Considering its history, the modern Arab economy has never looked better. Nearly a hundred years ago, the Levantine Middle East and the Gulf - at one point among the most successful commercial blocs in history - was partitioned into bite-size morsels for Anglo-French ingestion. It was "led" by a fraternity of pliant monarchs and emirs who were deposed by nationalists, who were themselves toppled by the Baathists, who along with the Gulf states managed to squander the enormous wealth created by the first oil boom with such vigour that it took decades for the consequences to exhaust themselves. Today, with the help of another petroleum-fuelled liquidity glut and a new generation of planners, an increasingly diversified Arab economy is entering an unprecedented age of sustainable growth. Or so it appears.
The Middle East and North Africa region is expected to post average gross domestic product growth of 6.2 per cent this year, up from 5.5 per cent last year, according to the Economist Intelligence Unit (EIU). The value of foreign direct investment in heavyweight economies such as Saudi Arabia and Egypt are at record highs. Regional trade agreements have energised intra-Arab commerce at a time when free trade elsewhere - from the Americas to Europe - is under assault. Arab central banks are enjoying growing levels of independence, while regulatory agencies such as Riyadh's Credit Market Authority are making their presence felt. Perhaps most significantly, output from non-oil industries in the Arab economy accounts for a rising share of growth. This year, according to the EIU, commercial activity unrelated to energy will grow by some seven per cent, thanks to increasingly robust service and manufacturing sectors. Even in Syria, which despite its relative isolation boasts an impressive light-manufacturing base, non-oil exports are compensating for the country's diminishing oil sales.
So what's wrong with this picture? Inflation of course - which is strangling an Arab middle class that was only just beginning to regenerate itself - and stubborn unemployment, which is as much a leading indicator for political unrest as it is an economic debility. The former is a symptom of global bottlenecks - on food, energy, labour - for which Arab leaders bear little responsibility. (Only the most grouchy libertarian would fault them for hiking civil-servant salaries and restoring food and fuel subsidies.) But double-digit jobless rates in a region projected to average six per cent growth over the last five years suggest a chronic and locally grown deficiency.
Throughout the Middle East, the government remains the largest employer, which means a substantial majority of the workingage population toils in the least efficient sector of the economy. However lucrative and courageous may have been the region's embrace of neoliberalism - the so-called "Washington Consensus" reform agenda that has been all but discredited, even in the United States - the toughest challenge lies ahead: the destruction of the sacred, iron rice bowl.
The problem does not discriminate. In secular Syria, the deputy prime minister for economic affairs, Abdullah al Dardari, is fighting traditionalists for the sake of civil service reform. In Saudi Arabia, laws supported by King Abdullah that would streamline the public sector payroll and base promotion on merit rather than longevity are bottled up in the Shura council. The result is a bureaucracy that either cannot or will not execute initiatives aimed at expanding the private sector. Saudi Arabia's plans for non-petroleum industrial zones have gone nowhere, for example, because the Industry and Trade Ministry has so far failed to provide the necessary infrastructure to support them.
A decade ago, Jordan's ambitions to become a hub for information technology was pre-empted by a report commissioned by the then Minister of Post and Communications that revealed half the people on his staff were redundant. Rather than act on the report, Jordan concentrated its energy on low wage manufacturing. Today, one of the country's largest export earners are garment mills in an industrial zone populated with cheap labour from South Asia.
The modern Arab economy has come a long way from its birth as a Balkanised imperial fiefdom. Its leaders have proved themselves worthy reformers by rejecting collectivisation in favour of free markets. But bloated government payrolls, a legacy of that same Franco-British imperium, starve the private sector of the resources it needs to develop critical mass. Unless those resources are freed, the Arab Middle East will have a first-rate, free market economy administered by a bargain-basement, socialised bureaucracy - a government "of the duds, by the duds and for the duds", as Winston Churchill derided the welfare state. As the British Colonial Secretary who partitioned the Middle East, Churchill knew a thing or two about how to undermine a healthy economy.
@email:sglain@thenational.ae
