Regional Integration in the Union for the Mediterranean 2025

Executive summary

In the year that marks the 30^th anniversary of the Barcelona Process promoting Euro-Mediterranean partnership, Regional Integration in the Union for the Mediterranean 2025 offers findings and insights on the state of integration in the region and recommendations for actionable policies to advance toward shared objectives.

The analysis focuses on developments since 2021, when the first OECD report measuring the progress of integration in the Union for the Mediterranean (UfM) was completed. It shows that integration in the region constituted by the UfM advances but remains below potential across different economic dimensions, due to persistent challenges to the movement of goods, services, capital, people, and ideas. At the same time, this report observes the increasing integration of UfM members with countries in the broader Middle East and North Africa (MENA) region, where Gulf countries, in particular, have become major contributors to foreign direct investment in the UfM region. Indeed, the Union for the Mediterranean is home to more than 800 million people, representing over 10% of the world population in 2024; the history and strategic geographical position of the region make its role for connectivity and global trade, including trade of energy resources, critical.

The state of regional integration in 2025

Intra-regional trade in goods within the UfM has been growing, with evidence of a shift towards higher value-added trade and deepening regional value chains

The trade flows of the UfM region represent a significant share of the world’s economy, accounting by 2023 for 31% of global exports, valued at more than USD 7 trillion. Within the region, while the EU remains the dominant trade partner, trade integration among other UfM members, notably Türkiye, the Western Balkan and North African economies, has been deepening especially following the COVID-19 pandemic. This process is evident both for trade in goods and for the integration of UfM-origin value added into the exports of EU and other UfM economies, reflecting closer value chain links across the region that the pandemic may have reinforced. Also, there is a clear shift in trade composition towards higher value-added sectors, such as machinery and chemicals, alongside burgeoning growth in digital trade across the region. This trend is substantiated by the analysis of revealed comparative advantage from 1996 to 2023. Crucially, the analysis reveals a varied trajectory of industrial development at the economy level across the region. While some economies are successfully advancing - with Morocco gaining a competitive edge in high-tech sectors like aircraft parts and North Macedonia in chemical products - others have reinforced their specialisation in more traditional industries. This divergence highlights a more complex competitive landscape featuring varying levels of industrial dynamism within the UfM.

Still, trade agreements among UfM economies predominantly focus on goods, despite the increasing importance of services and digital commerce. Also, the difficulties that some non-EU UfM economies face in conforming to EU sustainability requirements for exports are a challenging issue, affecting the potential for economic diversification and further participation in regional value chains.

Key recommendations

• Develop new-generation trade agreements that encompass services, investment, digital trade, and regulatory co-operation, alongside efforts to modernise and enforce existing pacts. Further improving trade facilitation is crucial, requiring enhanced border co-operation - both internal and external, digitalisation, mutual recognition of standards, and increased transparency. Policies should promote economic diversification towards higher-value activities and support the development of regional value chains for both goods and services.

Financial development and integration within the UfM remain fragmented, reflecting economic, institutional, and geographical disparities

Financial sectors across the UfM region remain largely heterogeneous, reflecting differing levels of development and integration. A common feature, however, is the predominance of bank-based financing. Limited access to diversified financing sources and persistent financial constraints are particularly evident in the MENA and Western Balkans sub-regions, where capital markets remain relatively underdeveloped compared to the EU. Moreover, the regulatory environment in several UfM countries continues to hinder the development of financial markets, limiting cross-border investment and innovation in financial services.

Foreign direct investment (FDI) inflows have remained broadly resilient across the UfM region, with notable subregional differences over the period 2013-2023, averaging 2.9 % of GDP in MENA countries and 6.1 % in the Western Balkans. These disparities largely reflect persistent governance challenges, regulatory barriers and political instability that affect investors’ confidence, especially in the MENA region.

Remittances inflows, which now exceed FDI and official development assistance in several UfM economies, have become a vital source of external financing.

Key recommendations

• Governments should implement reforms to strengthen financial markets and institutions. Further reforms to address financial fragmentation and facilitate cross-border capital flows remain essential, alongside strengthened risk mitigation measures and an enhanced macroprudential policy framework.

• Promote broader financial sector diversification. Promotion of alternative financial instruments to complement bank financing, such as equity and corporate bond markets, is crucial to support private sector development.

• Reduce regulatory restrictions to improve investment frameworks. Easing restrictions on FDI, streamlining approval procedures, and removing barriers to foreign operators and operations could yield substantial benefits.

Challenges to the development of the connectivity infrastructure in the UfM persist, especially in the Southern shore, dampening the performance of logistic systems and affecting trade potential

The need for greater investment to improve the UfM’s connectivity infrastructure, already highlighted in the 2021 Report, remains a priority in particular in the MENA sub-region. Regulatory fragmentation, the complexity of coordinating cross-border projects, and difficulties in mobilising investment capital continue to constrain regional infrastructure development. The dominance of state actors and limited public-private partnerships, particularly in Southern Mediterranean countries, further inhibits private sector involvement and financing.

