By Christian Henderson

Monday, January 31, 2011

Tunisia’s uprising has proven that, despite a long period of dormancy, the Arab world is capable of organic political change. Demonstrations in Libya, Algeria, Egypt and Yemen have shown that the region’s citizens are tired of their stagnant governments, many of which have been ruled for decades by the same personalities who seem unable to deal with the challenges of the modern world.

In contrast to their inert leadership, Arab populations are changing rapidly. The population of the region is increasingly young and, according to the United Nations, around half of the 350 million Arabs are under 25. This figure is expected to double by 2050 if it continues to grow at current rates. Some figures are staggering: in Algeria for example, it is estimated that 75 percent of the population is under 30.

The performance of governments in the Middle East and North Africa is at best mediocre. People in the region will tell you the same thing: they are tired of not finding jobs, of corruption, of nepotism and of the absence of vision and a competitive spirit. Upward mobility is difficult and “wasta,” or connections and influence, is so important to success, that it is sometimes dryly described as “Vitamin W.”

Unemployment is a serious problem. More than one in four Arabs are out of work and it is estimated that more than 55 million new jobs will have to be created by 2020 in order to keep this figure from growing. Often the region’s talented and educated middle class are leaving to find jobs in the Gulf, the United States and Europe, resulting in a brain drain in their home countries. This is a phenomenon that the former Lebanese finance minister, George Corm, recently estimated was costing Arab economies $1.6 billion a year.

Many governments simply don’t have the vision or the accountability to address these problems and foster sustainable economic growth. A lack of democracy has resulted in public administrations that are not audited and whose performances are measured by their ability to maintain regime stability rather than introduce progressive policies and adapt to change.

In many Arab economies members of the ruling elite often control and dominate the most lucrative economic sectors. Anyone seeking to invest must cut these individuals into deals, and on the latter’s terms. Often the dividing line between business and politics is hazy and a handful of brokers operate in both spheres, so that their unaccountable power amounts to a “shadow state.” This is a subtle reality that you never read about in glossy brochures that aim to attract foreign investment. It is not reflected in surveys and tables that indicate a country’s economic transparency and openness.

In Tunisia, for example, it is now clear that the former president, Zein al-Abadine Ben Ali, and the “Trabelsi clan” of his wife, had a grip on the country’s economy through monopolies on the importation of consumer goods, banking licenses and ownership of telecommunications. A similar situation applies in other countries across the Middle East, and rumors about greedy politicians and their allies monopolizing entire economic sectors are ubiquitous.

Flows of foreign investment into poorer Arab countries from the wealthy Gulf states or from Europe have often been blocked by protectionism or overwhelming levels of bureaucracy, red tape and official indifference. Many point to the pre-2008 explosion in real estate prices in several Gulf countries as the consequence of investors effectively being barred from other areas of the economy.

Even in the Gulf where oil revenues have driven ambitious levels of investment in recent years there is a downside. Oil dominates the Gulf economies, however its revenues appreciate exchange rates, making it easier to import goods and harder to export them as the currency strength makes exports uncompetitive on the international market. This, in turn, kills off non-oil sectors that help create new jobs. Moreover oil income is managed by the state, which has resulted in bloated bureaucracies rather than healthy private enterprises.

The Arab world has already changed tremendously in the last two decades. The emergence of professional pan-Arab satellite television stations, among them Al-Arabiya and Al-Jazeera, has vitalized political debate. Internet chat rooms and discussion groups are popular and provide forums for criticism of governments. In the face of this access to information, attempts by governments to manipulate or censor news merely make them look stupid or irrelevant. On the morning after Ben Ali fled Tunisia, the Egyptian official daily Al-Ahram lamely headlined: “11,000 Housing Units and 2,400 Commercial Shops are Given to Citizens for Free.”

Arab regimes no longer enjoy the control they once did. Facing stagnation and a lack of viable strategies to meet future social and economic challenges, these regimes may be destined to clash further with a growing number of informed and frustrated youths. The West’s baby-boomer generation oversaw huge changes in society including cultural liberalization and increased political dissent. The Arab equivalent could potentially achieve the same, so that the future of the Arab world will belong to the youth, not their regimes.

Christian Henderson is director of Dunlin Consultants, a London-based market research and risk advisory consultancy focusing on the greater Middle East region. He wrote this commentary for THE DAILY STAR.