Economic freedoms triumph
Amman/Cairo - Mazen Dajani, chief executive of Jordan's CTI
Group, says the Arab Spring accomplished what the global financial crisis of
2008-9 did not: it pushed his company, one of the world's largest shippers of
cement, into the red.
CTI's shipments to Egypt plunged during the uprising against
Hosni Mubarak early last year and have yet to recover, he said, while
deliveries to Yemen were disrupted by unrest there.
Trade with Libya is still suspended despite the end of last
year's civil war. The company is projecting only about 12% to 14% of its
business will come from the Arab world in 2012, compared with at least 30% in
"The Arab Spring turned the company from profit to loss
for the first time in almost 10 years," said Dajani, a member of an
influential Jordanian-Palestinian merchant family.
Dajani's frustration is felt across the region. A year after
the ouster of Tunisian ruler Zine al-Abidine Ben Ali triggered pro-democracy
protests in more than a dozen Arab countries, trading links remain damaged,
billions of dollars in investments are frozen, and tens of thousands of people
have lost their jobs. That risks compounding the economic problems that helped
spur the uprisings.
But the gloom is far from universal. Many Arab businessmen
are convinced the turmoil has unlocked new opportunities for private companies,
overturning entrenched interests and opening the field for new entrants.
Thomas Mirow, president of the European Bank for
Reconstruction and Development (EBRD), has compared the Arab Spring to the fall
of Communism in the former Soviet bloc two decades ago, saying it could help
bring North African economies into the global supply chain. That could set the
Arab world up for unprecedented growth.
"The Arab Spring accelerated a trend which was already
happening: the levelling of the landscape in a very dramatic way," said
Mustafa Abdel-Wadood, chief executive of Dubai-based Abraaj Capital, the Middle
East's largest private equity firm with over $6bn under management.
"It triggered a sense of accountability. People don't
accept the use of political influence as they used to."
'Breeze of change'
Adnan Ahmed Yousif agreed. The chief executive of
Bahrain-based Al Baraka Banking Group, an Islamic banking conglomerate with
operations across North Africa, said the Arab Spring had only a
"marginal" impact on his firm's earnings last year. He detects a new
dynamism in many economies in the Arab world, where about 60% of the 350
million people are under 25.
"I see it and feel the breeze of change when I talk to
fellow bankers and businessmen," said Yousif, also chairperson of the
Beirut-based Union of Arab Banks, a regional association.
In Tunisia, a new government elected in October is spending
to create jobs and opening areas of the economy to fresh investment, Yousif
said. Last month, Tunisia's parliament approved a 7.5% spending rise in the
government's 2012 budget from the previous year.
Ben Ali's extended family owned big interests in sectors
such as telecoms, news media and banking, crowding out potential competitors;
that network is now being dismantled, which may create new opportunities.
Yousif said Baraka has applied to open two new branches in
Tunisia, which would bring its total number of branches there to 12.
In Egypt and other countries, bankers have become freer to
lend without political interference, Yousif said. Libya is moving towards
easing curbs on privately-owned banks, after years of tight restrictions. New
opportunities for Islamic banking are opening up in countries including Morocco
"I expect the role of a private sector which was once
stifled by governments to grow in the years to come, as change brings more
competition and openness," Yousif said.
Comes at a cost
In many countries, such potential future gains are obscured
by heavy costs in the present. Estimates from the International Monetary Fund
(IMF), analysed by Reuters, suggest the six Arab countries which experienced
the most serious unrest - Bahrain, Egypt, Libya, Syria, Tunisia and Yemen -
lost around $50bn in output last year, or 11% of their combined 2010 output.
Egypt may have lost some $10bn, while the IMF estimates
Libya's economic output halved to $35bn. Every other Arab economy in North
Africa and the eastern Mediterranean was affected to some degree.
The figures probably understate the damage. Many governments
struggling to contain social unrest have increased spending on wages, food and
energy subsidies. That undermines finances which were already shaky, and runs
down foreign currency reserves.
Egypt risks both a sovereign debt crisis and a balance of
payments crisis this year. The government's borrowing costs have been climbing
as foreign investors pull out, forcing it to rely on local banks to finance its
Even Qatar, a wealthy Gulf emirate which avoided political
upheaval, was affected. Dajani said Qatar had planned to use his firm to import
at least 400 000 tonnes of cement clinker, a material used to make cement, last
year. The deals, nearly a third of Qatar's projected imports of the material in
2011, fell through after unrest in Bahrain and smaller protests across the
border in eastern Saudi Arabia prompted Qatari businesses to slow their plans.
Grim conditions in the eastern Mediterranean have prompted
CTI to send some of its cement carriers to work in Indonesia.
"The Arab world is our traditional market - it's not
Indonesia or anywhere else, because we are Arabs. Our traditional customers are
here; we have been doing business here for 20 years. We hope for the better,
but the turmoil has hit us," said Dajani. As a private company, CTI does
not disclose financial details.
Insecurity and political uncertainty are continuing to deter
investment. Countries such as Egypt and Libya may see an entirely new set of
economic policymakers brought in, including Islamic parties previously kept out
"In Egypt, at the level of adding a room to their
homes, people are saying, 'I will wait and see what will happen'," said
Dajani. "This slows everything."
Needed: 51 million jobs
There won't be any quick solutions. Two of the Arab world's
biggest economic problems - high youth unemployment and an unequal distribution
of wealth - sparked the protests and have not improved.
Arab countries would need to generate 51 million new jobs by
2020 to absorb new entrants to the labour force, according to a United Nations
report published in 2009. Youth unemployment in the region averages more than
23%, the International Labour Organisation said.
