Bold vision shown as others run blindly

Revolutions have cut growth forecasts in Egypt and Tunisia. It takes courage to stake millions of dollars on their damaged economies, writes Asa Fitch

It takes courage to stake millions of dollars on a broken economy.

In Egypt and Tunisia, revolutions have cut growth forecasts to near 1 per cent this year. Executives and foreign investors connected to former regimes are being hauled into court.

Interim governments are scrambling to unravel decades of corruption and struggling to contend with rotten bureaucracies.

The chaos follows decades of what might be called an uneasy stability. Egypt, Tunisia and Libya had all made economic strides by encouraging foreign investment and opening up the flow of trade with richer European countries. Policies of liberalisation worked, ushering in years of annual GDP growth above 4 per cent.

The problem was that the beneficiaries of that growth were the regimes, not the common man. And that disconnect in fortunes was arguably a driving force behind the movements that toppled Zine El Abidine Ben Ali in Tunisia, Hosni Mubarak in Egypt and Muammar Qaddafi in Libya.

As North Africa takes on a new political shape, it must adopt a new economic one as well - one that distributes the fruits of growth more broadly.

At the same time, that economy will have to borrow a lot from the old ways. It must promote foreign investment.

It must leverage lower costs and become an outsourcing hub for Europe. It must also try to grow through small businesses, which is where Abraaj's recent acquisition of the North African operations of a French asset manager fits in.

Investors have fled in droves since instability hit North Africa, wary of the short-term risks.

In that context, it is interesting to see Abraaj - the region's largest private equity company, and one of its smarter investors - taking the opposite view and putting down roots for the long term.

afitch@thenational.ae

Published: August 29, 2011 04:00 AM

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