When there was a real income growth, there was also an increase of income differentials and inequalities, and of relative poverty. The gap between rural and urban incomes has widened. Because they usually have a low level of education and little access to social services, the most economically and socially vulnerable groups are notably women and the unemployed. Migrant labour remittances are an important asset for the population that remain in the country and for the national economy. In Syria, the remittances from the 1.5 million people who left the country represent 3% of the national income. In Jordan, they represent 20% of the GDP. Achievements in the social fields vary widely from country to country. Generally, social protection systems now in place are lacking in coverage and effectiveness. Social reform lags behind economic reform, and is unable to counteract adverse effects of economic transition like a widening of income differentials and an increase of structural unemployment. Tunisia’s achievements however are considerable – its social security system covers 80% of its active population. Egypt created in the 1990s an Egyptian Social Development Fund to alleviate the social effects of the economic structural reforms. Recently, in November 2001, the Jordanian government announced “an ambitious five-year Social and Economic Transformation Plan that aims at upgrading public and social services and speed up economic reform, thus improving the living conditions and creating job opportunities for an extremely young and rapidly expanding population5. The Five Year development Plan (2000-2004) of Lebanon, where much has yet to be done to reduce the income gaps and to increase equity, will focus i.a. on improving social structures and services6. Several MED countries have taken measures and are pursuing efforts towards the valorisation of their human capital, notably through the improvement of education/training and skills development. Their objective is notably to obtain a better match between the outputs of the educational system and the changing needs of the labour market, to meet the challenges of low internal economic efficiency and the needs of the economic sectors.

5 Source: EC/Relex Jordan – Overview. 6 EURO-MED Partnership: Country Strategy Paper 2002-2006, Lebanon.



2.1.3 Political situation

A common feature of several countries in the region is their deficit in terms of participatory governance. While democracy and human rights are enshrined in legal texts, freedom of expression and association are often limited. Growing unemployment, which reaches an average 15% in the region but is highest amongst the young, notably among the educated, is a factor of potential political instability. The risk of unbalanced growth is social tension and exploitation of the people’s demands by political Islamism. And conflicts in the region have impeded several MED countries to reach the stability that is essential to the implementation of a durable Euro-Med partnership. In the 1990s however, reform of the political process through liberalization was launched in several MED countries. That is notably the case of Morocco and Egypt. However in a country like Syria, where there is general opposition to reforms that may threaten the power structure in place, a wide range of reforms are still necessary to prepare the country for a EU/MED economic cooperation and free trade zone. Generally human rights record and participation in the region is improving. In Tunisia, performance in terms of social, economic and cultural rights are positive although real dialogue with civil society is still limited. In Egypt, the Government is concerned to – cautiously - engage NGOs in social development sector although limits are firmly drawn. In Syria, however, a free and organized civil society hardly exists. Even though women’s capabilities have grown significantly through education, the utilization, in the region, of their capabilities in terms of political and economic participation remains the lowest in the world7; their share of the labour market (an average 25-30%)8, and therefore their contribution to the formal economic sector, is very limited. Evidently, much remains to be done to raise political and economic participation from all levels of the society, a guiding principle of the Barcelona Declaration. Experience has demonstrated that good governance practices play a key role in revitalizing a private sector-led economic growth. The quality of governance in the MED countries does not yet match the needs of an open economy as required for the implementation of the Association Agreements with the EU and the MEDA programme.

7 Source: UNDP AHDR 2002. 8 In Lebanon, women’s participation rate in public and political life is only 2%, and their contribution to employed

labour force is 27%, as compared to a university graduation rate of 50%.



2.2 The Barcelona Declaration and the EC policy towards MED countries

At the Barcelona Conference of 27-28 November 1995, relationships between the EU and the twelve countries of the Mediterranean region9 entered a new phase. The 15 EU Member States and the 12 Mediterranean Partners signed the Barcelona Declaration and established the Euro-Mediterranean Partnership. The Partnership provides a global framework for relations covering all aspects of mutual interest and is organized into three chapters: The political and security dimension: The overall objective is the progressive

establishment in the region of an area of peace and stability. To this end a political dialogue is envisaged as well as the adoption of a Charter for Peace and Stability. The dialogue is based in particular on the respect of human rights and includes security aspects.

The economic and financial dimension: The overarching objective set by the Barcelona Declaration is the creation of an area of shared prosperity through the progressive establishment of a Euro-Mediterranean free-trade area and EU financial support to the partners.

The social and cultural dimension: Partners aim at closer relations and better understanding between their peoples including the improvement of mutual perceptions. The role of civil society is given prominence and co-operation is envisaged across a broad range of other fields such as culture, youth and the fight against organized crime.

The Partnership aims to ensure that there is a balance between the chapters, which takes account of the interdependent nature of the challenges facing the region. More analytically, in the Barcelona Declaration, the 27 Euro-Mediterranean partners agreed on the establishment of a free-trade area by the target date of 2010. This is to be achieved by means of Euro-Mediterranean Association Agreements negotiated between the European Union and each of the Mediterranean Partners, together with free trade agreements between the Partners themselves. Agreements with Tunisia, Morocco, Israel, Jordan and the Palestinian Authority have already entered into force. Negotiations for Agreements have been concluded with Egypt, Lebanon and Algeria and are awaiting ratifications by the parliaments of the EU Member States. Negotiations are under way with Syria. As far as Turkey, Cyprus and Malta are concerned, relations are governed by pre-existing Association Agreements providing inter alia for the progressive establishment of customs unions.

9 Algeria, Cyprus, Egypt, Israel, Jordan, Lebanon, Malta, Morocco, Syria, Tunisia, Turkey and the Palestinian AA.



2.3 Principles governing the EC cooperation with Mediterranean countries from the Protocols to MEDA I and MEDA II

Relationships between the European Union and the 12 Mediterranean countries have been covered successively by four Protocols over the period 1979-95, and by the MEDA programmes since 1995. Aid volume steadily increased to reach a total of nearly Euro 3.5 billion by end-1999, plus an indicative figure of Euro 3.9 billion for EIB-loans. Policy objectives moved from a contribution to economic and social development (under Protocols 1986-91) to the development of common area of peace and stability, a zone of shared prosperity, a free trade area and rapprochement between peoples and cultures under MEDA I. In comparison to the earlier Protocols, the proximity policy inaugurated in Barcelona is innovative in three respects10: 1. Aid is part of a global and comprehensive political and economic partnership, with

long term objectives and several dimensions, including human rights and democracy and other common principles, as well as economic, political, security, social, judiciary and cultural and co-operation. Its central issue is the transition to open market economies through economic and financial cooperation.

2. Regional cooperation encourages South-South integration and supports bilateral actions and dialogue.

3. Funding is increased without pre-established allocation of funds among MED partners.

The Euromed-Partnership is based on certain basic understandings shared by the EU and the MED partners11:

1. The main motivation for the MED partners to undertake the necessary structural reforms (in the economic, social and political fields) is a relationship with the EU based on a credible prospect of increasingly closer co-operation once the relevant conditions are met.

2. There is a clear need to treat the countries of the region in a manner which takes account of the varying degrees in which they have to take up common challenges. In this way, each country will move closer to the EU at its own pace.

3. The EU’s relations must remain conditional on each country’s commitment to achieving respect for the principles underpinning the Barcelona process.

10 See integral text of the Barcelona Declaration at www.europa.eu.int/comm/external_relations/euromed/bd.htm 11 Source: Regional Strategy Paper 2002-2006, EC/Euromed.



The Euro-Mediterranean partnership stresses the importance of regional co-operation as a catalyst notably to reinforce the effects of bilateral co-operation and to tackle common regional challenges.

2.4 Outline of the EC cooperation with MED Partner Countries

While the current evaluation focuses on economic cooperation, this sub-chapter aims at providing a brief overview of the EC overall cooperation with MED partner countries under MEDA I (1995-1999).

2.4.1 Support to economic transition and private sector development

A major objective of the Barcelona Declaration is to contribute to the process of economic transition in MED partner countries and to foster a climate favourable to private sector development. Over the years 1995-1999 Euro 1030.50 million, that is 30 percent of MEDA I commitments, were devoted to this objective. These funds financed technical assistance projects, interest subsidies on EIB loans to infrastructure projects related to environment protection, and to the financing of risk capital operations. These interventions are at the core of economic cooperation and will be analysed in detail in the following chapters.

2.4.2 Structural adjustment facilities

EC Structural adjustment support to the Mediterranean countries was first introduced under the 4th Protocol (1992-1995). Under the Renewed Mediterranean Policy (RMP), structural adjustment facilities (SAF) were provided to four countries (Algeria, Jordan, Morocco and Tunisia) for a total of Euro 310 million. Though the reform programme must be approved by the Bretton-Woods institutions, SAF is indeed designed to support the economic transition and FTA creation processes aimed at in the Association Agreements. The July 1996 MEDA regulation specifies that it intends to take into account the social and environmental consequences of economic and financial reforms, and the human and cultural dimensions of co-operation. SAF will therefore have to make up for the negative effects that adjustments may have on employment and the underprivileged. The social dimension of SAFs has been widely reiterated. It has materialized through the stability or the rise of social budget expenditures (in health and education sectors); however, the evaluation carried out on SAFs notes that the redistribution of spending in favour of the targeted populations has been difficult to achieve.



Over the period 1995-1999, SAFs represented Euro 510 million or 15 % of the total MEDA I commitments. SAFs were implemented in five countries (Morocco, Jordan, Tunisia, Algeria and Lebanon). In Jordan, nearly 70% of the MEDA funds were disbursed under the SAFs12.

2.4.3 Intervention in the social and cultural fields

The Barcelona Declaration establishes the rapprochement of peoples through a social, cultural and human partnership as one of its three main objectives. Operations financed by MEDA I at the bilateral level in the social sector amounted for a total Euro 1 billion over the period 1995-1999. This represents 29 % of the total MEDA I commitments. Designed to cover socio-economic balance, they include social funds (Egypt) and specific co-operation programmes aiming at improving access to and quality of education/training, modernising health services, strengthening civil society, and protecting the environment. More recently a structural adjustment facility for health was offered to Tunisia for the reform of its health security system13. In 1995-1999, MEDA I’s commitments to the socio-economic balance support in Morocco, Egypt and Turkey amounted to over 50 % of the total. The Declaration aims at encouraging understanding between cultures and exchanges between civil societies. The Work programme invites action on the dialogue between cultures and civilisations, and on the media, calling for closer media interaction14. Action is being taken both at regional and at national level, inter alia, in the following fields: cultural and creative heritage, cultural and artistic events, co-productions (theatre and cinema), translations and other means of cultural dissemination, training. At the regional level, various regional programmes were financed by MEDA I under the Cultural, Social and Human Partnership chapter, for a total budget of Euro 56.4 million.

2.4.4 EIB interventions

The EIB has played an important role in providing financial assistance to Mediterranean partners since the mid-1970s. Its lending activities have been expanding continuously to reach a total volume of Euro 4808 over the 1995-1999 period. Next to its regular lending activities, the EIB has been appointed under the MEDA Regulation to manage MEDA budget funds that are used to subsidise interest rates for EIB loans relating to environmental projects (IS) and to implement risk capital operations (RCO):

12 See Annex Jordan, Country report 13 It is noteworthy that the Tunisian authorities consider that MEDA I too narrowly focuses on the preparation of the

FTA, with the result that interventions having a “social character” are put on the second rank.

14 In 2001, the focus was placed on youth, education and the media.



IS are granted on EIB loans in the environmental sector. Through this, the EIB should contribute to the objective of improving living conditions, improving environmental conditions and fostering a sustainable balanced development in the region.

RCOs are intended to facilitate private or mixed undertakings in productive sector companies (SMEs), in particular when those undertakings can bring together European and Mediterranean partners. Their objectives include support to the creation and development of financial institutions, restructuring/modernisation of private companies, and privatisation of public enterprises, through the increase of external financing.

During the period 1995-1999, MEDA financial resources managed by the EIB amounted to:

Euro 135 million for IS. This corresponds to 21% of the total loans approved. Euro 166 million for RCOs15.

i.e. approx. 9% of the total MEDA programme resources16.

Sector wise 78% of the loans subsidised by IS fall under the water sub-sector, the question being what justified that high sub-sector concentration.

Country-wise, Egypt is the main beneficiary of IS. Three countries received almost 70% of the funds allocated for risk capital (Morocco, Egypt, Tunisia); this distribution scheme was explained by the different levels of preparedness of the MED countries with regard to risk capital.

It is noteworthy that monitoring by the EIB, though considered as efficient and effective, is undertaken only from a financial and banking point of view, without considering the socio-economic impact of its operations.

Most RCOs are conditional loans extended to Financial intermediaries to foster equity or quasi-equity investments in SMEs. The effectiveness of RCOs is difficult to establish since no clear indicators have been defined against which to assess their performance (like: number of SMEs to create or support, number of jobs created, (sub)sectors to develop, etc.).

In October 2002, at a meeting in Barcelona of the Ministers of Finance of the 15 Member States and 12 Mediterranean partners, was decided the creation of a new financing instrument, managed and mainly funded by the EIB: the Facility for Euro-Mediterranean Investment and Partnership (FEMIP). The top priority of FEMIP is to contribute to private sector development in the MED partner countries. Other projects eligible for this financing instrument are: (i) regional cooperation projects and investments with a social dimension (health, education) and for the protection of the environment; (ii) economic reform and privatisations; (iii) provision of innovative financial products and of risk capital.

15 Most RCOs are conditional loans extended to Financial intermediaries to foster equity or quasi-equity investments in

SMEs. 16 Source: « Evaluation of financial assistance for the Mediterranean countries managed by the EIB on behalf of the

EC », Final report, May 2001 – Nordic Consulting Group.



2.4.5 Links between EC interventions

The Mediterranean policy of the EU inaugurated in the Barcelona Declaration is of a new kind: it is a global and comprehensive policy. Although it makes economic transition and free trade a central issue of the EU cooperation with the MED partners, it also promotes principles including respect for human rights and democracy, security, social, cultural and human cooperation. Regional cooperation is encouraged in order to promote a South-South integration and support and complement bilateral actions. The ability of linking EC aid with the EIB offers an additional financial “arm” to the

MEDA programme. The Barcelona Declaration gives indeed high importance to private sector and infrastructure development, two sectors that correspond to EIB’s mandate. The EIB contributes substantively to the implementation of the MEDA programme through IS and RCOs management. The lack of coordination between EIB and EC financed activities, an issue that was raised in a former evaluation17, was addressed in the preparation of the new Regulation of the MEDA programme (Art. 5) prepared for MEDA II and several18 recent Country Strategy papers and NIPs 2002-2004 were prepared in coordination with EIB.

The Structural Adjustment Facilities (SAFs) are designed to support the economic transition and free trade creation processes. The 1996 MEDA regulation specifies that SAFs “shall lay down measures intended, in particular, to alleviate the negative effects which the process of structural adjustment may have on social conditions and employment, especially for underprivileged sections of the population. This principle is reiterated in the MEDA II Regulation.

Last but not least and since good governance practices play a key role in revitalizing a

private sector-led economy, reforms have been undertaken to prepare the MED partner countries for a EU/MED long term partnership in the direction given by the Association Agreements. Some projects have supported the strengthening of the civil society (Algeria and Morocco: support for NGOs), access of girls to school (Egypt). Evidently, much remains to be done to raise political and economic participation from all levels of the society, a guiding principle of the Barcelona Declaration.

Finally the regional programme has supported the various chapters of the Barcelona

process through several regional actions aimed at complementing the bilateral projects: economic transition and private sector development support (Investment Promotion Agencies network), good governance (Civil Forum), the social sector (Youth Action programme), environmental sustainability, and culture [Cultural Heritage]).

17 See the Final report of the “Evaluation of financial assistance for the Mediterranean countries managed by the EIB

on behalf of the EC”, 1999. It included i.a. a recommendation to better integrate IS and RCO at programming level and strategy level.

18 i.a. the CSPs for Algeria, Morocco and Tunisia.



MEDA II’s legal framework for the period 2000-2006 has been shaped by a new Regulation meant to be more programme-oriented and strategic than its predecessor. Answering to earlier recommendations made from the programming point of view, the link between the MEDA II programme and the reforms implemented in the partner countries is being strengthened and a stronger focus has been laid on two priorities: economic transition and accompanying socio-economic measures (social safety net systems, education and vocational training, the role of women in economic life).

2.5 Main conclusions of previous evaluations on the EC MED cooperation

From 1990, the Evaluation Unit of the EC has launched various evaluations and assessments of the activities undertaken under the earlier Protocols and under the MEDA Programme.

2.5.1 Structural adjustment facilities in the MED partner countries

In the MEDA programme, the structural adjustment facilities (SAFs) are meant to support economic transition in the partner countries, as a follow up of the earlier European Commission’s support to structural adjustment under the renewed Mediterranean policy (1992-1996). The assessment of the SAFs in the Mediterranean countries undertaken in 199919 bears on the financial assistance brought to 4 countries: Algeria, Morocco, Tunisia and Jordan between 1992 and 1997, for a total of Euro 855 million.

The conclusions of the evaluation were that globally, but to different degrees the EC SAFs allowed MED partners to engage sector reforms leading to an improvement of the macroeconomic situation. Significant progress was observed towards the liberalisation and the regulating of the economy, in particular in the banking system where progress towards competition has been achieved. Progress was done towards the restoration of the balance between the public and private sectors, though unequally. Evaluators noted that the liberalisation of the capital market went further than the labour market. The social dimension has been asserted in each partner country and usually materialised through an increase of expenses in the education and health sectors. On the other hand, the redistribution of spending in favour of the neediest has encountered more difficulties.

Major recommendations of the assessment included that:

Conditionality should be more closely linked to the specific costs of transition arising from the preparation of a FTA with the EU. The European Commission should reinforce its own ability to analyse this question and to assess the consequences of reforms on the general equilibrium of each partner;

19 See: “Assessment of the structural adjustment facilities in the Southern Mediterranean countries”, Final Report,

August 1999, EC, DG IB (C.E.P.T. II).



Social spending in favour of the poorest being difficult to achieve, aid could be linked to the government’s commitment to strengthen economic balance;

Although the principle of direct aid should be maintained, the EU should resort more often to the negotiation of specific conditions bearing on the amount of particular budgetary expenses when these expenses are directly linked to MEDA objectives.

