The MENA region: Catching up with the West?
Egyptians gather in Cairo's Tahrir Square to call for political reforms (Credit: Mohamed Elsayyed/Bigstock) (via: bit.ly)

A roundtable on the MENA region took place at the Dialogue of Civilizations Research Institute (DOC) on 27 October, exploring the reasons behind the strong performance of Middle Eastern and North African countries.

Pooran Pandey, the CEO of the Dialogue of Civilisations Research Institute (DOC) introduced the roundtable, emphasising the need to find common ground for discussion and to give practical advice to policy-makers, especially at a time of potential transition to a multipolar world order.

Vladimir Popov, research director at the DOC, argued that Middle Eastern and North African countries were developing better than Latin America and other regions in the world, with the exception of East and South Asia. Life expectancy has continuously increased in recent decades and remains at relatively high levels compared to other middle-income regions.

Moreover, Popov argued that MENA countries performed well in the Human Development Index (HDI), which is an unweighted average indicator of life expectancy, and in terms of educational levels and gross domestic product (GDP) per capita in purchasing power parity dollars (PPP$).

Popov said that some countries have lower levels of inequality, a smaller shadow economy, a lower murder rate and a lower number of homeless and orphans compared to countries with similar GDP per capita. Popov’s explanation is that there are generally two strategies for developing countries.

The first strategy is to replicate the Western route, which entails the elimination of collectivist institutions (agricultural communes, for example) and results in high inequalities. Countries which embark on this strategy will spur savings, investment, and growth and may even stop falling behind the West in terms of per capita income, but intra-country inequality will rise.

The second strategy is to follow an indigenous route, preserving collectivist institutions. This will not help to stimulate growth immediately, but in the long term will facilitate more rapid, sustained, and inclusive growth compared to the outcomes of the Westernisation model.

Vitalii Meliantsev, head of the Institute of Asian and African Studies department at Moscow State University, began his presentation by providing data that showed how severe political instability had increased in the Arab world in recent years. Nevertheless, the long-term trend demonstrates that many Arab economies are on their way from an agrarian society to a service economy. One of the biggest challenges Meliantsev noted is that Arab countries are too dependent on the export of natural resources.

Meliantsev disagreed with Popov and anticipated a somewhat bleaker future for MENA countries due to the low share of manufacturing in overall exports, and weak institutions, which results in relatively low GDP growth. Meliantsev added that compared internationally, the share of GDP invested in education is quite low, which renders MENA countries less competitive in the long run. In terms of political context, Meliantsev emphasised the deficits of freedom, knowledge, justice, and stability as serious problems for the region.

Bahodur Eshonov, from the UN’s Food and Agricultural Organisation (FAO) office in Ankara, argued that economists often work with abstract theories that do not sufficiently take into account the context in which development takes place. He flagged concepts such as GDP and total factor productivity (TFP) as examples.

An Uzbek native, Eshonov explained that Uzbekistan has been amongst the best economic performers compared to other ex-Soviet republics and that it has sustained its growth. But this outcome has surprised many observers, as Uzbekistan did not follow the neoliberal shock therapy approach, but instead refrained from privatisation and the sell-off of state-owned-enterprises. Even more surprising was the fact that an authoritarian leader successfully led the transition to a more market-oriented economy.

Despite the good overall performance vis-à-vis other Soviet republics, Uzbek growth has been largely driven by natural resources. Water supply and land management issues now challenge its growth. Another challenge is a large number of young people trying to find inroads into the job market peaking in 2020 (as compared to 2010 in MENA countries). A substantial number of them will face unemployment if not enough jobs are created. Eshonov noted that trade in Central Asia is comparatively low, the highest levels being between Kyrgyzstan and Uzbekistan, which might hinder long-term development.

According to Eshonov, there is always a trade-off between the development of different sectors of the economy. For example, higher investment in agriculture might spur productivity in that sector, but only at the expense of underinvestment in education, which could hinder the positive effects of increased agricultural productivity.

The export of Uzbek labour to Kazakhstan and Russia took pressure off the labour market and remittances have increased living standards, especially in rural areas. Nevertheless, Eshonov said that the exchange rate of the national currency vis-a-vis the Russian ruble – Russia is one of the most important trading partners and sources of remittances – is becoming over-appreciated. The importation of food has increased due to low productivity in domestic agriculture and thus Uzbekistan is showing symptoms of the Dutch disease.

Uzbekistan has also given incentives to domestic producers to raise output and quality vis-à-vis foreign competitors (the so-called picking the winners approach). In this way, Uzbekistan has successfully built up its own automotive industry and entered into several joint ventures with companies such as GM and Daewoo and now produces cars and spare parts for its domestic market, as well as for export.

