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Expectations of more jobs and growing prosperity need to be handled with care, says Henry Azzam
When young Arabs took to the streets of Cairo, Tunis, Damascus, Tripoli and Sana this year they hoped that bringing down autocratic regimes would not only end corruption and restore dignity but also generate employment and pave the way for a more prosperous future. Their expectations have not been met. On the contrary, conditions have worsened as businesses have retrenched and labour intensive sectors such as tourism, services and transport have been harmed by civil strife. Uncertainty and instability are to be expected during transition periods. Economic conditions in countries experiencing revolts are likely to worsen before they improve. During these transitions there are several risk elements that need to be managed:
• Peoples Expectations: Transition governments should send a clear message that reforms will be implemented and measures introduced to create jobs. However, such steps will be effective over a longer period rather than immediately. Managing peoples expectations requires presenting a clear road map of reforms and a specific time frame as to when their results will become visible.
• Credibility of Private Sectors: Private sector businesses have lost credibility in countries that have seen uprisings. Corruption and Nepotism are the results of cozy relationships between previous regimes and businessmen. Governments should resist the urge to treat all businesses that dealt with past regimes as necessarily corrupt. On the other hand, the private sector businesses have a role to play in convincing young people that they are willing and able to provide the finances and the support that they need to break the cycles of poverty and unemployment.
• The Rise of Political Islam: It is easy to say that the more organized Islamic parties will gain ground in the first round of elections, as we have seen in Tunisia. The Nahda party won the largest block in recent poll. In countries such as Turkey, Indonesia and Malaysia, political Islam and democracy have been cohabiting fairly comfortably. There is no reason why the Arab world cannot emulate the Turkish model of governance.
• Macroeconomic Stability: With the first sign of a revolt and discontent, several governments laid out generous packages including more jobs and pay in the public sector, and increased subsidies. The Measures announced amounted to 5 percent of GDP in Jordan, 10 percent in Egypt and 25 percent in Saudi Arabia and Algeria. Such fiscal policy is needed to maintain social cohesion and mitigate the impact of the downturn, however, these policies are known for their high level of instability and are known to fuel inflationary pressures and add to budgetary deficits and lead to higher government debt in oil exporting countries.
• Dependence on Foreign borrowing: The global economy is headed into a period of weaker growth. The US, Europe and the emerging countries all plan to cut budgets in the next year. This is more likely to affect the oil prices negatively. It will also affect tourism, trade and foreign direct investment negatively. Large European banks are under pressure to improve their capital adequacy ratios, forcing them to deleverage. This will make it more challenging for highly indebted companies and countries to refinance maturing debt
When young Arabs took to the streets of Cairo, Tunis, Damascus, Tripoli and Sana this year they hoped that bringing down autocratic regimes would not only end corruption and restore dignity but also generate employment and pave the way for a more prosperous future. Their expectations have not been met. On the contrary, conditions have worsened as businesses have retrenched and labour intensive sectors such as tourism, services and transport have been harmed by civil strife. Uncertainty and instability are to be expected during transition periods. Economic conditions in countries experiencing revolts are likely to worsen before they improve. During these transitions there are several risk elements that need to be managed:
• Peoples Expectations: Transition governments should send a clear message that reforms will be implemented and measures introduced to create jobs. However, such steps will be effective over a longer period rather than immediately. Managing peoples expectations requires presenting a clear road map of reforms and a specific time frame as to when their results will become visible.
• Credibility of Private Sectors: Private sector businesses have lost credibility in countries that have seen uprisings. Corruption and Nepotism are the results of cozy relationships between previous regimes and businessmen. Governments should resist the urge to treat all businesses that dealt with past regimes as necessarily corrupt. On the other hand, the private sector businesses have a role to play in convincing young people that they are willing and able to provide the finances and the support that they need to break the cycles of poverty and unemployment.
• The Rise of Political Islam: It is easy to say that the more organized Islamic parties will gain ground in the first round of elections, as we have seen in Tunisia. The Nahda party won the largest block in recent poll. In countries such as Turkey, Indonesia and Malaysia, political Islam and democracy have been cohabiting fairly comfortably. There is no reason why the Arab world cannot emulate the Turkish model of governance.
• Macroeconomic Stability: With the first sign of a revolt and discontent, several governments laid out generous packages including more jobs and pay in the public sector, and increased subsidies. The Measures announced amounted to 5 percent of GDP in Jordan, 10 percent in Egypt and 25 percent in Saudi Arabia and Algeria. Such fiscal policy is needed to maintain social cohesion and mitigate the impact of the downturn, however, these policies are known for their high level of instability and are known to fuel inflationary pressures and add to budgetary deficits and lead to higher government debt in oil exporting countries.
• Dependence on Foreign borrowing: The global economy is headed into a period of weaker growth. The US, Europe and the emerging countries all plan to cut budgets in the next year. This is more likely to affect the oil prices negatively. It will also affect tourism, trade and foreign direct investment negatively. Large European banks are under pressure to improve their capital adequacy ratios, forcing them to deleverage. This will make it more challenging for highly indebted companies and countries to refinance maturing debt
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