Courcy’s Intelligence Brief

The IMF’s Mideast department has just produced a report on “Arab economic transformation amid political transitions – Toward New Horizons”.  It summarizes well the economic dangers faced by the Arab Countries in Transition (ACTs) at a time when the transitions themselves are very unconvincing.  While there may be some progress in Tunisia, Morocco, and Jordan, it is hard to be optimistic about significant economic reform coming soon in Egypt, Libya, and Yemen.

The key problem remains as it was before the transitions began in 2011, namely the difficulty of creating enough jobs to sustain the growing population.  The problems have included a private sector that lacks dynamism.   Short-comings in trade integration, infrastructure investment, access to finance, and the labour market and education system have also held back private sector-led growth.  High levels of government subsidies have compounded inefficiencies and tied up scarce resources.

According to the IMF “these problems have become more acute since the onset of transitions in 2011, as popular expectations for better living standards have risen”, and the ACTs have experienced an economic downturn “resulting from transition-related disruptions, regional conflict, an unclear political outlook, eroding competitiveness, a challenging external economic environment in the context of the European crisis, and declining confidence”.

The problem is that this downturn has worsened the unemployment crisis, which is the single most serious economic/social issue for the ACTs.  According to the report, demographic pressures require growth to be above 6% if unemployment is to be reduced, yet under current projections, GDP growth is likely to average only 4.25% through to 2018.  This means that fewer than 5m jobs will be created when the requirement is for 7m “to reduce the unemployment rate halfway to the average of emerging markets (that is about 8.5%).”

To close this gap of 2.25m jobs, an annual growth rate of 6.25% is required.

The IMF stresses the need for governments “to embark on bold reform agendas that will make for more dynamic and inclusive economies, generate more jobs, and provide equal access to economic opportunity for all segments of society”.  Yet there is nothing in the post-Arab Spring Middle East that suggests this is possible, let alone probable.

NOTE: A good example of the continuing inability of the Middle East to make meaningful political progress is provided by this week’s presidential election in Algeria.

Although this is the fifth multi-candidate presidential election since independence in 1962, the incumbent President Abdelaziz Bouteflika seems certain to win his fourth term despite not having been able (through ill health) to address the Algerian people for two years.  He won in 1999, 2004, and 2009 with, respectively, 74%, 85%, and 90% of the vote.

Sources in Algiers seem certain that Bouteflika will win in the first round because the establishment has taken the decision that going to a second round would be disastrous for security.  The expectation of a stitch-up is reinforced by the fact that the ministers of the interior, justice, and communication, as well as the chairman of the Constitutional Council, which validates elections, are all Bouteflika allies from his home province of Tlemcen.

The two largest parties in the coalition, the National Liberation Front (FLN) and the Democratic National Rally (RND), and the largest trade union, the General Union of Algerian Workers (UGTA), are all campaigning for Bouteflika.  All this has prompted Islamist and democratic parties to call for a boycott of the election on the grounds that the outcome is predetermined.