2.5.2 Financial assistance managed by the European Investment Bank (EIB)

Among the conclusions and recommendations made in the 2001 “Evaluation of financial assistance for the MED countries managed by the EIB on behalf of the EC”20, one will draw the attention to the need of improving complementarity of EC and EIB’s activities in MED region at programming level, at decision level and at implementation level. On the effectiveness of RCOs, the negative impact of EIB’s traditional bias towards commercial and development banks to the detriment of venture capital companies was observed, together with the fact that many financial intermediaries in Mediterranean countries still lack the culture needed to finance start-ups. This observation led to the conclusion that the EIB should better re-orient its policies towards the objectives of developing a modern financial system and a dynamic private sector. The EIB and the European Commission should set targets concerning the proportion of start-ups to be created, and consider financial incentives to encourage investing in start-ups, within defined risk limits. Sector wise it was noted that 78% of the loans subsidised by interest subsidies (IS) fall under the water sub-sector, without obvious justification. The environmental sub-sector targeting of the programme should be more precisely defined. Finally the European Commission and the EIB should jointly assess the socio-economic impact of EIB-managed operations under MEDA.

2.5.3 MEDA Global Allocation21

The MEDA regulation has established a simplified procedure for approving operations costing less than Euro 2 million under “global allocations” (GA). Funds allocated to these GAs represent 3.4 % of the MEDA programme. Over the period 1996-2000, Euro 80 million were committed as GAs for approximately 484 actions, of which 62 % were for regional actions. At country level, main users are Morocco, Tunisia and Egypt.

This tool was developed to allow for more flexibility and accelerated decision-making, avoiding overburdening the MED Committee, and dealing with unforeseen situations. However the evaluation indicates that procedures as established do not offer the degree of

20 See: “Evaluation of financial assistance for the MED countries managed by the EIB on behalf of the EC”, Final

Report, May 2001, EC (Nordic Consulting Group a/s). 21 See: “MEDA Global Allocation Evaluation” 1995-2000, Synthesis report, feb2001 EC (COTA-AEDES-GRET-

IIED).



flexibility that was hoped and that they encourage a dispersal of activities, reducing their sustainability. The micro-actions category was discontinued in 1999 for that very reason.

2.5.4 Evaluation of the MEDA Democracy Programme - 1996-1998

The legal framework for the MEDA Democracy Programme (MDP) consists of the Barcelona Declaration, the Association Agreements and the human rights and democracy related provisions of the MEDA regulation. The MDP was launched in 1996 and launched 148 operations for a total of Euro 22.85 million. Beneficiaries were NGOs, universities, research centres and various public bodies. The evaluation22 concluded positively on the appropriateness and coherence of operations, in terms of priority and relevance of issues, and approved the combination of bottom-up and proactive strategy approaches, the latter having to be used in countries like Tunisia, Egypt and Syria where there were more projects to be funded. A strategy should be developed for the future with inputs from the Delegations and local civil society. Procedures should be simplified and a programming guide should be made available in each country.

2.5.5 Evaluation of the MEDA regulation

Last mention should be made of an “Evaluation of the MEDA regulation23”that was undertaken early 1999 with a view to providing the EC with recommendations for a revision of the Regulation. Although the evaluation recorded the improvement in coherence between the programming of financed projects and programmes and the general MEDA objectives, the report hinted at the need to improve programming and therefore the NIPs (according to Art. 5 of MEDA regulation), and European Commission monitoring. Other measures for improving the efficiency of the decision-making process and the overall programming system were recommended24. That revision of the Regulation did indeed take place in 2000 as a basis for the MEDA II programme implementation.

22 See: Evaluation of the MEDA Democracy Programme - 1996-1998”, Final report, April 1999, EC. 23 See: “Evaluation of the MEDA Regulation”, Final Report, February 1999, EC. 24 See also the Annual Report of the MEDA Programme 1999.



3. Objectives and methodology of the evaluation

3.1 Objectives and scope of the evaluation

The general objective of the evaluation, as stated by the Terms of Reference, is to help enhance the capacity of the European Commission as a development and economic partner by contributing to rational, coherent decision-making, bearing in particular on its economic co-operation programmes. The specific objective is to contribute to achieving better economic cooperation between Europe and MED countries. The geographical coverage of the evaluation comprises all Mediterranean countries where the EC has funded, or is funding, economic co-operation initiatives under the MEDA bilateral or regional programmes. Turkey, however, though eligible for MEDA bilateral funds, benefits from a pre-accession strategy; and given this very specific situation, this country was not considered. Because of the political situation in Cisjordania and the Gaza strip, the EC cooperation with the Palestinian authority was also withdrawn from the evaluation's scope. This left 7 countries included in the evaluation, of which five were visited by field missions (Egypt, Jordan, Morocco, Tunisia, and Syria), whereas the last two countries (Algeria and Lebanon) were dealt with on the basis of written documentation. In the following pages this group of countries included in the evaluation will be named “MED countries”. The evaluation focus is on economic cooperation funded under the MEDA I programme and financial protocols and implemented during the 1995-1999 period. But reference is also made to projects and activities implemented prior to 1995 or in the framework of the MEDA II Regulation adopted at the end of 2000 insofar as this is needed to present the evolution over time of EC cooperation with MED partners. Structural Adjustment Facilities, which have been evaluated in a previous study, do not enter in the scope of this evaluation. They will however be mentioned as far as they interact with other EC interventions in the field of economic cooperation.



3.2 Definition of economic cooperation

In 2001, the Evaluation Unit of EuropeAid commissioned a study aiming at a clarification of the concept of economic cooperation25. From an operational point of view, the elements that define EC cooperation with third countries vary from one region to another depending on the political and economic context, the general objectives of the EC external relations policy in each region, the specific objectives of EC economic cooperation, its expected results, the assumptions and risks that surround its implementation, and the conditions required to ensure the sustainability of its results. As regards the MEDA region, the main features of EC economic cooperation identified by the study are: To build or strengthen an institutional and economic environment favouring economic

growth and the development of the private sector; To enhance the competitiveness of economic actors; To establish a free-trade area between the EU and MED countries; To promote regional cooperation; To build sustainable partnerships between EU and local actors.

However, beyond the variations that differentiate economic cooperation from one region to another, common features emerge from the regional profiles. In fact there are five main features of EC economic cooperation with third countries: (a) Strengthening of the economic and institutional environment; (b) Direct support to private enterprises; (c) Facilitation of trade; (d) Support to the implementation of poverty alleviation measures; (f) Cultural cooperation. The first three elements are specific to economic cooperation, whereas the last two, while being part of economic cooperation programmes, are also strongly represented in other dimensions of EC cooperation with third countries. The authors of the study, in agreement with the Evaluation Unit of EuropeAid and the evaluation Steering Group, therefore recommended that, for evaluation purposes, economic cooperation programmes are analysed on the basis of the first three elements listed above: Strengthening of the economic and institutional environment, Direct support to private enterprises, Facilitation of trade.

This is the approach adopted in this study.

25 Clarifying the definitions of EC economic cooperation with third countries. Final Report. ADE,

PriceWaterhouseCoopers, EPU, March 2002.



3.3 MEDA intervention logic

The MEDA Programme intervention logic can be deduced from a set of fundamental documents defining the objectives pursued by the European Commission in its relations and co-operation with MED countries and identifying the activities that it intends to undertake to reach these objectives. These documents are:

The Barcelona declaration (27-28/11/1995), in particular its economic and financial chapter;

The guidelines for MEDA indicative programmes that are presented in an annex to the Council Decision n° 96/706CE of 06/12/1996;

The Council Regulations n° 1488/96 of 23/07/1996 and n° 2698/2000 of 27/11/2000 on financial and technical measures to accompany the reform of economic and social structures in the framework of the Euro-Mediterranean partnership (MEDA Regulations); The Common Strategy of the European Council of 19 June 2000 on the

Mediterranean Region n°2000/458/CFSP. These documents and the EC Relex Info Notes suggest that three main types of intervention in the MEDA Programme directly addressing economic issues can be distinguished: Structural Adjustment Facilities (SAF), that contribute to:

- Macro-stabilisation; - Simplification/improvement of regulations and administrative procedures for a

competitive market economy; - Development of the financial sector; - Privatisation process and public sector deregulation; - Liberalisation of foreign trade.

Private Sector Development projects, that implement activities aiming at: - The provision of advisory services; - An improved access of enterprises to finance; - The development of human resources; - The strengthening of enterprises competitiveness and the implementation of

industrial modernisation programmes.

Institution Building Support, designed to: - Strengthen the institutional and economic environment, - Reinforce environmental protection, - Enhance the innovation system.

Besides these interventions directly targeting economic issues, the MEDA programme includes interventions that aim at strengthening the socio-economic balance in partner countries, and in particular at alleviating the social costs of the liberalisation process. These interventions are:



Structural Adjustment Facility components addressing the social balance (design and implementation of social safety nets, support to investments in social infrastructures).

Interventions in support of employment:

- Support to job creation, - Development of the educational-vocational training system.

Support to the Social Development Europe components (SDF): - Community development, - Human resources development, - Promotion of small and medium enterprises.

Finally, MEDA interventions on economic issues are complemented by a large range of regional programmes supporting the development of trans-border cooperation between SMEs, industrial organisations, statistical and economic research institutes, ministries and public agencies in the whole MED region including the EU. The diagram of impacts presented in Annex V is an attempt to make explicit how these various activities, considered as inputs, may be expected to deliver outputs, which in their turn should produce the sectoral and wider impacts that are the objectives targeted by MEDA economic cooperation. This table, in particular, makes clear that the activities listed above can be considered as various complementing instruments to achieve three objectives of MEDA economic cooperation: Increased competitiveness of MED partners’ economies; Sustainable economic growth; Integration into the world economy and, in particular, in the EU-MED Free-Trade

area.

3.4 Evaluation questions, criteria and indicators

During the inception phase of this study, evaluation questions were identified. The Steering Group acknowledged that these questions logically derive from the intervention logic of the MEDA programme and adequately reflect the objectives of the evaluation as stated in the Terms of Reference (Cf. § 3.1 above). The evaluation methodology was further developed during the pilot field mission carried out in Tunisia. The evaluation questions were made more precise; evaluation criteria were defined to determine the basis on which the evaluation questions could be answered; and indicators were proposed for the assessment of the evaluation criteria.

One will find in Annex 5 the methodological note drafted at the end of the pilot mission. The table below lists the evaluation questions.



Relevance of the programme How far does MEDA economic cooperation address the main obstacles faced by the partner countries to increase the competitiveness of their economies, develop their economic links with the rest of the world, and achieve sustainable growth ? Strengthening the economic and institutional environment How far did MEDA contribute to the implementation of a sound macroeconomic

policy ? How far did MEDA contribute to the establishment of a fair competition between

enterprises? How far did MEDA contribute to a removal or simplification of regulations

obstructive to the development of enterprises ? How far did MEDA contribute to an adequate provision of infrastructure and public

services and to an improvement in their management ? Private Sector Development How far did MEDA contribute to enhance the management skills of entrepreneurs ? How far did MEDA contribute to facilitate the access of entrepreneurs to economic,

commercial and technical information ? How far did MEDA contribute to adjust the qualification of the labour force to the

needs of enterprises ? How far did MEDA contribute to facilitate the access of enterprises to financing

sources ? Trade facilitation How far did MEDA contribute to the establishment of a legal and regulatory

framework enabling of foreign trade and foreign capital movements ? How far did MEDA contribute to positive actions aiming at the development of trade

relations and foreign direct investments between the EU and the partner countries ? How far did MEDA contribute to positive actions aiming at a development of regional

trade relations and foreign direct investments between the MED countries themselves ? How far did MEDA contribute to the development of business-to-business

cooperation between the EU and MED countries enterprises and professional organisations and between the enterprises in the MED countries themselves ?

Efficiency of the programme management Evaluation questions: How far has the management of the MEDA programme contributed to the

achievement of its objectives ?



4. Findings

This chapter presents the activities undertaken by the European Commission in the three areas of economic cooperation defined earlier (Strengthening economic and institutional environment, Private sector development, Trade facilitation) and indicates the main outcomes of these activities. More detailed information can be found in the country mission reports in Annexes 5 to 9.

4.1 Overview

During the inception phase of the study an inventory of the projects and other interventions related to economic cooperation planned and funded by the European Commission was established on the basis of the CRIS data base and other documents relating to the MEDA programme. This inventory was later checked with the assistance of the EC Delegations during the field missions in five of the seven countries covered by this evaluation, namely Egypt, Jordan, Morocco, Syria and Tunisia. The following table presents an overview of the resources committed to economic cooperation from 1995 to 2001, that is during the period covered by MEDA I and the first two years of MEDA II. These data are broken down by country and by area of intervention.

Table 4.1 - Resources committed to economic cooperation by country and area (1995-2001) in million Euro

Strengthening the institutional and

economic environment

Private sector development

Trade facilitation

Total

Algeria 163.0 80.0 - 243.0 Egypt 153.0 206.7 - 359.7 Jordan 130.0 57.0 - 187.0 Lebanon 113.0 17.0 - 130.0 Morocco 211.6 158.7 - 370.3 Syria 70.5 35.0 - 105.5 Tunisia 190.5 164.5 4.6 359.6 Total bilateral 1,031.6 718.9 4.6 1,755.1 Regional 27.0 - 22.7 49.7 Total 1,058.6 718.9 27.3 1,804.8



This table suggests that EC bilateral interventions focussed on the institutional and economic environment and on the development of the private sector, while the issue of trade development was given little attention. This is partially misleading to the extent where to build this table projects were distributed between the three areas in relation with their sole main objective and a on the basis of a strict definition of trade facilitation projects. In fact, trade facilitation was frequently addressed through structural adjustments programmes and as a component of projects in support of SMEs. However, it is also true that, as long as the Association Agreements had not entered into force, the European Commission considered that the conditions for strong support to trade development were not met.. The Country Strategy Papers for 2002-2006 indicate that much more importance will be given to this issue in the coming years. By country the main beneficiary of economic cooperation is Jordan with commitments amounting to Euro 41.6 per inhabitant, of which two thirds was provided in the form of Structural Adjustment Facilities. It is followed by Tunisia (Euro 38.7 per inhabitant) and Lebanon (Euro 31.7). With Euro 13.6 per inhabitant Morocco is close to the average for the seven countries (Euro 11.1). The EC involvement in economic cooperation is at its lowest levels in Algeria (Euro 8.0), Syria (Euro 6.4) and Egypt (Euro 6.0).

4.2 Activities and outcomes of the EC interventions with respect to Strengthening the economic and institutional environment26

Under the term of economic and institutional environment one includes the whole set of elements, from laws and regulations to public services and infrastructures that are under control of the government and that impact on the development of the economy. Interventions in this area financed by the MEDA programme aim at favouring changes in this environment that make it more conducive to the development of a market economy relying on private enterprise and open to foreign economic relations. These interventions consist in direct financial transfers to the state budget known as structural adjustment facilities, and in technical assistance projects in support of government agencies. As far as infrastructure is concerned, although the MEDA regulations do not formally exclude the possibility of the MEDA budget financing the construction of infrastructure, this responsibility is in practice left to the EIB. MEDA grants are primarily intended to improve the technical and/or financial management of public services and infrastructure by the means of technical assistance projects. MEDA may also subsidise loans granted by the EIB to MED countries to finance the construction of infrastructure and equipment provided these aim at environment protection. Table 4.2 below lists for the 7 countries considered in this evaluation the interventions relative to the economic and institutional environment that have been programmed and for which funds have been committed over the 1995-2001 period.

26 Mainly MEDA interventions



Table 4.2 – EC interventions to strengthen the economic and institutional environment (1995-2001)

Country Intervention Commitments (Euro)

Structural Adjustment Facility 125.0 million of which 30.0 from

MEDA I

Algeria

Support for industrial restructuring and privatisation 38.0 million Public Enterprise Reform and Privatisation Programme 43.0 million Egypt Industrial Modernisation Programme (Budget support component)

110.0 million

Structural Adjustment Facility I 50.0 million Jordan Structural Adjustment Facility II 80.0 million Structural Adjustment Facility 50.0 million Rehabilitation of the Public Administration 38.0 million

Lebanon

Investment Planning Project (*) 25.0 million Structural Adjustment Facility I 120.0 million Impact study of the Free Trade Zone 1.3 million Support to privatisations 5.0 million Support for Telecom regulation and rehabilitation 5.0 million

Morocco

Mediterranean Rocade 80.3 million Modernisation of the municipal administration I 6.0 million Modernisation of the municipal administration II 12.0 million Power Sector Action Plan 11.0 million Telecom Sector Support Programme 10.0 million Modernisation of the Ministry of Finance 10.5 million

Syria

Institutional and Sector Modernisation Facility 21.0 million Structural Adjustment Facility I 100.0 million Structural Adjustment Facility II 80.0 million Support to privatisations 10.0 million

Tunisia

Strengthening the competitiveness of the Tunisian economy (part of the project dealing with the CEJJ)

0.5 million

Euro-Mediterranean Regional Programme for the environment

6.0 million

Euro-Mediterranean Information System on Know-How in the water sector

2.4 million (MEDA and EU Member States)

Euro-Mediterranean Cooperation in the energy sector 13.8 million Euro-Mediterranean Cooperation in the transport sector

New Approaches regarding telecommunication policy among Mediterranean partners

2.15 million

Regional

Private participation in Mediterranean infrastructure 2.6 million Total 1,058.55 million (*) Out of the Euro 25 million budget of the Investment Planning Project in Lebanon, Euro 4 million were financed from remaining funds of the 4th financial protocol.



Altogether Euro 1,058.6 million were committed over the 1995-2001 period for the improvement of the institutional and economic environment in the 7 MED countries considered in this study of which Euro 27.0 million was provided by regional programmes pursuing the same objective. These interventions can be broken down into three categories:

Structural Adjustment Facilities, Technical assistance projects in support of changes in the institutional environment, Projects relative to infrastructure and public services.

4.2.1 Structural Adjustment Facilities

As can be seen from table 4.2, Structural Adjustment Facilities (SAF) were one of the major instruments utilised under MEDA I to favour an adjustment of the institutional environment in the partner countries. Five out of the seven countries considered in this evaluation were granted a SAF. Egypt and Syria are the only two countries that did not implement a structural adjustment programme under EC financing during the period under survey. However out of the Euro 250 million budget of the Industry Modernisation Programme (IMP) in Egypt, Euro 110 million are intended for distribution in the form of transfers to the state budget, these disbursements being made contingent, as are the disbursements of SAFs, on the implementation of reforms.

Excluding the direct financial support component of the IMP in Egypt, the total volume of MEDA resources allocated to SAF amounts to Euro 510 million, that is half the total volume of resources devoted to the strengthening of the economic and institutional environment.

SAFs entail direct payments to the budget of the partner country. But these payments are contingent on the implementation of a programme of reforms negotiated with the government of the partner country and coordinated with the Bretton Woods institutions. Practically, the disbursement of funds is split into two or three instalments of which each is contingent on the effective implementation, checked by a monitoring process, of a sub-set of measures.

