Staying on the Road to Growth: Why Middle East Leaders Must Maintain Their Commitment to Economic Reform

08/01/12

The Middle East and North Africa (MENA) region is experiencing its greatest level of change in 50 years. Populations are questioning governments. Young people, many of whom are unemployed, have been particularly vociferous and demand to be heard. Middle Eastern countries therefore face the choice of either short-term retrenchment, or resolutely pursuing the long-term reforms needed for future economic success. Surrendering to the temptation to assuage discontent will undermine the important economic adjustments that governments have achieved in recent decades. Some of these policies have already led to impressive economic growth and modernizing changes in the state and private sectors.

To remain on the path of systemic change, governments must resolve five essential tensions. The first is socio-political stability versus economic openness—which can be managed, as some Gulf countries have, through “soft power.” The second is social appeasement versus economic transformation. Instead of spending lavishly on subsidies, a better approach is to invest in targeted skills training and public–private partnerships. The third is nationalization versus privatization, which can be addressed by using the capabilities of the public-sector and large private firms to encourage small businesses and entrepreneurship. The fourth is untargeted development versus inclusive development. To prevent social exclusion and benefits entitlement, countries can deploy such measures as job-relevant education and improved governance to promote the middle class and bring women into the economy. The fifth tension is national sovereignty versus regionalization and integration. Policymakers can make common cause through realizable, worthwhile projects that require joint, regional effort, in particular by augmenting trade routes and infrastructure.

The MENA region should remain committed to its previous approach of long-term reform as the opportunity for meaningful economic adjustments may not recur. By providing policy stability, governments can unleash the region’s considerable human promise—its increasingly educated and ambitious youth, its budding middle class, and its aspiring women.

There is an understandable temptation during crises to seek easy answers or to revert to old practices. Neither option is available in the Middle East today. Rather, what exists is promise and potential. Middle East countries have young, aspiring populations, of whom many are well educated. The middle class wants to be more productive. Millions of young women are ready to enter the workforce. Capable, global companies are willing to launch projects of national importance to train young workers.

For these elements to cohere, governments need to provide stable policies. They will have to remain on the long-term course that they began before the Arab Spring. The reforms of that time led to faster growth. Now, similar economic reforms and measures designed to harness the resources of youth, women, and the middle class can further transform the Middle East.