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Dan Steinbock
Dan Steinbock
Dr Dan Steinbock is the Research Director of International Business at the India, China and America Institute.
Exaggerated hopes for Mideast prosperity?
Expectations of economic prosperity are rising faster than actual capacity, as prolonged turmoil plagues region.
Last Modified: 24 Mar 2011 15:26

The Arab world could seek inspiration from East Asia's high-growth economies [Reuters]

After three months of turmoil in North Africa and the Middle East, the future of the region remains fragile, as evidenced by US and European attacks against Colonel Muammar Gaddafi’s forces by air and sea in Libya, while the rebels were regrouping in Benghazi.

In one way or another, turmoil has spread to Algeria, Bahrain, Djibouti, Iran, Iraq, Jordan, Oman, Syria and Yemen, while minor incidents have occurred in Kuwait, Lebanon, Mauritania, Morocco, Saudi Arabia, Sudan and Western Sahara.

In West, the turmoil has been framed as a quest for (Western-style) democracy. But that is only a part of the story. If life has not changed in a substantial way in the next three-six months in the region, the turmoil that we have seen may only be a prelude to something more extensive.

In the aftermath of some political reforms, expectations have risen across the region. But a crisis of rising expectations is almost inevitable because, ultimately, it was decades of failure in economic development that led to these riots and demonstration.

Tunisia: Advances without equal opportunity

During his rule in Tunisia, President Zine El Abidine Ben Ali championed economic reforms that seemed to strengthen the economy and increase foreign investment. In two decades, Tunisia’s per capita GDP more than trippled to $3,786 in 2008.

The GDP annual growth averaged nearly 5 per cent, not least because of thriving trade relations with the European Union, a revitalised tourism industry and sustained agricultural production. Right before the riots, the Global Competitiveness Report ranked Tunisia first in Africa and 32nd globally out of 139 countries.

Despite substantial economic gains, the average figures concealed the extensive corruption, suppression, and high unemployment, especially among youth. Left out of the recent prosperity were many rural and urban poor, including small businesses.

At the end of the day, it was the combination of increasing economic polarisation and youth unemployment that sparked the deadly mass protests in December 2010-January 2011.

Egypt: Stagnation without equal opportunity

Along with Indonesia, Vietnam and the Philippines, Egypt – one of the pivotal economies of North Africa and the Middle East – has substantial potential to become an economic success story in the 21st century.

From 2004 to 2009, equity indices increased by around five times in India, and two times in China. Among the potential BRIC successors, the best-performing market by far was Egypt (a nine-fold increase).

In China, India and Indonesia, growth is in the air. Despite income gaps, opportunities, optimism and hope prevail in these Asian economies – but that was not the case in Egypt.

Despite great economic potential the gains of globalisation have largely bypassed Egypt. At $216bn (on a nominal basis) last year, Egypt’s total GDP was $1bn less than that of Singapore, a small city-state with a population of 5.1 million. In contrast, Egypt’s population amounts to more than 80 million.

In 1980, the Egyptians were on average almost 65 per cent more prosperous than the Chinese. Today, the Chinese are almost 20 per cent more prosperous than the Egyptians.

In recent years, economic conditions in Egypt have improved after a period of stagnation, a result of the government’s adoption of more liberal economic policies. Despite reforms, corruption has been an impediment to further growth and the new prosperity has not improved the daily lives of average Egyptians.

In particular, labor market rigidities – coupled with extensive education, low participation of women in the work force, and more than 3 million Egyptians working abroad – paved the way to the turmoil of Tahrir Square.

Libya: Wealth without equal opportunity

As the US and European allies target Colonel Gaddafi’s ground forces, the dramatic TV shots illustrate what Libya has become today – not what Libya could have been.

When oil reserves were discovered in Libya in 1959, much of the nation’s wealth was concentrated in the hands of King Idris. Even as resentment grew among Libyans, the conservative ruler relied on the West. Italians were running the country; the British were engineering several large projects while serving as the kingdom’s largest arms supplier; and Americans maintained their large Wheelus Air Base.

With the rise of Arab nationalism through North Africa and the Middle East, a small group of military officers led by then 27-year-old army officer Gaddafi staged a coup d’etat against King Idris, on September 1, 1969.
By the 1990s, Gaddafi sought rapprochement with Washington and Brussels. However, it was the 9/11 terrorist attacks in the United States and the looming war in Iraq that paved the way to the reestablishment of US diplomatic relations with Libya in 2003-4.

Washington initiated a dialogue with Libya on economic reform and privatisation during the visit by Assistant Secretary of Commerce William Lash in June 2004. Although popular in the West, economic reforms sparked increasing anger in Libya, while nepotism only magnified the popular perception that the privatization of the public assets took place at the expense of – the public.

To the World Bank, Libya remains an “upper-middle income economy.” However, unemployment, particularly youth unemployment, is more than 20 per cent.

In 1980, Gaddafi’s Libya was one of the wealthiest countries in the world; its GDP per capita ($11,700) was only $500 less than in the US. but higher than in Germany, UK, and Italy. Last year, US GDP per capita amounted to $47,100, while that of Libya was barely $12,100.

Despite (or perhaps because of) immense oil riches, Libyan prosperity has stayed in place for three long decades.

What next?

In the Western liberal media, the recent turmoil in the region has been framed as the “Arab Spring”; that is, an Arabic version of the fall of the Berlin Wall. It is a projection of Western hopes. Unlike two decades ago, the demonstrators are not torn between capitalism in the West and socialism in the East. Certainly, they demand a greater political voice, but most of all they fight for jobs, dignity and prosperity.

In the Western conservative media, the recent turmoil has been seen as a tipping point, which only serves to shift political power to “Islamic extremists.” This projection may have more to do with the West’s fears over the Arab world than the realities on the ground.

In North Africa and the Middle East, expectations may now be rising faster than institutional capabilities to deliver gains of economic globalisation.

Ironically, in many countries across North Africa and the Middle East, the flawed introduction of Western-style economic reforms during the past decade or two has contributed to problems, as evidenced by the fate of Tunisia, Egypt, and Libya.

If, in the course of the impending transition, the region can find a way to participate in the benefits of globalisation, it will stand at the edge of inclusive economic growth - a new period of modernisation and opening up.

In the future, the Arab world may also prove more likely to seek inspiration in the East Asia’s high-growth economies.

Dr. Dan Steinbock is the Research Director of International Business at the India, China and America Institute (USA) and Visiting Fellow at Shanghai Institutes for International Studies (China).

The views expressed in this article are the author's own and do not necessarily reflect Al Jazeera's editorial policy.

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Al Jazeera
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