The reforms implemented in MED countries with the support of SAFs encompassed a large variety of measures closely related to the objectives of economic co-operation:

Design of an economic and social medium-term strategy (Morocco), Improvement of public resources management (Morocco), Liberalisation of trade (Algeria; Jordan, Tunisia), Restructuring of state-owned companies and privatisations (Algeria, Jordan, Tunisia), Reform of the financial sector (Morocco, Tunisia).

But they also included measures dealing with social issues and intended to mitigate the social consequences of the liberalisation of the economies:

Establishment of a social safety net (Algeria, Jordan), Fight against poverty (Jordan, Morocco), Strengthening of the social housing sector (Algeria), Improved targeting of social expenditures (Tunisia).



The direct budget support component of the IMP in Egypt will be disbursed in five instalments, which are made contingent on a restructuring of the Ministry of Industry, removal of legal, institutional and bureaucratic obstacles to the development of the private sector, and renovation of commercial laws. SAFs to MED countries were evaluated in 1999 at a time when four MED countries (Algeria, Jordan, Morocco and Tunisia) had benefited from this type of intervention27. The evaluators concluded that SAFs “have contributed to improving the macroeconomic situation by allowing the implementation, in a political stable situation, of sectoral reforms, the effectiveness of which will only be fully felt in the future”. As regards more specifically sectoral reforms, they note that in the four countries they have analysed: Significant progress has been made towards liberalising and regulating the economy; The restoration of balance between the public and the private sectors has been

initiated, although with unequal success from one country to the other; The aim of giving a social dimension to the SAFs has been asserted everywhere but the

redistribution of spending in favour of the targeted populations has encountered more difficulties.

4.2.2 Technical assistance projects in support of changes in the institutional environment

Besides structural adjustment programmes, the EC financed technical assistance projects related to the strengthening of the institutional environment. Altogether Euro 295.3 million were allocated to such projects over the 1995-2001 period.

Restructuring and privatisation of state-owned enterprises

Projects in support of the restructuring and privatisation of state-owned enterprises were undertaken in Algeria, Egypt, Morocco and Tunisia. These projects aimed at making available to the ministerial departments or agencies in charge of preparing and implementing the privatisation of state-owned enterprises the expertise that they might have needed in the following areas: Design of a privatisation strategy (identification and prioritisation of the enterprises to

be privatised, selection of privatisation procedures adapted to the various enterprises selected for privatisation);

Design of restructuring plans of enterprises prior to their privatisation; Financial evaluation of the enterprises intended for privatisation; Monitoring of privatisation operations on behalf of the government.

27 Assessment of the Structural Adjustment Facilities in the Southern Mediterranean Countries – Final Report, August

1999, EC, DG IB, CEPT II.



The relatively large budgets allocated to these projects (from Euro 43 million in Egypt and Euro 38 million in Algeria to Euro 10 million in Morocco and Tunisia) made room for resorting to financial and/or sector specialists on short term missions in addition to long term experts providing assistance to the ministerial department or the agency in charge of implementing the privatisations.

During their field missions in Egypt, Morocco and Tunisia the evaluators collected information on three of these projects in support of privatisations. In all three cases the projects were found to have encountered serious difficulties.

At first sight the difficulties met by the privatisation projects in Morocco and Tunisia originated in the timing of these projects. In Tunisia, the privatisation department of the Ministry of Economic Development, beneficiary of the project, was operational for already two years when the project started, and had adopted an organisational structure which made difficult an integration of the European experts in the department activities. In Morocco, the project was also delayed and started in 2002 in a pre-election context which induced the government to postpone any major privatisation operation. In Egypt, the low level of achievement of the project when compared to its ambitious targets28, is related to the length of the preparation process for privatisations.

However, beyond these practical issues, the difficulties met by these projects are mainly due to the fact that privatisations are sensitive issues that impact on vested interests and frequently lead to lay-offs with heavy social consequences. For this reason major decisions (design of the privatisation policy, selection of enterprises to be privatised, scheduling of these operations, choice of the privatisation modalities) are entrusted to high level political bodies rather than to the ministerial departments in charge of implementing the privatisation programme. But the latter are the direct beneficiaries of EC assistance. This puts technical assistance projects in a situation where they have to provide assistance on a case-by-case basis without being able to contribute to the design of the privatisation strategy and programme, nor are able to plan their own activity in a medium-term framework.

Strengthening of public administrations

The European Commission provided technical assistance to supporting the strengthening of public administrations. Such a programme with a total budget of Euro 38 million was launched in Lebanon with the objective of rehabilitating the capacities of social services, the municipal administrations and the state agencies in charge of supplying electricity and water. But it is in Syria where projects aiming at a modernisation and strengthening of public administrations were allocated the largest volume of resources : Euro 49.5 millions through four projects (two projects for modernisation of municipal administrations, a project of modernisation of the Ministry of Finance, and the Institutional and Sector Modernisation Facility).

28 Over the whole implementation period of the project 59 companies were provided assistance, 2 companies were

privatised and 3 business units were transferred to the private sector. The project targeted 25 privatisation operations every year.



All technical assistance projects in support of changes in the institutional environment which the EC attempted to implement in Syria faced serious difficulties. The project for modernisation of local administrations did not materialise. The National Indicative Programme for the years 2002-2004 plans to resume this project with the same objectives – modernise and improve the quality of planning as well as technical and administrative service delivery in three to four Syrian municipalities – and with the same budget of Euro 16 million. The Financing Agreement of the project of modernisation of the Ministry of Finance was signed in 1997. Objectives of the project were a rationalisation of the fiscal system, customs and budget procedures. Although the entire budget was contracted, no output had yet been delivered at the time of the field mission in May 2002. This project is mentioned in the National Indicative Programme 2002-2004, together with the Modernisation of Municipalities and a Banking Sector Programme, as one of the three activities to be carried out during this period in the area of institution building. Through the Institutional and Sector Modernisation Facility, the European Commission undertook to provide assistance to the government of Syria for the modernisation and restructuring of “any of the key economic ministries or public institutions”. The Financing Agreement was signed in October 2000, but the project was not yet contracted at the time of the field mission in May 2002, and was said to face resistance from the Syrian authorities. These difficulties at implementing in Syria technical assistance projects aiming at promoting changes in the institutional environment originate in the lack of commitment to reform of the Syrian government. In this respect, the Country Strategy Paper for the years 2002-2006 notes that “it has been difficult to launch the MEDA I co-operation programme in Syria. (…) Even though the government that took over in April 2000 has some members who share the new president’s reform-mindedness, government and public administration are still dominated by “the old guard”.

Two more projects of technical assistance in support of changes in the institutional environment, both of small dimension, can still be mentioned.

In Morocco, the project known as “impact study of the free-trade zone” was aimed at developing the capacity of the Moroccan government to carry out analysis of the strengths and weaknesses of the economy, and at providing information and analysis for a public debate on the implications of the free trade area. To fulfil its objectives, this project should have taken place at a very early stage of implementation of the economic cooperation programme. Unfortunately it was severely delayed and had not yet started at the time of the field mission in May 2002.

The project “Strengthening the competitiveness of the Tunisian economy” included a small technical assistance component that was intended to strengthen the capacity of the Centre d’Etudes Juridiques et Judiciaires (CEJJ) to contribute to the development of the legislative framework in economic and social areas. At the time of the field mission the project team and their partners in the CEJJ had not succeeded at designing a plan of operations.



4.2.3 Projects relative to infrastructure and public services

A total of Euro 131.3 million was allocated under MEDA I to the development of infrastructure in Lebanon (Investment Planning Programme), Morocco (Mediterranean Rocade, Regulation of the telecom sector) and Syria (Power Sector, Telecom Sector).

Lebanon

The Investment Planning Programme in Lebanon aims at strengthening the state institutions responsible for infrastructure and utilities viz. energy, water, transport, waste, environment so as to enable them to identify, prioritise and manage investment programmes. The Financing Agreement was signed in June 1999. Following an extension, the project end-date has been postponed to December 2005.

Syria

The two projects in Syria were aimed at enhancing the effectiveness of the public companies supplying electricity and telecommunication services. The Power Sector Action Plan (PSAP) builds on the achievements of a previous programme, the Electricity Sector Support Programme (ESSP), financed under the 4th financial protocol, that provided Syrian electricity operators with training and technical assistance for improved programming and management of the power sector. The PSAP includes actions targeting all major institutions involved in electricity generation, transport and distribution. While the ESSP had its main focus on technical management of the power system, the PSAP is targeting financial management and policy issues: metering, billing and monitoring of electricity consumption; improvement of the finance and accounting system; promotion of renewable energies. Thanks to the appropriation of the project activities by the Syrian counterparts and to an involvement of the beneficiary institutions in the Project Implementation Unit, the ESSP has contributed to significant progress in the technical management of the power system. It thus created favourable conditions for investments in the extension and modernisation of the electricity transport network financed, besides the state budget, by the EIB and other donors. The PSAP, which was not yet fully operational at the time of the field mission, is tackling more sensitive issues. But the flexibility of the project design, which leaves room for adaptation and revision of the ToR in response to changing conditions and policy priorities, and the experience of cooperation between European and Syrian experts gained through the ESSP, combine to justify some optimism as regards the capacity of this project to deliver effectively its expected outputs. Telecommunications are in Syria seriously underdeveloped. Telecom services are a monopoly of a state-owned enterprise, the Syrian Telecommunication Establishment (STE). The Telecommunication Support Programme addresses a wide range of issues:



technical assistance to the STE in technical and managerial areas, provision of equipment, development of the telecom network, support to the development of GSM and internet services, improvement of customer care/billing. It is expected to lead to the adoption of a new regulatory framework for the sector. Although the financing of this programme had been decided as early as 1996, the Financing Agreement could only be signed in February 2001, the project implementation starting in March 2002. This long period of time between the project identification and the conclusion of the financing agreement, as well as the involvement on the Syrian side of two ministerial departments, confirms that this project is dealing with sensitive issues and that the implementation of those of its components that have direct policy implications might be difficult.

Morocco

The project in support of the Moroccan agency for regulation of the telecommunication sector (ANRT) aimed at (a) improving the supply of telecommunication services through the establishment of a competitive market in this sector, and (b) favouring the access of poor people and less developed areas to telecommunication services. But two successive tenders launched in April 2000 and March 2001 were declared unsuccessful. In between the reforms undertaken within the framework of the Structural Adjustment Facility had led to deep changes in the situation of the sector, which made the objectives and design of the project partly irrelevant. In December 2001, the European Commission decided to cancel the project, a decision which did elicited no objections either from ANRT or from the Moroccan government. The financing, for a total budget of Euro 80 million, of a 102 km section of the 520 km long Mediterranean Rocade joining the city of Tanger to the Algerian border, is of a different nature from the previous projects. It is the only case, among the seven countries examined in this evaluation, of MEDA resources being utilised to finance the creation of an infrastructure. This infrastructure project meets a priority of the Moroccan government: in support of development of the northern region, which suffers from isolation and of a low level of infrastructure. An ex-ante assessment of the economic and social impact of the road, financed by the EC, concluded that this road, provided it is accompanied by complementing measures, could contribute to a significant increase in economic activity in the region. The agreement of the EC to finance this project, which took place in December 1999, prompted the interventions of other donors (Italy, Japan, Abu Dhabi) to finance other sections of the road with the result that the financing of the whole road is now ensured.



4.3 Activities and outcomes of the EC interventions with respect to Private Sector Development

While contributing to the development of an economic and institutional environment more conducive to the development of private enterprise and to an opening-up to the world economy, the MEDA Programme promotes activities in support of private enterprise. Table 4.3 below lists for the 7 countries considered in this evaluation the interventions in direct and indirect support of private sector development that have been programmed and for which funds have been committed from 1995 to 2001. Total commitments amount to Euro 718.9 million.

Table 4.3 – EC interventions in support of Private Sector Development (1995-2001)

Country Intervention Commitments (Euro)

Promoting small and medium-sized enterprises 57.0 million Algeria Modernising the financial services sector 23.0 million Banking Sector Reform: Assistance to the Central Bank 11.7 million Private Sector Development Programme I & II 45.0 million Industrial Modernisation Programme (excluding budget support)

140.0 million

Egypt

EIB Capital Risk 10.0 million Private Sector Development Programme 7.0 million Industrial Modernisation Programme (EJADA) 40.0 million

Jordan

EIB Capital Risk 10.0 million Industrial modernisation 11.0 million Lebanon Strengthening institutions in charge of standards and norms 6.0 million Support to vocational training 38.0 million Support to employment creation 3.3 million Euro-Maroc-Entreprises 21.9 million Support to professional associations 5.0 million Quality promotion programme 15.5 million EIB Capital Risk 45.0 million

Morocco

Creation of a Credit Guarantee Fund 30.0 million Syrian European Business Centre I 9.0 million Syrian-European Business Centre II 12.0 million

Syria

Higher Institute for Business Administration (HIBA) 14,0 million Vocational Training – MANFORM 45.0 million Euro-Tunisie Entreprise 20.0 million Strengthening the competitiveness of the economy (excluding the CEJJ component)

9.5 million

Tunisia

EIB Risk Capital 90.0 million Total 718.9 million



These interventions can be grouped under four headings: Direct support to small and medium enterprises, Projects in support of quality enhancement, Projects related to the development of human resources, Projects related to the financing of enterprises.

4.3.1 Direct support to small and medium enterprises

The bulk of resources devoted to Private Sector Development was allocated to projects providing direct assistance to the development of small and medium enterprises. Such projects were implemented in all seven countries with budgets ranging from Euro 7 million for the Private Sector Development Programme in Jordan (which is however followed by a much larger Industrial Modernisation Programme for which Euro 40 million have been committed) to as much as Euro 250 million for the Industrial Modernisation Programme in Egypt. Altogether Euro 442.5 million were allocated to these projects.

Activities of Business Centres

Until recently MEDA support to enterprises consisted of the establishment in the partner countries of Business Centres providing support to small and medium enterprises. The core activities of these Business Centres were, and still are: To support an up-grading process of SMEs; To develop the management skills of entrepreneurs; To provide enterprises with up-date information on market and technology

developments. The upgrading process of enterprises starts with a diagnosis of the strengths and weaknesses of the beneficiary enterprises as regards their technical capacity, their commercial achievements and their financial situation. This diagnosis then leads to the design of a business plan indicating which measures should be implemented to remedy identified weaknesses. In most cases, advisors of the Business Centre accompany the beneficiary enterprises throughout the implementation of their business plan. Developing the skills of SME managers entails the provision of training programmes covering a large range of topics from the establishment of a business plan to the recruitment of a commercial agent for the development of exports on a given market. Information on markets and on technologies is provided through the creation of libraries and information centres, but also through ad-hoc studies produced by specialists contracted for that purpose.



Besides these core activities some Business Centres extend their activities to other areas, notably:

Assistance in the improvement of quality (provision of specialised consultants for the implementation of ISO 9000 norms; support to technical centres; support to control laboratories);

Support to professional organisations; Assistance to enterprises in the search for EU partners; Support to the organisation of commercial events or participation in such events.

In other countries these complementing activities were implemented through specific projects targeting these issues. It was the case in Lebanon (support to the institutions in charge of standards and norms), Morocco (support to professional organisations, quality promotion) and in Tunisia (quality promotion).

Management of Business Centres

Business Centres are managed by a Project Management Unit. Their budget is broken down into two main components: on the one side a budget covering the running costs of the PMU including the fees of the expatriate and local experts who manage the Business Centre and carry out its permanent activities, and on the other side a budget intended to finance short term experts recruited to carry out specific tasks such as designing the business plan of an enterprise or analysing the export potential of local enterprises on a given market.

Whereas the objectives of the Business Centres were clearly defined from the beginning, the most effective approach to reaching these objectives had still to be worked out. In particular, Business Centres were confronted with the problem of selecting those enterprises that would benefit from their assistance. In most cases, the Business Centres adopted a sector approach. Such an approach makes possible development of enterprise diagnosis and up-grading taking into account the information provided by sector and market surveys, capitalising on the experience gained in one enterprise for the benefit of other enterprises in the same sector, and establishing a link between the up-grading process and other projects dealing with such issues as standards and norms, vocational training, export promotion, etc. This approach implied that Business Centres should build close relations with employers' associations and professional organisations, and support these institutions when they happened to be weak.

Since the beneficiaries of Business Centres were private enterprises, and not government institutions, these projects initially did not give rise to the signature of a Financing Agreement with governments. This raised serious difficulties in Tunisia, where enterprise up-grading is a government programme led by a public agency (“Bureau de Mise à Niveau”), and supported by public subsidies covering part of the costs incurred by the enterprises for their up-grading. The Business Centre (Euro-Tunisie-Entreprise) remained without legal existence, and consequently unable to carry out its activities normally until a Financing Agreement was signed with the government in March 2000. Some technical assistance is provided to the “Bureau de Mise à Niveau” as a component of the project “Strengthening competitiveness of the economy”.



Other difficulties faced by the Business Centres that severely hampered their activity during the initial years, notably in Jordan, Morocco and Tunisia, included the absence of a procedure allowing for rapid recruitment of short-term consultants. In Jordan, for example, while the PMU was operational in January 1998, rapidly attracting a large number of enterprises interested in benefiting from consultancy services, the first consultancy mission only took place in August 1999. Still longer delays were observed in Tunisia, aggravated by the developments mentioned above, and in Morocco. These difficulties lasted until a regional framework contract was established at the end of 1999, which gave the Business Centres the possibility of tendering their requests for short term expertise to a pool of consultancy companies.

Business Centres outputs

Once these organisational problems were overcome, Business Centres delivered the outputs that were expected from them. In each of the partner countries hundreds of enterprises underwent a diagnosis of their strengths and weaknesses and were provided with advice to improve their competitiveness; thousands of enterprise managers attended training courses; information was made available to SMEs on markets and on technologies; awareness of entrepreneurs on the quality of their products was raised; and the capacity of professional organisations to deliver services to their members was strengthened. Two weaknesses of the services delivered by the training centres were noted during the field missions. Frequently the short term consultants providing their advice to enterprises of a given sector were not sufficiently knowledgeable of this specific sector. All consultancy companies shortlisted to provide short-term expertise through the framework contract were European companies. Although these companies frequently resorted to local experts on an individual basis, this did not contribute as much as it could to the development of a local business consultancy capacity .