Eshonov concluded that there is generally little understanding of the interaction between price levels (for example, the equilibrium price of oil), taxes, the state’s role in the economy, and the role of agriculture in sustainable growth. Therefore, it is important to find a good balance sustaining growth and being aware of the fact that these balances need permanent adjustment. Eshonov stressed that equally crucial for countries in transition is the timing of economic reforms.

Yaşar Yakış, Turkey’s former foreign minister, talked about the possible realignment of political forces in the Middle East. Yakış pointed out that one key reason for the emergence of ISIS is the conflict between Sunni and Shia in Iraq and in the greater region. Sunni elites ruled over the Shia majority in Iraq under Saddam Hussein. When the US invaded the country and decided to install a Shia leader, the Sunni minority (which dominated the leadership of the dissolved Iraqi army) subsequently joined forces with ISIS.

Looking to the wider geopolitical context, Yakış maintained that Syria is the missing link for the most prominent regional Shia power, Iran, to establish a so-called ‘Shia crescent’ spreading from Bahrain over Iran and Syria to Lebanon.

Moreover, Iran was officially invited by the Syrian government to take part in the war against ISIS and other rebel groups. The second entity aside from Iran that was asked by the government to assist the Syrian army was Russia. In the aftermath of the spread of the Arab Spring to Syria, Moscow saw this as an opportunity to increase its engagement in the Middle East.

Yakış explained that Turkey´s policy approach was to support Muslim Brotherhood groups in MENA countries to come to power, and to then lead these movements. However, Turkey’s initial policy choice in Syria was to convince president Assad to either lead the uprising in Syria or to peacefully step down and leave power to a successor that was more legitimate for the people. Only after it turned out that Assad would not follow this suggestion, Turkey decided to cooperate with the international community in supporting the opposition and to get rid of Assad by providing arms and fighters that were channelled through Turkey.

Veniamin Popov, director of the Centre of the Partnership of Civilizations at the Moscow Institute of International Relations (MGIMO) and a former Soviet/Russian ambassador to Yemen, Libya, and Tunisia, expressed his opinion that the MENA region is the energy powerhouse of the world economy and therefore its growth will also continue in this century. What is even more important, this region has great potential for the deployment of renewable energy facilities. Popov pointed out that the GDP growth rates of Middle Eastern and North African countries in the past decade have been substantial.

In addition, Popov mentioned that in many MENA countries, people under 30 years of age constitute more than 50% of the population and that it is a huge challenge for societies to continuously create jobs for young people. At the same time, unemployment amongst Arab youth is twice as high as the world average. However, Popov argued that the most decisive threat to societies in the region is the rise of Islamist terrorism.

In Popov’s view, Russia saved Syria from becoming part of an ISIS state and prevented the region from becoming an Islamic caliphate.

All in all, Popov emphasised that the aftermath of the conflict in Syria led to the dissolution of the unipolar (US-led) world order and in this regard, cooperation between Russia, Turkey, and Iran has been of key importance.

Amr Hamzawy, a senior research scholar at Stanford University’s Centre of Democracy, Development, and the Rule of Law explained that his research primarily deals with case studies and data from different surveys in the region, such as the Arab Barometer, and the Freedom House Index.

Referring to public opinion trends, Hamzawy said that a stable majority (two-thirds) believe that economic conditions are the major concern in the region. The second most important issue is fighting corruption (50% of those interviewed). The third most important trend is that Arab countries lack trust in public institutions.

Hamzawy said that ironically – according to different surveys – security is only the fifth most important issue in the MENA region. Democracy is only a matter of concern for 5% of those interviewed. Hamzawy´s conclusion is therefore that politicians, economists, and others have to move beyond only focusing on the democracy question; instead, they need to have a broader approach and put more emphasis on state building and institutions.

Peter Knoope, a senior visiting fellow at the International Centre for Counter-Terrorism in The Hague, discussed the securitisation of public spaces. Knoope began by pointing out that when the state is challenged by non-state actors, it increases measures to control spaces and reduce its vulnerabilities.

According to Knoope, there are different types of public spaces: cyber space, economic space, and discursive space (freedom of speech, for example.) As a result of the 9/11 attack, states worldwide securitised such spaces.

Knoope explained that there has been a substantial decline in freedom as measured by the Freedom House Index. In 2016, for example, a net decline in the freedom of expression in 67 countries was recorded. Knoope added that a similar development is taking place in terms of political space, which is shrinking due to its securitisation.

Knoope asked whether these state-sanctioned measures have improved the situation. He ignored this question by stating that counter-revolutions, civil wars, increased state security concerns, worrisome international trends have increased. Only a few positive exceptions (Tunisia´s improvement of civil liberties, investment code, gender parity law etc.) can be cited.

Knoope concluded by saying that the securitisation of public spaces is a global trend and its outcome for global security has so far been questionable.

