The May meeting of G8 leaders in France confirmed – at least on paper – industrialized countries’ determination not to let the gains of the Arab Spring founder for lack of funds. The so-called Deauville Declaration promised headline support of over $20 billion for reforming Middle East and North Africa (MENA) economies.
While the details of the pledges have yet to be clarified, the hope is that it will be money well spent. As Nobel laureate Joseph Stiglitz puts it: “Tunisia’s Jasmine Revolution alone has done more to advance the cause of democracy than any of the West’s military interventions in the Middle East.”
The G8’s ‘Declaration on the Arab Springs’ says the political shifts in MENA “are historic and have the potential to open the door to the kind of transformation that occurred in central and eastern Europe after the fall of the Berlin Wall”. Adding to the feel that the Arab Spring is a seminal moment to rival events in Europe after 1989, the European Bank for Reconstruction and Development (EBRD) has been called upon “to support the transition in countries of the region which embrace multiparty democracy, pluralism and market economies”.
The EBRD will join the IMF, World Bank, European Investment Bank, the African Development Bank and other development agencies in providing multilateral support for the Arab Spring. Gulf investors – including Saudi Arabia, Qatar and Kuwait – will also play an important role in providing state support and much-needed direct investment flows.
Egypt and Tunisia are for now the focal points for assistance, while Libya remains embroiled in war. Algerians and Moroccans have called for reform – and protests and strikes continue across both countries – but neither country has yet come under intolerable pressure.
Egypt’s former president Hosni Mubarak, confronted by huge crowds in Cairo’s Tahrir Square, buckled once his military chiefs decided enough was enough. In Tunisia, former president Zine El Abidine Ben Ali’s credibility ran out, and his authority crumbled quickly after.
But in Algeria and Morocco, the political establishments that dominate those two very different polities continue to stand behind Algerian president Abdelaziz Bouteflika and Morocco’s Mohammed VI, the king.
Divided by history, and with fragmented trading relations – levels of regional commerce remain depressingly low in North Africa – the MENA states are confronting an uncertain outlook after their predominantly youthful populations asked difficult questions about their past, present and future condition.
Adeel Malik, research fellow at the Oxford Centre for Islamic Studies (OCIS), says the Arab Spring happened at a time when “the cost of repression and redistribution was rising, and social media were becoming widespread. It all adds up to a generational struggle.”
Tunisia’s Jasmine Revolution and Egypt’s overthrow of Mubarak were not led by the established political parties or Islamist groups that had shaped the opposition in recent decades. Instead, autocrats in Tunisia, Egypt and Libya were challenged by what most analysts previously believed was a largely apolitical youth. Along with trade unions and other civil society elements that had been crushed by authoritarian leaders, this marginalized mass created an unprecedented challenge to the establishment.
This situation has yet to emerge in Algeria or Morocco – but analysts say it could if promised reforms fail to happen quickly.
SHORTFALLS
Now, hard-pressed administrations across the region must live with the economic consequences of political turmoil.
JPMorgan MENA research analyst Brahim Razgallah says that in Egypt, “the revolution led to a reshaping of the society creating new challenges and opportunities. Over the short term, however, social demands have increased the burden on the budget, which has forced the authorities to reconsider priorities, and labour strikes affected economic activity putting an upward pressure on public spending.”
Tourism slumped after the Tunisian and Egyptian revolutions and has not returned.
Morocco’s tourism figures have held up, before coming under strain after the April 28 bomb that killed 16 people in Marrakech. (The Moroccan bombing is seen as a one off, perpetrated by an isolated Islamist cell.)
Despite the threat of Al-Qaida in the Islamic Maghreb (AQIM) units – which the Algerian government argues will grow if the Libyan conflict continues unchecked – the real challenge for most governments is balancing their finances while soothing public tempers and enacting root-and-branch political reforms.
Egypt’s exports declined by about 40% in February, while public spending and balance of payments deficits widened sharply. The country’s central bank is calculated to have lost about $3 billion per month in foreign reserves during the first quarter, though this number is now reckoned to have dropped to around $2 billion. According to Razgallah, for Egypt “the first three months of the year represented a period of crisis management where the focus was mainly on providing basic needs to the population.”
The IMF recently agreed to lend Cairo $3 billion – with limited conditionality –to help authorities fix the beleaguered economy.
But Tunisia and Egypt both benefit from underlying economic strength, which will help offset the short-term slump and address longer-term problems such as structural unemployment. For all the Ben Ali regime’s shortcomings – which revolved around his authoritarian politics and the kleptocracy developed by the ruling family – Tunisia can count on a legacy of growth and modernization that will hold it in good stead.