Industry Modernisation Programmes

Industry Modernisation Programmes that are implemented or under preparation in such countries as Egypt, Jordan, Lebanon or Tunisia have a larger scope than Business Centres. In addition to direct support to small and medium enterprises through training and consultancy services, they attempt to loose the financial constraints faced by SMEs through the provision of a loan guarantee fund; provision of institutional support to organisations such as the Chambers of Commerce, the employers organisations and the industrial federations, which represent and support SMEs; and provision of technical assistance to the Ministry of Industry, particularly with a view to bringing the industrial legislation closer to that of the EU. IMP therefore aim to intervene in a consistent manner at three levels: micro-economy (enterprises), meso-economy (professional organisations) and macro-economy (Ministries). This new approach of the support to private sector development draws lessons from the experience of the Business Centres. The necessity to improve the access of SMEs to financial resources, if these are to implement the business plans recommended by the Business Centres, is a major lesson learnt from experience. Another lesson is that Business



Centres, in order to have an impact beyond the enterprises that directly benefit of their interventions, must adopt a sector approach implying a close cooperation with professional organisations and a contribution to the development of their capacity. On the other side, including in IMPs a component addressing the industrial policy issues at the ministerial level is a radical change in the EC approach to private sector development, which does not originate in the experience of the Business Centres.

4.3.2 Projects in support of quality enhancement

Quality enhancement and compliance with international norms and standards is the precondition to the development of MED exports to the EU and other foreign markets. As noted above, support to the enhancement of product quality was in some cases provided by the Business Centres. In other cases, this issue gave rise to specific projects. It has notably been the case in Tunisia where the EC supported the quality programmes launched by the government through a Quality Improvement Project financed under the 4th Protocol with a budget of Euro 6 million. The implementation of this project suffered serious delays, which negatively impacted on its outcomes. However observers note that a “snow-balling” phenomenon is taking place in the sectors most concerned by certification activities, and that a market for Quality Insurance Managers and consultants has been created. Under MEDA I two projects targeting quality issues were programmed in Lebanon and Morocco with budgets of Euro 6 million and 5 million respectively. The project in support of quality enhancement in Morocco aims at bringing 200 Moroccan enterprises to incorporate the quality dimension in their production process, of which 50 should be certified compliant with the ISO 9000 norm. It also foresees a technical and financial support to the institutions dealing with metrology, normalisation and certification, and the creation of 5 new technical centres. After a first tender was declared unsuccessful, a new tendering process was under way at the time of the field mission. The Moroccan Directorate for normalisation and the promotion of quality expressed high expectations from this project and seemed highly committed to contribute to its success.

4.3.3 Projects related to the development of human resources

Two large projects were financed under MEDA I in Morocco and Tunisia to enhance the qualification of the labour force so as to ensure a better adjustment between labour supply and labour demand. Euro 83 million were allocated to these projects. In 1996 the Tunisian government launched a comprehensive programme, named “Manform”, which aimed at renovating vocational training, extending it to new professions, and developing the capacity of training institutions in order to fit the qualification needs of the enterprises and enhance the image of this education channel. The total cost of the project is estimated at Euro 450 million. The EC, which had already financed the creation of two new training centres under the 4th Protocol, committed Euro 45 million to the project.



The Manform project addresses the issue of vocational training at two levels: the training institutions (definition of qualification profiles and training curricula, training of trainers, enlargement and modernisation of the training capacity, management of training institutions), and enterprises (assessment of qualification needs, awareness raising of entrepreneurs, training of human resource managers). The project suffered from a two year delay in start of implementation, which eventually took place in 2000. But once its activities were started they developed in line with the initial plan and delivered the expected results. Coordination between the various donors involved in the project (EC, World Bank, French Development Agency, Arab Development Fund) ran smoothly thanks to a clear distribution between them of the various project components and to a flexible management of resources by the Tunisian administration. The support brought by MEDA I to vocational training in Morocco is a follow-up of previous assistance provided under the 3rd and 4th protocols. The project started in 1999 and its development to date is positively assessed. However, although it is more demand driven than the projects previously implemented in the same sector, this project still suffers from weaknesses: the lack of a national policy relative to vocational training makes difficult definition of the sectoral focus of the project; the private sector is only marginally involved in the management of the training centres; the up-grading of training centres devotes much more resources to their equipment than to the renovation of the training curricula. The HIBA project in Syria is of a different nature. Its objective is to create the first institution in this country providing training at university level in the field of enterprise management. While being deeply anchored in the Syrian education system, the Higher Institute of Business Administration will be a self-financing institution covering its running costs through tuition fees paid by the students and by the firms participating in seminars and crash courses for managers. The resources provided by the EC will contribute over a five-year period to the establishment of the academic infrastructure of the institute and to the design of its training programmes. The Project Management Unit was put in place in October 2002 with the view of opening the undergraduate course in 2003.

4.3.4 Projects related to the financing of enterprises

The MEDA Programme intervenes in the financing of enterprises through two main instruments. One the one side technical assistance projects amounting to a total of Euro 44.2 million were implemented in Algeria, Egypt and Tunisia to modernise the financial sector of these countries. On the other side Euro 155 million were made available to the European Investment Bank to finance capital risk operations in the partner countries. In addition the EC financed in Morocco a credit guarantee line allocated to selected financial institutions to reduce the level of risk that they are facing when granting credits to SMEs.

Reform of the banking sector

The project in support of banking sector reform in Egypt was developed by several donors among which the European Commission contributed Euro 11.7 million to a technical assistance project to the Central Bank of Egypt. This project had been designed under the



assumption that projects implemented by other donors, notably an organisational review of the Bank and the implementation of its recommendations, would have created favourable conditions for the implementation of the EC project. This assumption however did not materialise. Furthermore the upper management of the CBE did not demonstrate the capacity or political will to undertake the structural reforms that would have been necessary for the project to achieve its expected results. As a consequence, in spite of the quality of the outputs delivered by the project, this one did not achieve its expected results. When the project came to its end, in December 2001, only half the budget had been disbursed. Given this situation the EC rejected a CBE request for an extension of the project. Technical assistance to the banking sector in Tunisia is provided as a component of a multi-purpose project named “Strengthening the competitiveness of the economy”, and aims at making banks more receptive to the financial needs of the productive sector. The main focus is on capacity building of the training institutions of the profession, notably the training centre of the Banks Association, and on in-house training activities directed towards the staff of banks and other financial institutions. A smaller component of this project is targeting the Central Bank with the view of strengthening its capacity to monitor the development of the financial sector and to supervise the utilisation by banks of new financial products and their implementation of new technologies. Difficulties at agreeing on the work plan of the project delayed its implementation up to 2002.

Provision of risk capital

Funds financed from the Protocols, then from the MEDA budget, are made available to the European Investment Bank to participate in risk capital operations in MED countries. The objectives assigned to these resources are (a) support for the creation and development in MED countries of financial institutions devoted to risk capital operations; (b) financing of the restructuring and modernisation of private enterprises; (c) participation in the privatisation process of public enterprises. Funds are channelled to enterprises through local banks and capital risk companies in the form of participation in their capital. Beyond the inflow of financial resources into enterprises, capital risk operations provide the beneficiary enterprises with the managerial assistance of staff members of the risk capital companies. EIB experts are closely associated to the decision process of the banks and risk capital companies with which the Bank cooperates. Tunisia with Euro 90 millions and Morocco with Euro 45 million were under MEDA I the two main beneficiary countries of such interventions, which also took place at a smaller scale in Egypt and Jordan with Euro 10 millions each. Limiting factors of such operations are, on the one hand, the small number of financial institutions in the MED countries having the technical capacity to engage in risk capital, and on the other hand the reluctance of many owners of SMEs to accept that a financial institution takes a participation in the capital of their enterprise.



Provision of credit guarantee

Another way of facilitating the financing of enterprises consists in making available to commercial banks a credit guarantee line earmarked for the provision of credit to SMEs undertaking an up-grading programme. This approach was implemented in Morocco and Jordan and will be extended to other MED countries in the framework of the Industry Modernisation Programmes. Although this measure did not fully succeed in removing the reluctance of Moroccan banks to finance private enterprises, as demonstrated by the slow mobilisation of credit, it has made a positive contribution to the enterprise up-grading process thanks to close coordination with the Business Centre.

4.4 Activities and outcomes of the EC interventions with respect to Trade Facilitation

As pointed out earlier, trade issues were in several cases addressed through projects whose main target was to strengthen the institutional framework or to support the development of SMEs. In Algeria and Tunisia, for example, the conditions attached to structural adjustment programmes included measures tending towards a liberalisation of trade. Business Centres frequently included in their training programmes courses focussing on the development of exports, while some of them implemented activities aiming at facilitating contacts between enterprises of the partner countries and of the EU. More generally, improving the competitiveness of enterprises, which is the overall objective of the projects classified as Private Sector Development projects, should have a positive impact on the competitiveness of the beneficiary enterprises, thus on their export capacity and on the development of trade. Except for two projects in Tunisia, direct interventions on trade related issues took place within the framework of regional programmes.

Table 4.4 – EC interventions aiming at Trade facilitation (1995-2001) Country Intervention Commitments

(Euro) Support to the Tunisian Investment Promotion Agency 4.0 million Tunisia “Liasse Unique” Project 0.6 million EuroMed Market 9.9 million Investment Promotion Programme 3.95 million Euro-Mediterranean Economic Networks 3.5 million Euro-Mediterranean SMEs Cooperation 2.8 million

Regional

UNIMED Business Networks 2.5 million Total 27.25 million



Bilateral projects

The Euro 4 million project financed in the framework of the 4th Protocol in support of the Tunisian Foreign Investment Promotion Agency aimed at developing the structure, competence and capacity of this institution, and to improve the legal and administrative framework relative to foreign direct investments. This project was still under implementation in 2002. The relations between the beneficiary and the EC were impaired by procedural issues and the beneficiary expressed some dissatisfaction with the competence of the European experts who had been mandated to prospect potential investors in the EU. Under MEDA I bilateral co-operation, a single trade facilitation project was programmed. This Euro 0.6 million project assisted the Tunisian authorities in implementing a computerised system integrating into one single operation the various reporting obligations involved in foreign trade operations. For procedural reasons the project was terminated before the planned technical assistance had been entirely delivered and the budget earmarked for the purchase of computer equipment remained unused. However the EC contribution helped establish the credibility of the project with the result that Tunisian private investors stepped in, bringing in the resources which made possible completion of the project.

Regional projects

Several MEDA regional projects aim at promoting trade among MED partners. Focussing on the development of a Mediterranean internal market, the EuroMed Market project, launched in May 2002, aims at the development of efficient administrations in the MED countries and at a closer cooperation between these administrations through such activities as training and technical assistance; the organisation of conferences and workshops; the creation of a website; twinning programmes; study visits; etc. The Investment Promotion Programme, signed in 2002, aims at strengthening the capacity of Investment Promotion Agencies of the MED countries. In addition to training activities, the project will set up a network of European and Mediterranean Investment Promotion Agencies and will support the participation of Investment Promotion Agencies for promotional events. The Euro-Mediterranean SMEs Cooperation project organises, both in the European Union and in MED countries, business-to-business meetings (Europartenariat, MED-Partenariat, Med-Interprise) with the aim of giving SMEs of the EU and of the partner countries opportunities to enter into business relations. Europartenariat meetings, that take place twice a year in a EU country, bring together enterprises of the EU, Central and Eastern Europe, Asia, Latin America, and since 1992, MED countries. 200 to 300 companies of MED countries participate in each of these events. Med-partenariat meetings are organised on the same principle in a MED country, giving to enterprises of these countries the opportunity to meet potential partners from the EU and from Central and Eastern-Europe. Six Med-Partenariat meetings, attended by several hundreds of



participants, have taken place since 1995 in Turkey, Morocco, Israel, Jordan, Tunisia and Egypt. Med-Interprise meetings are similar to Med-Partenariat meetings, but with concentration on a limited number of sectors and countries. Thirteen Med-Interprise meeting have taken place, bringing together some 1,400 enterprises of MED countries and 900 European companies. Euro-Mediterranean Economic Networks pursue the same objective through the establishment of links between economic and trade associations of the MED countries and of the EU. The Chambers of Commerce and Industry, the Trade Promotion Organisations, the European Union of Crafts and SMEs, and the Mediterranean Trade Fairs Association participate in this network. The UNIMED Business Network, launched in 2000, finances training and assistance for the development of employers’ unions in MED countries as well as exchanges of information and networking between employers associations on both side of the Mediterranean Sea. It led to an agreement between these associations to create a regional organisation, the Union of Mediterranean Employers’ Federations (UMCE). Other regional projects, although not directly related to trade facilitation, deserve to be mentioned here insofar as they aim at the development of cooperation between research and education institutions dealing with economic issues. The Euro-Mediterranean Forum of Economic Research Institutes (FEMISE) supports the development of exchanges and of co-operative research between economic research institutes of the MED countries and of the EU. The Euro-Arab Management School has similar objectives with respect to Business Schools and business management departments of Universities. Finally, it must be noted that Ministerial Meetings on trade held in Brussels in 2001 and in Toledo in 2002 created three working groups dealing respectively with Rules of Origin, Services, and Trade measures relevant to regional integration. These working groups are intended to propose to governments concrete measures complementary to tariff dismantling aimed at achieving an effective Euro-Mediterranean free trade area.

4.5 Programme management

The management of economic co-operation initiatives revealed numerous weaknesses that resulted in serious delays in its implementation. Most projects planned under MEDA I were not started before 1999 at the best, and some were not yet started in May 2002 at the time of the field visits29. Once started, many projects suffered additional delays and have had to be granted extensions in order to complete their programme of activities.

29 It was the case in Morocco of the impact study of the Free Trade Zone, of the support project to quality

enhancement, and of the support project to employment creation. In Tunisia, the project in support of the banking sector was in the preparation phase of its activities and the stakeholders of the project in support of the CEJJ had not managed to agree on a work programme.



Four entities intervene in the management of EC interventions in MED countries : The local authorities, The project contractor, The EC Delegation, The EC headquarters in Brussels.

Local authorities intervene in the design of the projects. They sign the Financing Agreement in which are stated the objectives targeted by the project, the activities that will be carried out, and the resources that will be made available to the project by the EC and by the government. This should ensure that there is a common view between local authorities and the EC on what has to be achieved and how to achieve it. In fact, although reaching an agreement on the Financing Agreement was in some cases a long process, it happened in several cases that local authorities were not genuinely committed to achieving the project objectives. As far as the implementation of projects is concerned, the responsibilities entrusted to local authorities depend on the countries considered. In principle, these responsibilities are the largest in countries such as Morocco and Tunisia, which are said to be “decentralised”. Decentralisation however does not mean that local authorities are given full responsibility for managing the projects, the EC restricting its role to an ex-post control. In fact, all important steps undertaken by local authorities to implement the projects, notably the tendering of contracts, is subordinated to prior approval by the EC. Procedures involved in these operations are those of the EC. Payments in local currencies are processed by local authorities from a bank account funded by the EC after approval of an annual Work Plan (WP) of the project. Payments in Euros are directly processed by the EC. This mode of operation may be a source of delays in the implementation of the projects since each important step in the management of the projects gives rise to two successive processing stages, first by local authorities, then by the EC. When the management capacities of the local administration is low, this may result in a very lengthy decision process. Work Plans happen to be in some cases contentious issues. Local authorities complain that the EC delegations are slow in reacting to the WP that they have proposed, and frequently request changes, sometimes several times in a row, that further delay the implementation of projects. This situation can become quite damaging to the projects when EC representatives accord priority to the respect of procedures against the needs of the project. While most EC project managers consider that the presentation of a new WP cancels the previous one, others refuse to endorse a new WP and to give the green light for a new instalment for the financing of local expenditures unless 80% of the expenditures planned under the previous WP have actually been spent. This can lead to a blockade of projects with the implementation of WP stretched over two years or more and activities carried out that are no longer relevant.



Small projects are directly contracted though a tendering procedure to companies which ensure their implementation. But larger projects, such as for example the projects in direct support of the private sector, imply two levels of contracting: a company is contracted through a tendering procedure to operate a Project Management Unit on behalf of the beneficiary; this company, in its turn, contracts to other companies or individual consultants the various tasks implied by the implementation of the project30.

The staffing of the PMUs, in particular the selection of their team leader, sometimes raised problems since this position not only requires high technical and managerial capacities, but also the capacity to adjust the project implementation approach to an institutional and policy environment that may not be as enabling of the project objectives as would be desirable, as well as to develop trustful and cooperative relations with a large number of local partners: local authorities, entrepreneurs, representative of professional organisations.

But the main difficulty arose from subcontracting, when it appeared that no fast procedure existed that would have allowed PMUs to contract short term experts. This difficulty was eventually removed by the creation by end-1999 of a regional framework contract. But until this solution was implemented Business Centres were unable to develop their activities normally.

While providing a solution to a problem that severely hampered the activity of Business Centres, the regional framework contract revealed some weaknesses: expertise recruited through the framework contract was frequently generic when a higher degree of specialisation would have been desirable; this procedure did not contribute as much as would have been desirable to the development of structured local expertise.

Until 2002, EC Delegations in MED countries were mainly confined to the role of intermediary between the local authorities and the project team leaders on the one side, and EC headquarters on the other. It was all the more so that the follow-up of the projects and technical support to the PMUs and to local authorities were entrusted to technical bureaus, the MEDA teams, staffed by consultants. Delegations were therefore perceived as a step in the chain of decision, whose value-added was limited, but which were still held responsible of the length of the decision-making process.

All important decisions relative to the management of the projects were under the responsibility of the EC headquarters in Brussels. Evaluators heard a lot of complaints from project beneficiaries and project team leaders about the complexity of EC procedures and the length of the decision process. Many incidents indicate that this process did not run smoothly. Task managers located in Brussels and having few direct contacts with the projects they were responsible for were certainly not in the most favourable position to assess whether the decisions that they were asked to take were the most appropriate. It is also pointed out that the volume of aid managed per staff member of EuropeAid is on average significantly higher than it is in other aid management agencies. These difficulties have been compounded by the institutional changes that took place in the EC headquarters with the switch from SCR to EuropeAid although efforts have been made to move the economic cooperation units from DG Relex to EuropeAid with the same tasks and the same task managers.

30 Due to the new financial regulation, this is no more possible as from 2003.



From January 2002 a “deconcentration” process has taken place, which radically altered the responsibilities of Delegations as regards all aspects of programme management, ranging from preparation, then implementation to evaluation. This measure was applied from January 2002 to the Delegations in Egypt, Morocco and Tunisia, then from January 2003 in Algeria, Jordan, Lebanon and Syria. The staff of the Delegations has been considerably enlarged (in many Delegations the staff was multiplied by a factor five to seven), notably through the integration of sector experts (equivalent to the former MEDA teams). This change raises hopes that decisions will be taken more rapidly, thus contributing to smoother project implementation. Delegations often do not have information on the regional projects that are directly managed from Brussels, although these projects are complementing activities carried out by bilateral projects. They are poorly informed of the development of EIB projects, even when the bank is managing MEDA funds, as is the case with risk capital operations, or when MEDA funds subsidise the interest on EIB loans. Management difficulties may also arise from insufficient knowledge of EC procedures by local authorities and contractors, although the MEDA teams until 2002, and since then the Delegations, provide assistance in this regard. Finally the relatively high turnover of EC staff in the Delegations and at EC headquarters, in comparison with the average duration of the projects from their identification to their complete implementation, and the fact that replacements take place without allowing for a direct hand-over of files between two successive task managers, is one more factor explaining weaknesses in programme management.



