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Arab Spring, Economy

On the need for an Economic Spring in the Arab world

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Virtually every specialist agrees on the fact that it may be too soon to assess the political impact of the so called “Arab Spring”. But for the economy, the current downturn affecting the “revolutionary” states sounds like a bad omen. Very few seem to believe that the political upheavals are a good thing for the economy.

Professor Georges Corm, former Lebanese finance minister and well renowned specialist of the Arab world (I highly recommend his Le Proche-Orient éclaté which is a Bible for anyone wanting to understand the evolution of the Arab world during these last 50 years) recently wrote a report for Al Jazeera Center for Studies regarding the Arab economic situation. (Arabic speakers will be able to go through it, there are some interesting figures and thoughts on sovereign debt restructuring and bond products)

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Mr Corm argues that the Arab economic landscape is divided between two camps:

– The Gulf Cooperation Countries (Kuwaït, KSA, UAE, Bahrain and Oman) who succeeded in overcoming the 2009-2010 Dubai real-estate crisis but also the effects of the Bahraini crisis (February-May 2011) and are still showing solid growth figures and attracting FDI flows (in part because of the instability in other Arab countries). These countries, benefiting from the high oil prices have accumulated large foreign currency reserves. In a world plagued by a terrible credit crunch and, as illustrated by the integration of Saudi Arabia in the G20 and the high profile investments of Qatar in various European countries, the Gulf region seems to be increasingly seen as a rising powerhouse.

– The other Arab states with countries that have experienced regime change (Tunisia, Egypt, Yemen and Libya), countries that are engulfed in civil war (Syria), states that have had protest movements (Morocco and Jordan), oil exporting countries (Iraq and Algeria) and weak Sahel entities (Mauritania, Sudan and Somalia). The common point between all these countries is that prior to the Arab spring they were showing signs of economic slowdown and that the Arab Spring coupled with the global recession have in a way quickened their decline. Of course situations vary. The economies of Syria, Tunisia, Egypt, Yemen and Libya are directly impacted by political instability. The Lebanese economy is taking a direct hit from the Syrian situation and the subsequent bad touristic season. And Morocco is beginning to feel the consequences of Europe’s crisis and the drying up of investments.

This deep polarization within the Arab economic arena brings naturally to our minds this simple idea: what about sharing and co-development? Indeed, as Europe is embedded in its own problems, the Gulf States may have here a historic opportunity to play a leading role in the region and to assert their new found leadership. By investing in Mediterranean countries they would help them overcome their cash issues and rekindle their economic growth. But this is far from being the adequate solution. As everyone knows, economic aid is only too often the projection of political ambitions and there are already voices in Egypt, Tunisia or Libya who reject the calculating helping hands coming from the Qatari or Saudi brothers. One way of lessening the “political taste” of any economic aid would be to use consensual pan-Arab institutions. This idea is quite appealing as it would strengthen the economic integration and the cohesion of the Arab region through the empowering of long forgotten and unused organisations. Indeed who is aware of the existence for instance of the Arab Fund for Economic & Social Development. Based in Kuwait and founded in 1967 by the members of the Arab League at that time, the fund is supposed to “fund economic and social development by financing public and private investment projects and providing grants and expertise”. Simply put it is a regional IMF. Other institutions like the Islamic Development Bank could also help in channelling economic aid and funding sustainable projects across the region.This is in my opinion the first step of an Economic spring in the Arab world: an improvement of the regional cohesion.

But it is very important for any pan-Arab development institution to avoid mimicking old recipes and old experiences. Let’s remember that Arab countries are no strangers to the 1980s-1990s IMF neo liberal doctrine. As the Guardian’s Heather Stewart puts it:

The IMF and World Bank have been working in both Egypt and Tunisia for some time, but some analysts argue that their development model of opening up to foreign investment, cutting back food and fuel subsidies and focusing on exports instead of building sustainable domestic markets actually helped to create the inequality and concentration of power that eventually sparked the uprisings.

The key issue here is the development of sustainable domestic markets to allow Arab economies to function on their own. And this would be the second step of an Economic spring: the creation of mature and autonomous economies. George Corm doesn’t tackle this particular subject but one necessary structural reform to bring the Arab economies to this stage would be to create a solid SME network. The World Bank seems to have understood this when it decided to strengthen its microfinance program in the region…

The worrying thing is that the conservative islamist governments that took over the former authoritarian regimes appears to be miles away from such preoccupations. Indeed, lacking any strategic vision, they seem to have totally embraced the same economic policies that provoked the fall of their predecessors. Only this time, in a region that has never been so volatile, the stakes are higher…

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