Erik Berglof, chief economist at the EBRD, said the need to
generate huge numbers of jobs makes the Arab world's situation more difficult
in some ways than the challenges the former Soviet bloc faced two decades ago.
"There was a more even distribution of wealth in Soviet
economies and unemployment was not so high," said Berglof, whose bank was
set up to help finance and advise ex-Soviet economies and is now expanding its
mission to aid Arab states. "They never faced such problems to the same
Arab governments are now talking of the need for an
"inclusive" model of economic growth that would create jobs and allow
more people to share in prosperity. This might include better education,
greater state investment in transport and healthcare, and more progressive tax
systems. But Berglof said this would remain empty talk until political and
economic stability returned.
"Governments are trying to plug all the holes and
somehow to stop the bleeding. It's all about stabilisation right now."
High oil prices, however, are maintaining a strong economic
core in the Arab world. In the Gulf last year, oil producers spent heavily to
buy social stability through welfare schemes and infrastructure projects.
Saudi Arabia, for example, promised $67bn to build 500 000
homes. Kuwait, Qatar and the United Arab Emirates are now so flush with cash
they are likely to be able to continue spending even if a weak global economy
depresses oil prices this year.
That may trickle down to the weaker countries. Keen to keep
neighbours afloat, rich states have pledged $10bn in aid to Bahrain and the
same to Oman over coming years; they are assisting Jordan and Morocco. Saudi
Arabia is giving diesel fuel to Yemen. Egypt may receive billions of dollars
from the Gulf, although it has received little concrete aid so far.
The IMF forecasts economic growth in the Middle East and
North Africa of 3.6% in 2012, down only moderately from 4.0% last year,
although those figures mask big differences between countries. Egypt is
expected to expand just 1.8% this year, for instance; growth in Syria and Libya
could be stifled if unrest continues.
Abdel-Wadood at Abraaj is among those who see opportunity.
Over the past 30 years, he said, business across the Arab world has been
dominated by two groups: large government-owned firms, and old family
conglomerates with webs of contacts that often included government officials
The main problem wasn't corruption, though petty corruption
was rampant. It was that the business landscape didn't offer equal
opportunities to new firms.
Even before last year, he said, global competition was
putting pressure on old patronage networks. The region's political upheaval has
now swept away many of these, promising an era of more open business.
"It's less whom you know and more about what you know."
Yousif, the Bahrain-based banker, agreed. In his own bank
and others, he said, he had noticed boards of directors scrutinising senior
appointments more actively and carefully. "Arab institutions used to buy
loyalty, now they buy professionalism," he said.
By showing how easily information can be shared through
modern media, and how dramatic the public backlash can be, the Arab Spring has
made officials and bureaucrats more circumspect in their dealings with
"Let's take tendering for example," he said.
"In the old days, nearly all companies came from certain established
families, so work would go to such-and-such a firm. Now this has become a thing
of the past, even in the Gulf.
"Previously if a minister phones me and tells me,
'Adnan, do this for me,' I might say, 'This is a minister who might harm me in
the bank or create problems for me in so many other ways, and okay, I might
turn a blind eye over some matters.
"But now if even the prime minister phones and tells me
to do it, I tell him, 'Forgive me but I am not ready to do so.' Why? Because
views have changed and there are now people asking, and any shred of
information can no longer be hidden."
But things aren't changing fast enough for Yousif to give
But business arrangements and deals dating back years are
under challenge. Morocco's long-dormant antitrust authority is being
strengthened. In Egypt last month, an administrative court annulled the state's
sale in the late 1990s of Nile Cotton Ginning Co because the shares were
undervalued at the time. More decisions like that could cast doubt on the
ownership of many firms in the stock market.
Trade unions are also on the rise. Restricted or coopted
under authoritarian governments, they have gained in confidence after the
uprisings. Strikes won workers better wages across the region last year, from
Morocco to Jordan. New unions have formed in Egypt and Tunisia.
Even in places where union activity is still limited, some
governments are raising wages to reduce social discontent. Oman hiked the
minimum wage for its citizens by 43% last year.
Higher wages could hurt competitiveness, of course. But by
reducing inequality and stimulating consumer spending, they might also
accelerate growth, lifting it to the annual levels of 6% or more that
economists think are needed to solve the Arab world's unemployment problem. In
theory, richer workers could trigger a surge in demand for consumer goods and,
in turn, domestic production.
Some international companies are already betting on the
region. Last month, Coca-Cola Co finalised talks to buy a stake in Saudi
Arabia-based beverage company Aujan Industries for $980m, describing it as the
largest investment by a multinational firm in the Middle East's consumer goods
"For the future - including the near future - we remain
strongly optimistic about the region's growth prospects and the promise of
doing business here," said a Coca-Cola spokesperson. "This region is
experiencing a 'youth demographic bulge'."
Coca-Cola launched its talks with Aujan before the Arab
Spring and is primarily interested in the firm for its non-Saudi business; 65%
of the company's sales are outside Saudi Arabia.
As the unrest dies down and new governments become
entrenched, it is possible they will form fresh patronage networks and new
cliques, stifling economies again. But Abdel-Wadood, the private equity
executive, thinks a return to the old system is unlikely.
"You've broken the fear factor," he said. "In
today's world of communications one has the ability to speak, and expression is
a powerful tool."
Dajani, the cement trader, remained optimistic. He said CTI
was negotiating with Libya's new authorities to bring a ship back to the
country, to cater to demand for reconstruction after the war.
"Once the situation there is clarified, Libya is going
to be huge," he said. "Everyone is looking at it."