Political turmoil could slow down Mena economies

AMMAN: Political turmoil will again hamper economies across the Middle East and North Africa (Mena) region this year and their transformation will prove much harder than in Latin America and Asia in past decades, a senior World Bank official said yesterday.

Managing Director Sri Mulyani Indrawati said investors were holding off from committing to countries like Tunisia, Egypt and Libya, which are still recovering from violent overthrows of leaders.

She said a weak global economy meant the region would face a more “complicated and challenging” transition period than other developing economies that benefitted from more bullish external conditions in the 1970s, 80s and 90s.

“In episodes before like in Latin America and Asia the global economy was relatively healthy,” she said in an interview.

“In the situation the Arab world is going through it is going to be much harder (to revive higher growth) because the environment of the global and regional (economy) is also weak ... creating additional risk in external demand, exports, weaker remittances and foreign direct investment.”

In a report last month sharply cutting its world economic growth expectations, the World Bank said political tensions in the Middle East and North Africa could disrupt oil supplies and add another blow to global prospects.

The World Bank estimated that the GDP for Middle East and North Africa had increased 1.7 per cent in 2011, down from 3.6 per cent in 2010 with growth likely to remain subdued this year at about 2.3 per cent.

The World Bank’s report also said the political turmoil had “seriously and selectively disrupted growth in the region” with two sets of tensions that could surface if the unrest intensifies this and the European debt crisis pushes the region’s import commodities bill higher, and hurts tourism receipts and exports.

“This year is not going to be much better than 2011 and there will be more possible muddle through,” Indrawati said.

Unrest in Syria, a major economy, was an example of the downside risk that could spill over beyond its bor- ders to its neighbours, Iraq, Lebanon and Jordan. Higher food and fuel prices in a region where countries such as Jordan, Morocco and Egypt import grains and subsidise the poor would also add to pressures on economies suffering from lower tourism and remittances revenues, she said.

“In the Gulf they will try to minimise (the impact) by investing a lot in domestic spending using the oil money,” Indrawati, said.

The mounting challenges that face the region come mostly from domestic pressures of less fiscal space and the need at the same time to spend to ease social tensions. Depleted foreign reserves would not help progress towards political stability, Indrawati said.

“When it is (a) transition into democracy like Tunisia then you have more the possibility in which people can see the process and they are participating in the process of change but don’t have any illusion that this will even be easy,” Indrawati said.

“In each country it’s different. In Tunisia, it achieved more or less certainty in elections but in other countries it is still a long way to go in the political transition,” she said.

“Both the domestic and private sector as well as foreign direct in- vestments, they are all waiting for what is going to be the new governments or governments in transition and what they are going to come up with,” Indrawati said.

Indrawati said Arab decisionmakers must also draw lessons from a boom period that saw high growth in the last decade but failed its educated youths, the majority of the region’s population, “who did not feel the benefit of that growth”.

“The growth model, the economic design must be reviewed in order to be more inclusive so that every percentage of growth will create more jobs rather than reduce jobs,” she added. Otherwise this did not only “create inequality but is not socially economically and politically sustainable”.

Governments had to address lack of jobs, unequal treatment, and demands for dignity that had triggered the 2011 Arab spring, said Indrawati. “Don’t forget in Tunisia it is not that Bouazizi did not want to work he wanted to work but he was harassed by the law enforcer,” said Indrawati.

“People want to really work and want dignity and jobs and have a fair chance so that they can produce and be involved in productive activity.”