5. Assessment of EC Economic Cooperation with respect to the evaluation questions

5.1 To what extent did EC economic cooperation contribute to strengthen the economic and institutional environment

5.1.1 Observations

Macroeconomic policy

Most MED countries have at some moment in their recent history attempted to implement a development policy relying on import substitution and the creation of an industrial sector through public enterprises. This policy did not prove very effective at supporting economic growth, and frequently resulted in serious macroeconomic imbalances.

While these countries have undertaken in the late 80s and the 90s to reorient their development policies towards a different model, relying on the development of private enterprises and integration into the world economy, features reflecting the previous policy were present in their legal and institutional framework, and still are present in many cases. These discrepancies between the new development policy and the legal and institutional framework have to be removed in order to create the best conditions for the success of the new development policy.

Indicators suggest that noticeable progress, although uneven from one country to the other, has been achieved in this way. In particular, as can be seen from table 5.1 below, macro-economic indicators of MED countries, which pointed to serious disequilibria at the beginning of the decade, significantly improved during the 90s in all these countries except Lebanon, thanks to the implementation of sound macro-economic policies. From 1991 to 2001 inflation receded and is now everywhere below 5%. Overall budget deficits were contained to sustainable levels in all countries but Lebanon. The current account deficit of Egypt and Jordan, which stood at above 10% of GDP at the beginning of the 90s, diminished to more easily financed levels. The burden of the debt service ratio in relation to export earnings was significantly reduced. Economic growth has accelerated in Algeria, Egypt, Morocco and Tunisia. As regards this indicator, results are however still disappointing in Jordan and Syria and in countries such as Algeria and Morocco remain too modest to cope with the need of creating enough jobs for new entrants on the labour market and to reduce a high level of unemployment.



Table 5.1 - Macro-economic indicators GDP Growth

rate Inflation Overall budget

deficit / GDP Current account balance / GDP

Debt service / Exports

1990-95

1996-01

1991 2001 1991 2001 1991 2001 1991 2001

Algeria 0.3% 2.9% 25.8% 4.2% +1.7% +3.4% +5.2% +12.4% 70.9% 21.0%Egypt 1.9% 5.0% 14.7% 2.4% -15.2% -5.5% +10.3% 0.0% 48.3% 8.4% Jordan 6.7% 3.3% 8.2% 1.8% +8.3% -3.8% -10.1% -0.1% 24.3% 12.5%Lebanon 7.4% 2.2% 51.5% 0.0% -13.0% -17.6% -20.0% -22.6% 3.5% 43.7%Morocco 1.4% 4.1% 8.0% 2.0% -3.1% -0.8% -1.5% -0.8% 26.7% 20.2%Syria 7.9% 3.6% 7.6% 2.4% -2.1% +1.1% +3.6% +2.6% 8.1% 3.5% Tunisia 4.4% 5.5% 8.2% 1.9% -5.2% -1.8% -4.4% -4.3% 23.6% 13.9%

Source : World Bank As regards Lebanon, this country remains in difficulties that are late consequences of the civil war of the years 1975-1991, in particular a heavy external debt. Debt service payments account for more than 80% of budget revenues, placing great pressure on the government to increase revenues and achieve budget cuts. The current account balance exhibits a very high deficit. Economic growth, that had been boosted by reconstruction in the first half of the 90s, has slowed down markedly in the second half.

Legal and institutional environment

Another set of indicators refers to the assessment by entrepreneurs, in particular by foreign investors, of the business legal and institutional environment. On the basis of a large variety of surveys dealing with this topic, a workgroup of the World Bank Institute developed indicators of governance31. The following are assessed: The effectiveness of the government, The quality of the regulatory framework, The effective implementation of the rule of law, The control on corruption, The political stability, and The functioning of democratic institutions (indicator named : voice and accountability).

Assessment of countries under each of these criteria is expressed by a mark ranging from –2.5 to +2.5. Data are available for the years 1997/98 and 2000/01. Data for the MED countries are presented in table 5.2 below, the average figures for EU countries being indicated for the sake of comparison. Tunisia is given positive assessments on all criteria except for democracy. The marks given to this country under such criteria as Government effectiveness, quality of the regulatory framework, implementation of the rule of the law or control of corruption are not very far from the EU average and in fact above the marks given to several EU countries. Furthermore this country is the one where indicators have increased the most between 1997/98 and 2000/01. 31 http://www.worldbank.org/wbi/governance



In contrast, Algeria and Syria exhibit negative figures under all criteria. But they register significant improvements between the two surveys as regards the quality of the regulatory framework and the effectiveness of the government. Jordan, Morocco and Egypt occupy intermediate positions and register mixed developments. Whereas the assessment of the regulatory framework improves between the two surveys in Jordan and Morocco, the assessment of government effectiveness deteriorates in these two countries. In Egypt, on the contrary, the effectiveness of the government is perceived as improving, but no progress is registered as regards the quality of the regulatory framework. Lebanon is the only country of the sample where most indicators point to a deterioration of the situation between 1997/98 and 2000/01, compounding the worsening of macroeconomic indicators.

Table 5.2 - Indicators of governance Government Effectiveness Regulatory Quality Rule of Law

1997/98 2000/01 Change 1997/98 2000/01 Change 1997/98 2000/01 ChangeAlgeria -1.09 -0.81 0.28 -1.17 -0.79 0.38 -1.10 -0.97 0.13 Egypt -0.14 0.27 0.41 0.12 0.13 0.01 0.13 0.21 0.08 Jordan 0.63 0.42 -0.21 0.42 0.73 0.31 0.71 0.66 -0.05 Lebanon 0.17 -0.02 -0.19 0.10 0.30 0.20 0.26 -0.05 -0.31 Morocco 0.27 0.10 -0.17 0.22 0.54 0.32 0.68 0.46 -0.22 Syria -1.18 -0.81 0.37 -0.92 -0.66 0.26 -0.29 -0.52 -0.23 Tunisia 0.63 1.30 0.67 0.43 0.81 0.39 0.65 0.81 0.16 Average -0.10 0.06 0.16 -0.12 0.15 0.27 0.15 0.09 -0.06 EU Average 1.39 1.44 0.06 0.92 1.06 0.14 1.33 1.42 0.09 Source : World Bank

Table 5.2 - Indicators of governance (continued) Control of corruption Voice and accountability Political Stability

1997/98 2000/01 Change 1997/98 2000/01 Change 1997/98 2000/01 ChangeAlgeria -0.88 -0.62 0.26 -1.31 -1.19 0.12 -2.42 -1.27 1.15 Egypt -0.27 -0.16 0.11 -0.67 -0.65 0.02 -0.07 0.21 0.28 Jordan 0.14 0.09 -0.05 0.15 0.10 -0.05 -0.06 0.13 0.18 Lebanon -0.40 -0.63 -0.23 -0.40 -0.32 0.09 -0.25 -0.55 -0.30 Morocco 0.13 0.44 0.31 -0.24 -0.23 0.00 0.09 0.16 0.07 Syria -0.79 -0.83 -0.04 -1.36 -1.40 -0.04 0.08 -0.28 -0.36 Tunisia 0.02 0.86 0.84 -0.59 -0.61 -0.02 0.66 0.82 0.15 Average -0.29 -0.12 0.17 -0.63 -0.61 0.00 -0.28 -0.11 0.17 EU Average 1.49 1.51 0.02 1.45 1.39 -0.06 1.13 1.20 0.08 Source : World Bank

Infrastructure and public services

Inefficient management of public services and infrastructures can be a serious problem in some MED countries, and the provision of public services is sometimes quite insufficient in rural areas. However, none of the evaluators informants ever identified the lack or inadequacy of public services and infrastructure as a major obstacle to the economic and social development of MED countries.



5.1.2 EC contribution

Macroeconomic policy

Except in Morocco, where the Structural Adjustment Facility was contingent on the design of a medium-term macroeconomic strategy, the European Commission did not directly address the macroeconomic policy of partner countries. This is the result of a distribution of responsibilities between the EC and the Bretton Woods institutions. However the funds made available to the state budget of the MED countries that benefited from a Structural Adjustment Facility have facilitated the move towards sound macroeconomic policy insofar as they alleviated the risks that policy changes may initially impose on budget revenues and the balance-of-payments.

Legal and Institutional environment

The instruments mobilised under MEDA I to support changes in the legal and institutional environment were on the one side Structural Adjustment Facilities that absorbed more than half the budget devoted to this objective, and, for the rest, technical assistance projects directed towards public administrations.

The evaluation of a set of four SAFs implemented in MED countries concluded that these operations, while they did not fully achieve their stated objectives, contributed to noticeable progress towards liberalising the economies and improving the regulatory framework.

The presentation made in the previous chapter of the technical assistance projects dealing with the institutional environment reveals that these were much less successful. Projects that aimed at modernising and strengthening public administrations in Syria have had to be postponed. Projects in support of privatisations in Egypt, Tunisia and Morocco did not manage to exert significant influence on the privatisation policy and were in fact restricted to the provision of technical support on a case-by-case basis to privatisations operations of small scale. Smaller projects in Morocco and Tunisia were delayed and faced difficulties in defining their expected outputs.

A likely explanation of this discrepancy between the two types of interventions lies in the highly sensitive character of the issues that both are tackling: conduct of the macro-economic policy, management of public resources, restructuring of public administrations and redefinition of their tasks, restructuring and privatisation of public enterprises, liberalisation of trade, reform of the social protection system, etc. Breakthroughs on such issues are necessarily the outcome of policy decisions taken at the highest level of government. As far as donors are concerned, this implies that their interventions take place within the context of a policy dialogue carried out at a high level with government officials. Structural Adjustment Facilities, because they result in a large amount of money made available to the State budget, and because they are jointly negotiated on the donor side by the European Commission and the Bretton Woods Institutions, meet the conditions for establishing such a policy dialogue. It is much less the case for technical assistance projects, which result in the provision of consultancy services and of some equipment, and whose objectives and design are commonly discussed with the sole line ministries or public agencies which are the direct beneficiaries of these projects.



This said, one should not overstate the capacity of SAFs to promote changes in the institutional environment. First, agreeing on a programme of reforms conditional to the implementation of a SAF requires that the government of the beneficiary country is genuinely committed to liberalising the economy and removing the obstacles to trade. To that extent one could argue that SAFs do not do more than facilitate and accelerate the implementation of measures which would have been implemented in any case, although probably on a longer time span so as to dilute their budgetary and social impacts. Second, once a SAF has been agreed, cancelling the disbursement of its successive instalments on the grounds that conditionalities have not been fully met would result in a political crisis between the donors and the government that the former generally prefer to avoid. As pointed out in the evaluation of the SAFs implemented in MED countries, this may lead either to disbursements being contingent on performance criteria that are close to already being met, or to donors to satisfying themselves with partial fulfilment of these criteria. Could the European Commission have done more or better that it did? In their assessment of the SAFs the evaluators noted that “the European Union has not been able to influence the economic debate and the contents of the conditions. The limited number of experts allocated to these matters has not allowed the European Union to greatly influence the views of the World Bank and of the IMF”. As a consequence, little room was left to specific community conditions directly linked to the long-term interests of the Euro-Mediterranean Partnership. One could also have expected that the EC, when granting a SAF, would have simultaneously provided technical assistance to facilitate the fulfilment of the related conditionalities, thus establishing a synergy between the two instruments. In Jordan, for example, the Delegation underlines that the implementation of the second SAF, of which an important objective was to introduce in this country a broad VAT system, greatly benefited from being able to build on a UK-funded technical assistance project on VAT reform. While the European Commission supports co-ordination between SAF and technical assistance, it argues that directly linking SAF and technical assistance would incur the risk that the beneficiary government uses delays or weaknesses in the technical assistance project as an excuse to shy away from its commitment to reform.

Infrastructure and public services

As a matter of principle MEDA resources are not meant to finance the construction of infrastructure. Nevertheless Euro 83 million were mobilised to contribute to the financing of a road in Morocco. Although this project is economically sound, as demonstrated by the impact study, and although the EC involvement prompted the intervention of other donors, this decision remains disputable as there is no obvious relation between this infrastructure project, whose objective is to foster the economic and social development of an underprivileged region, and the focus of MEDA economic co-operation on interventions preparing the establishment of a free trade zone. MEDA interventions aiming at an improvement in the management of public services took place in Syria and Morocco.



While economic cooperation between the EC and Syria was in general rather disappointing, the implementation of the first technical assistance project (ESSP) in support of the Syrian public enterprises in charge of producing, transporting and distributing electricity, financed under the 4th Protocol, went smoothly. This positive development is very probably due to the fact that this project focussed on technical issues without pretending to address the energy policy of the Syrian government, nor even the financial management of the enterprises involved. The two projects financed under MEDA in the electricity and telecommunication sectors have larger ambitions and are directly tackling policy issues. Both projects are at a preliminary stage of implementation. The question remains open whether the political conditions are currently met in Syria for the successful implementation of such projects. The difficulties met by the European Commission in reaching an agreement with the Syrian authorities on the Financing Agreement of the telecom project raises some doubts in this respect. The project in the electricity sector can build on the achievements of the ESSP, in particular the experience of a common work between Syrian and European experts. But this could prove insufficient if the government is not genuinely willing to reform the management of the sector. The situation was exactly the opposite in Morocco. The MEDA project in support of a reform of the telecommunication sector fell behind measures implemented by the government and was eventually cancelled.

5.1.3 Conclusions

During the period under examination, EC contributions to the strengthening of the economic and institutional environment of MED partner countries have registered mixed results. Structural Adjustment Facilities have facilitated the adoption of sound macroeconomic policies and promoted a large variety of sector policy changes that made the institutional environment more conducive to the development of the private sector and to the opening up of the economy. In addition, they contributed to alleviating the social consequences of these changes. However, the evaluation of these interventions32 pointed out that the conditionalities attached to these SAFs could have been more closely linked to the preparation of a Free Trade Area, and recommended that the EC strengthen its capacity to identify and assess the implications of this transition process on the general equilibrium of its Mediterranean partners. Technical assistance projects in support of institutional reforms or aiming at more effective management of public services registered some positive results as far as they restricted their field of intervention to technical issues. They were much less successful when dealing with political sensitive issues such as privatisations or administrative reforms.

32 Assessment of the structural adjustment facilities in the Southern Mediterranean countries, August 1999



5.2 To what extent did EC economic cooperation contribute to the development of the private sector

5.2.1 Observations

In addition to an enabling economic and institutional environment, the development of a dynamic sector of private enterprise able to face competition from abroad requires that a cluster of micro-economic conditions are met: Existence of entrepreneurs possessing the appropriate management skills; Availability to entrepreneurs of the economic, commercial and technical information

needed to design sound development plans for their enterprises; Availability of a labour force possessing the appropriate qualification; Access of enterprises, notably SMEs, to external financial resources.

Under all these aspects MED countries suffer from serious weaknesses. As noted above most of these countries have implemented up to the mid-80s, and sometimes much later, policies relying on import substitution and the development of an industrial sector based on state-owned enterprises. As a consequence little attention was given by the governments to the needs of private enterprise, and in particular of SMEs. Furthermore private enterprises privileged a development centred on the supply of their domestic market protected by high tariff and non-tariff barriers, thus escaping the pressure from foreign competition that would have obliged them to improve their performance in terms of price/quality ratio. Most frequently owners of small and medium enterprises have not received any specific training in the field of management. They are not used to resorting to the advice of business consultants, a profession which is poorly developed, not least because of the small size of the market for such services. Professional organisations, which could provide the enterprises with economic, commercial and technology information, lack the necessary resources and competences, and tend to consider themselves mainly as lobbies representing the interests of their members vis-à-vis the government rather than as providers of support services to their members. Whereas there is a large availability of unqualified labour, and sometimes unemployment among university graduates, skilled workers are in acute shortage. Enterprises face difficulties in recruiting the foremen and technicians who would be necessary to improve the quality of their productions and enhance productivity. Furthermore, although the discrepancies that existed in many of these countries between the level of wages and labour conditions in the public and the private sector, at the expense of the employees of the latter, tend to disappear, government agencies and public enterprises still drain off a large proportion of skilled workers. In Egypt, for example, in the middle of the 90s, more than two-thirds of the Government employees and close to half the employees of public enterprises had received secondary education. This percentage fell to less than 20% in the private non-agricultural sector. This situation is still worsened by the lack of capacity of the



vocational training system, the inadequacy of the training curricula to the needs of the enterprises, and the poor image attached to this branch of the education system. In fact most foremen are trained on the job and have limited capacities to adjust to technical developments. Finally a major constraint to the development of the private sector is the scarcity of financial resources. Banks, which are badly equipped to assess the financial situation of small enterprises and the soundness of the business development plans that they are invited to finance, are reluctant to grant mid-term loans to small enterprises. They favour instead investments in Treasury bills and public bonds. In Tunisia, the government has designed and started to implement in the mid-90s a programme that aims at enhancing the competitiveness of small and medium enterprises. The establishment of a commercial, technical and financial diagnosis, and then the design of a business plan, are subsidised, as can also be the investments implied by the implementation of the business plans. Banks which participate in the committees in charge of assessing the projects submitted for subsidies have, through this means, detailed information on the projects that they are themselves requested to finance and can hardly refuse to provide credit to an entrepreneur whose project has been granted a subsidy. In parallel an ambitious programme of extension and renovation of the vocational education system has been undertaken. All small and medium enterprises, whether mainly exporters (off-shore) or producing for the domestic market (on-shore), should undergo this up-grading process. But there is no other example of such a programme among MED countries.


The EC supported the development of the private sector through two broad types of actions: Business Centres acting directly on the management capacities of the enterprises; and indirect support to private sector development provided by specific projects which attempted to make available to enterprises the skilled labour and the financial resources that they needed to achieve their up-grading process. Industrial Modernisation Programmes represent a new, more comprehensive approach to private sector development.

