Fall of government in Tunis takes the US by surprise


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WASHINGTON // Just as developments in Tunisia have transfixed the region, they are being watched with great interest in Washington.

Officials and analysts are not only pondering where Tunisia is heading, but wondering what, if any, impact the uprising will have in other countries.

And with no clearly defined opposition yet emerging in Tunisia, there are more questions than answers. So far, assessments remain for the most part conservative.

The ousting of the president, Zine el Abidine Ben Ali, certainly came as a surprise here. The protests and riots were noted and commented on, but no one expected events to culminate so quickly in the overthrow of Tunisia's long-established leader.

And while Barack Obama, the US president, last week applauded "the courage of the Tunisian people", the US remains cautious as the situation unfolds.

Hillary Clinton, the secretary of state, struck that note when she last Friday called for calm from all sides, and the State Department has been careful to include the interim government in all its statements, while gently pushing for greater openness.

"The United States will continue to support those in government, business and civil society who step up to solve the problems that the region faces," an official said on Wednesday. "We look to the interim government to ensure that process [in Tunisia] will be one of inclusion, where many segments of Tunisian society will have a voice."

The measured response is partly a reaction to a murky picture. The street protests that saw Mr Ben Ali ultimately flee the country do not appear to have a single organising movement behind them. Just as importantly, no names have emerged yet to claim leadership.

Marina Ottaway, the director of the Middle East programme at the Carnegie Endowment for International Peace, a Washington-based think tank, said: "It is an uprising that may very well fizzle out.

"This uncertainty is keeping the state department from embracing it wholeheartedly, because nobody knows what they are embracing."

The reaction in other countries in the region is also being closely watched.

The consensus is that other countries now have a choice to go one of two ways. Either they will adopt a security-at-all-costs attitude and impose more stringent restrictions on political freedoms, or they will begin to loosen up such restrictions to create a "safety valve" with which to absorb any further popular discontent, Ms Ottaway said.

This week's Arab League meeting in Sharm el Sheikh suggested that Arab countries are acutely aware of the need for a response. With Amr Moussa, the Arab League secretary general, warning that the "Arab soul is broken", and Kuwait and Saudi Arabia contributing massively to a regional job creation fund, action has followed rhetoric unusually quickly.

David Mack, a former assistant secretary of state for Near Eastern affairs, and a former ambassador to the UAE whose diplomatic assignments included Tunisia, said: "Hopefully - and this would be the US position - governments [in the region] will say this is clearly a case where the Ben Ali regime had monopolised power so thoroughly that nobody else would share the responsibility for economic setbacks."

The conclusion that the US would like governments in the region to reach, Mr Mack said, was that Mr Ben Ali's monopolisation of power had been a mistake, and that greater political openness could head off similar developments elsewhere.

The US has traditionally adopted a position of pushing for political reforms but only so hard, in fear of the consequences. Stability has been preferred over the uncertainty that is currently being witnessed in Tunisia.

US interests in the region mitigate against radical change. In the past, the US feared that opposition movements would lean toward the Soviet Union. Today, it is the spectre of Islamist movements that haunts US policymakers.

The US has, "on balance", preferred stability to wholesale democratic reform, said Daniel Calingaert, the deputy director of programmes at Freedom House, a Washington-based global democracy advocacy group.

But, he added, there had been ongoing efforts, however low key, to promote more openness. "Embassies are aware of the frustrations and that stability isn't all that stable."

Countries in the region need to look ahead with more urgency than they have so far, the state department official said. The US is aware that people in the region are looking for change, specifically to make their governments "more effective, more responsive and more open".

And against a backdrop of depleting resources, he added, "too few countries have adopted long-term plans for addressing these problems".

But Washington is hugely wary of rapid change. Slow, "safe" reforms that do not threaten regime survival will always be preferred, Ms Ottaway said. However, Kamran Bokhari, the director of Middle East and South Asia analysis at STRATFOR, a Texas-based global intelligence gathering company, said the administration cannot be seen to condemn a popular uprising like Tunisia's, which is "democracy in a very crude way, a very raw way".

Mr Mack warned against drawing too many conclusions from events in Tunisia, and said talk of a domino effect was a "silly kind of exercise".

Each country, he said, had its own specific circumstances. Indeed, Tunisia seemed more stable than other countries and was only downgraded by Moody's after the fact.

And while many look to Egypt as an indication of where, if anywhere, consequences may be felt, the main lesson from Tunisia seems to be that there is no script.

"Even if you have a high levels of discontent, poverty et cetera, it does not necessarily lead to an uprising," Ms Ottaway said. "For that you need something else, and the something else is totally unpredictable."

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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

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