beyondbrics

By Ranjit Lall and Robin Wigglesworth

Whether or not it heralds a new era for the country, last week’s ousting of Tunisia’s president Zein al-Abidine Ben Ali has made investors in the Arab world decidedly skittish.

Is there a real risk of unrest breaking out elsewhere in the region? Renaissance Capital thinks so. The Russian investment bank argues that, largely for demographic reasons, countries in North Africa and the Middle East are more susceptible to wars and revolutions than others.

Sociologists have long argued that countries facing a “youth bulge” – countries in which men aged 15-34 make up more than 15 per cent of the total population, by Renaissance Capital’s definition – face a particularly high risk of unrest.

Worryingly, every single country in North Africa and the Middle East appears to have a sizeable youth bulge. Tunisia’s is not even among the biggest: 17.2 per cent of the population are young men, whereas in most countries the figure is closer to 20 per cent. In Bahrain, Kuwait and Qatar it is around 25 per cent, and in the United Arab Emirates it is a dizzying 31 per cent.

Of course, much depends on other factors, such as whether economic growth is fast enough to generate enough new jobs for the young population. But the data do not inspire confidence.

The report also looks at the chances of Arab countries becoming democracies in 2011. In addition to the risk of unrest, two factors are particularly important in this calculation.

The first is income levels. Research suggests that as income rises, the chance of autocracy being replaced by democracy increases:

The chance of an autocracy becoming a democracy each year…is around one to two per cent at 2009 PPP income of $2,000 to $8,000, but rises to a more probably four to five per cent at a 2009 PPP income of $8,000 to $12,000 if incomes are growing; if incomes are shrinking it can be a more dramatic six to eleven per cent risk each year.

The second factor is energy. Net energy exporters, since they receive large fiscal revenues, tend not to tax their citizens. They are subsequently subject to few demands for direct political representation.

Indeed, only three of the largest 20 net oil exporters in 2008 were democracies. Unsurprisingly, this list is dominated by countries from the Middle East and North Africa. Four of the top five are from the region: Saudi Arabia is in first place, with the UAE in third, Iran in fourth and Kuwait in fifth.

Taking all these factors into account, Renaissance Capital estimates that Iran is the country in the region with the greatest chance of becoming a democracy (5 per cent). Given the demonstrations that followed the country’s bitterly contested presidential election in 2009, this is not altogether implausible.

Tunisia, Egypt and Algeria – thanks to their relatively high per capita income levels – follow closely behind. Sudan, Syria, Yemen, Iraq and Morocco have a mere 2 per cent chance of becoming demoracies in 2011. In energy heavyweights such as Saudi Arabia and UAE, the probability is virtually zero.

None of which will make investors sigh with relief. But with no country facing more than a 5 per cent chance of regime change this year, few will be holding their breath for another “Jasmine revolution”.