Political unrest, emerging Islamic State terrorism and uncertain macroeconomic growth across Algeria, Morocco and Tunisia could threaten Korea’s trade, business investment activities and higher-level diplomatic policy development in the region. Although Korea’s aggregated goods and services trade is currently estimated to be merely US$3.7 billion in export and about US$1.2 billion in imports, it is North Africa’s potential as a future market, rather than the trade amount today, that makes the region a strategic location for Korea. The importance of these countries also resides in their economic growth potential and maintaining market entry based in light of peer competition from China or Japan.
This study performs a deep horizon scan of Algeria, Morocco and Tunisia’s domestic political stability over the next three years. Within each country, we map and track the anticipated evolution of government support from domestic, regional and international stakeholders. We employ an agent based computational economics model called SENTURION to forecast likely political stability outcomes given current conditions, irregular regime change scenarios, macroeconomic shocks and varying political opposition scenarios. As strong linkages between political stability, economic growth and foreign direct investment have been found by both economists and political scientists, we then infer the subsequent potential impact on Korean trade and investment activities in each country and offer policy implications. Table below summarizes our horizon scan results and substantive policy implications for Korean investment, trade and business relations.
Algeria continues to strengthen its economy by further developing hydrocarbon resources, increased private sector development, and launching massive infrastructure improvement campaigns with economic diversification. As we expect a relatively stable political climate given our SENTURION horizon scans, this presents a strategic opportunity for Korea. We anticipate an increased demand for construction and manufacturing equipment, almost certainly to be accommodated by international trade partners, presenting Korea with lucrative opportunities. In this context, Korean trade, investment and business activities should continue current activities or even start a slow, yet steady and measured increase in infrastructure and plant export activities due to Algeria’s anticipated continued climate of stability. Even after Bouteflika’s government, Algerian political transition should be stable and this presents Korea a potential opportunity to outperform other peer competitors such as Japan and China in these sectors. Depending on Korean policy makers risk appetite, the investment could be direct, commensurately matched or secured with significant government subsidies or hedged through other bilateral and multilateral investment schemes.
Morocco’s medium-term economic outlook is favorable and structural risks are decreasing, particularly because of Morocco’s strong ties to the euro zone. Korea’s current export and investment portfolio in automotive and manufacturing sectors should continue to produce desired returns as our horizon scans indicate a robust and stable political climate under most anticipated scenarios. Korea can partner with other domestic industries and take advantage of Morocco’s long standing EFTA trade status. This can include Korean investment in further automotive and electronics manufacturing activities as well as labor intensive industries, such as textiles or machine assembly, or other intermediate good finishing industries in Morocco which can then subsequently be exported to Europe or other markets where Morocco enjoys a preferred trade status or existing export lines. In this context, Korean trade, investment and business activities should continue or can increase into different sectors given Morocco’s anticipated continued climate of stability. King Mohammed’s eventual departure will result in a smooth political transition and like Algeria, could also present Korea a potential opportunity to outperform peer competitors. The investment should be commensurately matched, secured with significant government subsidies or hedged through other bilateral and multilateral investment schemes depending on Korean policy makers risk appetite.
Since the overthrow of dictator Zine El Abidine Ben Ali, Tunisia has proven a relatively rare success story in the post-Arab Spring Middle East and North Africa. However, given prevailing underlying structural macroeconomic risks that include a dispersed population and sporadic GDP growth coupled with high unemployment, Tunisia remains at high risk for domestic political instability and conflict based on our assessments. We caution against increasing investment flows outside of apparels and textiles without strong guarantees due to the expected deteriorating political environment and poor macroeconomic performance. In the event of an irregular leadership change, we anticipate a fierce competition for governance with no clear winner as the heir apparent today. Moreover, we find that Tunisia is fragile and not resilient to domestic political or economic shocks. Any sustained or continued investment in Tunisia should be highly hedged through other bilateral and multilateral pooled investment schemes to reduce direct risk to Korean investment.