Southern Mediterranean countries, with a few exceptions, have been slow to develop new transport and energy infrastructure. Digital infrastructure has advanced, but in the Western Balkan and MENA economies, the expansion of broadband infrastructure is limited, also delaying the deployment of smart infrastructure in transport and energy systems.

Yet, improvements in the infrastructure would sustain better performing logistics systems that are key for trade growth and the development of regional supply chains. Also, surface freight transport in the UfM is still heavily dependent on road infrastructure. Developing multimodal transport networks, which integrate road, rail and maritime links, and improve connections with production centres, would help optimising routes and promote sustainability, lowering greenhouse gas. Indeed, UfM countries account for 13.4% of global transport emissions, reflecting a 40% increase since 1990, underscoring the urgent need to accelerate decarbonisation efforts in the transport sector.

Beyond transport, the green transition presents an opportunity for deeper regional integration of infrastructure. Projects such as ELMED and GREGY are paving the way for cross-Mediterranean energy exchange and are establishing MENA as a potential key contributor to Europe's clean energy transition.

Key recommendations

• Engage in regional co-operation platforms, e.g., the UfM Regional Platforms on Transport Connectivity and Energy; the Working Group on Trade and Investment of the MENA-OECD Competitiveness Programme and the new OECD Emerging Markets Forum to foster trust, coordination, collaboration as well as policy coherence of connectivity efforts, to align standards and planning across borders and strengthen the continuity of infrastructure networks and supply chains through collaborative frameworks.

• Advance infrastructure projects that support decarbonisation and improve energy efficiency. As electricity demand on both sides of the Mediterranean is projected to rise in the coming years, countries across the UfM should seek to support the development of renewable energy infrastructure, especially in the Southern Mediterranean, and the subregion’s integration into both local and regional energy grids. Adopting National Logistics Masterplans that incorporate multimodality and a holistic view of transport networks is essential for sustainable economic growth and regional integration.

• Enhancing broadband infrastructure across the Southern Mediterranean, expanding high-speed communication infrastructure nationally as well as regionally through projects such as the Medusa Submarine Cable, is crucial to strengthening connectivity between the Northern and Southern Mediterranean.

Mobility within the UfM region has continued to rise, bolstered by demographic pressures, labour market mismatches, and economic disparities

Intra-UfM migration has increased steadily over the past two decades, with flows recovering following the COVID-19 pandemic. In the Southern Mediterranean, a growing working-age population faces persistent youth unemployment and a misalignment between skills and labour market needs. EU initiatives such as Talent Partnerships are meant to facilitate the alignment of foreign skills development with domestic labour market requirements, to the benefit of all the countries involved. The initial implementation of these joint programmes in MENA countries is producing promising outcomes. Scaling up the number of beneficiaries could enhance the impacts on labour markets and the labour mobility management.

Overall, cross-border mobility continues to occur in a context of disparities in visa requirements by UfM countries. Political, social, and environmental challenges have increasingly shaped mobility dynamics across the region. Notably, even though tourism remains a significant contributor to GDP, particularly in non-EU UfM economies, over the period observed regional instability and conflicts have reduced the sector’s economic impact.

Key recommendations

• Enhance the management of labour migration by closely monitoring emigration flows and prioritising partnerships and agreements that support skills development and respond to the needs of both origin and destination countries.

• Governments should promote responsible tourism practices to optimise the use of natural resources, mitigate environmental impacts, and balance tourism growth with long-term sustainability.

Higher education and research are increasingly central to regional integration and international co-operation, yet their development remains significantly unbalanced across the UfM

While the European Union has established robust, well-funded frameworks that support cross-border co-operation, harmonised standards and institutional mobility, Southern Mediterranean countries continue to face structural and financial barriers to meaningful participation. These disparities reflect wider inequalities in levels of investment, infrastructure and institutional capacity, which in turn limit opportunities for co-operation and mutual development. Current patterns of mobility and partnership are largely asymmetrical, dominated by outflows from the South and shaped by EU programmes. Finally, gender dynamics in mobility present a mixed picture: female participation is increasing and sometimes exceeds that of men in certain contexts, but gaps remain, particularly in North Africa countries.

Key recommendations

• Enhance capacity for regional co-operation by increasing public funding for higher education and research, especially in Southern Mediterranean countries that spend relatively little in R&D and innovation, while also creating incentives for researchers, universities and businesses to participate in international funding programmes. MENA countries in particular should further invest in doctoral education and young academics to strengthen the research workforce, while also promoting women's careers in academia by improving working conditions and career advancement processes.

• Governments should promote opportunities for education and research mobility, as well as virtual exchanges and short-term mobility. Implementation by UfM members of the Global Convention on the Recognition of Qualifications in Higher Education will help improve qualification recognition and information sharing among UfM countries.