Chapter 1

Transition challenges in the SEMED region

This section attempts to position the SEMED countries on the transition spectrum, based on the same criteria used for the other countries covered in this Report.

The economic histories of the former communist countries of eastern Europe and Central Asia and those in the SEMED region have common elements, including a decades-long experience of centralised state control (beginning in the 1950s in the SEMED case) followed by a progression to market-oriented reform. However, there are also significant differences. Reforms started a decade earlier in the SEMED countries, but were more gradual and remain incomplete. Another distinguishing SEMED feature has been the preponderance of young people in the population (unlike in post-communist eastern Europe), putting pressure on labour markets and creating alarming levels of youth unemployment, especially among the educated. In addition, the SEMED region continues to score worse than eastern European countries on most social indicators, including literacy and education.

The rest of this chapter outlines the reform histories of the SEMED countries and then considers their current structural and institutional development, including at the sector level. The analysis indicates that the region is in “mid-transition”, defined as ahead of most Central Asian countries but behind most in central and eastern Europe, and on a rough par with the Caucasus countries, Kazakhstan and Ukraine. Trade and capital flows in the SEMED region have been largely liberalised, and large parts of the economy are in private hands, albeit with important exceptions. However, subsidies for basic foods and fuels tend to be more pervasive, distorting markets and placing heavy burdens on state budgets. At the sector level, power and energy stand out as the least reformed areas.