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DEVELOPMENT: Arab Regimes, Local Elites Shun Reforms

Emad Mekay

WASHINGTON, May 9 2007 (IPS) - Economic changes needed to alleviate biting poverty in the Arab world have largely been derailed at the hands of ruling regimes and entrenched local elites who use whatever revenues their economies generate to cement their own positions, charges a new report released here.

The report by the Carnegie Endowment for International Peace in Washington argues that both oil-exporting countries and non-oil countries in the Arab world have used their local economies to protect dominant elite privileges, and buy loyalty to the state – all at the cost of sustainable, long-term development.

The main reason cited in the report is that mostly Western-backed regimes, along with their local elites, apparently have little incentive to pass reforms that could threaten their economic and political interests.

The report says that policy makers in the Arab countries have used major regional conflicts, particularly the Arab-Israeli conflict and the recent occupation of Iraq, as a pretext to postpone serious changes.

Most Arab regimes say that reforms, political or economic, would lead to the rise of Islamic movements that could destabilise the region. Western powers have largely signed on to this argument, rendering most serious calls for change impotent.

“Elites have focused on preserving their powers and privileges, and governments have chosen to implement uncontroversial programmes and make minor adjustments within the established state-dominated model,” says the report, which advocates private sector-led growth.

The report divides most of the 22 Arab nations into two major economic categories: those with oil wealth, especially in the Persian Gulf, such as Saudi Arabia and Kuwait, and those that depend on revenues from expatriates and international aid, such as Egypt, Syria and Jordan.

In both cases, the ruling elites were found to lack the will to change, leaving the Arab countries with some of the worst development indicators in the world.

Arab countries, for example, represent only four percent of world trade, with much of that coming from oil sales. They also have a 12.2 percent unemployment rate, the highest in the world.

The per capita Gross Domestic Product in these nations has fallen in recent decades and public debt has hit critical levels in several countries.

In Saudi Arabia, the world’s largest oil exporter, GDP per capita fell from 22,634 dollars in 1980 to 12,556 in 2000.

In Jordan, a key U.S. ally and a major aid recipient, over the same period, per capita GDP dropped from 4,308 to 3,907 dollars.

Public debt also hit critical levels in several countries.

In Lebanon, it reached 42 billion dollars last year, or nearly 186 percent of GDP; in the same year in Egypt, the most populous nation in the Arab world, it reached 113 billion dollars, or 110 percent of GDP.

The study criticises Arab regimes for relying too heavily on oil exports for revenues. The lack of diversification in such economies renders them volatile, say the report.

“They inflate and deflate according to price swings on the global commodities market and other shocks from the outside world,” it says.

“A cursory view of the region’s economies confirms that neither oil-based nor non-oil-based economies have undergone comprehensive economic reform of a kind that would promote strong productivity, create long-term sustainable growth and dramatically boost employment,” says the report.

The report cites other reasons for the poor economic performance of those authoritarian regimes.

One of them is that “there is no common understanding of what ‘reform’ means and entails – much less agreement on a common plan of action.”

The report also says that institutions in the Arab world have limited ability to plan, implement and manage economic programmes.

“A brief look around the region’s economies today will confirm that the reforms thus far have not fundamentally altered the state-dominated economic model. Nor have they notably improved trade substantially or put any country on a sustainable path of economic growth that could keep pace with expanding population,” it says.

The report reflects the views of other international organisations following the region, especially the World Bank.

Last month, the World Bank found that GDP growth reached 6.3 percent in 2006 – up from an average of 3.6 percent a year during the 1990s. This was mainly driven by high oil prices. Yet the Bank, too, said that more changes are needed.

“There is an urgent need to embrace difficult structural reforms required to balance growth with labour productivity and job creation,” said Mustapha K. Nabli, chief economist of the Mideast and North Africa region.

Like many parts of the developing world, Arab countries have come under pressure from Western nations and international financial institutions such as the International Monetary Fund and the Geneva-based World Economic Forum, which speaks for international corporations, to open up their economies.

The staple diet prescribed for them has been to remove government red tape on private investment, to privatise their national industries and to cut government subsidies to social sectors.