Enhancement of the management skills of entrepreneurs

Through the provision of training programmes attended by thousands of participants, Business Centres contributed to the improvement of SME managers’ skills. They made economic, commercial and technical information available to enterprises and professional organisations, this information having frequently been produced on request so as to meet as accurately as possible the needs of local entrepreneurs. They provided hundreds of enterprises with a diagnosis of their commercial, technical and financial situation accompanied by a business plan indicating which measures should be undertaken to correct weaknesses and improve the enterprise competitiveness vis-à-vis foreign competitors. In order to enhance the impact of their activities, Business Centres adopted a sectoral approach of their interventions. This brought them to cooperate with professional organisations and employers associations, which they assisted in the development of their



capacities. In some MED countries, notably in the Middle East, Business Centres implemented activities that aimed at developing links between local enterprises and EU enterprises. Product quality improvement, which is a necessary condition for marketing products of the MED countries on EU markets and in other developed countries, was addressed either directly by the Business Centres, which in some cases offered local enterprises assistance for the implementation of ISO norms, or through specific projects in support of technical centres, of the institutions in charge of standards and norms, or of control laboratories. As noted in the previous chapter, Business Centres faced in their earlier years serious difficulties that resulted in long delays before they were able to develop their activities normally. This raises, as regards the design of projects, questions that will be addressed later. But, from the point of view of EC contributions to the development of the private sector, there is no doubt that the concept of Business Centre and the range of services that these institutions were intended to deliver, and actually delivered once their initial problems were overcome, were an appropriate response to acute needs of the SMEs which make up the bulk of private enterprises in MED countries. The co-operation between Business Centres and professional organisations, and the projects specifically targeting the latter, not only contributed to enhancing the impact of the Business Centres' activities, they also operated a transfer of knowledge and know-how from the Business Centres to permanent institutions of the business sector, thus creating conditions for the enterprise up-grading process to be continued if and when the EC suspends its support to Business Centres. The same is true of the support brought by the EC to such institutions as technical centres, bureaus of standards and norms, control laboratories. It is nevertheless regrettable that the recruitment procedures of the consultants involved in Business Centres activities did not favour the development of a local supply of consultancy services, which would have further reinforced the sustainability of the project achievements. In Tunisia up-grading of enterprises is a government policy, widely publicised, supported by financial incentives, and coordinated with complementary policies dealing with such issues as vocational education or standards and norms. This situation was originally a source of contention between the Tunisian government and the EC. But this policy created around the up-grading process a momentum, which is undoubtedly favourable to its success, but which does not exist to a comparable extent in the other MED countries33. This observation suggests that the European Commission, while implementing Business Centres, could have usefully attempted to obtain from the governments of the MED

33 In 2003, the Moroccan government created a National SME Agency and an Enterprise Up-Grading Fund to which

were allocated 20 million Euros, of which 10 million provided by the EC.



countries a commitment to a more proactive attitude towards the enterprise up-grading process34.

Qualification enhancement of the labour force

In Tunisia in cooperation with other donors, and in Morocco as a follow-up from previous projects financed under the protocols, the MEDA programme supported the renovation of the public vocational training system and the enlargement of its capacity. One could have wished that the project implemented in Morocco included a reform of the management of the training institutions and given more importance to the modernisation of the training curricula. It remains the case that such projects contribute to reduce the shortage of skilled labour, technicians and foremen, which is a serious handicap to the up-grading process of SMEs in MED countries. Here again, the results achieved by these projects are likely to be durable. In the Middle-East, notably in Egypt and Jordan, this issue was addressed by other donors, notably the World Bank and USAID, thus explaining why MEDA did not intervene in this area.

Improved access to credit

The MEDA programme also attempted to bring a response to the financing needs of SMEs. This was done through various instruments: technical assistance to financial institutions; credit guarantee lines made available to selected banks to increase their propensity (or reduce their reluctance) to grant medium-term loans to SMEs; funds made available through the European Investment Bank to local risk capital companies. These instruments did not fully achieve their objectives. Risk capital operations request the presence in the beneficiary country of financial companies having the technical and managerial capacity to carry out such operations. Furthermore SMEs owners are frequently reluctant to accept a mode of financing which implies that outsiders interfere with their management. The utilisation of the credit guarantee line made available to three Moroccan banks was relatively slow, suggesting that the reluctance of banks to grant medium term credit to SMEs is not only a question of risk, but also reflects other factors such as the existence of alternative investment opportunities or the lack of capacity of the bank staff to assess business development plans. As for the technical assistance projects to financial institutions, their effectiveness frequently depends on larger reforms of the financial system, and one cannot expect that they deliver significant results in a short period of time.

New developments

Industrial Modernisation Programmes draw lessons from the experience of the Business Centres. In order to have an impact beyond the enterprises that directly benefit of their interventions and to ensure the sustainability of their achievements Business Centres must closely cooperate with professional organisations and contribute to the strengthening of 34 In fact, this is currently the case. The EC new approach to SME development is to encourage the governments of

MED countries to design their own policy in this respect and to create national implementation bodies, while EC interventions take place within this national framework.



these organisations. This dimension, which was not always present in the Terms of Reference of Business Centres, or else was undertaken as a separate project, is incorporated in the design of IMPs. The necessity to improve the access of SMEs to financial resources, if they are to implement the up-grading plans recommended by the Business Centres, is another lesson learnt from the experience of Business Centres. Some IMPs attempt to meet this need by means of credit guarantee lines. Finally IMPs include a component addressing the industrial policy issues at the ministerial level. This innovation does not directly originate in the experience of Business Centres. But the case of Tunisia suggests that making the up-grading of enterprises a government policy creates favourable conditions for the success of this activity.

5.2.3 Conclusions

The achievements of EC interventions in support of private sector development have been quite significant. Business Centres, once their initial management problems were overcame, demonstrated that they are an effective tool for enhancing the management skills of entrepreneurs, facilitating their access to economic, commercial and technical information, promoting endeavours to improve the quality of products, and strengthening the capacity of professional organisations. Projects in support of vocation training, insofar as they contribute to an overall up-grading of the vocational education system, will have a durable impact on the qualification of the labour force. The impact of these projects is especially great when they encompass all dimensions of the labour force qualification problem from training curricula and training centre management, assessment of qualification needs and management of human resources in the enterprises. EC interventions were less successful when tackling the difficulties met by small and medium enterprises in gaining access to credit. While the various instruments utilised to address this issue (technical assistance to banking institutions, credit guarantee, provision of risk capital) delivered positive results, the problem remains acute and the reluctance of commercial banks to finance SMEs has not been significantly diminished. Solving this problem probably implies reform of the financial and banking system, a sensitive issue and one which will require sustained effort.

5.3 To what extent did EC economic cooperation contribute to develop trade relations

5.3.1 Observations

Altogether the seven MED countries considered in this study make slightly less than 0.3% of total world exports of manufactured goods, a percentage which has been slowly decreasing over the last 10 years. Only Morocco and Tunisia, thanks to good results in the first half of the decade for Tunisia and in the second one for Morocco, kept pace with the development of world exports.



Table 5.3 - Exports of manufactured goods Value in 000 US dollars Growth rate

1990 1995 2000 1990-2000 1990-1995 1995-2000 Algeria 290,573 283,855 318,748 0.9 -0.5 2.3 Egypt (*) 1,094,603 1,388,831 1,299,538 1.9 4.9 -1.6 Jordan 467,517 696,922 660,999 3.5 8.3 -1.1 Lebanon Na n.a. 471,227 n.a. n.a. n.a. Morocco 2,211,050 2,425,788 4,761,176 8.0 1.9 14.4 Syria 1,502,787 691,403 359,856 -13.3 -14.4 -12.2 Tunisia 2,417,539 4,346,557 4,504,513 6.4 12.4 0.7 Total 7,984,069 9,883,356 12,375,967 4.5 4.4 4.6 World (**) 2,423,359 3,751,313 4,660,023 6.8 9.1 4.4 (*) most recent data : 1999. (**) value in million USD. Source : UNCTAD. This poor trade performance of MED countries can partly be explained by a strong concentration of their exports on a limited number of products as can be seen from the diversification index of their exports, an indicator which reflects the diversity of exports of a given country compared to the composition of world exports. The lower the index, the more diversified is the composition of the country exports. MED countries exhibit high indexes ranging from 0.87 for Algeria to 0.65 for Jordan and Lebanon. The concentration index, which reflects the diversity of export destinations, suggests on the contrary that MED countries export their products to a relatively large number of destinations and, except for Syria, have maintained or even enlarged the diversity of their outlets during the 90s’. Intra-regional trade is relatively well developed in the Middle East with Jordan and Lebanon directing 40% to 45% of their exports to other countries of the region, and Syria selling 25% of its exports to neighbouring countries. Exchanges on the contrary are extremely weak between the Maghreb countries, where they represent less than 5% of total exports.

Table 5.4 - Diversification and concentration indexes Diversification Index Concentration Index 1990 2000 1990 2000 Algeria 0.859 0.870 0.567 0.576 Egypt (*) 0.701 0.697 0.244 0.265 Jordan 0.741 0.652 0.368 0.156 Lebanon n.a. 0.656 n.a. 0.124 Morocco 0.755 0.742 0.162 0.173 Syria 0.780 0.812 0.360 0.677 Tunisia 0.664 0.670 0.203 0.197

(*) most recent data : 1999. Source : UNCTAD.



A promising development regarding intra-MED trade relations is the signature in March 2001 of the Agadir Agreement which foresees the gradual establishment of a free trade zone between Egypt, Jordan, Morocco and Tunisia. The four signatory countries have expressed their willingness to enlarge this agreement to any other country of the region that would be interested in joining them. For all MED countries the rate of growth of service exports was lower than the world average. Whereas good results were registered in the second half of the 90s by the receipts of tourism in Egypt and Morocco, this sector is loosing impetus in Tunisia where it makes up two-thirds of the total exports of services.

Table 5.5 - Exports of services Value in 000 US dollars Growth rate

1990 1995 2000 1990-2000 1990-1995 1995-2000 Algeria 497 n.a. n.a. n.a. n.a. n.a. Egypt 5,971 8,590 9,803 5.1 7.5 2.7 Jordan (*) 1,447 1,709 1,702 1.8 3.4 0.0 Lebanon n.a. n.a. n.a. n.a. n.a. Na. Morocco 2,009 2,173 3,034 4.2 1.6 6.9 Syria 874 1,899 1,700 6.9 16.8 -2.2 Tunisia 1,688 2,509 2,767 5.1 8.2 2.0 Total (**) 11,989 16,880 19,006 4.7 7.1 2.4 World 779,971 1,185,884 1,462,006 6.5 8.7 4.3 (*) most recent data : 1999. (**) Total excluding Algeria and Lebanon. Source : UNCTAD.

MED countries do not show a great capacity to attract foreign direct investment. Their share in the total stock of FDI in developing countries was halved during the 90s from 4.6% to 2.3%. Except in Tunisia and Lebanon, the flow of foreign investment per inhabitant over the period 1995-2000 was lower in MED countries than it was on average in the whole group of developing countries. FDI is especially low in Syria and Algeria, but also in Egypt and Morocco.

Table 5.6 Stock and Flow of Foreign Direct Investment Stock of FDI in million USD Flow 1995-2000 1990 1995 2000 USD per

capita % of GFCF

Algeria 1,355 1,465 3,441 11.2 2.7% Egypt 11,043 14,102 20,845 18.7 7.2% Jordan 615 627 1,510 32.2 8.5% Lebanon 53 107 1,084 49.7 4.7% Morocco 917 3,320 6,141 18.7 7.3% Syria 374 915 1,699 9.5 1.3% Tunisia 7,615 10,967 11,451 52.3 10.2% Total 21,972 31,503 46,171 n.a. n.a. Total developing countries 476,399 837,518 1,938,738 39.2 n.a. MED in % of dev. Countries

4.6% 3.8% 2.3%

Source : UNCTAD.



In a paper devoted to fiscal revenues, the IMF underlines that MED countries still have rather restrictive trade policies and that over the last decade trade taxes as a percentage of GDP have increased or remained constant in all MED countries except Egypt and Tunisia35. The IMF calculates a trade restrictiveness index which combines average most- favoured-nation (MFN) tariff levels with trade restriction levels (import licensing, imposition of reference prices, etc.) to rank countries from 1 to 10 with 10 being the most restrictive The index of MED countries ranges from 10 for Syria to 6 for Jordan, with Egypt, Morocco and Tunisia at 8. The impact of agreements with the EU is however significant. While in Maghreb countries the average MNF-tariff stands at 31.2 percent, the effective import tariff (custom duties divided by import value), which is a more accurate indicator of trade restrictiveness, drops to 15 percent for Morocco and 10 percent for Tunisia.


As pointed out in the previous chapter, EC assistance to the development of trade and the strengthening of business relations between MED countries and the EU was mainly channelled through regional programmes that aim at bringing together enterprises of MED countries of the EU and of other regions, and at developing co-operation links between economic and trade associations of the MED countries and of the EU, as well as between employers associations. The number of events organised within this framework, and the number of enterprises of MED countries that have attended these events, are an indication that these activities meet a real need for these enterprises. Only two projects directly addressing trade facilitation and external economic relations were implemented during the period under scrutiny in the framework of the bilateral cooperation between the EC and MED countries. These projects were not very successful. The project in support of the Tunisian Investment Promotion Agency, financed under the 4th Protocol, did not meet the expectations of the beneficiary. The small technical assistance project know as “liasse unique” delivered useful results but was prematurely terminated because the rider extending the financing agreement was not signed in due time. However, this area was not ignored by MEDA interventions. Measures tending towards a liberalisation of trade were included in the conditions associated with Structural Adjustment Facilities in Algeria, Jordan and Tunisia. Business Centres proposed training courses intended to strengthen the capacity of SMEs to sell their products on foreign markets. Business Centres also had in their Terms of Reference the implementation of activities aiming at the development of exports, the establishment of business relations between enterprises on both sides of the Mediterranean Sea and between enterprises of different MED countries, the promotion of direct investments in MED countries, the creation of EU-MED joint ventures. However they did not give high priority to this component of their work programme.

35 Karim Nashashibi: Fiscal revenues in South Mediterranean Arab Countries, Vulnerability and Growth Potential, IMF

Working Paper, IMF, April 2002.



More generally the activities implemented by Business Centres to enhance the competitiveness of SMEs, if not directly targeting the development of trade, can be considered as a contribution to the establishment of microeconomic conditions favourable to such a development. The support given by MEDA in Lebanon, Morocco and Tunisia to the institutions in charge of developing standards and norms, assisting enterprises in the implementation of quality measures, and controlling the compliance of the products with these norms, should also have a positive impact on the export capacity of MED countries. It remains the case that regional integration and co-operation, in particular the establishment of a Free Trade Area, is a major objective of EC economic cooperation with MED countries. In this respect it is surprising that this objective was not more strongly reflected in the bilateral programmes implemented during the 1995-2001 period. An argument advanced by the European Commission is that Association Agreements had not been concluded when the MEDA I programme was designed, so that the establishment of a Free Trade Area was at that time more a proposal than a common objective of MED partners. The current programming period should see a change in this regard since trade enhancement is explicitly identified as a priority objective in the Country Strategy Papers 2002-2006 for Egypt, Jordan, Lebanon, Syria and Tunisia, while technical assistance projects targeting trade policy, the modernisation of customs administrations, the facilitation of trade, or technical issues related to the implementation of the Association Agreements with respect to trade relations, are identified in the National Indicative Programmes 2002-2004 for these countries.

5.3.3 Conclusions

The institutional dimension of trade development was addressed by Structural Adjustment Facilities, notably in Algeria, Jordan and Tunisia where conditionalities associated to the SAFs led to the adoption of trade liberalisation measures. Business Centres delivered training courses intended to enhance the capacity of entrepreneurs to develop their sales on foreign markets, and in some cases favoured the development of business-to-business links across the Mediterranean sea. Regional programmes supported a number of initiatives that contributed to the establishment of relations between enterprises of MED countries and of the EU as well as between their professional organisations. But with one exception, the issue of trade development was not directly addressed by bilateral programmes under MEDA I. This issue should be given much more attention under MEDA II.



6. Assessment of EC Economic Cooperation with respect to the evaluation criteria

6.1 Relevance

In chapter 2 above we listed the main weaknesses of MED countries with respect to their capacity to achieve higher rates of economic growth through the development of the private sector and a greater openness to foreign economic relations. The following table shows whether these weaknesses have been addressed by EC interventions and through which interventions. Table 6.1: Major weaknesses of MED countries and related EC interventions (mainly under the MEDA programme).

Weaknesses MEDA interventions

Large and poorly effective bureaucracy.

Rehabilitation of public administrations (Lebanon) ; Modernisation of the municipal administration (Syria) ; Institutional and Sector Modernisation Facility (Syria).

Reduced capacity of the State to design and implement development policies.

Structural Adjustment Facility (Morocco) ; Impact study of the Free Trade Zone (Morocco) ; Investment Planning Project (Lebanon) ; Support to the Centre d’Etudes Juridiques et Judiciaires

(Tunisia). A negative average overall budget

balance/GDP; Balance of payments highly dependent

on rents (oil exports, remittances, tourism, foreign aid).

Structural Adjustment Facility (Morocco).

Inefficient public sector in terms of quality of services and costs.

Investment Planning Project (Lebanon) ; Support for telecom regulation (Morocco) ; Power Sector Action Plan (Syria) ; Telecom Support Programme (Syria) ; Euro-Mediterranean information system on the know-

how in the water sector (Regional). Inefficient public sector in terms of

quality of services and costs (continued).

Euro-Mediterranean cooperation in the energy sector (Regional) ;

Euro-Mediterranean cooperation in the transport sector (Regional) ;

New approaches regarding telecommunication policy (Regional) ;

Private participation in Mediterranean infrastructure (Regional).



Weaknesses MEDA interventions

High involvement of the State in production.

Assistance to privatisations (Algeria, Egypt, Morocco, Tunisia) ;

Structural Adjustment Facility (Algeria, Jordan, Tunisia). Lack of a strategy to enhance

competitiveness of the private sector and prepare for the establishment of a FTA.

Industrial Modernisation Programme (Egypt, Jordan, Lebanon) ;

Impact study of the Free Trade Zone (Morocco).

Lack of competitiveness of SMEs.

Low productivity.

Support to SMEs (Algeria, Egypt, Jordan, Lebanon, Morocco, Syria, Tunisia) ;

Industrial Modernisation Programme (Egypt, Jordan, Lebanon).

Underdeveloped banking system.

Modernisation of the Ministry of Finance (Syria) Structural Adjustment Facility (Morocco, Tunisia) ; Banking Sector Reform (Egypt) ; Strengthening the competitiveness of the economy

(Tunisia) ; Provision of capital risk managed by EIB (Egypt, Jordan,

Morocco, Tunisia) ; Credit Guarantee Fund (Morocco).

Inadequacy between the output of the school/training system and the needs of the economic sector.

Support to vocational training (Morocco, Tunisia) ; Higher Institute for Business Administration (Syria).

Limited attractiveness to foreign investments.

Protectionism in favour of local manufacturing industry.

Narrow product base.

High concentration of exports on a limited range of products with relatively low growth potential.

