The relationship between the economy and politics is like that of the chicken and the egg; which came first? On the one hand, there cannot be genuine and realistic economic development unless there is political and security stability, yet on the other hand the most important factors for political stability are development and a vibrant economy that can meet the aspirations of society, especially the younger generations.
This is the real challenge facing Arab countries as they enter 2013. It is a politically volatile time given the changes that occurred in several Arab republics in 2011, and the repercussions that are still being felt to this day.
A war is still raging in Syria, which has so far shrunken the country’s economy by a third according to recent UN reports on the crisis there. The same applies to a lesser extent to the Arab states that have completed the process of political change and established new regimes, like Egypt, Tunisia, Libya and Yemen. Figures from these countries indicate that their economies are shrinking or that there has been a significant decline in development rates and an increase in unemployment to varying degrees, along with a decline, if not a complete stop, in direct investment. Meanwhile, political stability has not been achieved, or at least there are no clear visions or future economic plans to address the structural defects of these Arab economies; defects that were a major factor in the uprisings in the first place.
It is ironic that a year or two before these uprisings and revolutions took place; there was positive talk about these economies, as can be seen in the reports of international institutions at the time. There was something of a revenue boom in the region as a result of oil prices rising to levels of USD 90 or 100 per barrel, and this was reflected across the whole region. Even non-oil producing countries benefited indirectly, whether through direct investment or remittances. Figures also pointed in an improvement in the ratio of budget deficits to GDP in the non-oil producing countries, and a widening of financial market activities prompting, for example, the Egyptian Stock Exchange to climb by 1,800 percent over five years. This also happened in other Arab economies where there was an expansion, to varying degrees, of the size of the middle class.
However, the structural defects inherent in these economies did not allow these numbers to translate into genuine improvements in living standards, or to reduce the gap between the rungs of the class ladder. Instead a sense of injustice was created among groups in society who could not afford to be patient and for whom such economic figures did not mean anything as long as they did not feel any impact on their daily lives. Most importantly, these structural defects will ultimately preclude the aim of the Arab economic summit, which opened in Riyadh yesterday, seeking to achieve sustainable development in the Arab region.
Among the most important factors to address the structural defects inherent in many Arab economies is to facilitate the role of the private sector so that it can lead the development process and create job opportunities. This must come within the framework of transparent laws and regulations in order to achieve fair competition in the market. Likewise there is the issue of government subsidies that drain budgets and resources and are increasing every year. According to figures for the year 2009, the cost of fuel subsidies in the Middle East reached the equivalent of USD 150 bn, and this figure must have doubled by now given the rising oil prices. Subsidies are also provided for other commodities, creating unrealistic prices in the market that in turn leads to distortions in the structure of the economy. Likewise, education policies are not commensurate with development demands, making unemployment among graduates the highest out of all societal groups.
Perhaps all this cannot be resolved overnight or in a year or two, but there must be a vision or a realistic plan to solve these structural problems. The solution is to facilitate the flow of capital and intra-regional trade, and to make the slogan of sustainable development a realistic policy.
The current climate may be one of revolutions and aspirations, but the solutions are either unrealistic or unpopular.