The revolutions across the Arab world have been political blood sport. And we, the spectators, are consumed by the contest. But as the fight staggers into interminable rounds is our eye on the right fight?
The politics, and the military campaign in the case of Libya, appear to be grinding to a desert stalemate. In Egypt and Tunisia, interim governments are slowing the pace of democratic transition. In Syria and Yemen, internal conflicts swell, as brave civilians take to the streets, but there is little outsiders can do, it seems, to influence the outcome. We impotently watch Syrian protesters being attacked. In Bahrain the government seems to be back on top. As an Arab friend put it, this is becoming less spring and more the other three seasons.
But there is a further dimension – arguably a crucial variable in this – which is dryer stuff and so less noticed: economics. Soberer, perhaps, but it may have more to do with who ends up in the winners’ circle. For economics may change the final outcomes in each of these countries.
In Libya, there is a real issue of who runs out of money first. While Nato is hammering away at targets in Tripoli it has still not found a way to pay the rebels’ bills. These now run at about $300m a month, once Muammer Gaddafi’s subsidies, which they dare not dismantle, are added in. There is an air of desperation in Benghazi as the rebels watch their western patrons slowly try to free up tens of billions of dollars from frozen Libyan assets. Nato has bombed Col Gaddafi’s oilfields, creating a level playing field of sorts, given the rebels can no longer afford to import petrol. So the conflict in oil-rich Libya may now turn on who runs out of fuel first.
In Tunisia and Egypt, the reforms both countries need most – aggressive disposals of state enterprises, economic liberalisation and the inflow of foreign investment – have all been discredited. The old regimes used these policies to push growth, but at a high political and social cost. With wealth and power so unevenly distributed, they turned into an ugly wealth grab for the regime’s cronies. Now, when they are needed most, they are distrusted.
Efforts have been made to get the World Bank and the European Bank for Reconstruction and Development involved. But the first is compromised by its involvement with the earlier reforms. The second, which has an impressive record of reform in eastern Europe, is considered just too European by a sceptical, nationalist population.
Yet elsewhere the economic noose may bring better news. The UN Security Council could not bring itself to condemn, let alone sanction, Syria. But the regime is running out of money, and will need loans if it is to survive. Lenders may be harder to placate than diplomats. By any standard the regime is now a credit risk and is unlikely to find affordable international funds. Certainly there will be no international rescue package, so money may speak where diplomacy fudged it.
International policymakers should be asking if these economic realities can be pulled together into a new and coherent strategy for change. As countries such as Egypt and Tunisia emerge from the political shadows, imaginative offerings of transition finance, incentives for foreign investment, trade access and, above all, a social safety net, might still empower the bold reform it will take to create jobs and growth.
Any democratic experiment needs these to survive. The funds – and they can be loans in many cases, due to the innate wealth of Arab countries – should be concentrated on those countries that are turning the corner, rather than subsidising the survival of regimes in countries such as Yemen and Syria. Too often, the international bureaucrats managing these programmes believe they can buy change but instead end up subsidising a failed status quo.
With Europe in the midst of its own financial crisis, there will be little tolerance for aid hand-outs. Even so, this is a moment for bold investment in Arab success. As the politics and security situation become bogged down, economics remains the best agent of change. Let us put our money, or at least our loans, behind real change.
The writer is chairman for Europe, Middle East and Africa at FTI Consulting, and former UN deputy secretary-general.
Institutional change is needed for investments to have a real impact
Inclusive economic growth is a necessity for the Middle East and north Africa. Mark Malloch-Brown rightly highlights the vital role of economics, although his conclusion that we should put, “our money, or at least our loans, behind real change in the region” is only part of the answer.
The biggest challenge in proposing economic policies for the region is that one size does not fit all. Not only are there wide economic differences, but the combination of social, political and religious issues means the solutions are complex. There is no easy or quick answer. Moreover, it is no use outside countries offering help unless local populations want it or need it. Ideally change must come from within.
Given all this, what region-wide agendas should be pushed?
First, policy needs to be geared to diversifying local economies. There are growing young populations. Without jobs this demographic dividend becomes a disaster. Youth unemployment is already the biggest regional problem.
Diversification means boosting the service sector. Even the energy rich nations need to recognise that their capital intensive nature does not provide much needed jobs. They must diversify too. This is already happening in some countries.
Diversification also means encouraging the private sector. The old economic model where the public sector was expected to provide graduate employment no longer holds.
Second is the need for institutional change. Here the best help multilateral organisations can offer is technical assistance and cooperation.
More money may help, but can create problems if not part of wider reform. Take even the cash rich Gulf countries. They have pumped huge sums into their economies. That is good, but now the break-even price of oil to achieve balance on their domestic budgets is sky high. Even they can only pump money in for so long.
For others, more money, in the absence of political reform, might be destabilising. Across Africa, for example, pumping money into national economies was mostly wasted because of weak governance, corruption and political instability. Thus institutional change is needed, not as an ultimate goal, but for any money spent to have a real impact.
Third, inclusive growth can only be achieved with a vibrant domestic economy. This requires other features to be put in place, including social safety nets, more women in the workforce, help for small- and medium-sized firms as they are key for job creation, and developing local financial markets to channel savings into investment.
All of these take time, suggesting the need for patience and to manage local expectations. Given the need to keep everyone on side, there is a case for economic plans with clear goals and measurable targets. Central to this is a stable tax, regulatory and policy environment for business and a social contract between government and the people. With these changes in place, good economics may become good politics.
The writer is chief economist at Standard Chartered Bank.