Industrial Modernisation Programme (Egypt, Jordan, Lebanon) ;

Support to quality (Lebanon, Morocco, Tunisia) ; Support to professional organisations (Morocco) ; Assistance to the Foreign Investment Promotion Agency

(Tunisia) ; Liasse unique (Tunisia) ; EuroMed market (Regional) ; Investment Promotion Programme (Regional) ; Euro-Mediterranean economic network (Regional).

Export weaknesses (continued). Euro-Mediterranean SMEs cooperation (regional), UNIMED Business network (Regional), Small internal markets (except for Egypt and Algeria) ;

Structural Adjustment Facility (Algeria, Jordan, Tunisia) ; Support to SMEs (Algeria, Egypt, Jordan, Lebanon,

Morocco, Syria, Tunisia). Deterioration of environment.

Subsidisation of interest on EIB loans financing

infrastructure related to the protection of environment.



As can be seen from this table there is no weakness of MED countries that has not been addressed through one or several interventions. The only area where few MEDA interventions were identified relates to the conduct of macroeconomic policy. But this issue, while it undoubtedly influences the economic performance, is the object of regular discussions between the governments and the IMF. The European Commission can therefore legitimately consider that it does not have to intervene in this area except when it is associated with the IMF in the design of a Structural Adjustment Facility. Furthermore, as noted in the previous chapter, the macroeconomic situation of MED countries, with the exception of Lebanon, has significantly improved during the 90s so that this issue, while it remains very important, no longer has emergency status.

Reciprocally, except for the financing of the “Rocade Mediterranéenne” in Morocco, of which we already noted that it is does not fit in MEDA intervention logic, there is no MEDA intervention in the field of economic cooperation that could not be related to one or several of the weaknesses identified in MED countries.

This positive assessment of the relevance of EC economic co-operation interventions at the overall level also applies at the level of each single MED country. There has been no intervention in any MED country of which one could dispute that it addressed a real problem.

The question could however be raised whether in each single MED country the EC targeted those issues that are the most serious obstacles to economic and social progress, and are not or are insufficiently addressed by other donors. What makes it possible to raise such a question is the absence in the period under scrutiny of any analytical document that would have reflected the European Commission assessment of the economic and social situation in the various MED countries, indicated which weaknesses it considered as the most acute, and how it therefore selected and prioritised its interventions taking into account the requests of the partner government and the activities of other donors. Since the MEDA II Regulation was adopted, this gap has been filled by the production of Country Strategy Papers covering the five year period 2002-2006.

6.2 Effectiveness

As pointed out in chapter 4, EC economic co-operation suffered from management weaknesses which resulted in serious delays in its implementation. This question will be dealt with in the following paragraph under the assessment of the programme efficiency. However, when and where these difficulties were overcome, most projects delivered the outputs that they were expected to deliver, although implementation delays frequently resulted in projects coming to an end without having been able to deliver the full volume of outputs initially planned.

The effectiveness of several types of projects can be assessed positively: Structural Adjustment Facilities, Business Centres, projects in support of vocational training and of quality enhancement, regional projects aiming at the development of networks between enterprises and professional institutions. Less effective were the projects addressing the financing of enterprises, projects in support of privatisations and technical assistance projects addressing the institutional environment.



Structural Adjustment Facilities effectively contributed to progress in the institutional environment of the partner countries in such areas as the conduct of the macroeconomic policy, privatisation of public enterprises and the removal of legislative and regulatory impediments to the development of the private sector, reform and modernisation of the banking sector, and liberalisation of trade. In addition, these interventions addressed the social issues raised by the reform processes that they were promoting. From the point of view of effectiveness it is regrettable that no coordination was established between SAFs and technical assistance projects. The achievement of SAF conditionalities could have been facilitated by the provision of technical assistance. Reciprocally, technical assistance projects would have benefited from the commitment to reform taken by the governments in the framework of the SAFs. Business Centres faced serious initial difficulties that prevented them from developing their activity normally for a relatively long time. The image of these institutions and of EC cooperation suffered from this situation. But once these difficulties were overcome and Business Centres became fully operational, they delivered services (commercial, technical and financial diagnosis of enterprises, design of business plans, delivery of training courses to enterprise managers, production and circulation of economic, commercial and technical information, etc.) that met acute needs of the SMEs and of their professional organisations in MED countries, and that adequately met their requirements. One can however note that locally some critics were raised regarding the quality of the short term consultants provided by the Business Centres; in some cases a higher level of specialisation of the consultants in the sectoral issues they were dealing with would have been desirable. Obviously Business Centres have had to make a trade-off between the quick delivery of the requested services and the quality of the consultants recruited for the job. Where such issues as the support to professional organisations or the promotion of quality were addressed through specific projects distinct of the Business Centres, the coordination between Business Centres and these projects, although necessary, took long to establish and suffered from disjointed implementation timetables. Industrial Modernisation Projects build on the achievements of Business Centres, but have a larger scope since they also encompass assistance to professional organisations and a component addressing policy issues at the level of the Ministry of Industry. While consistent and coordinated interventions at these three levels are necessary for creation of the best conditions for the development of the private sector, and for defining targets for the activities of the Business Centres, experience will tell if this can be better achieved through one single project encompassing these three dimensions or through separate projects. Projects in support of the development and modernisation of vocational training implemented in Tunisia and Morocco are considered successful, although one could have wished in Morocco for a more ambitious project proposing reforms in the management of the institutions in charge of vocational education and of the training establishments themselves, as well as a deeper renovation of the training curricula.



The project in support of quality enhancement implemented in Tunisia, although it did not reach the quantitative objectives that it was targeting, was considered a success. It gave useful support to the implementation of the policy initiated by the Tunisian government to raise the awareness of enterprises on the importance of improving their product quality, and contributed to the creation of a local advisory capacity in this area. The regional projects that aimed at developing networks bringing together enterprises and professional organisations from MED countries and EU countries actually succeeded in building these networks and at establishing contacts between hundreds of entrepreneurs on both sides of the Mediterranean Sea and between their representative professional organisations. The financing of SMEs remains a major weakness of the up-grading process of enterprises undertaken with the assistance of the Business Centres. Once a commercial, technical and financial diagnosis of the enterprises has been carried out and a business plan designed to correct the weaknesses that have been identified, the implementation of this business plan generally requires material and intangible investments that SMEs cannot finance unless they have access to external financing sources. This problem has been given a relatively satisfactory solution in Tunisia, where these investments are subsidised by the state budget and where, more importantly, commercial banks are represented in the Committee in charge of assessing the business plans and deciding on the allocation of subsidies. While providing the banks with a detailed information on the projects presented by the enterprises, this involvement of the banks puts them in a position where they can hardly refuse to contribute to the financing of a project which they have positively assessed as members of the selection committee. The component of the MEDA project “Strengthening the competitiveness of the economy”, which aims to deliver training to the staff of banks, notably with respect to risk assessment, is therefore taking place in a favourable context. But the situation is far from being satisfactory in other MED countries, where commercial banks, unless they are given real guarantees, remain reluctant to commit resources to industrial projects, which they are badly equipped to assess. The EC addressed this issue through various interventions: provision of funds under the management of the EIB to risk capital companies, provision of credit guarantee lines, reform of the financial and banking system. These attempts have had limited impact. MEDA funds made available to risk capital companies, notably in Morocco and Tunisia, which were the two main beneficiaries of this resource, were well managed and provided an effective solution to the financing of some privatisation operations and to the development of a few dynamic private enterprises of medium size. But the lack of capacity to manage this type of resource on the one hand, and the reluctance of most entrepreneurs to accept any interference in their management on the other, severely restricted the field of application of this approach to the financing of enterprises. A complementary approach is the provision to selected banks of a credit guarantee line which they can utilise to reduce their risk exposure when granting a credit to a SME. This was done in Morocco and Jordan and is planned for in the framework of the Industrial Modernisation Programmes in Egypt, Lebanon and Tunisia. The experience in Morocco,



where the utilisation of this resource was rather slow, suggests that this measure, while useful, is not sufficient to remove the bias of commercial banks against the financing of SMEs. In fact, improving the access to financing resources of enterprises in MED countries implies structural changes in a financial and banking system, which frequently remains under state control and which is more accustomed to invest in government bonds than to finance the private sector. Reforming this sector is a huge task, which requests time and coordinated action by several donors. Attempts to modernise the banking sector were undertaken by the MEDA programme in Algeria and Egypt. Although all parties agree that the consultants working on the project in Egypt were well qualified, and that the training delivered was of high quality, the expected changes in the management of the Central Bank did not take place. A lack of coordination between donors and an insufficient commitment to reform of the beneficiary are the main explanations for this failure. Projects in support of privatisations did not deliver the expected results. In Egypt, the Public Enterprise Reform and Privatisation Programme, in spite of a two year extension, failed by far to achieve its targeted objectives. At the time of the field missions, the projects in support of privatisations in Morocco and Tunisia also seemed unable to deliver the outputs expected from them. The reasons underlying this situation may vary from one country to the other. But in all three cases the projects suffered from a flagging commitment of the government, and from a positioning of the projects that deprived them of any influence on the design of the privatisation policy. Finally, technical assistance projects targeting the institutional environment met serious difficulties that led to restrictions on their scope or to postponement of their implementation. The projects supporting the development and modernisation of the public services supplying energy and telecommunications in Syria managed to impulse changes as far as they concentrated on technical issues. But the implementation of the projects that aimed at reforming the Syrian administration have had to be postponed. This setback was due to an overestimation of the commitment of the local partner to implement institutional changes. This survey suggests that two broad categories of projects should be differentiated. Projects that target private operators can be implemented effectively even when the policy environment is less enabling than would be desirable. But to be effective, projects that address the institutional environment, including the financial sector, require a high degree of commitment to reform of the local authorities. This condition was met in the case of Structural Adjustment Facilities, which involve an intense policy dialogue between the donors and the government at the highest level. It was missing in the case of technical assistance projects targeting the institutional environment (reform of the financial sector, privatisations, reform of administrations) as far as they were not backed by a political dialogue at the appropriate level.



6.3 Efficiency

If most economic co-operation projects, when able to operate normally, actually delivered the outputs that they were expected to deliver, the efficiency of the programme was hampered by weaknesses in its management. These weaknesses have been described above (See Chapter 4, § 4.5). They resulted in delays in the start of implementation of the projects, in Project Management Units unable to utilise the budget made available to them to contract consultants and therefore being unable to deliver services to final beneficiaries, and in project activities being suspended or disrupted when waiting for a decision from the EC. These delays impacted negatively on the volume, and in some cases, on the quality of the outputs delivered by the projects because some part of the resources allocated to the projects had been spent before it was possible for the projects to carry out normally their planned activities or because conditions had changed between the moment when they had been identified and the time of their implementation. An example where efficiency was affected by a delayed start of the project is the project in support of privatisations in Tunisia. This project had been designed to assist the Ministry of Economic Development in establishing a privatisation department. When the project was actually implemented the privatisation department was already operational for two years and had adopted an organisation by sectors that did not fit the project design, which assumed a functional organisation of the department. As a consequence the European consultants did not find in the department the counterparts with whom they were expected to work and were confined to the existing range of the department's activities. This situation required a revision of the Terms of Reference of the project jointly worked out by all stakeholders of the project: beneficiary, EC, contractor; this however did not take place. Business Centres are an example where resources were spent ineffectively because the PMUs lacked the instruments required to implement planned activities. Until the framework contract for the recruitment of short term experts was established and Financing Agreements signed with the governments, Business Centres remained unable to deliver normally the services which they were expected to provide. Although some activities were developed using the resources allocated to cover the running costs of the PMUs, and although Business Centres attempted to catch up once they were able to operate normally, this situation resulted in losses of resources. In most cases, the European Commission has extended the project duration to allow the projects to fulfil their initial objectives, thus resulting in over proportional costs of technical assistance as compared to operation expenditures.

6.4 Impact and Sustainability

As mentioned earlier most MEDA I projects in the field of economic cooperation did not start earlier than 1999 and some of them had not yet started at the time of the field visits in May 2002. Except for the Structural Adjustment Facilities, it is therefore impossible to expect these projects to have generated to date any measurable impact.



The observations presented above (See chapter 5) on the developments that have taken place in MED countries in the second half of the 90s cannot therefore be attributed to MEDA interventions but to earlier interventions of the EC and of other donors. Some of these developments are positive. Macroeconomic indicators, in particular, have significantly improved, except in Lebanon, reflecting the implementation of sound macroeconomic policies. The institutional framework is also becoming more favourable to the development of the private sector, although progress in this area is uneven from one country to another. But the weaknesses of SMEs, which make up the bulk of private enterprises in MED countries, are still acute and will need sustained efforts to be corrected. The capacity of MED countries to increase their exports and to attract foreign investors is still quite disappointing. This lack of competitiveness is very probably the major explaining factor behind the absence of any acceleration of GDP growth in the second half of the 90s, a worrying feature since MED countries have to create enough jobs to offer employment opportunities to the large number of young people that enter the labour market every year and to curb a high level of unemployment. As noted in the previous paragraphs, EC interventions in the field of economic cooperation targeted all the factors, either macroeconomic or microeconomic, that may explain the meagre results of MED countries with respect to economic and social development. Most of the projects implemented by the EC delivered the outputs that were expected from them, although weaknesses in the management of the programme resulted in a waste of resources and in some cases negatively impacted on the quality of the outputs. One can therefore reasonably assume that these interventions will have positive impacts. Changes that have been induced in the economic and institutional environment are very likely to last since they are consistent with an overall movement towards liberalisation of the economy that has started in some MED countries, notably Tunisia, in the second half of the 80s, and which is progressively gaining ground in those MED countries, such as Syria, which until recently had been resilient enough to engage in such a reform process. The enhancement of the management skills of entrepreneurs, the up-grading process of SMEs and the enhancement of the quality of their products, the strengthening of professional organisations, the development and renovation of the vocational education system, the establishment of relations between entrepreneurs and between business organisations throughout MED countries and the EU, are durable achievements that will last even if the EC should suspend its support to the activities that delivered these results. As regards support to the private sector, the sustainability of MEDA achievements would have however been better ensured if more attention had been given to the creation and development of local business consultancy capacities.



7. Conclusions

This chapter summarises the observations made in the two previous chapters in evaluating EC economic cooperation with respect to the evaluations questions and to the standard evaluation criteria. The main focus is on the weaknesses revealed by this analysis, weaknesses which will be addressed by recommendations presented in the following chapter.

7.1 Relevance

EC economic cooperation with MED Partner countries was highly relevant. It however lacked explicit country strategies and insufficient attention was given to trade and other external economic relations. Economic cooperation of the EC with MED countries during the period covered by this evaluation was highly relevant. It addressed at the macroeconomic and microeconomic levels the major weaknesses hampering the development in these countries of a competitive private sector and a closer integration into the world economy. However, the lack of explicit country strategies does not allow the conclusion that in each single country EC interventions targeted the most acute constraints to the achievement of the Barcelona goals in the field of economic and social development, nor that they complemented rather than duplicated other donor interventions. The mediocre performance of MED countries with respect to trade and attraction of foreign investments suggests that more resources could have usefully been devoted to trade enhancement, although this issue was indirectly addressed by interventions primarily targeting the institutional environment or the development of the private sector, and by regional projects.

7.2 Effectiveness

Overall effectiveness of the EC Economic Co-operation with MED Partner Countries was reasonably good. However, evaluating this programme along its three main objectives (strengthening the institutional and economic environment, supporting the development of the private sector; promoting the development of trade and international economic relations) reveals some weaknesses.

Institutional and economic environment

Structural Adjustment Facilities were quite effective but would have benefited from coordination with technical assistance projects addressing the institutional environment, while the effectiveness of the latter suffered from a lack of political backing. As regards interventions in public services, potential synergies between technical assistance projects and EIB lending activities were not mobilised.



Structural Adjustment Facilities contributed to the implementation of sound macroeconomic policies, to reforms of the institutional environment that made it more conducive to the development of the private sector, and to progress towards the liberalisation of trade, although the conditionalities attached to SAFs could have been more specific of the objectives targeted by the Barcelona process. However the fulfilment by governments of the conditionalities attached to SAFs were not supported by technical assistance projects, whereas such a combination would have been beneficial to the effectiveness of both instruments. Less effective were the projects addressing the institutional environment through the provision of technical assistance to public administrations. These projects lacked the political backing that would have been necessary to secure a stronger commitment to reform of the beneficiary institutions. As demonstrated by the project in support of the electricity sector in Syria, strong complementarities may exist between TA projects and EIB loans. It is especially the case in the area of public infrastructure and services where there is frequently a need for an improvement in management as well as for investments. But Delegations, while they are informed of the EIB lending activities, do not devote much attention to the projects of the European Bank , whether subsidised by the MEDA budget or not, nor do they take into account in their strategy the potential complementarities between EIB loans and the interventions directly managed by the EC.

Private sector development

Through creation of Business Centres, implementation of technical assistance projects in support of vocational training and quality enhancement, and the provision of instruments for the financing of SMEs, the EC Economic Cooperation effectively supported the development of the private sector in MED Partner countries. However these interventions suffered either from the lack of a national SME policy in the partner countries, or from insufficient preparation of some projects, of from insufficient coordination between complementary projects, or from lack of comprehensiveness in the approach to the issue of SME financing. The development of the private sector in MED countries was effectively supported by the Business Centres, which delivered training courses attended by several thousands of entrepreneurs, and contributed to an improvement of the competitiveness of hundreds of Small and Medium Enterprises through (i) diagnosis of their commercial, technical and financial strengths and weaknesses, (ii) production of business plans and an assistance to their implementation, (iii) making economic, commercial and technical information available to the business community, and finally (iv) supporting the strengthening of employers organisations and professional associations. These actions directly targeting enterprises and the business community were complemented by projects that contributed to renovating vocational education systems and enlarging their capacities, and by projects that introduced the quality dimension into production processes and strengthened the institutions dealing with this issue.



Although it was initially a source of contention between the Tunisian government and the EC, the existence in Tunisia of a government policy for the up-grading of SMEs and of the instruments for its implementation created around this issue a momentum which favoured an effective implementation of the EC activities in support of private sector development. These conditions did not exist in the other MED countries where entrepreneurs and policy makers were much less aware of the challenge raised by the prospect of the Free Trade Area and where EC projects did not benefit from the leverage that could have provided their contribution to a national policy. Business Centres faced in their earlier years difficulties that can be related to shortcomings in their preparation. Institutional, economic, social or cultural constraints facing project implementation were insufficiently assessed or even ignored. Assumptions and risks that are critical to the successful implementation of the projects were mentioned, but the optimistic view tended to prevail that conditions would evolve for the best and that if the risks materialised their consequences would remain limited. The development of private enterprises and the improvement of their competitiveness implies a large variety of interventions tackling such issues as the strengthening of the institutional environment, the enhancement of management skills, renovation of the vocational education system, enhancement of product quality and the development of the institutions in charge of standards and norms, strengthening of professional organisations, etc. These activities must be developed simultaneously since any remaining obstacle to competitiveness may prevent enterprises from reaping the full benefit of progress achieved on other issues. Furthermore close coordination between these activities creates synergies that enhance their effectiveness.

