Time for an Economic Spring in the Arab world

    

In a recent column, Joschka Fischer, a former German Foreign Minister and Vice Chancellor, observed that “ all of us tend to make the same mistake repeatedly: we think at the beginning of a revolution that freedom and justice have prevailed over dictatorship and cruelty. But history teaches us that what follows is usually nothing good."  In many regards, the unfolding events driven by the Arab street since the self-immolation of a desperate Tunisian vendor in December 2010 have given credence to this dire prediction.

For some, the so-called Arab spring has already turned into winter. History does not necessarily repeat itself, but for what happens next in the Arab world to have any chance at being good, there is an urgent need for an Arab economic awakening. For without strong economic underpinnings, and without growth and quality employment for the millions of young Arab men and women who seek jobs and a decent life, the Arab democratic transition indeed faces a grim future. New Arab leaders – with the support of their foreign partners – have a responsibility to develop an ambitious economic vision and act on it. This is the main message of a new World Bank publication that I worked on with my colleagues and which, for just the reasons I’ve outlined, we called From Political to Economic Awakening in the Arab World: The Path of Economic Integration.

Past development paradigms in Cairo, Tripoli, Tunis and many other Arab capitals have not achieved the inclusive and sustainable growth expected by populations. Countries in the Middle East and North Africa (MENA) region have failed to develop strong private sectors that are linked with global markets, survive without state assistance, and generate productive employment for young people. One key symptom of this maldevelopment is that, with the exception of the petroleum sector, MENA remains the least trade-integrated region in the world. Or, to describe the symptom another way, the whole of the MENA region does less trade than Switzerland. The flip-side of this lack of integration is that increased trade and foreign direct investment (FDI) is a key means by which Arab countries can achieve sustainable higher growth and shared prosperity. Moreover, unlike many other policy instruments, trade and investment can generate tangible results in the not-too-distant future.

If the new Arab leaders were to articulate a long-term vision of a more integrated economic space in the Mediterranean basin, they would be well advised – with the support of their trading partners – to focus on five key economic areas as a priority: 

1. Arab countries need to adapt to a fast-changing trade, FDI, and jobs landscape made up of trade in tasks, global value chains and integrated production networks. This requires rethinking and retooling the trade and FDI toolkit with 21^st Century instruments.
2. They need to make it easier to exploit both export and domestic markets by bringing down barriers to entry and reducing costs outside firms’ control – like poor logistics and unreliable electricity – that make them uncompetitive. This can be done by strengthening the FDI regime, improving the business climate, addressing economic governance issues, and fostering the development of a knowledge economy.
3. They need to reduce the costs associated with moving goods along international supply chains, whether these costs are measured in terms of time, money, or reliability. There are high returns to modernizing trade facilitation services and fostering trade finance.  
4. They need to address the short-run distributional effects of economic opening and technological upgrading. An effective response will involve targeting social policies, promoting women’s economic participation and connecting lagging regions to markets.
5. In turn, the G8 countries, Turkey, the Gulf states and other trading partners can support the Arab democratic transition in two main ways: by effectively expanding market opportunities and access and by supporting domestic regulatory reforms in MENA countries. Improved market access for agricultural products, manufactured goods, and solar energy, streamlining nontariff measures, and liberalization of the services are some examples of actions that both MENA and its trading partners can take to help Arab countries boost trade and investment.

As Mr.Fischer also noted in his column, "The dangers of both action and inaction are very high."  The World Bank has put on the table a set of concrete short- and long-term policy actions to foster the emergence of an economic spring in the Arab world. At stake is no less than the success of the region’s historic political transition.   

More on this economic awakening in forthcoming blogs.