Middle East still in turmoil as economic benefits stall

Two years after protests erupted, the process of reform in the Middle East is only just beginning. Published in MEED, 3 January 2013

On 23 December, an unusual sale began at the Cleopatra exhibition hall in Gammarth, north of Tunis. Among the goods on offer were 22 high-end cars including an Aston Martin, a Ferrari and several Porsches, along with 300 pieces of jewellery and some 12,000 other items ranging from works of art to clothing, carpets and furniture.

Until two years ago, this collection of luxury goods was owned by former Tunisian president, Zine el-Abidine Ben Ali and members of his family. The sale, organised by the Finance Ministry, is expected to raise about TD20m ($12.9m) for much-needed investment in more prosaic means of transport such as school buses.

The sale is due to last a month and many of the buyers are expected to come from overseas. Even if they cannot afford to buy anything, Tunisians can pay TD30 to gain entry to the hall to view what has been confiscated.

Slow progress

The symbolic importance of redistributing some of the wealth of the former ruling family is significant for a country trying to rebuild itself, but the reality is that the proceeds of this sale will provide just a fraction of what Tunisia needs. There is much more to be done before the pro-democracy movement can be judged an unalloyed success, whether in Tunisia or elsewhere.

Among the main countries where protest movements have broken out, there have been welcome improvements in government accountability over recent years, as measured by the World Bank’s Worldwide Governance Indicators, but the rule of law has weakened and corruption has strengthened. While many will hope that things improve more quickly in the future, there is also a feeling that patience will be needed.

“People who are on the ground in Tripoli are trying to get things moving, but [looking] from the outside, I think there’s a degree of realism that nothing will move immediately,” says one businessman about the situation in Libya.

One particular area of concern is the high level of unemployment, especially among young people. According to the Washington-based IMF, youth unemployment ranges from 18-30 per cent in Egypt, Jordan, Morocco, and Tunisia. The lack of job prospects was one of the critical elements that motivated people to take to the streets and no government has yet come up with a convincing policy to deal with the issue.

Tackling the problem will need strong economic growth, but the IMF expects gross domestic product (GDP) to rise by just 3.25 per cent for the region’s oil importers this year. That is partly due to external factors, including the anaemic economic state of key export markets such as Europe and high prices for fuel and commodities. But domestic issues also play a part, such as a lack of clarity about legal reforms and uncertainty over investment plans.

The area where the greatest gains have been made following the Arab protests is the political arena, although the permanence of the changes is far from assured.

Political uncertainty

Following elections in October 2011, Moncef Marzouki was elected president of Tunisia and an interim government was formed under Prime Minister Hamadi Jebali. However, a new constitution has still not been agreed.

In Egypt, the army remains a key actor in the shadows of the political system, despite the election of President Mohamed Mursi in June 2012. The low turnout in the vote to approve the country’s new constitution in December, and the allegations of fraud that quickly followed, highlighted the difficulty Mursi faces in trying to convince all Egyptians that he can be trusted.

In Libya, the central government continues to have difficulties ensuring its influence extends throughout the country. In December, the government of Prime Minister Ali Zeidan declared the south a closed military zone in an effort to tackle the smuggling of people and weapons across its borders with Sudan, Chad and Niger.

Beyond North Africa, the picture is, if anything, even more mixed. Bahrain remains a divided country, with no sign that the rulers are prepared to compromise with the disaffected Shia majority. In November, the US-based Project on Middle East Democracy examined what progress the government had made since the Bahrain Independent Commission of Inquiry had set out 26 recommendations for change a year earlier. It found just three of the suggestions had been fully implemented.

To the south, Yemen’s new leader President Abdrabbu Mansour al-Hadi is struggling to cope with the opposition forces that helped unseat his predecessor, Ali Abdullah Saleh, namely Houthi rebels in the north, Al-Qaeda-linked Islamists in the south and southeast, as well as high unemployment and a stagnant economy.

In Syria, meanwhile, the violence continues unabated and more bloodshed is guaranteed. The potential for the conflict to spill over borders and ignite sectarian tensions is also something Syria’s neighbours are aware of. “There is no such thing as the bottom with these conflicts,” says one regional analyst. “When you think things are so bad they can’t get worse, they can get even worse.”

If the uprisings are to meet the aspirations of those who took to the streets and lead to permanent, positive change then the political upheaval will have to be matched by economic changes of a similar magnitude. The prospects of that happening remain in the balance, as David Lipton, first deputy managing director of the IMF, said in a speech at the London School of Economics on 13 November.

“The revolution in the region could take any one of three alternative paths, as far as the economic consequences are concerned; paths which one could call deterioration, restoration and transformation,” he said.

“We could see economic deterioration if squabbling over political power prevents stabilisation, let alone reform. We could see restoration achieved through a reassertion of vested business interests offering a respite from eroding economic conditions, but condemning the region to a return to economic stagnation or, at best, tepid growth. Or we could see a new economy emerge, as newly elected governments gradually find a way to end lingering economic disruptions and begin reforms to open the way to greater opportunities for their people … The third path, transformation, would be best.”

That sort of transformation will take years to bring about. In the shorter term, there is a clear need for economic assistance, either in the form of bilateral aid from other countries or multilateral loans from the IMF and other institutions. The London-based research firm Capital Economics suggests these two sources should provide enough support to stave off a balance of payments crisis in the region but, even so, oil-poor countries will continue to struggle.

Other regimes appear to have dodged the bullet including Kuwait and Jordan, where public protests have not led to a full-scale revolution, although the momentum for that to happen could yet build up. Those two countries have the advantage of a political system that contains some elements of democracy and that allows citizens to vent some of their anger. In the other Arab monarchies, such systems do not exist and the authorities are becoming more intolerant.

Stifling democracy

The UAE authorities, for example, arrested dozens of opponents during 2012 and over the past two years have forced several foreign think-tanks to shut their offices, including the Gulf Research Centre, the US’ Rand Corporation and Germany’s Konrad Adenauer Stiftung. Even in Qatar, the quietest of the GCC states, the poet Mohammad ibn al-Dheeb al-Ajami was given a life sentence on 29 November, for apparently criticising the Emir Sheikh Hamad bin Khalifa al-Thani in verse. In Saudi Arabia, meanwhile, there is continued low-level unrest in the Shia-dominated Eastern Province.

Clearly, the Arab protests have redrawn the diplomatic and political map of the entire region. Over the past two years, a more influential Turkey has emerged to the north, a less idiosyncratic Libya, a more nervous collection of Gulf states, and the potential for a rejuvenated Egypt. In tandem with all these changes, there is also more instability and less predictability.