During the period under scrutiny the various EC activities targeting private sector development were frequently addressed through separate projects, although some Business Centres developed a large variety of activities. Coordination and the development of synergies between separate but complementing projects were deficient for two main reasons: the Terms of Reference of the projects were developed separately, thus disregarding the necessity for these projects to ensure complementarity between their activities; and the implementation time schedules of these various projects were frequently uncoordinated.

Access to external financing sources is a condition crucial to complete success of the activities supporting the development of SMEs. This issue was addressed through various interventions ranging from technical assistance to the central bank and to commercial banks to the provision of credit guarantee lines and of resources to risk capital companies. None of these attempts to solve the problem delivered fully satisfactory results.

The experience of Tunisia suggests that involving the commercial banks in the process of enterprise up-grading is part of the solution. At the same time, the mixed results of the credit guarantee line made available to commercial banks in Morocco, whose utilisation was slow, suggest that mitigating the risks incurred by banks when granting credits to SMEs may not be sufficient if not accompanied by actions aiming at developing the banks capacity to analyse business plans and assess risks. Finally, the opportunities for commercial banks to invest their liquidities in public bonds may also deter them from more risky operations.



These observations tell in favour of a more comprehensive approach to the financing of enterprise development than was the case during the period under examination.

Trade facilitation

Trade facilitation, and more generally the development of international economic relations, was mainly addressed by regional projects. While these were quite effective, they remained disconnected from bilateral activities.

Regional programmes organised meetings that brought together thousands of enterprises of the MED region and established networks between business associations, thus supporting the development of external economic relations between MED countries and between these countries and the EU.

But evaluators noted that Delegations were poorly informed of regional projects and did not give much attention to these projects insofar as they are not involved in their management. As a consequence, Delegations neither promoted these projects nor favoured the development of complementarities between regional projects and the bilateral projects in support of private sector development.

7.3 Efficiency

Management of the EC economic cooperation with MED countries revealed serious weaknesses that are related to the distribution of responsibilities between several entities, to insufficient follow-up of projects, and in “decentralised” countries to the superimposition of two distinct sets of procedures, national and EC.

If the effectiveness of EC economic co-operation with MED countries deserves an overall positive assessment, this is not the case of its efficiency.

As pointed out in chapter 4, § 4.5, implementation of the programme suffered from serious management problems which resulted in a delayed start of most of the projects, additional delays intervening during the implementation of the projects, interruptions in the delivery of services and the employment of staff, projects facing difficulties that were not addressed in timely fashion.

The heaviness of EC procedures is frequently cited as the main cause of these management problems. However there is no evidence that EC procedures are more cumbersome than those of other donors. A more likely explanation of these inefficiencies lies in the distribution of management responsibilities between several entities (Delegations, MEDA teams, EC headquarters), the ultimate decision capacity being entrusted to EC headquarters which does not have direct contact with the projects.

For various reasons ranging from a lack of commitment to reform of the beneficiary institutions to changes in the project institutional environment, the implementation of projects may face difficulties that put at risk the achievement of their objectives. Evaluators came across such situations in Egypt (support to the Central Bank), in Morocco (support to privatisations), and in Tunisia (support to privatisations, support to CEJJ). However no action had been taken to find a solution to these difficulties and the projects continued up to their planned end or up to the termination date of the financing agreement.



In “decentralised” countries, national and EC procedures compound one another with the result that the decision process is further slowed down. Furthermore, beneficiary governments are requested to comply with EC management procedures, which generally differ from their own.

7.4 Impact and sustainability

The outcomes of EC economic cooperation are likely to be durable. However sustainability would have been better secured if more had been done to develop in MED countries both a market for consultancy services and a local capacity for supplying such services.

It is too early to try assess the impact of economic cooperation activities which in most cases only started at the end of the 90s. Progress registered in the second half of the decade by indicators reflecting the macroeconomic policies or the adequacy of the institutional environment to the development of the private sector can more likely be attributed to earlier interventions of the EC and of other donors. And other indicators, notably those relative to economic growth, trade development or foreign investments, show that MED countries still suffer from serious deficiencies.

One has nevertheless solid reasons to expect the impact of EC economic cooperation to be real and durable. Improvements that have been brought to the institutional environment and to the management of public services are likely to be irreversible since they are steps in an overall process of reform that is taking place, although at an uneven pace, in all MED countries. Enhancing the management skills of entrepreneurs; contributing to an up-grading of enterprises; renovating and developing the vocational education system; raising entrepreneurial awareness of the importance of quality, developing the institutions in charge of defining standards and norms and of controlling their application; and strengthening professional organisations; are all by nature activities that should durably enhance the competitiveness of MED economies.

A large number of local consultants were involved in the various tasks entailed by the implementation of technical assistance projects, notably as short term experts for the diagnosis of enterprises, design of business plans, assessment of qualification needs of enterprises, and assistance to enterprises for the implementation of ISO procedures. This resulted in a transfer of knowledge and know-how from European consultancy companies to local experts. More could have however been done to develop a market for consultancy services in MED countries and to support the development in these countries of a structured supply of consultancy services. While the networks created by regional projects to bring together enterprises and business organisations of the MED regions are closely dependent on a continuation of EC financial support, the contacts that have already been established through these networks are likely to deliver positive results over the coming years.



8. Recommendations

The Barcelona Declaration defines the policy objectives that are jointly pursued by the EC and its MED partners. This policy should be reflected on the EC side, as well as on the side of MED countries, in the design of strategies, that themselves give rise to programmes, which are eventually implemented. Recommendations will be presented in relation to these different levels. These recommendations refer to weaknesses of the EC economic cooperation with MED Partner Countries as it was implemented from 1995 to 2001 through projects financed under the 4th Protocol or under MEDA I. But the European Commission has already adopted for the implementation of MEDA II new measures which address many of these weaknesses. In such cases, these new measures will be presented together with the recommendation.

8.1 Strategic level

8.1.1 Design at the country level an explicit and regularly up-dated strategy for the achievement of MEDA cooperation objectives, notably in the field of economic cooperation

As noted in the conclusions, the European Commission implemented MEDA I programmes without having formally defined its strategy at the country level. This gap has been filled under MEDA II through the design, under the sole responsibility of the EC, of Country Strategy Papers covering the 2002-2006 period. These papers analyse the current situation in each MED country, identify obstacles of all types that have to be overcome to achieve the common goals of the Barcelona process, notably in the field of economic and social development, indicate which cooperation activities are or should be carried out by other donors, and list accordingly the priority objectives targeted by the EC cooperation. This provides the background against which the EC, in agreement with the partner government rather than under its sole responsibility, can design a programme of action (National Indicative Programme) which targets the most serious problems hampering the achievement of Barcelona goals while complementing or reinforcing other donors’ activities. This positive development should further improve the relevance of EC economic co-operation interventions. Since the situation in MED countries may undergo significant changes in a relatively short period of time, Country Strategies are submitted for mid-term reviews, which can lead to modifications of the National Indicative Programmes.



8.1.2 Assist partner countries at designing their own strategies and programmes

Except for Tunisia, and very recently Morocco as regards SME development, MED countries, including those in which Association Agreements have entered into force, have not so far designed comprehensive strategies and programmes indicating which measures and actions they intend to implement in order to meet their commitments under the Barcelona process. Most of them do not even have a clear assessment of the likely economic and social impact of the gradual integration of their country into a Free Trade Area. Through the implementation of the unified European market, then the creation of the Euro, and now the enlargement process, the EU has gained a rich experience in the management of large policy programmes at regional level. Transferring this experience to MED countries would be useful for creating conditions favourable to the success of the Barcelona process. As regards economic cooperation, this would imply assisting the partner governments in (i) assessing the likely economic and social impact of the Barcelona process, and in particular of the gradual establishment of the Free Trade Area; (ii) identifying the main weaknesses to tackle during the transition period; (iii) designing on this basis the strategies and programmes that should be implemented to reap the best possible advantages of the Barcelona process and to minimise economic and social risks; (iv) raising the awareness of all interested parties, notably administrations, entrepreneurs and professional organisations on the magnitude of the challenge. In this respect it is worth noting that the EC approach to private sector development has undergone an important change between MEDA I and MEDA II. Under MEDA I Business Centres were developed independently of government institutions. Nowadays, the EC is encouraging governments of the MED partner countries to design their own policies and programmes for the development of SMEs and to create implementation agencies, EC projects being then conceived as a contribution to the implementation of these national policies.

8.2 Programming level

While the projects implemented during the years 1995-2001, except those aimed at inducing changes in the institutional environment, were reasonably effective, the effectiveness of EC interventions could be further enhanced through a closer integration between instruments and interventions. This implies in particular: Coordinating SAFs and technical assistance projects, Creating synergies between technical assistance projects, Establishing links between bilateral projects and regional projects, Develop complementarities between MEDA and EIB interventions.



8.2.1 Coordinate SAFs and technical assistance

Coordinating SAFs and technical assistance projects dealing with the institutional environment would enhance the effectiveness of both instruments. The EC underlines that there is a risk in linking SAFs and technical assistance because beneficiary countries could cite delays or weaknesses in the technical assistance to escape the commitments to reform they have taken on under SAFs. Furthermore there is a practical difficulty in adjusting the implementation time schedules of both types of intervention. Nevertheless, CSPs and NIPs, insofar as they identify the main obstacles to the achievement of the Barcelona goals and provide a medium-term timeframe for EC interventions, should make possible planning and implementation of technical assistance projects for preparing reforms whose implementation could then be supported by a SAF. This, at the same time, would give more weight to the EC when discussing with the Bretton-Woods institutions the conditionalities attached to SAFs.

8.2.2 Create synergies between technical assistance projects

Complementary projects, notably the various interventions in support of private sector development, should be closely coordinated. Industrial Modernisation Programmes offer a solution to this problem insofar as they encompass in one single project many activities developed under MEDA I through separate projects. But they run the risk of very large projects being extremely difficult to manage. In any case, the need for coordination will remain with those projects undertaken outside IMPs. Stronger synergies between complementing projects could be achieved through the following measures: The NIPs should explicitly mention the synergies expected between separate but

complementary projects; These synergies should be taken into account in the ToRs of these projects and the

bidders requested to indicate how they would address this issue; Attention should be given to coordinating the implementation schedule of these

projects; Delegations should, as part of their project follow-up, make sure that project teams

actually coordinate their activities and take the necessary steps to ensure this coordination.

8.2.3 Link bilateral and regional projects

Regional projects should be integrated into the design and implementation of the EC strategy at country level.



At the programming stage Delegations should be invited to indicate in the NIPs the contributions they expect from regional projects to the achievement of the programme objectives. At the implementation stage, Delegations should be regularly and fully informed of the activities implemented by regional programmes, and should be requested: To promote these activities directly and to make sure that they are fully utilised by the

projects which these activities may complement; and To ensure a follow-up of these activities in the given country.

8.2.4 Develop complementarities with EIB lending activities

Improvements in the provision of public services frequently require an enhancement of the management capacity of the institutions in charge of delivering these services as well as infrastructure investments. Through technical assistance projects financed from the MEDA budget line and EIB loans, European institutions have the capacity to provide both. Such potential complementarities between TA projects and EIB loans should be taken into consideration from the start of preparation of the national programme.

8.2.5 Adopt a comprehensive approach to the financing of SMEs

Improving access of SMEs to credit is a key element in the development of the private sector in MED partner countries. This implies coordinated interventions at various levels: Reform of the financial system, starting in some cases with the central bank; Technical assistance to commercial banks in particular as regards credit risk analysis

and the development of innovative financing instruments; Involvement of banks in the enterprise up-grading process, notably at the stages of

diagnosis and business plan design; Support to the development of risk capital institutions; Provision of financial resources (risk capital, credit guarantee fund).

In MED countries where reforms of the financial system as a whole is a precondition for more active involvement of banks in the financing of the private sector, the related projects should be scheduled accordingly. Industrial Modernisation Programmes aim to combine activities directed towards the up-grading of SMEs with the provision to commercial banks of a credit guarantee line. This is a step in the right direction provided these two components are implemented in close connection and, in particular, if commercial banks are involved from the diagnosis stage in the up-grading of enterprises.



Still more important is the creation of the Facility for Euro-Mediterranean Investment and Partnership (FEMIP), a new EIB instrument whose top priority is the financing of private sector development in MED partner countries. This new instrument is intended to (i) increase the provision of long term credit either through direct credit to firms and/or by offering long term resources to banks for on-lending; (ii) promote new products or arrangements with the aim of relaxing access to long term credit, such as financial leases and guarantee funds; (iii) develop new or little used financial products for equity and quasi equity financing and the institutions which provide these products; (iv) provide technical assistance to the banking sector in particular to improve use of credit risk management and improve prospects for lending to SMEs. Under FEMIP, the European Bank plans to inject Euro 8 to 10 billion into the MED partner countries, of which over 7 billion will come from its own resources as well as some Euro 100 million in technical assistance financed by the EC.

8.2.6 Devote more attention to the enhancement of trade and external economic relations

Progress in the development of MED countries trade and external economic relations is of the utmost importance for making the MED region an area of shared prosperity. Greater attention should be devoted to this issue than was the case under MEDA I. In particular, there is much room for technical assistance projects in support of the implementation of the WTO agreement and more generally for removing the obstacles hampering access of MED products to the markets of the EU and of other developing countries. This need has been taken into consideration in MEDA II since several NIPs for the period 2002-2004 have retained trade enhancement as one of their main objectives.

8.3 Implementation level

8.3.1 Devote more resources to the preparation of the projects

To avoid such problems as those met by the Business Centres in their initial phase, more time and resources should be devoted to the realisation of feasibility studies for TA projects. Budgets dedicated to such studies should be related to the expected budget for the whole project as is the case for investment projects. These studies, involving local expertise, should include a detailed analysis of the practical problems raised by the implementation of the project. They should investigate the factors that could put at risk the successful implementation of the project and point out which of these risks, should they materialise, would call into question the launching of the projects or imply a revision of its objectives and/or implementation modalities. Interviews with managers of on-going or recently completed projects with similar objectives in the same or a similar environment should be conducted, together with an exploration of the project files, so as to draw the lessons from previous experiences.



In this respect it is worth noting that efforts should be made to enhance the institutional memory of the EC. Since the turn-over of task managers is relatively high, much attention should be given to archiving in one place all documents related to a given project and to make access to these documents user-friendly. The CRIS data base, which should make possible retrieval of all electronic documents related to a given project, is a positive step forward which needs consolidation. Delegations, especially since they have been given wider responsibilities on the management of projects, could usefully be staffed with an information officer.

8.3.2 Support the development of local consultancy

EC interventions in support of the private sector aim at enhancing the competitiveness of enterprises, notably of SMEs, through the provision of consultancy services in such areas as financial management, market research, human resource management, quality improvement, etc. Further progress in these areas requires the development in MED countries of local consultancy capacities.

This implies that the services provided to enterprises by EC projects are charged, if not at their actual cost, at least at a price which is close to the cost of such services delivered by local experts. In addition to making the enterprises aware that consultancy services have a cost, thus creating a market for such services, invoicing these services would enhance their effectiveness since beneficiary enterprises would be keen to make the best usage of services for which they have incurred a cost.

This also implies that the European companies bidding for the framework contracts should be requested to propose the services of a consortium including local consultancy companies.

8.3.3 As regards institutional reform, closely link policy dialogue and project implementation

The effectiveness of TA projects addressing the institutional environment greatly depends on the commitment to reform of the beneficiary institutions.

Achieving the necessary commitment implies that such projects are backed by a continuous policy dialogue between the EC and representatives of the government at a high level on the issues targeted by the projects.

8.3.4 Ensure a close follow-up of the projects and intervene promptly when a project is facing problems

To be effective the implementation of projects requires a close follow-up and the timely adoption of remedial measures whenever difficulties arise.

As regards the inception phase, it is advisable that (1) the guidelines provided to the contractors for the drafting of the inception report request that they examine attentively how far the conditions assumed in the terms of reference of the project and in their own proposal are met, and make as far as needed proposals for changes in the project overall organisation, planned activities, implementation time table, expected outputs and staffing; and (2) that a working meeting involving all stakeholders of the project (EC, beneficiary,



team members, contractor, and, if relevant, representatives of the target groups) is held at the initiative of the EC Delegation to discuss this report and work out the measures that could be needed to ensure a successful implementation of the project.

During the completion phase, when monitoring reports or the progress reports of the project team suggest that a project is facing difficulties, the EC Delegation should take the initiative of calling together the stakeholders of the project for a thorough examination of the sources of these difficulties, and to prepare the most appropriate decisions. Decisions could include a premature termination of the project if it happens that the problems cannot be overcome.

Finally, when requested to take a decision, such as the signature of a rider for the replacement of experts or for a time extension of a project, the responsible EC entity should make all efforts to have this decision taken, or rejected, within the shorter possible time span.

From January 2002 MEDA teams have been dismantled and their tasks transferred to the Delegations, whose staff has consequently been enlarged. Furthermore the “deconcentration” process resulted in the main responsibility for the management of projects being devolved to the Delegations. Deconcentration is effective as of January 2002 in Egypt, Morocco and Tunisia, and as of January 2003 in Algeria, Jordan, Lebanon and Syria. These reforms, insofar as they bring the decision capacity closer to the projects and strengthen the ability of Delegations to ensure technical and financial follow-up of the projects, should contribute to more effective management of EC interventions.

8.3.5 Where conditions are met give full responsibility to local authorities on the management of projects

Structural Adjustment Facilities involve the transfer in several instalments of large amounts of money to the budget of the beneficiary countries where this money is utilised in compliance with the local procedures for the management of public resources. But as far as projects are concerned, management procedures have to be those of the EC, even in so-called “decentralised” countries, where the management responsibility for projects is theoretically devolved to the partner government.

An approach similar to the one adopted to SAFs could be applied in some MED countries for the management of projects. EC funded projects would be managed by the government in compliance with the procedures governing the management of public resources in the given country. In the case of large projects, the EC aid could be disbursed in several instalments contingent on the effective implementation {drafting/meaning unclear} of the various project phases in accordance with Terms of Reference agreed by both parties, and checked by a monitoring process. Following the completion of the project the government could be requested to produce a financial audit of the project carried out by the local Court of Auditors.

Such a devolution to beneficiary governments of the full responsibility for managing EC funded projects would be restricted to countries that meet certain conditions, notably a satisfactory accountability of their public finance, as attested by a Country Financial Accountability Assessment jointly carried out by the main donors including the EC.

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