“The last 20 years has seen strong fundamentals, and they’re still here,” says Ernst & Young Tunis partner Noureddine Hajji. As well as 5% growth in the past decade and an export base equivalent to around half of GDP, “the strongest asset is the quality of the people, as was shown during the revolution.”
“The protests won’t stop, but this is a democracy,” says Hajji. Consensus has been achieved on the need for change; elections, originally scheduled for July have been postponed until October 23, to allow many recently formed political parties enough time to prepare.
Tunisia expects to meet its commitments without a debt restructuring, says its finance minister Jalloul Ayed. Even before the Deauville summit – which the respected octogenarian interim prime minister Essebsi attended along with several other North African leaders – Ayed had lined up sufficient multilateral and bilateral backing to “feel sufficiently comfortable from our talks with the IMF, World Bank, AfDB and others that we can get over this difficult period”. The AfDB recently announced $500 million loan to the government, part of a $1.4 billion emergency funding provided by the World Bank, the European Union and the French development agency.
Tunisia’s interim government has been able to call back some highly experienced international executives to run the economy. Ayed is a Citibank veteran who was running Moroccan financier Othman Benjelloun’s Medicapital operation in London before the call came.
New Banque Centrale de Tunisie governor Mustapha Kamel Nabli was for years the World Bank’s MENA region economist; an ex-minister, he moved to Washington having fallen out with Ben Ali.
This team has reassured markets and raised funds abroad. They are also putting in place policies that elected successor governments might use as a foundation for private sector-led recovery. “We are drawing up privatization plans, putting in place measures to encourage private equity and other instruments, and we plan a major consolidation of the banks,” says Ayed.
RESTITUTION
Administrations are also tackling popular anger at the corruption and cronyism that has undermined business and stunted opportunities across the region.
Mohammed Meziane, former head of Algeria’s oil giant Sonatrach, has been given a prison sentence for his part in illegal contract awards. The Tunisian government has international arrest warrants out for members of the Ben Ali family – claimed to be the region’s most corrupt clique, and is looking for restitution. Qadhafi regime assets are being hunted down around the globe.
Following meetings in Cairo, Razgallah says, “Corruption was a major issue that was raised in most discussions and identified as one of the most important priorities to tackle.”
Business leaders who prospered under the former regime have been arrested, including steel magnate Ahmed Ezz, who rose high in the ruling National Democratic Party. Hosni Mubarak and his two sons, businessman Alaa and NDP bigwig Gamal (whose potential elevation to the presidency was a trigger for the revolt), are likely to be tried for corruption.
Other officials have also been purged, including former finance minister Youssef Boutros Ghali and other economic reformists, who – until January 25 – were once seen as pillars of the emerging markets boom.
How many of those investigated are found guilty of real crimes remains to be seen. Meanwhile, longer-term measures to enhance transparency and strengthen the courts have yet to be announced.
WORKERS
Whether electoral politics will bring in such market-friendly governments as Tunisia’s interim administration is not clear. Across the region, the Arab Spring has encouraged workers to strike – as never before – to win improved terms.
In short: wage rises have been agreed; Egypt is to get a minimum wage; and trade unions are reasserting their power.
Demands often focus on creating more public-sector jobs – in countries with already bloated state payrolls; Egypt alone has over 6 million government employees. And, while many young North Africans would like to be able to create a micro- or small business, creating the right conditions remains a challenge.
Morocco’s King Mohammed has offered a hike in public-sector salaries after demands from workers and the youth-led 20 February movement. This runs in parallel with his March speech proposing constitutional reforms relinquishing some of the monarch’s powers and strengthening judicial independence.
A wave of strikes in Algeria has added to localized protests over social and economic issues across the country, even if attempted mass protests in Algiers have been snuffed out by heavy policing.
The authorities’ response has been to buy off trouble, drawing on some $160 billion in the country’s foreign reserves to fund a potentially huge stimulus package which will raise living standards and create jobs. The annual complementary finance act, a mid-year budget, in May raised already high public spending by 25%, to meet commitments promised this February.
In Algeria the marginalized masses have yet to coalesce into a popular protest movement that might challenge the government. “The government has a window in which to implement policies that people are urging,” says Algerian academic and commentator Lakhdar Ghattas. “But if public spending fails to trickle down and reforms don’t happen then that window could close fast.”
According to OCIS’ Malik: “The generational struggle is about politics, but it is also about the lack of a private sector in countries where the marginalized couldn’t create businesses or find work outside the patronage networks and Leviathan state.”
A positive outcome of the Arab Spring must be to change what Malik calls “a game of insiders, limiting competition” into an economic environment that results in “an independent private sector that creates opportunities for all”.
This is a huge challenge for polities that were, for so long, resistant to change. And it means that the struggle to create a new improved MENA region may yet be won or lost by the private sector’s ability to come into its own.