Amirah El-Haddad, a senior economist at the German Development Institute in Bonn, commented on Popov’s paper. According to El-Haddad, GDP growth in the MENA region was only slightly higher compared to global averages during a short period of time in the 1970s. She pointed to the insufficiently diversified economy, with a too small a share of manufacturing.

El-Haddad stated that GDP doesn’t express success in the way we would like to think of it. The relationship between life expectancy and economic growth is non-linear, she argued, and thus it is not an appropriate way to assess the success of development.

In particular, El-Haddad noticed that the Human Development Index is not a good indicator of economic performance in Arab countries because when measuring long-term trends in maths and science learning outcomes (as contrasted to HDI, which measures enrolment and years in school), Arab countries are regularly at the bottom of that list. Moreover, according to El-Haddad, the public sector is inflated, whereas the private sector is not able to compete with the state.

She added that according to household expenditure surveys, the informal sector amounts to between 30% and 40% of overall GDP and that tax collection is weakly enforced. Similarly, taxes are not progressive and therefore benefit the rich. A further issue is tax evasion (inflating the depreciation of fixed capital in cost accounting to show less profit), with tax evasion rates in Palestine and Tunisia as high 50%.

El-Haddad argued that in order to establish a dynamic economy (if not a developmental state), countries in the MENA region need to look into measures to automate the bureaucracy and establish strong consumer protection and competition authorities.

Hartmut Elsenhans, an emeritus professor of international relations at the University of Leipzig, began his presentation by rejecting the widespread view that cultural patterns block the development of the Middle East and North Africa.

He pointed out that wealthy classes tend to make this argument, while the real reason for underdevelopment is that they control the majority of the rents available in the region. Elsenhans contended that rent is not only ‘oil rent’, but the general appropriation of surplus. The only way to guarantee successful development and inclusive growth is to abolish rents, which would impinge on property rights.

Devaluing domestic currencies to increase diversification would favour the development of the domestic market, he said. Elsenhans explained that older technologies often worked better, as they are cheaper and less labour intensive for developing countries. He similarly argued that the economic power of the wealthy needs to be limited so that surplus appropriation is possible only for production for the domestic mass market.

According to Elsenhans, by devaluing the currency, governments will inflict losses mostly on the middle and upper classes. However, middle classes might be convinced to accept such measures if it is clear that it is the only way it will be possible that dynamic domestic enterprises can enter the global market.

Elsenhans concluded by stating that most successful state developments were achieved because of erroneous assumptions by elites.

Ahmed Badawi, a senior researcher at the Freie Universität’s Centre for Middle Eastern and North African Politics in Berlin started out with the observation that governments in Arab republics are less effective than in Arab monarchies. Badawi asked why the outcome of protest is so diverse in the Middle East and North Africa, ranging from a credible democratic transition in Tunisia to authoritarian restoration in Egypt and civil war in Syria. He referred to data that showed that monarchies are doing better than republics with regard to HDI.

The best performing republics are doing much worse than the average monarchies in areas like the rule of law and control over corruption, he said. Badawi supported Nazih Ayubi’s thesis of a hard but weak Arab state that strictly monitors its population while showing a low capacity to collect taxes.

He explained that Arab states have not been successful in penetrating society and do not enjoy the ideological hegemony that would allow them to sustain power. In Badawi´s eyes, a successful state is characterised by the extent to which it is embedded in Arab society.

State failures are due to the fact that they have not developed organically, he said, as the Arab state was imposed from above (by dominant classes) or by a colonial ruler. Subsequently, integration into the global capitalist economic system happened swiftly curtailing the establishment of a domestic capitalist class.

Badawi concluded his presentation by explaining that a major deficit of the Arab world is its failure to communicate because elites are not able to have an open dialogue, which would be the first step to resolving its problems.

 

Bahodur Eshonov’s presentation can be downloaded here

Vladimir Popov’s presentation can be downloaded here

Vitalii Meliantsev’s presentation can be downloaded here

Peter Knoope’s presentation can be downloaded here

 

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The MENA region: Catching up with the West?
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Klemens Witte

Research Associate, DOC Research Institute, DE

Klemens Witte, Research Associate at the DOC, is specifically interested in economic questions, international relations, and policy-making. He holds a Masters in Political Science and Intercultural Communication (Martin-Luther-University Halle-Wittenberg), a second Masters in Baltic Sea Studies (Södertörns University College/Stockholm), and a postgraduate LL.M. in International Economic Law (Southwest-University for Political Science and Law/Chongqing and Martin-Luther-University Halle-Wittenberg). Klemens Witte has gained international experience in universities in Kazan, Moscow, Kaliningrad, Minsk, and Beijing. He has further work experience within the fields of internationalization and education as a desk officer with Swedish government ministries and as a lecturer from the Moscow State Institute of International Relations. He speaks German, English, Swedish, Russian, and Chinese.