From Politics to Policy as the New Paradigm Unfolds: Regional Inevitabilities

Since before 1960s, reams have been written on the need for regional coordination, economic integration and a common market in the Arab world.  Some mechanisms have emerged and worked with varying levels of effectiveness, such as the Arab League and the Gulf Cooperation Council, and some have yet to emerge, such as the GCC Common Market and currency and a functional Maghreb Union. But most interesting are agents of change that have emerged bottom-up, spontaneously for they are the real drivers today. Elements of grassroots civil society movements have been  features of the Arab world for quite some time, as observed by this author 11 years ago  from the American University of Beirut, when students started communicating and planning non-profit initiatives across the region, envisaging for-profit companies online, and appearing on regional television programs alongside other youngsters from Morocco to Oman, to Iraq. This was a notable change from the time when Arab youth had few if any mechanisms for organizing across geogrpahies and via new technologies. Email, then text messaging helped Arab youth find their feet across the region a decade ago, then BBM, Facebook and Twitter helped them find their voice, traversing borders. Today a New Paradigm is unfolding in the Arab world, slowly, unevenly, not without set-backs, but surely. Going forward, divergences between countries, economic and political, will become less tenable now that Arab youth communicate across borders. While in the 1980’s and 1990’s divergent growth rates and living standards between countries first became visible, going forward, a “two-speed” Arab region will become an increasingly complex liability, Where does the Arab world stand in aftermath of this year’s rebellions? Five country groupings delineate an unfolding New Paradigm at differential paces. There will be regional elements to the birth of this new order, some of which are already becoming visible, some in need of acceleration, and there will be financing costs, mostly borne by the Arab countries themselves. The first group of countries are ones where reform is taking place on the back of a revolution. Tunisia Egypt, and possibly Syria and Algeria will end up falling into this category. The challenge in these countries is to keep the wheels turning so the economies do not roll dangerously back. The second group of countries are constitutional monarchies in the making, driven from above, with Morocco in the lead. The challenge for monarchs in Morocco, Jordan and Bahrain lies in their ability to enhance opportunities for participatory governance, in addition to promoting accountability in both the private and public sectors. A third group of countries, ones attempting their own brands of home-paced reform through gradual adaptation, are Saudi Arabia, the UAE, Qatar and Oman. These hydrocarbon exporters are carefully redistributing public resources to their populations while gradually seeking to improve the responsiveness of their political and economic governance mechanisms. Smaller populations present smaller challenges and vice versa. This group of countries will need to forge new social contracts. The fourth group are countries whose medium term developments could impact their sovereignty, and the level of social unrest and/or poverty they will experience. These are Libya, Yemen, Sudan/Southern Sudan and Palestine. One question today is how Libya’s nascent government will manage the process of rapidly channelling its fighters’ energies into productive activity given how thin the country’s economic infrastructure was on the eve of the revolution. The fairly complex challenge for these countries is to restore stability then draw up new social contracts capable of forging socio-political cohesion and preventing the outburst of further strife. And finally, the Arab world features three existing democracies “on paper” - Lebanon, Kuwait and Iraq – whose  performance remains below  their potential on most economic and social parameters. These countries have also seen their share of public discontent this year. From Politics to Policy: Challenges and opportunities under the New Paradigm As the effervescence of the street loses its charm, the next set of challenges will center on the creation of new policies to meet political expectations. This will include new mechanisms of regional coordination to minimize growth and opportunity divergence between increasingly well- informed Arab populations. Since the 1980s average real GDP growth in the GCC has been accelerating more rapidly than in the remainder of the Arab countries. Between 2010-2011, the Arab world ex-GCC will likely average real growth rates half of those posted in the GCC, with unemployment on the rise. In comparing oil importers with oil exporters, the increasing divergence also holds. Notably, there is increased evidence of efforts that could help pre-empt more divergent growth, through the creation of new  regional “Funds”, namely for Oman and Bahrain so far, along with Jordan, possibly Morocco and hopefully Egypt. But we have yet to see the speed, destination and supervision of such disbursements – all “governance” matters for which the region lacks systems. While the aggregate liquidity picture indicates the Arab countries are amply capable of financing themselves today, the GCC oil exporters have their own exigencies and will in any case be moving toward systems where open-cheque bilateral largess requires accountability. A coherent system of regional investment and economic policy formulation, including a regional development bank, would help institutionalize and harmonize regional imbalances and smooth out political turbulence. Existing organizations such as the Inter-Arab Investment Guarantee Corporation need to be reconsidered, and either brought to the fore or cede the way for more dynamic players. There are at least 10 other regional organizations to dust off. Regional economic integration strategies are now required not only for the creation of a GCC common market and eventually a currency, but also for the eventual incorporation of Arab “periphery” countries in a considered and planned manner. While unclearly prepared, the invitation to Jordan and Morocco is not without merit, but requires spelling out, and implementation. The Maghreb Union must be revived and rendered functional with the help, and partly for the benefit, of Europe. Such measures would limit transition costs, and setbacks. There are opportunities too. In the future, looking back retrospectively, it will likely be said that  countries in the Arab world skipped steps in their political reforms,  in comparison to some countries in Latin America and Asia, for instance. With adequate regional support and on the back of an unprecedented decade of intra-regional FDI flows, most Arab countries should avoid the multiple boom and bust scenarios, defaults, and relapses to dictatorship that accompanied transitions to democracy in Latin America. Oil exporters can also likely count on oil prices to place a floor below intra-regional FDI flows, aided by currently low global opportunity costs. It is also possible that the average market price of oil will remain above Arab government break- even points the rest of this decade. Once initial shocks are digested, intra-regional investment flows should resume leveraging labour force advantages across the region given sustained economic liberalization. Across the political spectrum in the Arab world today, from liberals to conservatives, commitment to trade, open markets and property rights remains strong, limiting the probability of seeing regressive socialist experiments emerge. As the New Paradigm unfolds, it is also inevitable that regional security mechanisms will  be re- thought, as evidenced through GCC involvement in Libya, and as the traditional policemen of the region become resource-constrained. It is both good and bad news that the region can finance itself through this transition, the latter being an excuse for delaying better governance and difficult decisions. While it is too soon to discern the detail, it does  appear that we are witnessing the birth of an exciting new emerging market ripe for  further investment flows, and where Islamic regional identity is likely to play a more prominent role, as extremism recedes in the face of economic development. Dr. Florence Eid, Arabia Monitor